On 01/07/2015 RYAN HARPER filed a Contract - Other Contract lawsuit against MANHATTAN INN OPERATING COMPANY LLC. This case was filed in Los Angeles County Superior Courts, Stanley Mosk Courthouse located in Los Angeles, California. The Judges overseeing this case are MICHELLE R. ROSENBLATT, JAMES C. CHALFANT and SUZANNE G. BRUGUERA. The case status is Pending - Other Pending.
Pending - Other Pending
Los Angeles County Superior Courts
Stanley Mosk Courthouse
Los Angeles, California
MICHELLE R. ROSENBLATT
JAMES C. CHALFANT
SUZANNE G. BRUGUERA
DOES 1 THROUGH 24
MANHATTAN INN OPERATING COMPANY LLC
PROMENADE RESTAURANT GROUP LLC
STRAIN JOHN A. LAW OFFICES OF
ZISLIS GROUP INC THE
STEVEN M. PICO REVOCABLE TRUST
PICO & LULL CPA'S
DRAFFIN JILL MACGREGOR
FREEMAN FREEMAN & SMILEY LLP PROFESSIONAL LIMITED LIABILITY PARTNERSHIP THAT IS CHARTERED IN THE STATE OF CALIFORNIA
PICO & LULL CPAS RICHARD LULL AND STEVEN PICO
HARPER BARBARA S. APLC
HARPER BARBARA SULLIVAN
HIRANO RONALD M. ESQ.
JOANNE M. FRASCA
STRAIN JOHN A. ESQ.
FRASCA JOANNE M.
HIRANO RONALD MASARU
ADAMEC JUSTENE MARIE
STRAIN JOHN ANTHONY ESQ.
LUDEKE BRIAN WILLIAM
IEZZA NICOLINO IRENIO
5/3/2021: Amended Complaint - AMENDED COMPLAINT (2ND)
5/7/2021: Notice - NOTICE OF UNAVAILABILITY
3/30/2021: Notice of Lodging - NOTICE OF LODGING NOTICE OF LODGING CONFIDENTIAL DOCUMENTS
9/28/2020: Minute Order - MINUTE ORDER (HEARING ON MOTION TO CONFIRM ARBITRATION AWARD FILED BY DEFEN...)
2/20/2020: Notice of Change of Address or Other Contact Information
12/13/2019: Notice of Change of Address or Other Contact Information
6/24/2015: Minute Order -
4/13/2021: Order Appointing Court Approved Reporter as Official Reporter Pro Tempore
9/21/2020: Declaration - DECLARATION IN SUPPORT OF EXHIBITS
10/19/2020: Demurrer - without Motion to Strike
10/21/2020: Notice - NOTICE NOTICE OF ERRATA RE THIRD AMENDED COMPLAINT
7/10/2020: Notice of Hearing on Petition - NOTICE OF HEARING ON PETITION NOTICE OF COURT'S SETTING HEARING DATE ON PLAINTIFFS' PETITION TO VACATE ARBITRATION AWARD
9/23/2019: Declaration - DECLARATION BARBARA HARPER IN SUPPORT OF MOTION FOR ORDER RE CLAIMANTS' INABILITY TO PAY ARB FEES & COSTS
9/23/2019: Motion for Order - MOTION FOR ORDER MOTION FOR ORDER RE CLAIMANTS' INABILITY TO PAY ARB FEES & COSTS
10/2/2019: Joinder - JOINDER IN OPPOSITION TO PLAINTIFFS MOTION SEEKING ORDER REGARDING FURTHER ARBITRATION PROCEEDINGS; SUPPLEMENTAL MEMORANDUM OF POINTS AND AUTHORITIES
10/21/2019: Declaration in Support of Ex Parte Application
1/25/2018: NOTICE OF RULING
5/13/2016: SUMMONS -
Hearing06/30/2021 at 08:30 AM in Department 40 at 111 North Hill Street, Los Angeles, CA 90012; Status ConferenceRead MoreRead Less
DocketRequest for Dismissal (With prejudice, Complaint, As to Defendant Preferred Bank); Filed by Barbara Harper (Plaintiff); Ryan Harper (Plaintiff)Read MoreRead Less
Docketat 08:30 AM in Department 40; Hearing on Demurrer - with Motion to Strike (CCP 430.10) - Not Held - Taken Off Calendar by PartyRead MoreRead Less
DocketAppellate Order Dismissing Appeal (;B312271, NA4/14/21;); Filed by ClerkRead MoreRead Less
Docketat 08:30 AM in Department 40; Status Conference - Held - ContinuedRead MoreRead Less
DocketMinute Order ( (Status Conference)); Filed by ClerkRead MoreRead Less
DocketNotice (of Unavailability); Filed by Ryan Harper (Plaintiff)Read MoreRead Less
DocketAmended Complaint ( (2nd)); Filed by Barbara Harper (Plaintiff); Ryan Harper (Plaintiff)Read MoreRead Less
DocketAppeal - Ntc Designating Record of Appeal APP-003/010/103; Filed by Ryan Harper (Appellant)Read MoreRead Less
DocketAppeal - Notice of Filing of Notice of Appeal; Filed by ClerkRead MoreRead Less
DocketNotice; Filed by Barbara Harper (Plaintiff); Ryan Harper (Plaintiff)Read MoreRead Less
DocketNOTICE OF FILING PROOFS OF SERVICE ON ALL DEFENDANTSRead MoreRead Less
DocketNotice; Filed by Barbara Harper (Plaintiff); Ryan Harper (Plaintiff)Read MoreRead Less
DocketChallenge To Judicial Officer - Peremptory (170.6); Filed by Defendant/RespondentRead MoreRead Less
