Case Number: BC629106 Hearing Date: June 18, 2018 Dept: 40

MOVING PARTY: Defendants Dan Metcalfe,

Joseph Metcalfe,

DMS 11, Inc. (DMS11), and

DMS 11 Academy Club (Academy Club)

OPPOSTION: Plaintiffs Aldamisa Entertainment, LLC, Sergei Bespalov, and Marina Bespalov

Background: This lawsuit involves a dispute over what appears to be the parties’ business venture to develop a sports facility.

On August 2, 2016, plaintiffs filed the original complaint against eight named defendants. On December 20, 2016, plaintiffs filed a first amended complaint. On August 3, 2017, plaintiffs filed a second amended complaint. On January 23, 2018, plaintiffs filed the operative third amended complaint for:

(1) breach of fiduciary duty;

(2) abuse of control;

(3) corporate waste;

(4) negligence;

(5) breach of contract;

(6) breach of implied-in-fact contract;

(7) breach of covenant of good faith and fair dealing;

(8) intentional misrepresentation;

(9) unjust enrichment;

(10) conversion;

(11) fraud; and

(12) declaratory relief.

On March 2, 2018, the four defendants above (hereinafter defendants) filed this opposed demurrer to all twelve causes of action for insufficient facts and uncertainty. Defendants’ counsel submitted a substantially compliant meet and confer declaration. CCP § 430.41; Bardavid Decl. ¶¶ 3-5.

Analysis: As a preliminary matter, the TAC pleads that Dan Metcalfe and Sergei Bespalov entered into an LLC agreement for TSPTC, LLC (TSPTC) concerning “the establishment of a major soccer operation in Los Angeles” (the Purported TSPTC Agreement.) TAC ¶ 16. The TAC states that although terms were put into writing it was “never signed as there was never a final agreement reached on the specific terms.” Id. at ¶ 16.b. Nevertheless, plaintiffs assert that there was an oral agreement the terms of which are evidenced by the final written drafts. Ibid.

As defendants correctly observe, there is no written or oral LLC agreement, as it is evident from the TAC that there was never a “meeting of the minds” necessary for a legally enforceable contract.

Plaintiffs argue in opposition that an LLC agreement can be enforced even if it is not signed, citing an unpublished case from Delaware (TSPTC was allegedly organized in Delaware.) Notwithstanding the fact that plaintiffs rely on unpublished authority, the case (and the statute it relies on) only state that the LLC itself does not have to sign the LLC agreement for the agreement to be effective. The case is inapplicable where, as here, the written drafts attached to the TAC show that nobody signed the LLC agreements.

Accordingly, the Purported TSPTC Agreement is not a legally enforceable agreement.

First COA (Breach of Fiduciary Duty): SUSTAINED WITHOUT LEAVE TO AMEND

The elements of a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damages proximately caused by the breach. Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.

“Traditional examples of fiduciary relationships in the commercial context include trustee/beneficiary, directors and majority shareholders of a corporation, business partners, joint adventurers, and agent/principal.” Wolf v. Superior Court (2003) 106 Cal.App.4th 25, 30.

Although the TAC alleges that several fiduciary duties were breached, it fails to state this cause of action. The TAC alleges that Dan Metcalfe owed a fiduciary duty to several unidentified parties, such as the shareholders of DMS11 and Academy Club, “YM” (perhaps Yura Movsisyan, a third party), and “staff.” The TAC further alleges that Dan Metcalfe breached fiduciary duties to Sergei Bespalov and “YM,” apparently based on the Purported TSPTC Agreement, but (as discussed above) there is no legally enforceable agreement. The TAC also alleges that Dan Metcalfe “breached every single one of his fiduciary duties” by allegedly reassigning a lease, but makes no indication whom such duty was owed to.

Although the TAC alleges that Dan Metcalfe owed a fiduciary duty to TSPTC, no derivative action is brought on its behalf. In this regard, the Court notes that in sustaining defendants’ demurrer to the original complaint, the December 8, 2016, stated repeatedly that certain causes of action belonged to TSPTC and noted the failure of a derivative action. The Court infers that plaintiffs’ failure to bring a derivative action despite having over a year to do so means that no such derivative action can be brought.

Moreover, without any legal authority, plaintiffs apparently argue that California and Delaware corporate law both apply.

Plaintiffs do not request leave to amend. In any event, there does not appear to be a reasonable possibility of stating this claim.

Second (Abuse of Control) and Third (Corporate Waste) COAs: SUSTAINED WITHOUT LEAVE TO AMEND

Plaintiffs do not dispute that this cause of action is actually a derivative claim (as discussed above), but the complaint pleads no derivative allegations.

Fourth COA (Negligence): OVERRULED WITH RESPECT TO DAN METCALFE AND OTHERWISE SUSTAINED WITHOUT LEAVE TO AMEND

Generally, the negligence elements are (1) defendant owes plaintiff a legal duty to use due care, (2) defendant breached the legal duty, (3) the breach is the proximate cause of the resulting injury to plaintiff, and (4) plaintiff suffers injury or damages. Jackson v. Ryder Truck Rental, Inc. (1993) 16 Cal.App.4th 1830, 1837.

Plaintiffs argue that Dan Metcalfe breached a duty of care by generally mismanaging the soccer and training facility allegedly owned by TSPTC.

In opposition, defendants argue that Dan Metcalfe’s actions fall under California’s “business judgment rule” and are therefore not negligent. Even assuming California corporate law applies, whether one’s actions fall under the business judgment rule is inherently factual and therefore inappropriate for resolution on demurrer. However, because only Dan Metcalfe is alleged to have been negligent, this cause of action fails as to the other defendants.

