Case Number: BC469496    Hearing Date: July 24, 2014    Dept: 58

JUDGE ROLF M. TREU
DEPARTMENT 58
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Hearing Date: Thursday, July 24, 2014
Calendar No: 2
Case Name: Bank of America, N.A. v. Torkan, et al.
Case No.: BC469496
Motion: (1) Demurrer and Motion to Strike
(2) Demurrer
(3) Motion for Leave to Take the Deposition of Ronnie Yona
(4) Motion to Quash and/or Modify Deposition Subpoenas served on Bank of America and World Financial Group
Moving Party: (1) Cross-Defendants Azriel, LLC, Pauline Timario, and Arya Saleh
(2) Cross-Defendants Bruce Torkan and Nereus Holdings, LP
(3) Cross-Defendants Azriel, LLC, Pauline Timario, and Arya Saleh
(4) Cross-Defendants Bruce Torkan and Nereus Holdings, LP
Responding Party: Cross-Complainant Ronnie Yona, individually and as trustee of the Yona Trust
Notice: OK

Tentative Ruling: (1)-(2) Demurrers are overruled. Motion to strike is denied. Cross-Defendants to answer within 5 days.

(3) Motion for leave to take the deposition of Ronnie Yona is granted.

(4) Motion to quash/modify deposition subpoenas is denied. No sanctions are awarded.
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I. Background
On 9/13/11, Plaintiff Bank of America, N.A. filed this action for breach of guaranty and money lent arising out of an allegedly defaulted loan made to Avenue J8, LLC that was guaranteed by various defendants.

On 10/17/12, in response but prior to the hearing on a demurrer and motion to strike, Cross-Complainants Avenue J8 and Ronnie Yona, individually and as trustee of the Yona Family Trust, filed a First Amended Cross-Complaint against Cross-Defendants Bruce Torkan; Nereus Holdings LP; Azriel, LLC; Pauline Timario aka Pauline Timario Saleh; and Arya Saleh for (1) usurpation of corporate opportunity, (2) breach of fiduciary duty, (3) violation of Corp. Code § 390(a), (4) civil conspiracy, (5) concealment, and (6) spoliation of evidence.

After the Court ruled on demurrers to the FACC , Avenue J8 and Ronnie Yona filed a Second Amended Cross-Complaint on 2/20/13 which asserted causes of action for (1) usurpation of corporate opportunity, (2) breach of fiduciary duty, (3) violation of Corp. Code § 390(a), (4) civil conspiracy, and (5) concealment.

On 4/10/13, Avenue J8 filed a notice of removal due to its bankruptcy filing. This action was remanded on 7/2/13.

After the Court ruled on a demurrer to the SACC , Ronnie Yona filed a Third Amended Cross-Complaint on 10/28/13 which asserts causes of action for (1) breach of fiduciary duty, (2) aiding and abetting, (3) civil conspiracy, and (4) fraudulent concealment. On 11/13/13, a substitution of attorney form was filed in which Avenue J8’s counsel withdrew from representation and Avenue J8 is now self-represented.

After the Court ruled on a demurrer to the TACC , Ronnie Yona filed a Fourth Amended Cross-Complaint on 5/19/14. Trial is set for 8/4/14; FSC for 7/24/14.

II. 4ACC
The factual allegations of the 4ACC are substantively identical to the TACC. The Court notes the new allegations/assertions separately.

1. Factual Allegations
Nereus, the Yona Family Trust, and Regency Properties, LLC are equal members of Avenue J8. ¶ 11. Torkan is the managing partner of Nereus (¶ 10); and Ronnie Yona is the trustee of the Yona Family Trust (¶ 3).

Avenue J8 entered into a loan with Bank of America for $2.8 million which was secured by a deed of trust on a medical building owned by Avenue J8. ¶¶ 26-27. Torkan and Nereus actively managed and controlled the business and operations of Avenue J8. ¶ 24. Torkan; Ronnie Yona, individually and as trustee of the Yona Family Trust; Caroline Yona; Caroline Yona, Inc.; and First Merchants Services, Inc. guaranteed the loan. ¶ 28. After Bank of America sued the guarantors for Avenue J8’s default on the loan on 9/13/11 (¶ 29), Avenue J8 entered into negotiations to settle the loan with the Bank for $1.5 million (¶ 30) and agreed to locate a third-party to purchase the note who would agree to re-amortize the note using the discounted amount as the new principal balance (¶ 31).

In October 2011, Torkan, Nereus, Saleh, and Timario entered into an agreement whereby Saleh and Timario agreed to negotiate for the acquisition of the note: Torkan and Nereus provided Saleh and Timario with Avenue J8’s confidential information and did not disclose this arrangement to Avenue J8. ¶ 32. In negotiations with Saleh and Timario, Bank of America indicated a willingness to sell the note for $1.6 million. ¶ 33. Torkan, Nereus, Saleh, and Timario formed Azriel to overbid the then-pending negotiations and Azriel purchased the loan for $1.8 million. ¶ 35. Torkan, Nereus, Saleh, and Timario (through Azriel) have proceeded to enforce the note at full value against all guarantors except for Torkan (¶ 37) and have foreclosed on Avenue J8’s property (¶ 38).