DocketPEREMPTORY CHALLENGE TO JUDICIAL OFFICER (CODE CIV. PROC., 170.6)Read MoreRead Less
DocketNotice of Case Management Conference; Filed by ClerkRead MoreRead Less
DocketComplaint; Filed by Barbara Harper (Plaintiff); Ryan Harper (Plaintiff)Read MoreRead Less
DocketSUMMONSRead MoreRead Less
DocketCOMPLAINT: 1. ACTUAL FRAUD; ETCRead MoreRead Less
DocketNotice of Hearing; Filed by Manhattan Inn Operating Company, LLC (Defendant); Promenade Restaurant Group, LLC (Defendant); John Strain (Defendant) et al.Read MoreRead Less
Case Number: BC568691 Hearing Date: April 13, 2021 Dept: 40
MOVING PARTY: Plaintiffs Ryan Harper and Barbara Harper
OPPOSITION: Defendants Preferred Bank,
Jill Macgregor Draffin, and
Freeman, Freeman & Smiley, LLP
This case concerns Preferred Defendants’ (“Defendants”) $2.8 million loan to Manhattan Inn Operating Company, LLC (“MIOC”), a company in which Plaintiffs Ryan Harper and Barbara Harper (“Plaintiffs”) had invested in. The crux of Plaintiffs’ claims is that Defendants owed a fiduciary duty to them, which were violated by making the loan without majority shareholder approval. Plaintiffs’ Third Amended Complaint (“TAC”) alleges the following causes of action against Defendants:
3) Conspiracy to Commit Fraud;
4) Unfair Business Practices;
5) Intentional Interference with Contractual Relations;
6) Intentional Infliction of Emotional Distress.
Hsu and Pan and Draffin and Freeman were Preferred’s loan officers and attorneys, respectively.
Judicial Notice: The Court declines to take judicial notice of Plaintiffs’ Exhibits A (partial transcript), B (lodged emails), C (“False Majority Consent” form), but will take judicial notice of Defendants’ six exhibits: pleadings in this case and the final arbitration award (between Plaintiffs and MIOC, under Evidence Code section 452(d), official court records.
Second Cause of Action, Negligence: SUSTAINED
The Court finds that Plaintiffs have not sufficiently alleged their negligence claim. Duty is a well-known element of negligence. Generally, there is no fiduciary duty between a lender and a borrower. Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1093, fn. 1. A fiduciary duty is only owed when the defendant exceeds “the scope of its conventional role” as a money lender. (Id. at p. 1096.) Lenders have been found to exceed their role when they have “extensive control [over the enterprise] and shared profits.” Wagner v. Benson (1980) 101 Cal.App.3d 27, 35. It is undisputed that Defendants made the loan to MIOC and had no contact with Plaintiffs.
Plaintiffs allege that Defendants exceeded their role as a lender because they conspired with MIOC to make the loan without getting majority shareholder approval. (TAC, ¶ 17.) Allegedly Defendants did this to profit from the interest and fees on another larger loan they made to MIOC and its managers, the Redondo Beach loan. (Ibid.) Defendants also reviewed MIOC’s operating agreement and were aware that it required majority approval for a loan. (TAC, ¶ 32.) Despite this knowledge, Defendants prepared a “False Majority Consent” form for MIOC’s approval.
Here, Plaintiffs have not alleged that Defendants had extensive control over MIOC. The fact that Defendants made loans to MIOC does not show that they controlled them. Also, while Defendants may have profited from the Redondo loan, there is no allegation that they shared MIOC’s profits. Moreover, reviewing the operating agreement and preparing forms are standard lender conduct. Because the TAC does not allege Defendants’ extensive control or shared profits of MIOC, the demurrer is SUSTAINED.
First Cause of Action, Fraud: SUSTAINED
Plaintiffs allege that Defendants committed fraud when they made the loan without obtaining majority approval. As Defendants made no intentional misrepresentation, this is a fraud by concealment claim. Concealment is actionable fraud: “(1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.
