Case Number: EC061440    Hearing Date: April 25, 2014    Dept: A

Unana LLC v World Organics, LLC

DEMURRER & MOTION TO STRIKE

Calendar: 11
Case No: EC061440
Date: 4/25/14

MP: Defendants, World Organics, LLC, Bagrat Ogannes, Giorgi Imnaishvili,
and Tigran Hakobyan
RP: Plaintiffs, Unava, LLC and Organic America, LLC

ALLEGATIONS IN FIRST AMENDED COMPLAINT:
The parties in this case were in the business of micro-greens, which are tiny vegetables used in fine dining restaurants to enhance the beauty, taste and freshness of dishes. The Plaintiff, Unava, LLC, is an investor in a joint venture with Defendants, World Organics, LLC, Bagrat Ogannes, Tigran Hakobyan, and Giorgi Imnaishvili. The Plaintiff provided funding and the Defendants agreed to provide intellectual property, trade secrets, and their knowledge of the business of micro-greens.
The parties established Plaintiff, Organic America, LLC, and entered into an operating agreement on December 1, 2011. Unava, LLC received 67% of the shares and World Organics, LLC received 33% of the shares of Organic America, LLC. World Organics was in charge of day-to-day operations and Bagrat Ogannes, Tigran Hakobyan, and Giorgi Imnaishvili were employed to operate the business. Bagrat Ogannes was the CEO.
A disagreement has arisen over the management of the company. The Plaintiff brought this action to assert that the Defendants are mismanaging Organic America, LLC.

CAUSES OF ACTION IN FIRST AMENDED COMPLAINT:
1) Breach of Contract
2) Fraud
3) Breach of Fiduciary Duty
4) Restitution based on Unjust Enrichment
5) Accounting
6) Breach of Covenant of Good Faith and Fair Dealing
7) Imposition of Constructive Trust
8) Anticipatory Breach
9) Negligent Misrepresentation
10) Declaratory Relief

RELIEF REQUESTED:
1. Demurrer to first through tenth causes of action.
2. Strike claim for punitive damages and for attorney’s fees.

DISCUSSION:
This hearing concerns the demurrer and motion to strike of Defendants, Defendants, World Organics, LLC, Bagrat Ogannes, Giorgi Imnaishvili, and Tigran Hakobyan.

1. Demurrer
a. First Cause of Action for Breach of Contract
The Defendants argue that the first cause of action lacks sufficient facts to plead the element of the Plaintiffs’ performance or to identify the parties to the contract. A cause of action for breach of contract has the following elements:

1) the contract,
2) plaintiff’s performance or excuse for nonperformance,
3) defendant’s breach, and
4) the resulting damages to plaintiff.
Reichert v. General Ins. Co. (1968) 68 Cal. 2d 822, 830.

The Plaintiffs allege in paragraph 31 that the Plaintiff, Unava, LLC, and the Defendant, World Organic, LLC, entered into an operative agreement under which the Plaintiff made capital contributions. There are no allegations that the Plaintiff performed its duty to make capital contributions or that the Plaintiff was excused from nonperformance of its contractual duties.
Further, the cause of action is directed at Defendants, Bagrat Ogannes, Giorgi Imnaishvili, and Tigran Hakobyan. There are no allegations in the first cause of action that these Defendants are parties to the contract or that identify the theory by which they are liable under the contract.

In the opposition, the Plaintiffs argue that Unava “fully” performed until the Defendants breached the agreement. However, specific allegations are required to plead an excuse for nonperformance. Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal. App. 3d 1371, 1391. The Plaintiff’s First Amended Complaint pleads neither that the Plaintiff performed nor the specific allegations needed to plead an excuse for nonperformance.
The Plaintiff also argues that Bagrat Ogannes, Giorgi Imnaishvili, and Tigran Hakobyan are liable because they were using World Organics as an alter ego. This must be pleaded in the breach of contract cause of action so that 1) the cause of action contains sufficient facts to demonstrate that they are liable for the breach of contract and 2) the Defendants have notice of the basis for the Plaintiff’s theory of recovery. Neither the Court nor the Defendants should have to search through the pleading and speculate as to the manner by which the Plaintiffs are claiming that each, separate Defendant is liable for the breach of a contract.
Further, a civil plaintiff may, for the sake of convenience, incorporate by reference previous portions of the pleading for informational purposes only. Cal-West Nat. Bank v. Superior Court (1986) 185 Cal. App. 3d 96, 101. Here, the Plaintiff did not refer to the alter ego allegations in order to plead its breach of contract claim. This is insufficient to provide notice to the Defendants of the grounds under which the Plaintiff claims they are liable for the breach of contract.

