Case Name: Mahmoud Abdolmajid v. Reza Fard
Case No.: 18CV327539

This matter arises from a dispute over payment on a purported contract to renovate and repair a business (Uncle Ray’s Restaurant) between Defendant Reza Fard (“Defendant”) owner of the restaurant and M & F Solid Construction, Inc., entered into on August 3, 2010. Plaintiff Mahmoud Abdolmajid (“Plaintiff”) signed the contract on behalf of M & F Construction, Inc., not in his individual capacity.

The original complaint in this action was filed on May 1, 2018. A First Amended Complaint (“FAC’) was filed on February 11, 2019. The operative Second Amended Complaint (“SAC”) states claims for: (1) Breach of Written Contract (based on Defendant’s alleged cessation of contract payments in November 2015, SAC at ¶29); (2) Breach of the Implied Covenant of Good Faith and Fair Dealing (based on the same alleged failure to pay on contract, SAC at ¶35); (3) Fraud (based on alleged promises to continue paying on the contract); (4) Open Book Account; (5) Account Stated; (6) Common Counts; (7) Restitution/Unjust Enrichment.

A copy of the August 3, 2010 contract between Plaintiff and M & F Solid Construction Inc. is attached to the SAC as Exhibit A. Attached as Exhibit B is a copy of a letter dated June 12, 2011 from Plaintiff as President of “M & F Solid Construction, LLC” to Defendant stating that as of that date “M & F Solid Construction, LLC, does hereby convey, transfer, and exclusively assign all account receivables, property or other assets due and/or belonging to M & F Solid Construction, LLC, without restriction, to Mr. Mahmoud Abdolmajid and Mrs. Farzaneh Shafouri.” Attached as Exhibit C to the SAC is a copy of an undated letter from Plaintiff to Defendant memorializing a purported August 12, 2011 meeting between them “at your restaurant . . . to advise that the assets and liabilities of M & F Solid Construction, LLC . . . were being transferred to me and my wife, Farzaneh Shafouri.” Exhibit D to the SAC is a copy of a spreadsheet-type document apparently referenced in Exhibit C as showing the amount remaining unpaid on the contract. Finally attached to the SAC as Exhibit E is a copy of a contractor’s license in the name of M & F Solid Construction, Inc. (“Corp.”) with an expiration date of March 31, 2012.

On May 30, 2019 the Court granted Plaintiff’s motion for leave to file a SAC, took the demurrer to the then-operative FAC off calendar as moot and set the hearing date for Defendant’s demurrer to the SAC for August 8, 2019. Currently before the Court is Defendant’s demurrer to the SAC.

Request for Judicial Notice
A precondition to judicial notice in either its permissive or mandatory form is that the matter to be noticed be relevant to the material issue before the Court. (Silverado Modjeska Recreation and Park Dist. v. County of Orange (2011) 197 Cal.App.4th 282, 307, citing People v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422 fn. 2.) Any purported requests for judicial notice that do not comply with Rule of Court 3.1113(l) are denied.

In support of the demurrer Defendant has submitted an “amended” request for judicial notice which complies with Rule of Court 3.1113(l). Defendant requests that the Court take judicial notice of three documents attached to the request as exhibits A-C. Exhibit A is a copy of an official “Entity Status Letter” from the California Franchise Tax Board (“FTB”) dated March 6, 2019 stating that as of that date “M & F Solid Construction” (apparently the corporation) is not in good standing with the FTB. Exhibit B is a copy of “Articles of Incorporation with Statement of Conversion,” filed by Plaintiff with the California Secretary of State’s Office on December 18, 2009, converting the then-existing M & F Solid Construction LLC into a corporation. Exhibit C is a copy of another “Entity Status Letter” issued by the FTB on March 6, 2019 stating that as of that date M & F Solid Construction LLC is not in good standing with the FTB.

Notice of Exhibits A-C is GRANTED pursuant to Evidence Code §452(c) (official acts) as the three documents describe or show official acts of the FTB and the California Secretary of State’s Office. Judicial notice of Exhibit B, the articles of incorporation for M & F Solid Construction, Inc., establishes that exhibits B and C to the SAC have no legal effect as the entity purportedly making the assignment had ceased to exist and been replaced by M & F Solid Construction, Inc. more than a year before the purported assignment. The SAC acknowledges this “mistake” at ¶1 but appears to (incorrectly) suggest that the assignment is somehow nonetheless valid or could be retroactively made valid. The allegation in the SAC at ¶15, to the extent it suggests that corporation rather than the LLC executed an assignment, is disregarded by the Court as it is plainly contradicted by the judicially noticed material as well as the exhibits to the SAC.