Here, Defendants did not have to inform Plaintiffs that they would make the loan to MIOC because there was no fiduciary duty between them. None of the other three categories apply as they require “the existence of some other relationship” between the parties, which generally involves “some sort of transaction between the parties.” (Id. at p. 336-337.) There was no transaction, or any contact, between Defendants and Plaintiffs. Accordingly, the demurrer is SUSTAINED.
Third and Fourth Causes of Action, Conspiracy to Commit Fraud and Unfair Business Practices: SUSTAINED
These claims are derivative of the other claims. Accordingly, the demurrer is SUSTAINED.
Fifth Cause of Action, Intentional Interference with Contractual Relations: SUSTAINED
Defendants noted that this claim requires that a plaintiff allege that “the contract would otherwise have been performed” and that it was breached because of defendant’s wrongful act. Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 997. Here, Plaintiffs have not alleged that MIOC would have fulfilled the Operating Agreement’s terms but for Defendants making the loan. Accordingly, the demurrer is SUSTAINED.
Sixth Cause of Action, Intentional Infliction of Emotional Distress: SUSTAINED
Here, Plaintiffs’ allegations are insufficient to show that Defendants’ conduct was extreme and outrageous. Accordingly, the demurrer is SUSTAINED.
Defendants argue that Plaintiffs’ claims are derivative —which means they lack standing to allege them individually—because the arbitrator in the MIOC proceeding found that:
“Claimants’ Preferred Bank loan ‘direct claim’ is not actionable by them, individually. That is because any right of action challenging the Preferred Bank $2.8 million as unauthorized, fraudulent and imprudent belongs to MIOC and, if asserted by Claimants, must have been asserted derivatively on behalf of the MIOC.”
(Defs.’ RJN Ex. 6, p. 9.)
Issue preclusion applies when “‘1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party.’” Key v. Tyler (2019) 34 Cal.App.5th 505, 534.
Plaintiffs state that their claims are not derivative because Defendants’ conduct only “damaged a small percentage of minority of investors.” Also, as Preferred's attorney, Draffin drafted the “False Majority Consent” form, which Plaintiffs assert is a direct claim against Defendants.
Plaintiffs were a party to the arbitration proceedings and the arbitrator's ruling—that Plaintiffs' claims against Preferred were derivative and belonged to MIOC—was final. Accordingly, Plaintiffs’ individual claims are precluded.
MOTION TO STRIKE - GRANTED
New Parties and Claims: GRANTED
While the Court granted Plaintiffs leave to amend their SAC, it did not grant them leave to add new parties and new causes of action. (See Community Water Coalition v. Santa Cruz County Local Agency Formation Com. (2011) 200 Cal.App.4th 1317, 1329 [explaining that when a “court sustains a demurrer with leave to amend” the scope of leave is limited to curing “the defects in the particular causes of action”].) Plaintiffs did not have permission to add defendants Ted Hsu, Lana Pan, Jill Macgregor Draffin, Freeman, Freeman & Smiley, LLP, and to add two the fifth and sixth causes of action. There are proper procedures to add parties and causes of action (Doe amendment and motion for leave to amend) which Plaintiffs have not followed. Accordingly, the listed defendants and the fifth and sixth causes of action are stricken.
Punitive Damages: MOOT
Because the demurrer to the fraud claim (the basis for punitive damages) has been sustained, the motion to strike is moot.
Attorney’s Fees: GRANTED
Plaintiffs have not alleged what contract, statute, or law allows them to recover attorney’s fees. Accordingly, attorney’s fees are stricken.
Conclusion: Defendants’ Demurrer is SUSTAINED, with leave consistent with the above. Defendants’ Motion to Strike is GRANTED.
Case Number: BC568691 Hearing Date: November 13, 2020 Dept: 40
Plaintiffs Ryan Harper and Barbara Harper (collectively, “Plaintiffs”) filed a complaint in 2015 against Defendants Manhattan Inn Operating Company, LLC (“MIOC”), Promenade Restaurant Group, LLC, The Zislis Group, Inc., John Strain and Law Office of John Strain, and David Zislis (collectively, the “Hotel Defendants”). Plaintiffs claimed that inside investors diluted the value of their investment in MIOC, a hotel project.
Defendant Preferred Bank (“Preferred”) has filed a demurrer to Plaintiffs’ Second Amended Complaint (“SAC”). Defendants Pico & Lull, CPA’s, Richard Lull and Steven M. Pico Revocable Trust (collectively, “Pico”) also filed a demurrer to the SAC.
After the filings of the demurrers, Plaintiffs filed a Motion for Leave to File a Third Amended Complaint (“TAC”). The Hotel Defendants and defendant David Zislis (“Zislis”) filed oppositions to the motion for leave to amend. Defendants Pico and Preferred have also filed oppositions to the motion for leave to amend.
