BR CO I, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, SUING INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF COOKIES CREATIVE CONSU VS GILBERT MILAM, ET AL.

Tentative Rulings

Case Number: *******2764 Hearing Date: October 11, 2023 Dept: 61

Defendants Gilbert Milam, Parker Berling, and Cookies Creative Consulting and Promotions, Inc.’s Motion to Stay is GRANTED.

No sanctions are awarded.

Defendants to provide notice.

I. MOTION FOR STAY

“Trial courts generally have the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency.” (Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1489.) The decision of a trial court to stay proceedings is thus generally a matter of discretion. (Bains v. Moores (2009) 172 Cal.App.4th 445, 480.)

Defendants Cookies Creative Consulting & Promotions, Gilbert Milam, and Parker Berling (Defendants) move for a stay of proceedings in this action pending resolution of an arbitration proceeding on similar facts, alleged against these same Defendants by nonparties Red Tech Holdings, LLC and Gron Ventures Fund I, LP (Claimants). This motion follows a prior application, denied on June 12, 2023, in which the court ruled that although the claims in each proceeding were very similar, the arbitration concerned different parties proceeding on contractual theories, while the present case was a derivative action brought by different parties on theories of breach of fiduciary duty. Defendants renew their previous motion based on “new or different facts, circumstances, or law,” under Code of Civil Procedure 1008, subd. (b). (Motion at p. 12.)

Granting a stay in a case where the issues in two actions are substantially identical [citations] is a matter addressed to the sound discretion of the trial court. ‘In exercising its discretion the court should consider the importance of discouraging multiple litigation designed solely to harass an adverse party, and of avoiding unseemly conflicts with the courts of other jurisdictions. It should also consider whether the rights of the parties can best be determined by the court of the other jurisdiction because of the nature of the subject matter, the availability of witnesses, or the stage to which the proceedings in the other court have already advanced.

(St. Paul Fire and Marine Insurance Company v. AmerisourceBergen Corporation (2022) 80 Cal.App.5th 1, 14.)

The new facts and circumstances supporting the renewed motion here are the procedural history of this case and a new filing by the arbitration claimants, which Defendants contend demonstrates the overlapping nature of the arbitration and the present action and the necessity of a stay. Specifically, Defendants contend that since the prior motion to stay was denied, this court sustained their demurrer to Plaintiffs’ derivative claims with leave to amend, and has taken under submission Plaintiffs’ motions to compel further responses to discovery, which demonstrates the burdens associated with dual proceedings and their substantive infirmity. (Motion at pp. 6–7.)

Defendants further identify a declaration submitted by Thomas Linovitz, one of Plaintiff BR CO I’s managing members, in support of a provisional relief application in LASC Case No. 23STCV16410 associated with the arbitration, in which he attests that he is not only the manager of the general partner of Gron Ventures Fund, LP one of the arbitration claimants, but is also a member of Red Tech, the other arbitration claimant, and was one of those “primarily in charge of [the claimants’] investments” in Cookies, which is the subject of the arbitration. (Motion Exh. 13, 2.)

Defendants note, as with their last motion, that the arbitration claimants are represented by the same counsel as Plaintiffs here. (Motion at p. 20.) They further note that Plaintiffs sent their demand letter, founded on the same allegations of wrongdoing, on the same day that the arbitration claimants filed their demand for arbitration. (Motion at p. 8; Ward Decl. 3–4.)

Defendants have demonstrated new facts and circumstances justifying the stay sought. Although they pointed out in their prior motion that Linovitz was the manager of the general partner of Gron Ventures, Linovitz has only recently disclosed his membership interest in the other arbitration claimant and his role in the underlying facts supporting their contractual causes of action.

