Case Number: BC661351    Hearing Date: January 10, 2018    Dept: 58

Hearing Date:              January 10, 2018

Calendar No:               9

Case Name:                 American Threads, Inc., et al. v. G&S Off Price, Inc., et al.

Case No.:                    BC661351

Motion:                       (1) Motion for Reconsideration

                                    (2) Demurrer

Moving Party:             (1) (2) Defendants G&S Off Price, Inc. and Gideon Eliassi

Responding Party:      (1) (2) Plaintiffs American Threads, Inc. and Ziv Pas 

Tentative Ruling:      The Motion for Reconsideration is denied.  The Demurrer is sustained in part. 

This action is related to BC663725 and arises from the same controversy alleged therein, except this action is brought from the perspective of American Threads, Inc., whose business relationship with 10 Below, LLC was terminated based on false accusations by Eliassi regarding the alleged conversion of corporate money from American Threads, Inc.  On August 18, 2017, Plaintiffs American Threads, Inc. and Ziv Pas filed the operative First Amended Complaint (“FAC”) alleging causes of action for (1) conversion, (2) breach of contract, (3) private nuisance, (4) trespass to chattel, (5) breach of fiduciary duty, (6) intentional interference with prospective economic advantage, (7) negligent interference with prospective economic advantage, (8) unjust enrichment, (9) breach of contract, (10) violations of Bus. & Prof. Code § 17200, et seq., (11) injunction, and (12) accounting.

Motion for Reconsideration

Defendants seek reconsideration of the Court’s November 22, 2017 ruling denying Defendants’ motion to strike.  Defendants moved to strike the addition of Plaintiff American Threads to the FAC because American Threads had been added without leave of court.  The Court denied the motion to strike, finding that a plaintiff may make any amendment without leave of court when a responsive pleading has not yet been filed.  Defendants make the same arguments they previously made, but now also argue that Plaintiff should have filed a motion to intervene; additionally, Defendants argue that Plaintiff’s counsel should be disqualified.

Defendants’ Motion is not well taken.  This Court was previously required to undertake independent legal research because the parties’ prior briefing in connection with the motion to strike was so lacking.  The Court cited Gross v. Dep’t of Transportation (1986) 180 Cal. App. 3d 1102, 1107 which held, “We . . . conclude that section 472 takes precedence over section 473 in all instances where a plaintiff seeks to amend his or her complaint once prior to the filing of an answer or demurrer.”  Not only does Gross provide a general principle defeating Defendants’ arguments, but Gross also incidentally applies such principle to the situation presented here–finding that the addition of a party did not require leave of court prior to the filing of a responsive pleading.  The Motion is denied.

Demurrer

Defendants demur to all causes of action for failure to state sufficient facts and uncertainty.

(1)   Uncertainty

Defendants argue the entire FAC should be dismissed because it is not clear which Plaintiffs assert what theories.  This argument is without merit.  The FAC is fairly clear.  In reality, Defendants dispute the legal propriety of certain claims asserted by Plaintiff Pas. This will be discussed below.

(2)   Standing

Defendants argue that Pas does not have the right to prosecute an action on behalf of Plaintiff American Threads in that the FAC does not allege that demand requirements have been fulfilled to bring a derivative action; further, Pas does not otherwise have authority to do so by virtue of his role at American Threads.

It is true that Pas and American Threads do not allege that demand requirements have been met in order to prosecute a derivative action.  On the other hand, an officer, such as a corporate president, may be authorized to prosecute a claim on behalf of the corporation.  Indeed, an “officer will be deemed to have authority to act and speak on behalf of a corporation where he had been the one actually managing its business.”  (Sealand Inv. Corp. v. Emprise Inc. (1961) 190 Cal.App.2d 305, 314.)  Here, the FAC states that the parties’ original partnership agreement provided that Pas was to take on American Threads’ management function and that Eliassi was not to be involved in the day-to-day operations of the corporation.  (FAC ¶ 9.)

Defendants argue that once American Threads was incorporated, the partnership and its agreement ceased to exist.  While ordinarily true, if a corporation is a mere agency for the purpose of convenience in carrying out a joint venture agreement, justice would demand that in determining the rights of the parties they be placed in the position each occupied under the original agreement.  (Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1158-59.)  Liberally construing the FAC, Plaintiffs’ references to a partnership throughout the FAC appear to indicate that while American Threads was a corporation, it continued to operate in all other respects as a partnership.  Thus, at the pleadings stage, Plaintiffs have properly asserted American Threads’ standing by virtue of Pas’ authorization to bring this action.  The Demurrer is overruled on the ground of standing.  The propriety of Pas’ claims are discussed below.

(3)   Conversion (First Cause of Action)

Defendants demur to the first cause of action for conversion because (1) Plaintiffs do not plead ownership of the subject inventory, and (2) no facts are pled as to G&S’s involvement.  Plaintiffs properly assert that the inventory in question belonged to American Threads. (FAC ¶ 35.)  On the other hand, the allegation that Pas had a possessory interest in the property as an agent of American Threads is insufficient as it fails to provide for a possessory interest different from that asserted by the corporation.  Thus, the Demurrer is SUSTAINED as to the first cause of action to the extent asserted by PLAINTIFF PAS, without leave to amend.

As to G&S, the FAC adequately alleges that G&S converted Plaintiff’s inventory by barring access to G&S’s warehouse where such goods were located.  (See FAC ¶ 19, 36.)  Thus, the Demurrer is OTHERWISE OVERRULED.