The 4ACC asserts causes of action for (1) breach of fiduciary duty, (2) aiding and abetting, (3) civil conspiracy, and (4) fraudulent concealment. The 1st COA is asserted against Torkan and Nereus; the 2nd and 3rd COAs are asserted against Azriel, Timario, and Saleh; and the 4th COA is asserted against Torkan, Nereus, Azriel, Saleh, and Timario.

2. New Allegations/Assertions
The 4ACC now clarifies that all COAs are being brought by Ronnie Yona, individually and as trustee of the Yona Family Trust, and by Ronnie Yona as trustee of the Yona Family Trust on behalf of Avenue J8.

Additionally, the 4ACC alleges that no action was taken to secure action from Avenue J8 because it would have been futile (¶ 12) because (a) Regency Properties is in bankruptcy, (b)-(c) Torkan and Nereus are the alleged wrongdoers, and (d) Avenue J8 is now insolvent because of the foreclosure on its property. The 4ACC alleges that Ronnie Yona has advised Avenue J8 of the ultimate facts for the claims. 4ACC ¶ 13. The 4ACC asserts that if successful, attorney fees and costs are recoverable based on “a common fund and/or substantial benefit will result to Avenue J8.” 4ACC ¶ 14.

III. Demurrers and Motion to Strike
Azriel, Timario, and Saleh have filed a demurrer and a motion to strike. Torkan and Nereus has filed a demurrer. Except as discussed below, the motions raise the same issues that the Court has previously rejected.

1. Requests for Judicial Notice
Azriel, Timario, and Saleh; and Ronnie Yona request judicial notice of various documents and pleadings. Except as cited below, the RJNs are denied.

2. Judicial Estoppel
Azriel, Timario, and Saleh argue that judicial estoppel applies to preclude the derivative claims arguing that the allegations concerning futility are inconsistent with the prior conduct undertaken by Avenue J8 such as filing previous cross-complaints and taking action in bankruptcy court. RJN Exs. 2-3, 5-10. Azriel, Timario, and Saleh argue that Avenue J8’s conduct could not have been taken except as authorized by Ronnie Yona and/or Regency Properties.

However, juridical estoppel is an extraordinary equitable remedy that must be applied with caution and limited to egregious circumstances where a party’s inconsistent behavior will otherwise result in a miscarriage of justice. Minish v. Hanuman Fellowship (2013) 214 Cal.App.4th 437, 448-49. Azriel, Timario, and Saleh fail to establish that Ronnie Yona has been successful in asserting one position that is totally inconsistent with the derivative claims sought in the 4ACC. See id. at 449.

That Avenue J8 previously acted on its own behalf and through bankruptcy does not establish that a judicial tribunal has adopted Avenue J8’s claims or accepted them as true. Additionally, there is no showing that the two positions are totally inconsistent: at most, there is only different legal arguments made due to change factual circumstances (4ACC ¶ 12) which does not undermine the integrity of the judicial process. See Cal. Amplifier, Inc. v. RLI Ins. Co. (2001) 94 Cal.App.4th 102, 118.

3. Demand Futility
Torkan and Nereus argue that the 4ACC fails to allege facts with particularity as to demand futility to support the derivative claims. See, e.g., Oakland Raiders v. National Football League (2001) 93 Cal.App.4th 572, 587. This is also one of the grounds asserted in the motion to strike by Azriel, Timario, and Saleh (arguing that the 4ACC is a sham pleading).

“[F]utility is gauged by the circumstances existing at the commencement of a derivative suit.” Bader v. Anderson (2009) 179 Cal.App.4th 775, 791 (citation omitted). Therefore, demand futility is considered at the time of the filing of the 4ACC, which was when derivative claims were asserted. The test for demand futility which involves whether the facts show a reasonable doubt that the directors are (1) disinterested and independent or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment. See, e.g., Bader, 179 Cal.App.4th at 791; Charter Township of Clinton Police and Fire Retirement System v. Martin (2013) 219 Cal.App.4th 924, 934-35.

The 4ACC alleges that the other members of Avenue J8 are either in bankruptcy or are the alleged wrongdoer and that Avenue J8 is now insolvent because of the foreclosure of its property. 4ACC ¶ 12. At the pleading stage, these are particularized facts to support demand futility under both prongs. That Avenue J8 has previously taken actions on its own behalf does not alone defeat the allegations of demand futility at the time the 4ACC was filed. Lastly, to the extent Azriel, Timario, and Saleh argue that Avenue J8 has abandoned its claims, this improperly attempts to dispute the allegations at the pleading stage.

4. Direct vs. Derivative Claims
Azriel, Timario, and Saleh argue that Ronnie Yona cannot bring both direct and derivative claims. This is incorrect.
[A] single course of action by a majority shareholder might give rise to derivative claims, individual claims, or both. The claims are derivative where the injury alleged is one inflicted on the corporate entity or on the “whole body of its stock.” A personal claim, in contrast, asserts a right against the corporation which the shareholder possesses as an individual apart from the corporate entity: “If the injury is not incidental to an injury to the corporation, an individual cause of action exists.”
Denevi v. LGCC (2004) 121 Cal.App.4th 1211, 1221-22 (original emphasis and citation omitted).

