Case Number: SC125940 Hearing Date: November 27, 2018 Dept: M

CASE NAME: Michael Singer et al. v. G.H. Cooper Properties, Inc. et al.

CASE NO.: SC125940 COMPLAINT FILED:

HEARING: Tuesday 11/27 MOTION C/O:

CALENDAR #: Dept. M DISCOVERY C/O:

NOTICE: OK TRIAL DATE:

____________________________________________________________________________

SUBJECT: MOTION FOR SUMMARY JUDGMENT OR SUMMARY ADJUDICATION

HELD: DENIED

MOVING PARTY: Defendant Todd Grayson

RESP. PARTY: Plaintiffs Michael Singer as Trustee, Jeff Singer as Trustee, and Innocreative Capital, LLC

BACKGROUND

Non-moving Defendant GH Cooper Properties (“GHCP”) and Plaintiffs together formed six LLCs– including Arvada Investment Group, Lamar Kendall Investment Group, and Zuni Investment Group – for the purpose of owning and operating residential properties in Colorado. Defendant Grayson drafted the incorporation documents for GHCP and helped manage the LLCS after the death of GHCP’s founder, eventually taking the position of CEO. Plaintiffs – co-members of the LLCs along with GHCP– allege that Defendant took control of GHCP and used his position as CEO of GHCP to engage in various acts of self-dealing. Defendant allegedly caused GHCP to enter into an expensive consulting agreement with a separate company that he owned and controlled named Kagtig, as well as appropriating GHCP’s resources and taking control of the LLCs for his own benefit.

Plaintiffs’ Second Amended Complaint alleges the following Causes of Action: 1. Breach of Contract, 2. Breach of Fiduciary Duty – Violation of Trust Agreement, 3. Breach of Contract – Violation of Trust Agreement, 4. Money Had and Received, 5. Accounting, 6. Declaratory Relief—Waterfall, 7. Declaratory Relief – Improper Taking of Advancement/Indemnity for Prior Arbitration, 8. Declaratory Relief – Plaintiffs’ Entitlement to Advancement/Indemnity for Prior Arbitration, and 9. Declaratory Relief—No Advancement / Indemnity Owing to Defendants for this Action.

Defendant Todd Grayson moves for Summary Judgment as to all causes of action directed at him, or in the alternative for Summary Adjudication

This Motion: Defendants bring this motion for summary judgment on the grounds that:

Defendant Grayson is not a member of the LLCs, not a party to their Operating Agreements, and not a party to the purported June 2015 Trust Agreement out of which all of Plaintiffs’ claims emanate.

Plaintiffs have not identified any evidence to indicate that Defendant Grayson can be held liable as GHCP’s alter ego, and therefore cannot be held liable for any breach of the aforementioned agreements.

Plaintiffs’ claims against Grayson are barred as a result of Plaintiffs’ release of all claims against GHCP.

Defendant Grayson, as an individual, owed no fiduciary duty to Plaintiffs.

Defendant Grayson is immune to individual liability for breach of fiduciary duty under the “agent’s immunity” rule.

The Fourth Cause of Action fails because there is no evidence Grayson, individually, was paid any funds that belonged to Plaintiffs.

Opposition: Plaintiff opposes the motion arguing that Defendant has not met his initial burden of persuasion for summary judgment. Plaintiff argues that he has presented substantial evidence showing the following:

Defendant Grayson owed a fiduciary duty arising out of his work as attorney for the GHCP and LLCS;

Defendant Grayson is jointly liable with GHCP as an officer/director;

Defendant Grayson directed GHCP to violate its fiduciary duty under the Trust Agreement;

Defendant Grayson transferred LLC assets into his own possession;

Defendant Grayson and GHCP were “one and the same”

Reply: In his reply, Defendant argues that Plaintiffs have raised a number irrelevant facts regarding Kagtig, Inc. and that the Kagtig agreement cannot form the basis for alter ego liability.

TENTATIVE RULING

Defendant’s Motion for Summary Judgment/Summary Adjudication is DENIED.

Plaintiff’s Motion to continue the MSJ hearing is DENIED.