Therefore, the Court will sustain the demurrer to the first cause of action. Since it is reasonably possible to correct these defects by amendment, the Court will grant leave to amend.

b. Second Cause of Action for Fraud
The Defendants argue that this cause of action lacks the particular allegations needed to plead the elements of a false representation and justifiable reliance. The elements of a fraud cause of action are the following:

1) a representation, usually of fact, which is false;
2) knowledge of its falsity;
3) intent to defraud;
4) justifiable reliance upon the misrepresentation; and
5) damage resulting from that justifiable reliance
Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 72-73.

Facts constituting each element of fraud must be alleged with particularity; the claim cannot be saved by referring to the policy favoring liberal construction of pleadings. Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216. Since fraud must be pleaded with particularity, the complaint must allege facts showing how, when, where, to whom, and by what means the representations were tendered. Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73. In addition, fraud pleadings against a corporation must allege the names of the persons who made the misrepresentations, their authority to speak for the corporation, to whom they spoke, what they said or wrote, and when it was said or written. Tarmann v. State Farm Mutual Automobile Insurance Co. (1991) 2 Cal.App.4th 153, 157.

The Plaintiff alleges in paragraph 36 that on March 11, 2011, Bagrat Ogannes represented that the micro-greens were unique and that he had proprietary technology that would produce the micro-greens faster, more efficiently, with a better yield, and with more nutrients than competitors. The Plaintiff alleges that Giorgi Imnaishvili and Tigran Hakobyan confirmed and repeated what Bagrat Ogannes represented. The Plaintiff repeats these allegations in paragraphs 37, 38, 49, 40, and 41 for meetings on March 16, 2011, March 17, 2011, November 28, 2011, November 30, 2011, and December 1, 2011.
These allegations are insufficient because it does not plead particular facts identifying how or by what means the representations were made, e.g., orally, in writing, through a recording, by an email. It does not plead particular facts indicating each of the Defendants made the representations to the Plaintiff. This is insufficient to plead the element of a representation for each of these six alleged fraudulent representations.

The Plaintiff alleges in paragraph 45 that the Plaintiff relied upon these false representations by making an investment. The Plaintiff alleges that its reliance was justified because the Defendants held themselves out to be expert growers with prior experience growing micro-greens and that the Plaintiff could not have known that the Defendants had a secret intention not to perform their promises. This identifies the manner in which the Plaintiff relied upon the false representations and it pleads particular facts to demonstrate that the Plaintiff’s reliance was justified. This is sufficient to plead the element of justifiable reliance.

Therefore, the Court will sustain the demurrer to the second cause of action. Since it is reasonably possible to correct these defects by amendment, the Court will grant leave to amend.

c. Third Cause of Action for Breach of Fiduciary Duty
The Defendants argue that the Plaintiff did not plead sufficient facts to demonstrate that Bagrat Ogannes, Tigran Hakobyan, and Giorgi Imnaishvili had a fiduciary duty to the Plaintiff. To state a cause of action for breach of fiduciary duty, the Cross-Complainants must allege the following:

1) the existence of a fiduciary relationship;
2) its breach; and
3) damage proximately caused by that breach.
Roberts v. Lomanto (2003) 112 Cal. App. 4th 1553, 1562.

The Plaintiffs allege in paragraph 49 that the parties were engaged in a special relationship that caused the Plaintiffs to place trust and confidence in the honesty and fairness of the Defendants. The Plaintiffs allege in paragraph 49 that the Plaintiff, Unava, LLC, entered into a partnership agreement with the Defendant, World Organics. This indicates that the Plaintiffs are claiming that a fiduciary relationship existed between the Plaintiffs and the Defendant, World Organics, because they had entered into a partnership.
However, there are no allegations that identify any basis for finding that the Plaintiffs had a fiduciary relationship with the individuals, Bagrat Ogannes, Tigran Hakobyan, and Giorgi Imnaishvili. This is grounds to sustain a demurrer with regards to the individual Defendants.

In their opposition, the Plaintiffs argue that the individuals had fiduciary duties because they were officers of Organic America. This was not alleged in the cause of action.

Therefore, the Court will sustain the demurrer to the third cause of action with regards to Bagrat Ogannes, Tigran Hakobyan, and Giorgi Imnaishvili. Since it is reasonably possible to correct this defect by amendment, the Court will grant leave to amend.

d. Fourth Cause of Action for Restitution Based on Unjust Enrichment
The Defendants argue that this is not a cause of action. Unjust enrichment is synonymous with restitution. Melchior v. New Line Productions, Inc. (2003) 106 Cal. App. 4th 779, 794. There is no cause of action in California for unjust enrichment because the phrase “unjust enrichment” does not describe a theory of recovery, but a general principle underlying various legal doctrines and remedies. Id.
The Plaintiffs’ fourth cause of action is not a cause of action. Instead, it is a general principle underlying legal doctrines and remedies.