In the prior motion, Plaintiffs and this court relied on the case Gregg v. Superior Court (1987) 194 Cal.App.3d 134, in which the appellate court determined that the trial court had abused its discretion by ordering a stay in an action between a plaintiff franchisee against a defendant franchisor, where the claims asserted by the plaintiff were similar to other claims pursued by other franchisees through the same attorney against the same defendant in federal court. (Id. at pp. 137–138.) The court noted that the plaintiff before them was “not a party to a related action in another forum,” and stated, “We find no precedent for preventing a litigant in the circumstances of this case from pursuing an action because other litigants are suing the same defendants over similar grievances in another forum.” (Id. at p. 138.) The court in that case determined that the litigants were not “substantially identical,” and that the claimant in the case before it was proceeding “in the only forum which could provide him with relief.” (Id. at p. 138.)

This case is different from Gregg. That case involved an individual plaintiff seeking personal relief separate from the relief requested by other parties in a different action. As the court stated, “Significant to this case is the fact that petitioner seeks personal relief from contracts and damages for fraud and unlawful business practices directed toward him.” (Gregg, supra, 194 Cal.App.3d at p. 138.) Plaintiffs in the present case, however, seek no relief personal to them, but bring a derivative action on behalf of Cookies, for the same misconduct asserted in the arbitration. Additionally, Defendants have presented evidence showing substantial identity of the parties prosecuting this litigation and the concurrent arbitration, namely through the fact that Plaintiff BR CO I is controlled by the same individual who controls the arbitration claimants.[1] The inference of shared control is buttressed by the similar allegations in both proceedings, the fact that all claimants are represented by the same counsel, and the service of BR CO’s demand letter in conjunction with the Claimants’ initiation of arbitration. Defendants have shown sufficient identity of parties and issues to warrant the requested stay, and Plaintiffs have shown no countervailing prejudice that could result.[2]

The motion is therefore GRANTED.

Case Number: *******2764 Hearing Date: August 29, 2023 Dept: 61

Plaintiff BR CO I, LLC’s Motions to Compel Further Responses to Requests for Production from Defendant Cookies Creative Consulting & Promotions, Inc., Parker Berling, and Gilbert Milam are GRANTED as to Requests No. 1–11, 26–49, 51–55, 57, and 59. The motions are DENIED as to Requests No. 12–25, 32–37, 50, 56, 58, 60, and 61.

Plaintiff BR CO I, LLC’s Motion to Compel Depositon of Defendant Cookies Creative Consulting & Promotions, Inc. are GRANTED as to Requests and Topics No. 1–11, 26–49, 51–55, 57, and 59. The motions are DENIED as to Requests and Topics No. 12–25, 32–37, 50, 56, 58, 60, and 61.

No sanctions are awarded.

I. MOTION TO COMPEL FURTHER PRODUCTION OF DOCUMENTS

“A party may demand that any other party produce . . . a document that is in the possession, custody, or control of the party on whom the demand is made.” (Code Civ. Proc., 2031.010(b).) The demanding party may move for an order compelling further response to the demand if the demanding party deems that (1) a statement of compliance with the demand is incomplete, (2) a representation of inability to comply is inadequate, incomplete, or evasive, or (3) an objection in the response is without merit or too general. (Code Civ. Proc., 2031.310(a).) “The motion shall set forth specific facts showing good cause justifying the discovery sought by the demand,” and “[t]he motion shall be accompanied by a meet and confer declaration under Section 2016.040.” (Code Civ. Proc., 2031.310(b).)

Plaintiff BR CO I, LLC (Plaintiff) moves to compel further responses to requests for production from Defendants Defendant Cookies Creative Consulting & Promotions, Inc., Parker Berling, and Gilbert Milam, to Requests for Production No. 1–61. Plaintiff contends that Defendants have refused to provide any response to the discovery sought, relying upon the contention that this court has sustained demurrers to the prior iteration of the complaint on standing grounds, with leave to amend, and that further discovery ought not be permitted until Defendants’ next demurrers to Plaintiff’s amended pleading has been decided. Defendants in opposition to the present motion repeat these arguments. (See Milam Opposition at pp. 12–14.)

