2012-00123439-CU-BC

Loder Family Partnership vs. River City Baseball Investment

Nature of Proceeding: Hearing on Demurrer to First Amended Complaint

Filed By: Kachmar, James

Defendant River City Baseball Investment Group, LLC’s (“RCBIG”) demurrer to the
First Amended Complaint (“1AC”) is SUSTAINED without leave to amend, as follows.

The 1AC filed on 4/9/2013 alleges two causes of action. RCBIG now demurs only to
the second cause of action for accounting on the grounds that (1) the claim is
derivative in nature rather than a direct personal claim, (2) RCBIG does not owe
plaintiff any fiduciary duty on which a claim for accounting may be based and (3)
plaintiff has not alleged any claims against RCBIG for money owed.

In opposition, plaintiff maintains that its accounting claim is properly pled and is
consistent with the Court’s 3/28/2013 ruling on RCBIG’s motion for judgment on the
pleadings. In particular, plaintiff appears to argue that California law permits a “direct
action” for accounting and that RCBIG’s arguments to the contrary are unavailing.

In its 3/28/2013 ruling which granted RCBIG’s motion with leave to amend, the Court
stated the following:

“RCBIG argues…that Plaintiff[’s] accounting cause of action must be brought in
a derivative action on RCBIG’s behalf. Plaintiff counters that the… cause of
action is not derivative because it relates to [plaintiff’s] individual injuries. [¶]
Specifically, Plaintiff argues that his allegations establish an injury to his
membership interest in RCBIG. Plaintiffs’ argument is based on his allegations
that those controlling RCBIG engaged in self-[d]ealing and improperly
distributed corporate assets. (See Compl., ¶45.) Because Plaintiff’s asserted
injury is incidental to an injury to RCBIG, it may only be vindicated
through a derivative action. (PacLink Communications Intern. Inc. v. Superior
Court (2001) 90 Cal.App.4th 958, 964 [diminution in value of membership in
LLC is an incidental, derivative injury.) Accordingly, the court grants RCBIG’s
motion. [¶] The court grants leave to amend so that Plaintiff may attempt to
plead an accounting cause of action based upon an individual injury .” (3/28/2
013 Min. Order (emphasis added).)

The 1AC now alleges in pertinent part:

“33. [Plaintiff] Loder…is a member of RCBIG, and an investor in the same. As
such, a fiduciary relationship exists between RCBIG and Loder. 34. Loder, as a member of RCBIG, is entitled,…to have access to and to
inspect…the books and records of RCBIG… Despite Loder’s repeated
requests, RCBIG has failed and refused…to permit Loder adequate access to
inspect these books and records, and has failed and refused…to provide
documentation pertaining to compensation paid managers and officers of
RCBIG…

35. As a direct result of [RCBIG’s] self-dealing and improper distribution
of its assets, Loder has suffered a loss in the value of his membership
interest in RCBIG and negatively impacted his distributions and
dividends.

36. Loder is entitled to an uncertain balance representing the loss in value of
his membership interest and unpaid distributions and dividends. The extent of
RCBIG’s self-dealing and improper distribution of RCBIG’s assets involves
complicated accounts such that a demand for a fixed sum is impracticable. The
only way that Loder can determine the value of his membership interest and
balance of any damages to Loder is by an accounting.” (Emphasis added.)

This Court holds that the above allegations still assert an injury to plaintiff which is
merely incidental to an injury to RCBIG as an entity and thus, as presently alleged, this
accounting claim may only be vindicated through a derivative action. In the 3/28/2013
ruling, the Court cited PacLink Communications Intern. Inc. v. Superior Court (2001)
90 Cal.App.4th 958 for the proposition that plaintiff’s claim in the present case for
diminution in the value of its membership in RCBIG is simply an incidental, derivative
injury. The allegations now found in Paragraph 35 of the 1AC fail to cure the
deficiency previously found in this cause of action in that it still fails to identify any
injury or damage which is unique to plaintiff separate and apart from other members of
RCBIG.

To be sure, according to California Supreme Court, it is the “gravamen” of the cause of
action which determines whether it is truly individual or derivative. (Jones v. H.F.
Ahmanson & Co. (1969) 1 Cal.3d 93, 106-107.) There, the Supreme Court explained
in pertinent part:

“A stockholder’s derivative suit is brought to enforce a cause of action which the
corporation itself possesses against some third party, a suit to recompense the
corporation for injuries which it has suffered as a result of the acts of third
parties. The management owes to the stockholders a duty to take proper steps
to enforce all claims which the corporation may have. When it fails to perform
this duty, the stockholders have a right to do so. Thus, although the corporation
is made a defendant in a derivative suit, the corporation nevertheless is the real
plaintiff and it alone benefits from the decree; the stockholders derive no benefit
therefrom except the indirect benefit resulting from a realization upon the
corporation’s assets. The stockholder’s individual suit, on the other hand, is a
suit to enforce a right against the corporation which the stockholder possesses
as an individual. [Citation omitted.] (Jones, at 107 (emphasis added).)

To highlight the distinction between the two types of claims, the Supreme Court added:

“If the [plaintiff-shareholder] injury is not incidental to an injury to the
corporation, [then] an individual cause of action exists.” (Id. (emphasis added).)

In the present case, plaintiff effectively alleges that there was self-dealing and
improper distribution of RCBIG’s assets and that as a result, plaintiff not only a lost
value in his membership interest but also received smaller distributions and dividends.
While these allegations focus on plaintiff’s own claimed injury and damage, the
gravamen of this cause of action is that RCBIG as a whole was injured by the alleged
self-dealing and improper distribution of assets which in turn caused plaintiff and
presumably other similarly-situated investors in RCBIG, to suffer a loss in value and a
decrease in distributions. Thus, this cause of action is properly characterized as a
derivative claim not a direct claim based on an individual injury to plaintiff.

Because plaintiff has failed to plead an accounting cause of action “based upon an
individual injury” as expressly permitted by the Court in ruling on the prior motion, the
demurrer is sustained and the Court need not address the other grounds raised in
RCBIG’s demurrer.

Since the Court concludes that plaintiff has no reasonable probability of pleading an
individual injury on which the accounting cause of action may be based and since
plaintiff has failed to show otherwise, leave to amend is denied.

This minute order is effective immediately. No formal order or other notice is required.
(Code Civ. Proc. §1019.5; CRC Rule 3.1312.)