Stayed Claims: Plaintiffs argue that the unfair business practices (“UCL”) and injunctive relief claims were stayed as to the Hotel Defendants. (Pls. Brief, Ex A., June 24, 2015 Minute Order.) The Minute Order states, “the petition is granted as to all causes of action except 9 and 11 [in the FAC] as indicated in the May 28th tentative ruling.” (Id. at p. 1.) However, the Hotel Defendants are correct that the discussion for the eleventh cause of action in the tentative contradicts the minute order. The tentative states “[t]hus, the Court finds this cause of action [the eleventh/UCL claim] is arbitrable.” (Id. at p. 13.)
The Court finds that the UCL and injunctive claim are derivative of the underlying wrongdoing. Given that the arbitrator ruled in the Hotel Defendants’ favor, there is no underlying basis for these claims. (See Graham v. Bank of America (2014) 226 Cal.App.4th 594, 610, [“the trial court correctly determined the defendants can not be held liable for unlawful business practice where there is no violation of another law.”].)
Accordingly, the matter is complete as to the Hotel Defendants.
Preferred Bank’s Demurrer: SUSTAINED
Plaintiffs’ May 10, 2016 SAC alleges causes of action against defendants for:
Fraud & Deceit;
Breach of Written Contract;
Violation of Cal. Corp. Code 17106;
Violation of Corporate Securities Law of 1968;
Breach of Covenant of Good Faith and Fair Dealing;
Conspiracy to Commit Fraud;
Conspiracy to Commit Fraud;
Unfair Business Practices;
Intentional Interference with Contractual Relations;
Intentional Interference with Prospective Economic Advantage;
Breach of Fiduciary Duty.
Plaintiffs allege the Third, Fourth, Tenth and Twelfth (fraudulent concealment, negligence, conspiracy, and UCL) causes of action of the SAC against Preferred. The gravamen of these claims is that Preferred approved a $2.8 million loan to MIOC, without the consent of the majority of shareholders despite Preferred knowing that such consent was required by MIOC’s operating agreement.
Preferred argues that it owed no duty to Plaintiffs. The fraudulent concealment and negligence claims require that Preferred owed a duty to Plaintiffs. The conspiracy and UCL claims are derivative of these claims as they require an underlying unlawful act or legal violation. Under California law, there is generally no fiduciary duty between a lender and a borrower. Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1093, fn. 1. A lender also does not owe a duty of care to a borrower “when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money….Liability to a borrower for negligence arises only when the lender actively participates in the financed enterprise beyond the domain of the usual money lender.” (Id. at p. 1096.)
Plaintiffs’ opposition cites to allegations not contained in the SAC and to exhibits which it failed to request judicial notice for. For example, Plaintiffs’ opposition states that Preferred owed them a fiduciary duty because it exceeded the conventional role of a lender by:
“packaging a three-loan deal with three to four other entities, asked who the other 50% of owners were for the specific Preferred Bank Loan, sought a majority vote/consent per the Op Agrmt terms, but then accepted signatures on a document it prepared stating that it obtained a majority.” (Opp’n, 6:4-8.)
The Court also notes that Plaintiffs allege that Preferred is liable for the UCL claim because they violated the Sarbanes-Oxley Act. But there is no such allegation in the SAC.
Since these allegations are not in the SAC, Plaintiffs have failed to allege that Preferred owed them a duty.
Accordingly, Preferred’s demurrer is SUSTAINED.
Conclusion: Preferred’s demurrer to the Third, Fourth, Tenth, and Twelfth causes of action is SUSTAINED.
The Court notes that Plaintiffs’ opposition fails to cite to any allegation from their 35 page SAC.
Plaintiffs allege that Eleventh, Seventeenth, and Eighteen causes of action (conspiracy, professional negligence, and breach of fiduciary duty) against the Pico defendants, who were MIOC’s accountants. The gravamen of Plaintiffs’ claims is that in 2010, Pico participated in a scheme to dilute Plaintiffs’ shares. Pico’s participation consisted of preparing K-1 schedules (tax documents distributed annually to investors) and asking “MIOC to create and provide them with a backdated extension signed by David Zislis in order for Pico & Lull to assign David Zislis units due to the conversion of his loan.” (Opp’n, 7:13-16.)
Time Barred: Pico argues that the claim is time barred because Plaintiffs had actual notice of “red flags” in MIOC’s financial statements in 2006. (SAC, ¶ 27.) It is undisputed that Plaintiffs’ claims against Pico have at most a three year statute of limitations. Pico states that at the latest, Plaintiffs had notice that their shares had been diluted in September 2012, when they learned about the existence of $1 million in secret loans. (SAC, ¶ 29.) Plaintiffs only filed suit against Pico in May 2016.
Plaintiffs argue that they did not discover Pico’s 2010 conduct until February 12, 2016, when they received an email in discovery which indicated that Pico was complicit in the scheme to dilute their shares. Accordingly, the demurrer is SUSTAINED because nowhere in Plaintiffs’ SAC is it stated that they discovered Pico’s involvement in 2016.