Therefore, the Court will sustain the demurrer to the fourth cause of action. It is not reasonably possible to correct this defect by amendment because it is not a cause of action. Accordingly, the Court will not grant leave to amend.

e. Fifth Cause of Action for Accounting
The Defendants argue that this cause of action does not plead sufficient facts to demonstrate that there was a relationship between the parties for which an accounting is required. A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting. Teselle v. McLoughlin (2009) 173 Cal. App. 4th 156, 179.
The Plaintiffs allege in paragraph 59 that the amount due is unknown and cannot be ascertained without an accounting. There are no allegations identifying a relationship between the parties that requires an accounting. This is insufficient to plead the cause of action.

In their opposition, the Plaintiffs argue that the Defendants are fiduciaries of Organic America. This was not pleaded in the cause of action.

Therefore, the Court will sustain the demurrer to the fifth cause of action. Since it is reasonably possible to correct these defects by amendment, the Court will grant leave to amend.

f. Sixth Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing
The Defendants argue that this cause of action lacks sufficient facts because it has the same defects that the first cause of action for breach of contract has. In order to plead any action for breach of the implied covenant of good faith and fair dealing, the plaintiff must allege the existence of a contractual relationship between the parties because the covenant is an implied term in the contract. Smith v. City and County of San Francisco (1990) 225 Cal. App. 3d 38, 49. Accordingly, the Plaintiffs must plead the elements of a breach of contract claim, which includes the following essential elements:

1) the contract,
2) plaintiff’s performance or excuse for nonperformance,
3) defendant’s breach, and
4) the resulting damages to plaintiff.
Reichert v. General Ins. Co. (1968) 68 Cal. 2d 822, 830.

The breach of the implied covenant of good faith and fair dealing involves something beyond a breach of a contractual duty. Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal. App. 3d 1371, 1394. The covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which, while not technically transgressing the express covenants, frustrates the other party’s rights to the benefits of the contract. Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal. App. 4th 1026, 1031-1032.

The Plaintiffs allege in paragraphs 65 and 66 that the operating agreement had an implied covenant of good faith and fair dealing and that the Defendants had a duty under this implied covenant. There are no allegations that the Plaintiffs performed their duties under the operating agreement. There are no allegations that each of the Defendants is a party to the operating agreement. This is insufficient to plead the claim.

Therefore, the Court will sustain the demurrer to the sixth cause of action. Since it is reasonably possible to correct these defects by amendment, the Court will grant leave to amend.

g. Seventh Cause of Action for Imposition of Constructive Trust
The Defendants argue that this is a remedy and not a cause of action. Under California law, a constructive trust is a remedy and not a cause of action. Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 75.
The Plaintiffs’ sixth cause of action is not a cause of action. This is grounds for a demurrer.

Therefore, the Court will sustain the demurrer to the sixth cause of action. It is not reasonably possible to correct this defect by amendment because it is not a cause of action. Accordingly, the Court will not grant leave to amend.

h. Eighth Cause of Action for Anticipatory Breach
The Defendants argue that this cause of action is based on the operating agreement and that it has the same defects that were identified in the first cause of action for breach of contract.
A review of this cause of action reveals that is a breach of contract claim based on the operating agreement at issue in the first cause of action. There are no allegations that each of the Defendants was a party to the operating agreement. This is insufficient to plead the claim.

Therefore, the Court will sustain the demurrer to the eighth cause of action. Since it is reasonably possible to correct these defects by amendment, the Court will grant leave to amend.

i. Ninth Cause of Action for Negligent Misrepresentation
The Defendants argue that this cause of action lacks the particular allegations needed to plead the claim. The elements of negligent misrepresentation are the following:

1) a misrepresentation of a past or existing material fact;
2) without reasonable grounds for believing it to be true;
3) with intent to induce another’s reliance on the fact misrepresented;
4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed; and
5) damages.
B.L.M. v. Sabo & Deitsch (1997) 55 Cal. App. 4th 823, 834.

Negligent misrepresentation is a separate and distinct tort, a species of the tort of deceit. Bily v. Arthur Young & Co. (1992) 3 Cal. 4th 370, 407. Since it is a tort of fraud, facts constituting each element must be alleged with particularity; the claim cannot be saved by referring to the policy favoring liberal construction of pleadings. Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216. Fraud pleadings against a corporation must allege the names of the persons who made the misrepresentations, their authority to speak for the corporation, to whom they spoke, what they said or wrote, and when it was said or written. Tarmann v. State Farm Mutual Automobile Insurance Co. (1991) 2 Cal.App.4th 153, 157

This cause of action repeats the allegations in the second cause of action. This includes the allegations that the Defendants knew their representations were false and that they made them deceptively with the intent to induce the Plaintiff into accepting the operating agreement. These allegations in paragraphs 81 and 82 are identical to the allegations in the fraud claim.
The Plaintiffs then transmute the cause of action into a negligent misrepresentation cause of action by adding conclusory allegations in paragraph 84 that the Plaintiffs are informed and believed that the Defendants had no reasonable ground for believing the statements were true. There are no particular allegations to support this conclusion regarding each Defendant, i.e., regarding Bagrat Ogannes, Tigran Hakobyan, and Giorgi Imnaishvili.