Fifth (Breach of Contract), Sixth (Breach of Implied-in-Fact Contract), and Seventh (Breach of Covenant of Good Faith and Fair Dealing) COAs: SUSTAINED WITHOUT LEAVE TO AMEND

These causes of action are premised on the existence of the Purported TSPTC Agreement, which, as discussed above, is not a legally enforceable agreement.

Eighth COA (Intentional Misrepresentation): SUSTAINED WITHOUT LEAVE TO AMEND

The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage. Lazar v. Superior Court (1996) 12 Cal.4th 631, 638. The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. Id. at 645. This particularity requirement necessitates pleading facts which “show how, when, where, to whom, and by what means the representations were tendered.” Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.

Additionally, “something more than nonperformance is required to prove the defendant’s intent not to perform his promise.” Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30. Similarly, “the mere failure to perform a promise made in good faith does not constitute fraud.” Church of Merciful Savior v. Volunteers of America, Inc. (1960) 184 Cal.App.2d 851, 859.

“A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations.” Aas v. Superior Court (2000) 24 Cal.4th 627, 643.

As to this cause of action, although the complaint alleges Dan Metcalfe made certain representations, it fails to allege how, when, where, or by what means. Additionally, the alleged representations are addressed entirely to what appear to be contractual duties and future performance of the facility.

Ninth COA (Unjust Enrichment): SUSTAINED WITHOUT LEAVE TO AMEND

Lectrodryer v. SeoulBank (2000) 77 Cal.App.4th 723 recognized a cause of action for unjust enrichment and defined the elements as (1) receipt of a benefit and (2) unjust retention of the benefit at the expense of another. Id. at 726 (citing First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1662-1663).

Here, as with the original complaint, the TAC alleges merely that defendants retained monies that plaintiffs gave to them for the business, which continues to operate. The TAC still fails to plead any facts suggesting that defendants’ retention of these funds was unjust.

Tenth COA (Conversion): OVERRULED WITH RESPECT TO DAN METCALFE AND OTHERWISE SUSTAINED WITHOUT LEAVE TO AMEND

The elements of a conversion cause of action are (1) plaintiff’s ownership or right to possession of the property at the time of the conversion; (2) defendant’s conversion by a wrongful act or disposition of plaintiffs’ property rights; and (3) damages. Hartford Financial Corp. v. Burns (1979) 96 Cal.App.3d 591, 598.

A plaintiff is not required to allege or prove that the defendant applied the property in question to his or her own use or benefit, so long as the plaintiff shows an assumption of control or ownership of the property inconsistent with the plaintiff’s possessory or ownership rights. Igauye v. Howard (1952) 114 Cal.App.2d 122.

Money can be the subject of an action for conversion if a specific sum capable of identification is involved. Weiss v. Marcus (1975) 51 Cal.App.3d 590, 599; Fischer v. Machado (1996) 50 Cal.App.4th 1069, 1072.

Plaintiffs allege that Dan Metcalfe converted an amount in excess of $328,071.02. Plaintiffs allege elsewhere in the TAC that they invested such an amount into the facility.

In opposition, defendants observe that the TAC alleges this was exactly the same amount advanced by plaintiffs for the build-out as well as rent, and that the TAC elsewhere alleges that the rent (of over $100,000.00) was paid directly to a third-party landlord.

Whether plaintiffs possessed such sum at the time of the alleged conversion is thus a factual issue not properly resolved on a demurrer. However, because only Dan Metcalfe is alleged to have converted the funds, this cause of action fails as to the other defendants.

Eleventh COA (Fraud): OVERRULED WITH RESPECT TO DAN METCALFE AND OTHERWISE SUSTAINED WITHOUT LEAVE TO AMEND

The TAC alleges that, from 2012 to 2015, Dan Metcalfe repeatedly misrepresented to plaintiffs that he would issue share certificates in defendant The Stadium and (to Sergei Bespalov only) a shareholder interest in DMS11. Dan Metcalfe allegedly had no intention of ever doing so, yet in reliance plaintiffs provided him and TSPTC with hundreds of thousands of dollars in funding and loan guarantees. These allegations are sufficient to allege a prima facie cause of action for fraud.

In opposition, defendants only argue that certain allegations regarding what ownership percentages Dan Metcalfe promised defendants. This is insufficient to defeat this cause of action on demurrer. However, only Dan Metcalfe is alleged to have engaged in any fraud.

Twelfth COA (Declaratory Relief): OVERRULED WITH RESPECT TO DAN METCALFE AND OTHERWISE SUSTAINED WITHOUT LEAVE TO AMEND

A declaratory relief action lies when there is an actual controversy: an actual bona fide dispute between parties concerning a legal obligation arising under the circumstances specified in Code of Civil Procedure section 1060. Additionally, the controversy must be justiciable: it presents a question as to which there is more than one answer. Western Motors Servicing Corp. v. Land Development & Inv. Co. (1957) 152 Cal.App.2d 509. Generally, a declaratory relief action will not lie to determine an issue that can be determined in the underlying action. California Ins. Guarantee Assn. v. Superior Court (1991) 231 Cal.App.3d 1617, 1623-1624. “…[T]here is no basis for declaratory relief where only past wrongs are involved.” Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 366.

Here, while the complaint purports to assert this cause of action against all defendants, it alleges contrary contentions only by Sergei Bespalov and Dan Metcalfe. Therefore, it states no actual controversy between any other plaintiff or any other defendants.

Conclusion

The demurrer is OVERRULED with respect to Dan Metcalfe on the fourth, tenth, eleventh, and twelfth causes of action and otherwise SUSTAINED WITHOUT LEAVE TO AMEND on all moving defendants on all causes of action.

If Joseph Metcalfe, DMS11, and Academy Club have not already done so, they are ORDERED to submit a proposed order and judgment of dismissal within 10 days. The Court may impose a monetary sanction for failing to do so. Defendants to give notice.