Duty: Pico argues that it owed Plaintiffs no duty because their claims are derivative and not individual in nature. An individual cause of action exists only if damages to the shareholders were not incidental to damages to the corporation and operates to enforce a right against the corporation which the stockholder possesses as an individual. Jones v. H.F. Ahmanson & Co. (1969) 1 Cal. 3d 93, 106-107.
The Court finds that Plaintiffs have failed to allege what duty Pico owed to them. Plaintiffs allege that Pico owed them a duty as MIOC’s investors. It its undisputed that Pico’s client was MIOC. In Bily v. Arthur Young & Co. (1992) 3 Cal. 4th 370, the court held that an accountant’s general duty of care regarding an audit extends only to the client.
Moreover, based on the allegations in the SAC it is unclear how Pico violated a supposed duty to Plaintiffs. The SAC alleges that Pico requested documentation from John Strain regarding the extension of the due date on David Zislis’ secret loan and that Strain provided them with a backdated document. (SAC, ¶¶ 67, 68.) But there is no allegation that Pico knew that the documents would be backdated. Nor is there an allegation that Pico knew that the dilution of Plaintiffs’ share was wrongful.
Accordingly, Pico’s demurrer to the Eleventh, Seventeenth, and Eighteen causes of action is SUSTAINED.
Pico’s Motion to Strike: Pico requests that punitive damages and the recovery of attorneys’ fees be removed from the Complaint. The motion to strike is MOOT.
Conclusion: Pico’s demurrer is SUSTAINED. Pico’s motion to strike is MOOT.
Plaintiffs’ Motion for Leave to File a Third Amended Complaint:
“If the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend….” Morgan v. Sup. Ct. (1959) 172 Cal.App.2d 527. A court can deny leave to amend after long, inexcusable delay, where there is cognizable prejudice, such as discovery needed, trial delay, critical evidence lost, or added preparation expense. Solit v. Tokai Bank (1999) 68 Cal.App.4th 1435, 1448; Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 761. Notably, “it is not required to accept an amended complaint that is not filed in good faith, is frivolous, or sham.” American Advertising & Sales Co. v. Mid-Western (1984) 152 Cal.App.3d 875, 878.
California Rule of Court 3.1324: Plaintiffs failed to comply with the procedural requirements of Rule 3.1324 because they failed to specify the proposed changes by page, paragraph, and line number. (CRC rule 31324(a).) Despite this failure, the Court will consider the motion.
Plaintiffs’ TAC alleges causes of action against defendants for:
Breach of Written Contract;
Unfair Business Practices;
Conspiracy to Commit Fraud;
Breach of Covenant of Good Faith and Fair Dealing;
Civil Harassment Against David Zislis;
Interference with Contract & Prospective Economic Advantage;
Professional Negligence Against Pico & Lull;
Breach of Fiduciary Duty Against Pico & Lull;
Violation of Cal. Corp. Code § 17106.
Several new defendants are added:
Members of Preferred Bank: Ted Hsu, Lana Pan, Jill Draffin
Members of MIOC/Shade Hotel: Milo Basic, Samir Sheth, Darryl Nyznyk, William Levine, Joseph Datilo, Robert Christensen, Michael Zislis, Rose Zislis
Deposition Company: Atkinson-Baker
The four groups of defendants oppose the motion for leave to file a TAC.
The Court finds that the TAC is barred by res judicata as to the Hotel Defendants. To succeed on a res judicata defense, a party must show that (1) the claim in the present action is identical to a claim litigated or that could have been litigated in a prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the party against whom the doctrine is being asserted was a party or in privity with a party to the prior proceeding. Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 185.
The arbitrator already issued, and this Court confirmed, a Final Award that resolved the core issues in this case. The arbitrator ruled against Plaintiffs and found that “all statutes of limitations began to run under the California ‘delayed discovery’ doctrine in 2008 --- when the Harpers became on ‘inquiry notice’ concerning facts bearing on their ‘core allegations’ of all of their claims, via their undisputed timely receipt and Mr. Harper's imputed, if not actual, review of IRS Form K1s in effect showing a reduced percentage ownership interest in MIOC….” (Decl. Strain in Support of Def. Opposition to Pls. Mtn. to Vacate Arb. Award, Ex. D, p. 3.) The core allegations, i.e., membership’s interest dilution, the existence of ‘insider loans’ converted into MIOC equity, and the loan by Preferred Bank, have not changed from the SAC to the TAC. Therefore, Plaintiffs’ TAC is an improper attempt to relitigate the matter under the guise of “new” claims, which should have been raised in arbitration.