Further, when the Plaintiff repeats the allegations about representations made at meetings on March 11, 2011, March 16, 2011, March 17, 2011, November 28, 2011, November 30, 2011, and December 1, 2011, the Plaintiff did not plead particular facts identifying how or by what means the representations were made, e.g., orally, in writing, through a recording, by an email. Further, the Plaintiffs did not plead particular facts indicating that each of the Defendants made the representations to the Plaintiff. This is insufficient to plead the element of a representation.

Therefore, the Court will sustain the demurrer to the ninth cause of action. Since it is reasonably possible to correct these defects by amendment, the Court will grant leave to amend.

j. Tenth Cause of Action for Declaratory Relief
The Defendants argue that this cause of action does not plead sufficient facts regarding the rights and duties of the parties to a contract.
It is general rule that in an action for declaratory relief the complaint is sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the respective parties under a contract or with regards to property and requests that the rights and duties be adjudged. City Of Tiburon v. Northwestern Pac. R.R. Co. (1970) 4 Cal. App. 3d 160, 170; see CCP section 1060 (identifying the remedy of declaratory relief). Declaratory relief is a broad remedy, and the rule that a complaint is to be liberally construed is particularly applicable to one for declaratory relief. Id.

A review of the tenth cause of action reveals that it seeks a declaration regarding the identity of the CEO/President/Manager. The Plaintiff alleges facts in paragraphs 87 to 89 that demonstrate that there is a dispute whether Tigran Hakobyan or Raphael Vartanov are the CEO/President/Manager. The Plaintiff requests in paragraph 89 a declaration regarding the person who is the properly elected CEO/President/Manager.
There is no request for a declaration of rights and duties of the parties under an agreement. Instead, the Plaintiffs are requesting that the Court review the elections of two individuals and then declare who is the properly elected CEO/President/Manager. This does not plead a cause of action for a declaration of rights and duties of the parties under a contract.

The Plaintiffs argue that this is a contractual dispute. However, the Plaintiffs did not plead that they are seeking a declaration of rights and duties under a contract. Instead, they are seeking a declaration regarding the identity of the CEO/President/Manager.
Further, the Plaintiff argue that there is case law in which the Courts adjudicate who controls and entity. However, a review of the two cases cited by the Plaintiff reveal that they do not support the Plaintiff’s argument. Both involve the interpretation of statutes, which is an inherently proper subject of declaratory relief. Bess v. Park (1955) 132 Cal. App. 2d 49, 52.
In Fenton v. Bd. Of Dirs. (1984) 156 Cal. App. 3d 1107, the controversy concerned whether the plaintiff was “residing” within the district as defined by Government Code section 61200. The plaintiff had been elected to the board of directors for the Groveland Community Services District. However, after a public hearing, a majority of the board of directors voted that the plaintiff did not reside in the district. The sole issue for the trial court was the controversy whether the plaintiff was residing within the district under Government Code section 61200.
In York v. Board of Supervisors (1981) 120 Cal. App. 3d 179, the controversy concerned whether the the Santa Clara County Board of Supervisors constituted the district board of directors, within the meaning of the Fire Protection District Law of 1961 of the Fremont Fire District. The sole issue was the interpretation of the statutes.
These cases do not concern the validity of an election. They do not include any principles holding that a party can use a declaratory relief cause of action to obtain an adjudication as to the winner of an election.
Further, in the pending case, there is no dispute about a statute. The Plaintiffs are not requesting any relief regarding a problem with interpreting any provision of a statute or a contract.
Instead, the Plaintiffs are seeking a declaration regarding the winner of an election to CEO/President/Manager. The Plaintiffs do not identify any controversy in the parties’ rights or duties under a contract for which they seek declaratory relief. This is insufficient to plead a claim for declaratory relief.

Therefore, the Court will sustain the demurrer to the tenth cause of action. Since it is reasonably possible to correct these defects by amendment, the Court will grant leave to amend.

2. Motion to Strike
The Defendants request that the Court strike the claim for punitive damages and the claim for attorney’s fees. Since the demurrers to each cause of action will be sustained, there are no causes of action remaining in the First Amended Complaint.
Accordingly, the Defendants’ motion to strike is moot and will be taken off calendar.

RULING:
Sustain demurrers to first, second, third, fifth, sixth, eighth, ninth, and tenth causes of action with leave to amend.
Sustain demurrers to fourth and seventh causes of action without leave to amend.
Take off calendar motion to strike.