This court previously rejected Defendants’ arguments in its June 12, 2023 ruling denying their motion to stay. Although authority exists for the proposition that a deriviative plaintiff is not entitled to discovery on the preliminary facts of demand refusal or futility (Bezirdjian v. O'Reilly (2010) 183 Cal.App.4th 316, 326; Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart (Del. 2004) 845 A.2d 1040, 1056), as the court noted in its prior order, the right to discovery generally does not depend upon the status of the pleadings. (See Mattco Forge, Inc. v. Arthur Young & Co. (1990) 223 Cal.App.3d 1429, 1436 fn. 3 [“Pleading deficiencies generally do not affect either party's right to conduct discovery”].)

Only certain of the requests at issue here tread directly upon areas of discovery prohibited by Delaware law. Specifically, Requests No. 12–25 specifically seek documents related to Plaintiffs’ demand and the contentions made by Defendants in response thereto. Such discovery has no purpose but to assist Plaintiffs in the pleading around the business judgment rule with respect to Defendants’ response to his demand, and is therefore not permitted. (Bezirdjian, supra, 183 Cal.App.4^th at p. 326.) The motion is therefore DENIED as to Requests No. 12–25.

Defendants also argue that Requests No. 1–10 relate directly to an alleged Stock Purchase Agreement (SPA), for which Plaintiffs levy claims that were not raised in their prior demand, and which thus mean that these requests are impermissible inquiries into demand futility. (Opposition at pp. 13–14.) However, these requests bear not merely upon the futility of any demand made upon Defendants with regard to the subject matter, but upon the substance of the wrongful conduct alleged with respect to the SPA. Thus these requests are not improper merely because they concern the same subject matter for which demand futility is alleged.

Defendants also object to the particular requests at issue, arguing that they are overbroad, irrelevant, and seek privileged material. (Opposition at pp. 14–19.)

Defendants are correct that certain of the document categories sought by Plaintiff are impermissibly overbroad and ambiguous. The requests include Request No. 50, seeking all documents related to Defendants’ transactions with undefined “cannabis brands”; No. 56, seeking all documents related to “any kickbacks or personal benefits” received by Defendants in any transaction related to the Company; and Request No. 60, seeking communications in which Defendants “threatened any third parties” in connection with a Cookies transaction. Document demands must “reasonably particulariz[e] each category of item” (Code Civ. Proc. 2031.030, subd. (c)(1)), with reasonable particularity interpreted “from the standpoint of the party who is subjected to the burden of producing the materials.” (Calcor Space Facility, Inc. v. Superior Court (1997) 53 Cal.App.4th 216, 222.) The category of “cannabis brands” is ill-defined, and the categories seeking documents evidencing “kickbacks” or “threats,” in addition to being argumentative, are unrelated to any plausible manner in which responsive documents are likely to be stored, and thus not framed with reasonable particularity.

Certain other requests, meanwhile, are not supported by good cause. Specifically, Requests No. 32–37 seek documents evidencing transactions between named officers and Defendants and certain other entities, when these other entities do not appear in the pleadings, and Plaintiff does not present any justification in the present motion for the request. Additionally, Request No. 61 seeks documents relating to Defendant Milam’s album sales, which is a matter that is at best collateral to the issues in dispute here. The motion is therefore DENIED as to Requests No. 32–37, 50, 56, 60, and 61.

The remaining requests, however, are supported by good cause and are not overbroad. Request No. 1 seeks documents related to the transactions identified in a schedule promulgated in connection with the SPA. Defendants argue that these transactions are not targeted in the operative complaint, but the complaint indeed alleges that the transactions listed evidence self-dealing on the part of the Company’s officers and board. (FAC 35, Exh. C.) Requests No. 2–11 seek documents related to specific aspects of the SPA transaction, which given the role of the SPA in this case, are reasonably particular and supported by good cause. Requests No. 26–49 and 51–55, meanwhile, identify a given third-party entity and seek all documents related to transactions with that entity, each of which entity is listed as the subject of targeted transaction either in the body of the FAC itself or by reference to the offending schedule. Documents evidencing business transactions with particular entities are reasonably particular. (See Weil & Brown et al., Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2022) 8:1442–8:1445.)