(4)   Breach of Contract (Second Cause of Action)

Defendants demur to the second cause of action for breach of contract because (1) Pas is not alleged to be a party to the subject contract, (2) there are nearly no details regarding said contract, and (3) the claim is barred by the statute of frauds.  None of these arguments have merit.  First, the FAC alleges that Pas personally entered into a lease with Defendants.  (FAC ¶ 40.)  Next, Plaintiffs have sufficiently alleged the effect of the subject contract.  Finally, the statute of frauds is inapplicable in that it is not clear from the FAC that the alleged lease could not be completed within one year.  The Demurrer is OVERRULED as to the second cause of action.

(5)   Nuisance (Third Cause of Action)

Defendants demur to the third cause of action for nuisance on the ground that Plaintiffs actually allege entering into a license with Defendants—as opposed to a lease—such that Plaintiffs do not assert a sufficient property interest so as to bring a nuisance claim. However, any interest that can be classified as a property interest is sufficient to support a claim for private nuisance.  (Orange Cty. Water Dist. v. Sabic Innovative Plastics US, LLC (1971) 14 Cal.App.5th 343, 416.)  The Demurrer is OVERRULED as to the third cause of action.

(6)   Trespass to Chattels (Fourth Cause of Action)

Defendants demur to the fourth cause of action for trespass to chattels arguing that Pas has no ownership interest in the subject inventory.  The Court agrees.  Nowhere does the FAC allege that the subject inventory was owned by anyone other than American Threads.  Thus, the Demurrer is SUSTAINED as to the fourth cause of action to the extent asserted by PLAINTIFF PAS, without leave to amend.  The Demurrer is OTHERWISE OVERRULED.

(7)   Breach of Fiduciary Duty (Fifth Cause of Action)

Defendants demur to the fifth cause of action for breach of fiduciary duty because Eliassi, as a shareholder, does not have a fiduciary duty to Plaintiffs, and G&S is only asserted to be liable as a conspirator in breaching Eliassi’s fiduciary duties.  However, as previously discussed, to the extent Plaintiffs properly allege that the corporation is a mere agency for the purpose of convenience in carrying out the partnership venture, the initial partnership agreement controls.  Further, partners (here alleged to be Pas and Eliassi) have fiduciary duties to both one another and the partnership.  (Corp. Code § 16404(a).)  Moreovet, the FAC adequately alleges that G&S conspired in breaching Eliassi’s fiduciary duties by barring Plaintiffs’ entry to its warehouse.  (See FAC ¶ 56.)  Thus, the Demurrer is OVERRULED as to the fifth cause of action.

(8)   Intentional/Negligent Interference with Prospective Economic Advantage (Sixth and Seventh Causes of Action)

Defendants demur to the sixth and seventh causes of action for intentional and negligent interference with prospective economic advantage because (1) one cannot be liable for interference with prospective economic advantage as to a contract one is already a party to, and (2) no independently wrongful conduct is alleged.  Defendants first argue that the claims fail because Eliassi, as an agent of 10 Below, LLC, cannot be held liable for interfering with a contract to be consummated with 10 Below—rather, the remedy is breach of contract.  But regardless, the FAC also alleges that Eliassi—through G&S—interfered with prospective contracts with American Threads’ clients by barring access to inventory and selling it.  (FAC ¶ 65.)  Further, such actions are independently wrongful as a breach of fiduciary duty/conspiracy to do so.  This is sufficient to state a claim on American Threads’ part.

On the other hand, it is not clear why or how Pas has standing to assert such claims.  The alleged damages appear to be only directed at American Threads.  Thus, the Demurrer is SUSTAINED as to the sixth and seventh causes of action to the extent asserted by PLAINTIFF PAS.  The Demurrer is OVERRULED as to AMERICAN THREADS.

(9)   Unjust Enrichment (Eighth Cause of Action)

Defendants demur to the eighth cause of action for unjust enrichment because (1) unjust enrichment is not a cause of action, and (2) there are no allegations of enrichment.  While it is technically true that unjust enrichment is not a cause of action, labels aside, the FAC adequately pleads a claim for quasi-contract in that it is alleged that Defendants sold inventory for their own gain.  (FAC ¶ 74.)  The Demurrer is OVERRULED as to the eighth cause of action.

(10)  Breach of Contract (Ninth Cause of Action)

Defendants demur to the ninth cause of action for breach of contract arguing that the four alleged oral contracts are barred by the statute of frauds.  However, it is not apparent from the FAC that any of the four oral contracts required greater than one year for performance; thus, Defendants’ statute of frauds argument is unavailing.

Defendants also argue that the third oral contract is time-barred.  However, nowhere in the FAC are facts pled supporting any statute of limitations bar.  The date the contract was formed is not relevant.  The Demurrer is OVERRULED as to the ninth cause of action.

(11)     Bus & Prof. Code § 17200, et seq. and Injunction (Tenth and Eleventh Causes of Action)

Defendants principally argue that the tenth and eleventh causes of action fail because all underlying claims fail.  Because many of Plaintiffs’ claims have survived the Demurrer, this argument is unavailing.  The Demurrer is OVERRULED as to the tenth and eleventh causes of action.

(12)     Accounting (Twelfth Cause of Action)

Defendants argue that the accounting claim fails because (1) as previously discussed, American Threads does not have standing in this action, and (2) Defendants have no fiduciary duty to Pas.  But both of these arguments have already been rejected.  The Demurrer is OVERRULED as to the twelfth cause of action for an accounting.

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