REASONING

Summary Judgment Standard

A party may move for summary adjudication as to one or more causes of action, affirmative defenses, claims for damages, or issues of duty if that party contends that there is no merit to the cause of action, defense, or claim for damages, or if the party contends that there is no duty owed. (See CCP §437c(f)(1).) “A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Ibid.) A cause of action has no merit if: (1) one or more elements of the cause of action cannot be separately established, even if that element is separately pleaded, or (2) a defendant establishes an affirmative defense to that cause of action. (See CCP §437c(n); Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 583.) Once the defendant has shown that a cause of action has no merit, the burden shifts to the plaintiff to show that a triable issue of material fact exists as to that cause of action. (See CCP §437c(o)(2) and Union Bank, Id.)

In order to obtain summary judgment, “all that the defendant need do is to show that the plaintiff cannot establish at least one element of the cause of action.” (See Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853; see also Mitchell v. United National Ins. Co. (2005) 127 Cal. App. 4th 457.) “Although he remains free to do so, the defendant need not himself conclusively negate any such element.” (Ibid.) “Once the defendant has made such a showing, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or as to a defense to the cause of action. If the plaintiff does not make such a showing, summary judgment in favor of the defendant is appropriate.” (See Mitchell, at p. 467.)

Until the defendant meets this evidentiary burden, the plaintiff has no burden to present evidence showing a triable issue of fact. (See Hagen v. Hickenbottom (1995) 41 Cal.App.4th 168, 178; see also Hawkins v. Wilton (2006) 144 Cal. App. 4th 936, 940, citing Duckett v. Pistoresi Ambulance Service, Inc. (1993) 19 Cal.App.4th 1525, 1533 [the Hawkins court quoted Duckett saying that “[w]here the evidence presented by defendant does not support judgment in his favor, the motion must be denied without looking at the opposing evidence, if any, submitted by plaintiff”].)

Request for Judicial Notice

Defendant requests judicial notice of the pleadings and documents filed in the instant action, as well as pleadings and documents in the ongoing United States Bankruptcy Court Case In re G.H. Cooper Properties, Inc., Debtor. Judicial notice is therefore GRANTED pursuant to Cal. Evid. Code §452(d), which requires judicial notice upon motion of federal or state court records.

Further, Plaintiff requests Judicial Notice of a variety of documents produced in response to discovery requests throughout this litigation, as well as a number of court records in this matter. Judicial Notice is therefore GRANTED pursuant to Cal. Evid. Code §452(d) and (h).

Evidentiary Rulings

Plaintiffs object to various portions of Todd Grayson’s Declaration, on the grounds that they are hearsay, contain improper opinion or legal conclusions, or lack foundation. These objections are OVERRULED—all portions of the Declaration to which Plaintiff objects consist of Grayson’s assertions regarding his conduct and duties as CEO of GHCP. He therefore has personal knowledge of what he did and did not do in that capacity, and thus his declaration on the topic is admissible evidence.

Defendant also objects to the entire declaration of Marc. R. Jacobs on the grounds that it is irrelevant, and constitutes inadmissible hearsay. This objection is OVERRULED, as the matters contained therein are relevant to Plaintiffs’ alter ego arguments, as well as to Plaintiffs’ argument that further discovery regarding Kagtig is necessary here.

Alter Ego Liability

A corporation’s acts can be “legally recognized as those of a particular person” when “there is such a unity of interest and ownership that the individuality or separateness of such person and the corporation has ceased” and a failure to pierce the corporate veil would “sanction a fraud or promote injustice.” (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 837.) Factors to be considered in determining whether to apply the alter ego doctrine include but are not limited to: (1) comingling of funds, (2) treatment of corporate assets as an individual’s own assets, (4) holding out by an individual that he is personally liable for corporate debts, (5) failure to maintain adequate corporate records, (6) sole ownership of all stock in a corporation by one individual, (6) use of the same office or business location, (7) undercapitalization, (8)Use of corporation as a shell, instrumentality, or conduit for the business of an individual, (9) concealment of the owner or manager’s identity, (10) Disregard of legal formalities, (11) use of corporation to procure services for another person, (12) Diversion of corporate assets to another person, (13) Contracting with another using the corporation as a shield against individual liability, (14) the formulation of a corporation to transfer existing liability to it. (Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 512-513.)