Defendant also requests judicial notice of original complaint, the FAC and the SAC. Notice of these three pleadings is DENIED as unnecessary. (See Paul v. Patton (2015) 235 Cal.App.4th 1088, 1091, fn. 1 [denying as unnecessary a request for judicial notice of the pleading under review on demurrer].) As explained below, the Court already considers the contents of the pleading being challenged (and prior versions) when ruling on a demurrer.

Demurrer to SAC
The Court in ruling on a demurrer treats it “as admitting all material facts properly pleaded but not contentions, deductions or conclusions of law.” (Piccinini v. Cal. Emergency Management Agency (2014) 226 Cal.app.4th 685, 688, citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1985) 35 Cal.3d 197, 213-214.) Where a demurrer is to an amended complaint (as here), the Court “may consider the factual allegations of prior complaints, which a plaintiff may not discard or avoid by making contradictory averments, in a superseding, amended pleading.” (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034 [internal quotations omitted].)

The Court in ruling on a demurrer considers only the pleading under attack, any attached exhibits (part of the “face of the pleading”) and any facts or documents for which judicial notice is properly requested and may be granted. The Court cannot consider extrinsic evidence in ruling on a demurrer or motion to strike. Allegations are not accepted as true on demurrer if they contradict or are inconsistent with facts judicially noticed. Similarly, facts appearing in exhibits attached to the complaint (part of the “face of the pleading”) are given precedence over inconsistent allegations in the complaint. (See Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1474 [rejecting allegations contradicted by judicially noticed facts]; Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505 [“[T]o the extent the factual allegations conflict with the content of the exhibits to the complaint, we rely on and accept as true the contents of the exhibits and treat as surplusage the pleader’s allegations as to the legal effect of the exhibits.”]; See also 1 Witkin, California Evidence (4th ed. 2000) Judicial Notice §3(3) [“It has long been established in California that allegations in a pleading contrary to judicially noticed facts will be ineffectual; i.e., judicial notice operates against the pleader.”])

Defendant demurrers to the SAC and every cause of action on the grounds that they “do not state facts sufficient to constitute a cause of action, are uncertain, confusing, ambiguous and unintelligible. Plaintiff has also named additional defendants in the SAC whom are not a party to the action. Plaintiff also lacks standing to sue and the first through seven cause of action are time barred by the statute of limitations under Code of Civil Procedure section 337.” (Notice of Demurrer and Demurrer at p. 2:1-5.)

Unless done in violation of a court order, the naming of additional defendants is not a basis for demurrer by Defendant. Defendant’s demurrer to the entire SAC and each cause of action on uncertainty grounds is OVERRULED. “[D]emurrers for uncertainty are disfavored and granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135. See also Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616 [“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.”]) While the SAC may be unclear in some respects, it is apparent from Defendant’s other more specific arguments that Defendant understands what the SAC at least attempts to allege and that there is no true uncertainty.

Defendant’s demurrer to the entire SAC and each cause of action on the basis that Plaintiff in his individual capacity lacks standing is SUSTAINED.

Defendant’s demurrer on standing grounds is based on the following facts that are established by the exhibits attached to the SAC and the judicially noticed material: 1) Plaintiff in his individual capacity is not a party to the contract and cannot sue for claims arising from it, and; 2) The purported June 12, 2011 “assignment” from M & F Solid Construction LLC to Plaintiff as an individual has no legal force and effect as M & F Solid Construction LLC ceased to exist well before that date and was also not a party to the August 3, 2010 written contract with Defendant. A nonexistent LLC could not make a valid assignment to anyone and claims arising from the contract with Defendant only ever belonged to the corporation, not the LLC and not to Plaintiff in his individual capacity. Even if the LLC had still existed in June 2011 it could not assign claims that it never had. Defendant’s alleged failure to object to the “assignment” (SAC at ¶¶ 16 & 25) is irrelevant to its lack of effectiveness. No purported “waiver” or “estoppel” could render an invalid assignment from an LLC that no longer existed, of a rights under a contract that the LLC never possessed, valid. The allegation in the SAC at ¶16 that “Plaintiff is the assignee of M & F, and is entitled to collect the debt owed to M & F” is, to the extent it asserts that any assignment was executed by M & F Solid Construction, Inc., disregarded by the Court as inconsistent with the exhibits to the SAC and the judicially noticed material. The June 12, 2011 assignment of all claims, etc. “belonging to M & F Solid Construction, LLC,” attached to the SAC as exhibit B cannot reasonably be interpreted as an assignment from M & F Solid Construction, Inc.