The Court notes that the addition of Atkinson-Baker, who provided deposition services, as a defendant is especially frivolous. The claim against them is that they “colluded and conspired with Strain by agreeing to alter an official certified transcript by unilaterally redacting certain information and stamping every page as ‘confidential’, and then refusing to allow plaintiffs to purchase a copy of the transcript.” (TAC, ¶ 81.) Plaintiffs have previously raised this issue to the Court and never alleged that Atkinson-Baker actively conspired against them. The Court’s understanding was that Plaintiffs could not afford to purchase a transcript and therefore Strain posted a copy online, from which he redacted parts.
Accordingly, the motion for leave to file a TAC is DENIED as to the Hotel Defendants.
Defendant David Zislis:
The TAC alleges two causes of action against Zislis. The first cause of action is for Intentional Interference with Contractual Relations & Prospective Economic Advantage. This cause of action was already alleged in the SAC and was ordered to arbitration and decided in Zislis’ favor.
The second cause of action is for civil harassment. Here the allegations are that Plaintiffs were threatened by a caller who referred to himself as the “friend of a friend.” Plaintiffs allege that Zislis was the “friend of a friend” referenced by the caller. (TAC, ¶¶ 106-107.) However, this purported claim does not allege that Zislis did anything or instructed the caller to do anything. The only thing alleged is that Zislis had a relationship with the caller. It is also unclear if civil harassment is a recognized cause of action. Courts have discretion to deny leave to amend where a proposed amendment fails to state a valid cause of action. California Cas. Gen. Ins. Co. v. Sup.Ct. (1985) 173 Cal. App. 3d 274, 280-281.
Accordingly, the motion for leave to file a TAC is DENIED as to defendant David Zislis.
Defendant Preferred Bank:
Preferred argues that Plaintiffs’ TAC still does not allege that they owed them a duty. Again, the gravamen is that Preferred approved a $2.8 million loan to MIOC without the approval of the majority of shareholders. The Court finds that the TAC does not allege that Preferred exceeded the scope of a money lender and therefore no duty was owed. Plaintiffs only state that they believe that the loan approval was not an arms-length transaction. (TAC, ¶ 43.) Plaintiffs also allege that preferred is making millions on another loan it has with the Hotel Defendants, related to a Redondo Beach property. (TAC, ¶ 44.) The Court finds that these allegations are insufficient because Plaintiffs do not allege that Preferred and the Hotel Defendants controlled or directly influenced each other.
Accordingly, the motion for leave to file the TAC is DENIED as to defendant Preferred Bank.
Pico states that the TAC is a sham pleading whose filing will prejudice them. The sham pleading doctrine generally prohibits a plaintiff from amending a complaint to omit harmful allegations from prior pleadings, without explanation. Deveny v. Entropin, Inc. (2006) 139 Cal. App. 4th 408, 425.
Pico states that Plaintiffs have removed allegations from the TAC that indicated that Plaintiffs were aware of the harm (the dilution of their interest) in 2006. (Decl. Ludeke, ¶ 12.) Plaintiffs currently allege that “MIOC never provided such document [signed document demonstrating that the option to convert had been extended] to Pico & Lull defendants, however, Pico & Lull did in fact extend the option . . .” (TAC, ¶ 65. ) Pico asserts that this new allegation is contradicted by the SAC’s Exhibit J (an email between John Strain and other MIOC investors) which states that “[i]n connection with the closing of Shade's annual books, Pico & Lull has asked Shade to provide updated documentation regarding David Zislis’ $500,000 loan to Shade.” (SAC, Ex. J.)
Here, no explanation has been provided for the changes.
Accordingly, the motion for leave to file the TAC is DENIED as to the Pico Defendants.
Conclusion: Defendant Preferred Bank’s Demurrer is SUSTAINED.
Defendants Pico’s Demurrer is SUSTAINED. Their Motion to Strike is MOOT.
Plaintiffs’ Motion for Leave to File a Third Amended Complaint is DENIED.
Case Number: BC568691 Hearing Date: September 28, 2020 Dept: 40
MOVING PARTY: Plaintiffs Ryan Harper and Barbara Harper: Vacate
MOVING PARTIES: Defendants Manhattan Inn Operating Company, LLC,
Promenade Restaurant Group, LLC,
The Zislis Group, Inc.,
John Strain and
Law Office of John Strain, David Zislis Confirm
Defendants filed the to confirm the arbitration award while Plaintiffs have filed a motion to vacate the award.
Standard: Any party to an arbitration in which an award has been made may petition the court to confirm, correct, or vacate the award. (Cal. Code of Civ. Proc. §1285.) Arbitration awards are subject to very limited judicial review, and the merits of the controversy are not reviewable on a petition to confirm, vacate, or correct. Cinel v. Christopher (2012) 203 Cal.App.4th 759, fn 5.