The derivative claim is based on the usurpation of the opportunity to acquire the note at a discount. The individual claim is based on the subsequent attempt to enforce the note at full value against all guarantors except Torkan. The individual claim is not merely incidental to the derivative claim.

“In the absence of a cogent demonstration to the contrary, we must presume that each claimant was entitled to pursue his or its own remedies, even if the underlying rights to relief arose from a single act or course of conduct on the part of defendants. There is no rule of law of logic that says a single course of conduct can give rise to only one remedy even when it injures more than one person.” Denevi v. LGCC (2004) 121 Cal.App.4th 1211, 1219.

5. Attorney Fees
Azriel, Timario, and Saleh argue that Ronnie Yona has failed to identify a basis for recovery of attorney fees. This is incorrect. The 4ACC asserts that if successful, attorney fees and costs are recoverable based on “a common fund and/or substantial benefit will result to Avenue J8” (4ACC ¶ 14), which seeks attorney fees based on a derivative action (see, e.g., Cziraki v. Thunder Cats, Inc. (2003) 111 Cal.App.4th 552, 557-58).

In reply, Azriel, Timario, and Saleh argue that Ronnie Yona cannot maintain a derivative action due to the suspension of Avenue J8 and is not entitled to the common fund and substantial benefit theories. These arguments were first raised in reply and are not considered. See Campos v. Anderson (1997) 57 Cal.App.4th 784, 794 n.3.

Even if considered, the Court notes that suspension would not stand as a shield for protecting allegedly dishonest conduct by members of Avenue J8. Reed v. Norman (1957) 48 Cal.2d 338, 343. Additionally, whether the true purpose of Ronnie Yona’s derivative claim is for advancing his personal adverse interests (Cziraki, 111 Cal.App.4th at 558) is not properly determined at the pleading stage. Notably, Azriel, Timario, and Saleh fail to distinguish how Ronnie Yona’s individual claim (i.e., challenging the attempt to enforce guaranties against all guarantors except Torkan) is adverse to the derivative claim (i.e., challenging the usurpation of the opportunity to acquire the note at a discount).

6. Ruling
The demurrers are overruled. The motion to strike is denied.

IV. Motion for Leave to Take Deposition of Ronnie Yona
Azriel, Timario, and Saleh request leave to take a subsequent deposition of Ronnie Yona pursuant to CCP § 2025.610(b). Because of the new allegations and assertions in the 4ACC concerning demand futility, the Court finds good cause to grant the motion. In light of the arguments raised concerning Avenue J8’s previous conduct with respect to the 4ACC’s allegation of demand futility, the Court declines to limit the duration of the subsequent deposition and will permit inquiries into both the allegation of demand futility and Avenue J8’s prior conduct taken in this action and in bankruptcy in connection with demand futility.

V. Motion to Quash/Modify Deposition Subpoenas
Torkan and Nereus move to quash or modify portions of deposition subpoenas which seek documents from Bank of America and World Financial Group evidencing communications with any of the parties in this action relating to the Bank of America loan (Subpoena Issues No. 1) and negotiations for its acquisition and/or discounting (Subpoena Issue No. 7).

Torkan and Nereus argue that the subpoenas are overbroad and irrelevant. The Court disagrees. This action is being brought by Azriel as the real party in interest to enforce guaranties, and the 4ACC alleges that Azriel’s acquisition of the underlying note and enforcement of the guaranties against all guarantors except Torkan are wrongful. Therefore, the subpoenas are relevant and are not overbroad.

Torkan and Nereus argue that the subpoenas implicate privacy rights of third-parties and request that the subpoenas be modified to protect their financial and personal information. While such financial and personal information is generally protected (see, e.g., Int’l Federal of Professional and Technical Engineers, Local 21, AFL-CIO v. Superior Court (2007) 42 Cal.4th 319, 330), the Court notes that it has considered evidence of such third-parties’ involvement in the facts giving rise to this action, especially as to Roya Saleh. Torkan and Nereus fail to submit any evidence that the third-parties are unrelated to this action such that their privacy rights are impermissibly implicated, especially where the subpoenas are all in relation to the loan at issue in this action. Direct relevancy has been show to warrant the subpoenas which may include third-party communications and information. See Ombudsman Services of Northern California v. Superior Court (2007) 154 Cal.App.4th 1233, 1251. Therefore, the motion to quash/modify deposition subpoenas is denied. The Court declines to award any sanctions. See CCP § 1987.2(a)

The Court notes that the Ronnie Yona has asserted various purported procedural deficiencies in opposition to the motion. None of these grounds render the motion deficient under the circumstances: applicable law was cited in the motion, the motion was served on the custodian of records (Henrichs Reply Decl. ¶¶ 2-3, Exs. A-B), and the parties did attempt meet and confer efforts but disagreed as to the form of communication (Henrichs Decl. ¶¶ 4-6, Exs. C-F; Bartlett Decl. ¶¶ 8-10)