Defendant Grayson here argues that undisputed evidence shows that none of the alter ego factors existed during his time as CEO of GCHP. (Opposition at pgs. 13:9-14:21.) Plaintiff, however, has set froth at least some evidence indicating that Todd Grayson is the President and sole owner of Kagtig, that Grayson caused GHCP to enter into the Kagtig agreement, and that the Kagtig agreement entitled Grayson (as Kagtig’s manager) to a monthly fee of $15,000.00, bonuses related to the future sale of real property, and gave him effective control over GHCP and the LLCs. (Grayson Depo. at 453:12-20; Cooper Depo. at 49:6-9, 191:3-24; Plaintiff’s Exhibit 8.) This evidence provides support for the notion that Defendant used GHCP to procure services for Kagtig, and that he diverted corporate funds for his own use. Perhaps most persuasive as to the alter ego claim is Plaintiff’s evidence that Defendant caused moneys belonging to GHCP to be paid to himself personally. Thus, a triable issue of fact has been raised as to alter ego factors 11 and 12, as identified above. Further, Plaintiffs have produced evidence that at least two of the LLCs transferred distribution funds directly to Grayson personally, though the funds should have first gone to GHCP as a member of the LLC. (Plaintiff’s Exhibits 53, 54, 58, 59.) This is further evidence of Alter Ego factor 12, as well as factor 10, disregard of legal formalities.

Defendant, in his Motion, points to a variety of representations made throughout his own Declaration that would contradict a finding of alter ego liability. (MSJ at pgs. 13:9-14:21.). As explained above in the Court’s “Evidentiary Rulings” analysis, this declaration is admissible evidence that may be properly considered in determining whether the alter ego doctrine applies here. However, it is not sufficient to resolve the issue entirely on summary judgment. Both parties have presented admissible evidence on either side of the alter ego question. The issue must therefore proceed to trial.

Defendant concedes that the basis of the entire Second Amended Complaint is the recovery of damages for breaches of various agreements to which GHCP was a party. (MSJ at pgs. 8:17-8:25). Again, for the reasons explained above, there is a triable issue of fact as to whether Defendant Grayson is GHCP’s alter-ego.

Release

Next, Defendant argues that even if Plaintiff’s alter ego theory is proven, the fact that GHCP has received a release of any liability from Plaintiff’s must also release Defendant’s alter ego liability. This position is correct: where the alter ego doctrine applies, if a corporation is released from liability so too are its alter egos. (Fuls v. Shastina Properties, Inc. (1978) 448 F.Supp.983, 989.)

Defendant has obtained judicial notice of its Chapter 7 Trustee’s Motion to Approve Compromise of Controversy. Attached to that Motion as Exhibit 1 is a “Settlement Agreement and Mutual Release” of all causes of action between GHCP and the Plaintiffs to the instant action. (RJN Ex. 3, Ex. 1 thereto or “the Agreement”.) Although Todd I. Grayson, Esq. is identified as a “non-released party” in the Agreement, the Fuls rule stated above would still defeat any alter ego claim if the Agreement is effective, since the Agreement releases GHCP (Grayson’s purported alter ego) is released from all liability. (Agreement at ¶5, pg. 8.) The Agreement states, however, that its effective date “shall be the entry date of a U.S. Bankruptcy Court order approving this Agreement.” (Agreement at pg. 1.) The problem for Defendant is that the Bankruptcy Court rejected the Agreement and therefore the releases are invalid. (Plaintiff’s Exhibit 61.) Thus, the proposed releases of GHCP liability do not absolve Defendant of any liability.

In sum, because Plaintiff has raised a triable issue of material fact as to Defendant Todd Grayson’s status as GHCP’s alter ego with regard to all relevant causes of action, and because the Settlement Agreement releasing GHCP from liability never became effective, Defendant’s Motion for Summary Judgment/ Summary Adjudication (as well as Plaintiff’s continuance motion) are DENIED.