Plaintiffs’ Petition to Vacate Arbitration Award: DENIED
On April 1, 2018, and April 6, 2018, the arbitrator conducted a hearing on Plaintiffs’ state law claims and found that they were barred by the statute of limitations. The arbitrator found that Plaintiffs had notice that their shares in MIOC were being diluted because of the IRS K-1 form they received every year. Plaintiffs amended their complaint to allege a federal securities claim, which was heard by the arbitrator from July 8, 2019 to July 11, 2019. The arbitrator also found that the federal securities claims were barred by the statute of limitations amongst other grounds.
Standard: An arbitration award may only be vacated if (1) the award was procured by corruption, fraud or other undue means, (2) there was corruption in any of the arbitrators, (3) the rights of the party were substantially prejudiced by misconduct of a neutral arbitrator, (4) the arbitrators exceeded their powers, (5) the rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing, or (6) the arbitrator making the award failed to disclose a ground for disqualification or failed to disqualify himself or herself as required upon receipt of timely demand. (Code of Civ. Proc., §1286.2.)
Arbitration was Improper: Plaintiffs argue that the matter should not have been sent to arbitration in the first place because the arbitration agreement stated that JAMS’ predecessor entity would arbitrate the matter. The Court finds that Plaintiffs have forfeited this argument by only raising it five years after the initial motion to compel arbitration was granted and after the arbitration proceedings were completed. Jenks v DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal.App.4th 1, 9.
Transcript: Plaintiffs argue that they did not have the transcript of the July 2019 hearings. Plaintiffs could not afford to pay the reporter and therefore Defendants were ordered to do so. Defendants provided access and an electronic copy of the transcripts to Plaintiffs.
Plaintiffs fail to demonstrate there was any substantive difference between the electronic copy provided to them and the actual copy. Plaintiffs have not demonstrated that Defendant Strain made substantive changes to the transcript aside from the one-line redaction. Therefore, Plaintiffs suffered no prejudice in relying on the electronic copy of the transcript provided by Defendants.
1) Award Procured by Corruption, Fraud or Other Undue Means: Plaintiffs assert that they were threatened by Defendants’ colleague with violence if they continued the lawsuit. The Court finds that Plaintiffs have failed to demonstrate that the arbitration award was procured through fraud.
2) Rights Substantially Prejudiced by Arbitrator’s Misconduct: Plaintiffs argue that their rights were substantially prejudiced because the arbitrator failed to provide a continuance for the Merits Hearing on the federal securities claim that occurred from July 8, 2019 to July 11, 2019.
Whether to grant a continuance is up to the arbitrator’s discretion. As of 2019, this matter had been ongoing for four years. A review of the final award indicates that the securities claims were resolved on legal grounds, i.e., time barred, lack of standing, and failure to prove economic loss. (Final Award, pg. 25, fn. 37 and 38.) It is unclear how a continuance would have affected the outcome. As for the April 2018 hearings, Plaintiffs’ argument is that the arbitrator was erroneous because their expert demonstrated that the K-1 did not provide notice to Plaintiffs’ that their investment unit was diluted. Whether the arbitrator was wrong about the effect of the K-1 form goes to the issue of legal error and not misconduct.
Plaintiffs have not demonstrated that their rights were substantially prejudiced by the arbitrator’s misconduct.
3) Arbitrator Exceeded His Powers: Plaintiffs argue that the arbitrator exceeded his powers because he had a discussion with Defendants’ counsel in which he asked what evidence he had that Plaintiffs should have been put on notice of the dilution. Plaintiffs state that this was improper testimony as they were not allowed to cross-examine opposing counsel. Plaintiffs also complain that the arbitrator’s award had a section where he discusses why he was not biased against Defendants.
The manner in which the arbitrator chooses to conduct the proceedings does not demonstrate that he exceeded his authority.
A court may not correct an award based upon an error on a legal or factual issue: “California law is clear that “arbitrators do not ‘exceed their powers’ … merely by rendering an erroneous decision on a legal or factual issue, so long as the issue was within the scope of the controversy submitted to the arbitrators.” (Citations omitted.)” Safari Associates v. Superior Court (2014) 231 Cal.App.4th 1400, 1403-1404. The Court finds that the arbitrator did not exceed his powers.
Defendants’ Petition to Confirm the Arbitration Award: GRANTED
A) Filing Requirements (Code Civ. Proc., § 1285.4):
CCP § 1285.4 states: “A petition under this chapter shall:
Set forth the substance of or have attached a copy of the agreement to arbitrate unless the petitioner denies the existence of such an agreement. ¶ Set forth the names of the arbitrators. ¶ (c) Set forth or have attached a copy of the award and the written opinion of the arbitrators, if any.”
Defendants have attached a copy of the Arbitration Agreement, provided the name of the arbitrator, and attached a copy of the arbitrator’s award. (Petitioner’s Attachments in Support of Petition, 4(b) and 8(b).) Accordingly, Defendants have satisfied section 1285.4.