Defendant argues that leave to amend should be denied because the only other party to the contract with a right to sue for claims arising from it (M & F Solid Construction, Inc.) is now, based on the “Entity Status Letter” submitted for judicial notice, a suspended corporation. A suspended corporation lacks capacity (not standing) to sue in California courts. Among other things, a suspended corporation cannot prosecute or defend an action, seek a writ of mandate, appeal from an adverse judgment, or renew a judgment obtained before suspension. (See Tabarrejo v. Superior Court (2014) 232 Cal.App.4th 839, 862-863.) Anyone who attempts or purports to exercise the rights and powers of a suspended corporation is guilty of a misdemeanor. (See Revenue & Taxation Code §19719.) Attorneys who knowingly pursue litigation activities on behalf of a suspended corporation can be sanctioned for acting in bad faith. (See Palm Valley Homeowners’ Assn. v. Design MTC (2000) 85 Cal.App.4th 553 [law firm sanctioned for pursuing discovery on behalf of suspended client while concealing knowledge of suspension from opposing counsel and trial court].)

While a trial court’s denial of a suspended corporation’s request for a continuance to pay its taxes and obtain a reviver has been found to be an abuse of discretion (see Color-Vue, Inc. v. Abrams (1996) 44 Cal.App.4th 1599, 1606), there is no request for such a continuance here as the suspended corporation is not even a party to this lawsuit. The opposition suggests that “transfer documents” can simply be “corrected,” (see Opp. at p. 8:25-9:25) but as already stated the existing June 12, 2011 assignment of claims “belonging to M & F Solid Construction, LLC,” attached to the SAC as exhibit B cannot reasonably be construed as an assignment from the corporation rather than the LLC.

Any assignment from M & F Solid Construction, Inc. would have to be done now and could only confer standing upon Plaintiff to sue for claims arising from the August 2010 contract if the corporation were not suspended at the time the assignment was made. “[I]f an assignee of a claim by a suspended corporation were not subject to the same incapacity defense as the assignor, then a suspended corporation could simply sell its claim to a third party without ever having to cure the default that led to the suspension. In such a case the assignment would allow the suspended corporation to circumvent the restrictions imposed by the Revenue and Taxation Code on litigation-related activities and would remove the statutory incentive that is in place to induce the corporation into paying its delinquent taxes.” (Cal-Western Business Services, Inc. v. Corning Capital Group (2013) 221 Cal.App.4th 304, 314 [trial court’s order striking assignee’s complaint and dismissing action on court’s own motion not abuse of discretion].)

Any assignment from a revived M & F Solid Construction, Inc. now, in late summer/fall of 2019 would run up against another issue raised in Defendant’s demurrer; the statute of limitations. To date the only party with standing to sue Defendant on claims arising from the August 3, 2010 contract, M & F Solid Construction, Inc., has not even filed suit. A lawsuit in the (revived) corporation’s own name, or a lawsuit based on a valid assignment from the revived corporation to Plaintiff in 2019, arising from a breach of written contract that allegedly occurred in November 2015 when Defendant ceased making payments, would not necessarily relate back to the original complaint in this action. Any claim with a limitations period of less than four years might be time-barred.

Plaintiff bears the burden of proving an amendment would cure the defect recognized on demurrer. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) In his opposition Plaintiff requests leave to amend but fails to suggest how the Complaint could be amended in such a way that Plaintiff, in his individual capacity, would be the real party in interest able to bring claims arising from the August 3, 2010 contract absent a valid assignment from a revived M & F Solid Construction, Inc. of its rights under that written contract.

Nonetheless, as this is the first pleading challenge in this action to be heard by the Court, and it is not clear to the Court that leave to amend would be futile, 20 days’ leave to amend is GRANTED.

Plaintiff is cautioned that, when a demurrer is sustained with leave to amend, the leave must be construed as permission to the pleader to amend the causes of action to which the demurrer has been sustained, not add entirely new causes of action. (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1015.) To raise claims entirely unrelated to those originally alleged requires either a new lawsuit or a noticed motion for leave to amend. Absent prior leave of court an amended complaint raising entirely new and different causes of action may be subject to a motion to strike. (See also Harris v. Wachovia Mortg., FSB (2010) 185 Cal.App.4th 1018, 1023 [“Following an order sustaining a demurrer or a motion for judgment on the pleadings with leave to amend, the plaintiff may amend his or her complaint only as authorized by the court’s order. The plaintiff may not amend the complaint to add a new cause of action without having obtained permission to do so, unless the new cause of action is within the scope of the order granting leave to amend.”])

As the Court sustains the demurrer on the ground that Plaintiff lacks standing to bring the claims alleged in the SAC, it is not necessary for the Court to address Defendant’s arguments as to how each individual cause of action purportedly fails to state sufficient facts.