Case Number: BC655200 Hearing Date: January 17, 2018 Dept: 20

TENTATIVE RULING

Judge Dalila C. Lyons

Department 20

Hearing Date: Wednesday, January 17, 2018

Case Name: Meyrowitz v. Lalji, et al.

Case No.: BC655200

Motion: Demurrer to First Amended Complaint

Moving Party: Defendants Zahur Lalji and Sergio Burga

Responding Party: Plaintiff Lauren Meyrowitz

Ruling: Defendants Zahur Lalji and Sergio Burga’s demurrer to the First Amended Complaint is OVERRULED. Answer is due 10 days from the date of this ruling.

Lalji and Burga (collectively “Defendants”) demur to the First Amended Complaint (FAC) and the First, Second, and Third Causes of Action on the grounds Plaintiff fails to allege sufficient facts to constitute the claims asserted and that Defendants did not owe Plaintiff any fiduciary duties and Plaintiff only alleges that Defendants could potentially become shareholders.

Plaintiff argues the demurrer is barred by CCP § 430.41(b) and that the FAC is properly alleged against Defendants.

ANALYSIS

I. Demurrer

A demurrer for sufficiency tests whether the complaint states a cause of action. Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747. When considering demurrers, courts read the allegations liberally and in context. A complaint will be upheld against a demurrer if it pleads facts sufficient to place the defendant on notice of the issues sufficient to enable the defendant to prepare a defense. Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 549-50.

Even if the FAC is barred by CCP § 430.41(b), the demurrer should be overruled. As explained below, the FAC pleads sufficient facts to place defendant on notice of the issues sufficient to enable defendants to prepare a defense.

A. First and Second Causes of Action for Breach of Fiduciary Duty

Plaintiff properly alleges a claim for breach of fiduciary duty against Defendants. Plaintiff alleges in 2005 she was diagnosed with multiple sclerosis, and that while her condition as manageable, in 2009 her conditioned worsened and it was difficult for her to walk or see and as a result Plaintiff trusted Bailey, and later Defendants, to operate Balboa and manage its affairs. FAC ¶ 11. Plaintiff alleges Bailey and Defendants contend they have the power to issue additional shares to themselves or others without Plaintiff’s consent and that they have the right to purchase additional shares at well below market value which would further dilute Plaintiff’s interests. FAC ¶ 15. Plaintiff alleges Defendants have de facto control of Bailey’s shares by contract and because Defendants have claims against Bailey that if they pursued would be ruinous for Bailey. FAC ¶ 15. Plaintiff alleges Defendants became officers and directors of Balboa and exercise de facto control individually and through their entity Triple M. FAC ¶ 19. Plaintiff alleges the business license for BSE identifies Balboa as the operator of the dispensary and lists Lalji as the President and Manager of Balboa. FAC ¶ 20. But Plaintiff alleges she has been excluded from the Cotner Avenue dispensary and receives no profit distribution. FAC ¶¶ 20-22. And Plaintiff alleges the defendants have entered into self-serving agreements with Triple M for “management services” in which Triple M receives unreasonably high compensation as a means to divert and misappropriate Balboa’s profits. FAC ¶ 21. Plaintiff alleges she learned of BSE in early 2017 and that she requested information, but Defendants threatened Plaintiff that if she did not sign papers relinquishing her ownership interests for token consideration they would cause Balboa to lose control over the valuable BSE business and associated tenancy and would use another entity under their control to operate BSE. FAC ¶ 24. Plaintiff alleges on February 14, 2017 Defendants formally resigned and claimed in writing they never served as officers and directors in an attempt to mitigate or eliminate any fiduciary duties owed to Plaintiff. FAC ¶ 26. But Plaintiff alleges Lalji threatened Plaintiff that if she continued to assert her rights related to Balboa that Lalji would abandon the company and take steps to weaken Plaintiff’s interests and devise and implement other means to control Balboa and its business opportunities. FAC ¶ 26.

Accordingly, Defendants’ demurrer to the Second Cause of Action on the grounds of failure to allege sufficient facts is OVERRULED.

B. Illegality of Profit Distribution Damages as to Second and Third Causes of Action

Plaintiff’s Second and Third Causes of Action are not barred on the face of the FAC due to the failure to allege damages or any claimed illegality of Plaintiff’s purported damages. Plaintiff seeks recovery that includes disgorgement of allegedly ill-gotten gains, compensation for payments Plaintiff alone has made, compensation for the alleged diminished value of Plaintiff’s ownership stake, and Plaintiff also seeks injunctive relief. See FAC ¶¶ 12, 14-15, 17-22, 26-27, 41-44, 48, Prayer for Relief Nos. 1 and 4-5. Defendants do not cite any applicable authority in which any California court has barred a civil complaint seeking recovery of profits or value associated with a medical marijuana dispensary.

Accordingly, Defendants’ demurrer to the Second and Third Causes of Action on the grounds that Plaintiff’s damages claims fail is OVERRULED.