2017-00207186-CU-FR

Paul Counts vs. Trevor Smith

Nature of Proceeding: Hearing on Demurrer to Complaint (Trevor Smith)

Filed By: Smith, Trevor

** If any party requests oral argument, then at the time the request is made, the requesting party shall inform the court and opposing counsel / opposing party in propria persona of the specific cause(s) of action or issue(s) on which oral argument is sought. **

Defendant Trevor Smith’s (Trevor) demurrer to the third amended complaint (TAC) is OVERRULED.

Trevor’s request for judicial notice is GRANTED.

Trevor’s supplemental request for judicial notice filed on 12/26/17 is DENIED as untimely. As discussed below, it was Trevor’s burden as moving party to tender with the moving papers arguments and judicially noticeable materials supporting his demurrer. The supplemental request for judicial notice is intended to support arguments, which Trevor broached in the moving papers, that Plaintiff Paul Counts (Counts) has no authority to cause Co-Plaintiff Unbelievers Movie, LLC (UM LLC) to join the lawsuit or advance legal claims against him. Hence, Trevor does not submit the supplemental request for judicial notice solely to support a rebuttal argument. The court will not take judicial notice of materials supporting the demurrer when Counts and UM LLC have already filed their opposition.

Plaintiffs’ request for judicial notice is GRANTED.

Overview

This case presents a business dispute among investors and would-be filmmakers. The plaintiffs are Counts, Scott Bennett (Bennett), Kristen Counts and UM LLC, a Washington limited liability company (collectively “Plaintiffs”). The defendants are Trevor, Kristi Smith (Kristi) and Usherance Studios, LLC, a California limited liability company (collectively “Defendants”). According to Plaintiffs, Defendants took their money on the promise it would be used to complete a film from which Plaintiffs would receive a share of the profits. Plaintiffs also allegedly received promises their funds would be applied to other investments. Plaintiffs contend Defendants converted the funds for their own, private uses.

The TAC contains causes of action against Trevor for fraud, breach of written contract, breach of oral contract, conversion, defamation, money lent, declaratory relief and accounting. Trevor now demurs to the first cause of action for fraud, the third and fourth causes of action for breach of written contract, and the ninth and tenth causes of action for money lent. He also demurs to the sixth cause of action for conversion, the eleventh cause of action for declaratory relief and the twelfth cause of action for accounting to the extent UM LLC advances them. And he purports to demur to a cause of action that is not directed at him. Plaintiffs oppose.

Discussion

Preliminarily, the court notes that its copy of Plaintiffs’ opposing memorandum of points and authorities ends at page 15. However, it appears that this document is identical to Plaintiffs’ opposition to Kristi’s concurrent demurrer. As a result, the court has reviewed pages 16 through 20 in the opposition to Kristi’s demurrer in the course of ruling on Trevor’s demurrer.

The court also notes Trevor’s objection that Exhibits 1 and 2 cited in the TAC are not attached. It appears Plaintiffs originally neglected to attach the exhibits to the TAC but filed a TAC with exhibits later under a notice of errata. Because the same exhibits were attached to the second amended complaint (SAC), and because Trevor was served with those exhibits and knows their contents, Plaintiffs failure to attach them to the TAC neither bars a ruling nor compels an order sustaining any demurrer.

The Second Cause of Action for Aiding & Abetting Fraud

The demurrer is OVERRULED.

The subject cause of action is directed only at defendants other than Trevor. As a result, there is no basis for Trevor to demur.

Counts’ and Bennett’s First Cause of Action for Fraud

The demurrer is OVERRULED.

The court overruled Trevor’s demurrer to this cause of action as it was alleged in the SAC. Section 430.41 of the Code of Civil Procedure bars Trevor from demurring to this cause of action again now. Subdivisions (b) and (g) of that section read, respectively:

A party demurring to a pleading that has been amended after a demurrer to an earlier version of the pleading was sustained shall not demur to any portion of the amended complaint, cross-complaint, or answer on grounds that could have been raised by demurrer to the earlier version of the complaint, cross-complaint, or answer.

If a demurrer is overruled as to a cause of action and that cause of action is not further amended, the demurring party preserves its
right to appeal after final judgment without filing a further demurrer. (Emphasi

By enacting these provisions, the Legislature intended to bar successive demurrers of the type the Trevor now seeks to mount:

Similarly, the bill would prohibit a demurring party from demurring again to the same cause of action, unless the cause of action itself is amended. Specifically, when demurring to a pleading amended after a demurrer has been ruled on, the bill would not allow a party to demur to causes of action or defenses that were not amended, and would not allow a party to raise any issue which could have been raised earlier. If a demurrer is overruled and the pleading is not amended, the demurring party preserves the right to appeal after trial. This is intended to prevent parties from bringing demurrers on the same issues in an attempt to delay the case. (Emphasis added.)