B) Service of the Arbitration Award, Petition, and Notice of Hearing (Code Civ. Proc., §§ 1283.6, 1290.4): Code of Civil Procedure, section 1283.6 provides that “[t]he neutral arbitrator shall serve a signed copy of the award on each party to the arbitration personally or by registered or certified mail or as provided in the agreement.”
Code of Civil Procedure, section 1290.4 states, in pertinent part:
“(a) A copy of the petition and a written notice of the time and place of the hearing thereof and any other papers upon which the petition is based shall be served in the manner provided in the arbitration agreement for the service of such petition and notice.
On March 13, 2020, a copy of arbitration award was served via email and U.S. mail on the parties. On July 1, 2020, Defendants filed a proof of service indicating that Plaintiffs had been served with a copy of the petition and notice of the hearing.
C) Timeliness of Petition (Code Civ. Proc., §§ 1288, 1288.4): A party may seek a court judgment confirming an arbitration award by filing and serving a petition at least 10 days, but no more than four years after the award is served on Respondents and Petitioners. (Code Civ. Proc., §§ 1288, 1288.4.) The petition was served more than 10 days after the award was served on the parties on March 13, 2020. Accordingly, Defendants have satisfied sections 1288 and 1288.4.
Defendants have procedurally complied with the requirements to confirm the arbitration award
Conclusion: Defendants’ Petition to Confirm the Arbitration Award is GRANTED and Plaintiffs’ Petition to Vacate the Arbitration Award is DENIED.
Case Number: BC568691 Hearing Date: December 11, 2019 Dept: 40
MOVING PARTY: Plaintiffs Ryan Harper and Barbara Harper
OPPOSITION: Defendants Manhattan Inn Operating Company, LLC, Promenade Restaurant Group, LLC, The Zislis Group, Inc., John Strain and Law Office of John Strain.
On October 16, 2019, the Court denied without prejudice, Plaintiffs’ prior motion regarding their ability to pay further arbitration costs. Plaintiffs file this renewed motion stating that they are unable to continue paying for arbitration and request an order that defendants pay their arbitration costs or, if defendants are unwilling to pay said costs, to proceed further in this court.
Standard: The case cited by the parties is Weiler v. Marcus & Milichap Real Estate Investment Service, Inc. (2018) 22 Cal.App.5th 970. In Weiler, the court held that:
“when a party who has engaged in arbitration in good faith is unable to afford to continue in such a forum, that party may seek relief from the superior court. If sufficient evidence is presented on these issues, and the court concludes the party’s financial status is not a result of the party’s intentional attempt to avoid arbitration, the court may issue an order specifying: (1) the arbitration shall continue so long as the other party to the arbitration agrees to pay, or the arbitrator orders it to pay, all fees and costs of the arbitration; and (2) if neither of those occur, the arbitration shall be deemed “had” and the case may proceed in the superior court.
(Id. at 981.)
Analysis: As requested at the October hearing, Plaintiffs have filed additional information about their income. Defendants dispute that Plaintiffs have provided sufficient information and argue that Plaintiffs are concealing settlement funds they received from one of the defendants, Michael Greenberg. The Court has reviewed Plaintiffs’ documents and determines that they have sufficiently demonstrated an inability to continue paying for arbitration. (See Ryan Harper Decl.; Barbara Harper Decl.;Plaintiffs’ Reply, Ex. A.) The Court also determines that there is insufficient evidence to conclude that either party acted in bad faith during arbitration. The Court finds that as per Weiler, Plaintiffs have made a sufficient showing that they engaged in arbitration in good faith and cannot afford to continue.
The issue that the Court has with plaintiffs’ request is that it appears that plaintiffs are seeking to relitigate the entire case.
On November 1, 2019, the arbitrator issued an interim award in which they denied Plaintiffs’ claims and denied their motion for reconsideration regarding the statute of limitations. (Strain Decl., Ex. A, Pg. 15.) The only outstanding issue appears to be a determination of Defendants’ attorneys’ fees and costs.
However, in an August email to JAMS, Plaintiffs requested a cost estimate for a motion for reconsideration, appeals, and leave to amend to add a RICO cause of action. Plaintiffs also request that the July 2019 merits hearing be reopened because they allege Defendants threatened a witness. Additionally, Plaintiffs allege that they learned of new causes of action at the July hearing.
The arbitration has been ongoing since 2015 and appears to have been completed.
The Court finds that Plaintiffs efforts to relitigate the order are distinguishable from Weiler because in that case arbitration was ongoing.
In this case, the arbitration will only continue if plaintiffs file additional motions seeking to challenge the previous arbitration orders or adding entirely new causes of action. It is unclear why these new causes of action were only discovered years after the commencement of arbitration.
Additionally, the Court has no way of proving or disproving that defendants threatened a witness.
However, the Court is willing to order that defendants pay for all the costs for the attorneys’ fees motion to complete the arbitration.
Conclusion: Plaintiffs’ Motion is Denied.
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