(See Assem. Com. on Judiciary, Analysis of Sen. Bill No. 383, (2015-2016 Reg. Sess.) as amended July 9, 2015, pp. 9-10; accord Assem. Com. on Judiciary, 3d (Sen.) reading analysis of Sen. Bill No. 383 (2015-2016 Reg. Sess.) as amended Aug. 17, 2015, p. 7; accord Assem. Com. on Judiciary, 3d (Sen.) reading analysis of Sen. Bill No. 383 (2015-2016 Reg. Sess.) as amended Sept. 2, 2015, p. 7.) Notably, on grounds a defendant should not be prohibited from demurring on a basis it simply missed the first time around, opponents of the subject provisions in CCP § 430.41 objected before the provisions were enacted. (See Sen. Rules Com., Off. of Sen. Fl. Analyses, Analysis of Sen. Bill No. 383 (2015-2016 Reg. Sess.) as amended Sept. 2, 2015, p. 10.) The Legislature nonetheless included the same provisions in the final bill submitted to the Governor.

Although Plaintiffs did amend allegations appearing in the TAC, the fraud allegations directed at Trevor have not been changed so as to compel consideration of his current demurrer.

The Third and Fourth Causes of Action for Breach of Written Contract

The demurrers are OVERRULED.

The subject causes of action are based on the Investment Contracts attached to the TAC as Exhibits 1 and 2. The third cause of action belongs to Bennett, and the fourth belongs to Counts. Each contract requires the investor (Bennett or Counts, respectively) to contribute funds to Trevor and Usher Studios LLC in exchange for a percentage of profits in the latters’ business ventures.

The court sustained Trevor’s demurrers to these causes of action as alleged in the SAC. The reason for the rulings was Counts’ and Bennett’s failure to allege the

breach of a material term of the Investment Contracts. The court noted that, although the Investment Contracts express an intent to apply invested funds to “income-generating projects and/or the retirement of debt,” the funds were provided “without restrictions on use.” Given the absence of restrictions on use, the court concluded that allegations Trevor used the funds to pay personal debts, pay his personal living expenses and make charitable gifts could not be construed as contractual breaches. The court now reconsiders its construction of the contracts and concludes the allegations can be construed to establish contractual breaches.

One interpretation of the Investment Contracts is that, although Trevor and Usher Studios LLC were not required to apply the funds to any particular business venture, the funds were to be used for income-generating projects rather than purely personal interests. Extrinsic evidence might be required to flesh out the contracting parties’ expectations and understandings. At this point, where evidence may not be considered, the court cannot conclude as a matter of law that the allegations do not establish contractual braches. As a result, the demurrers are overruled.

The Ninth and Tenth Causes of Action for Money Lent

The demurrers are OVERRULED.

As he did in his demurrer to the SAC, Trevor argues the common counts rise and fall with the causes of action for breach of written contract. Assuming Trevor is correct, the demurrers must be overruled given that the court overruled his demurrers to the contact causes of action.

UM LLC’s Causes of Action

The demurrer is OVERRULED.

In the TAC, Counts alleges that he is UN LLC’s managing member. Citing Exhibit 1 to his request for judicial notice, Trevor argues that he is one of UM LLC’s “governors.” Exhibit 1 appears to be an online print-out from a Washington public entity and designates Trevor as governor. Trevor argues that, given his status as governor, and pursuant to the Revised Code of Washington § 23.95.105(12), UM LLC may not sue him. Section 23.95.105 provides several definitions. Subd. (12) of that section defines the term “governor” to mean “[a] manager of a manager-managed limited liability company” or “[a] member of a member-managed limited liability company,” among other definitions of the term. Trevor argues these definitions compel a conclusion that he is on par with Counts in terms of his authority over UM LLC. In his view, his status as governor bars Counts and the other plaintiffs from causing UM LLC to bring legal claims against him.

For their part, Plaintiffs counter that Trevor admitted in prior pleadings that Counts is a manager of UM LLC.

At this point, no charter or operating agreement is before the court. Counts’ authority to direct UM LLC’s legal claims against Trevor involves a factual issue that the court may not resolve at this juncture.

Furthermore, whether UM LLC is a proper plaintiff depends on the applicable law, which Trevor has not analyzed in his moving papers. Trevor engages in some legal

analysis for the first time in the reply, but the court disregards this untimely analysis, since Plaintiffs have not had a fair opportunity to respond. Moreover, Trevor’s legal analysis is not a mere rebuttal to issues raised for the first time in Plaintiffs’ opposition. As moving party, Trevor was required to make his legal arguments at the outset so that Plaintiffs could respond. The court thus rejects his demurrer to UM LLC’s causes of action.

Disposition

The demurrer is overruled.

Trevor is directed to file and serve his answer no later than 1/17/18.