Defendants object to Requests No. 58 and 59, which seek documents relating to litigation with Cookies Retail Products, LLC and Runtz, LLC, arguing that these documents are irrelevant. (Opposition at p. 17.) However, the FAC alleges that Cookie Retail Products engaged in litigation against the Company based on allegations that they were only permitted to do business with the Company after agreeing to do business with affiliates of Defendants. (FAC 28.) No similar allegation or evidence supports Request No. 58, made as to litigation with Runtz.[1]

Defendants finally argue that various requests seek privileged information, such as Request No. 2, which seeks writings relating to “the negotiation, execution, and close of the SPA,” or Request No. 26, which seeks documents related to transactions with various 12/12 entities; or Reqeust No. 59, discussed above, seeking litigation-related documents. (Opposition at pp. 18–19.)

These requests are not improper. Although the documents requested may contain privileged items, privileged items likely constitute only part of the documents requested. “If only part of an item or category of item in a demand for inspection, copying, testing, or sampling is objectionable, the response shall contain a statement of compliance, or a representation of inability to comply with respect to the remainder of that item or category.” (Code Civ. Proc. 2031.240, subd. (a).) If Defendants claim that the requests implicate privileged documents, they may withhold such documents and produce instead a privilege log. (Code Civ. Proc. 2031.240, subd. (b)(1)–(2).)

Accordingly, the motions to compel further are GRANTED as to Requests No. 1–11, 26–49, 51–55, 57, and 59. The motions are DENIED as to Requests No. 12–25, 32–37, 50, 56, 58, 60, and 61.

II. MOTION TO COMPEL DEPOSITION

A party may make a motion compelling a witness’s deposition “after service of a deposition notice” if that witness “fails to appear for examination, or to proceed with it.” (Code Civ. Proc. 2025.450, subd. (a).) The motion must include a meet-and-confer declaration and show good cause for the discovery sought. (Code Civ. Proc. 2025.450, subd. (b)(1), (2).)

Plaintiff seeks to compel the deposition of the person most qualified for Defendant Cookies Creative Consulting & Promotions, Inc., pursuant to categories of examination and document production that are virtually identical to the categories discussed in relation to the above-discussed motions to compel further. Given that the categories, arguments, and considerations are identical, the result is likewise the same.

The motion is GRANTED as to Requests and Topics No. 1–11, 26–49, 51–55, 57, and 59. The motions are DENIED as to Requests and Topics No. 12–25, 32–37, 50, 56, 58, 60, and 61.

III. SANCTIONS

Statute provides that the court shall impose sanctions upon a party who unsuccessfully makes or opposes a motion to compel further response to interrogatories or requests for production of documents, absent substantial justification otherwise. (Code Civ. Proc. 2030.300, subd. (d); 2031.310, subd. (h).)

Plaintiff seeks $14,220.00 in fees and costs associated with the bringing of these motions, representing six hours of attorney work at $405 per hour, plus 21 hours of attorney work at $600 per hour. Since the motions are being granted only in part, no sanctions are awarded.

Case Number: *******2764 Hearing Date: June 13, 2023 Dept: 61

Defendants Cookies Creative Consulting & Promotions, Gilbert Milam, and Parker Berling’s Demurrer and Motion to Strike Portions of the First Amended Complaint are SUSTAINED with 30 days leave to amend as to the first, third, fourth, sixth, eighth, and tenth through fourteenth causes of action. The motion to strike is DENIED as moot.

Defendants 12/12 Ventures Fund I, LLC, 12/12 Ventures GP I, LLC, 12/12 SPV I, Cookies LLC, and Mech Ventures LLC’s Demurrer and Motion to Strike Portions of the First Amended Complaint are SUSTAINED as to all causes of action with 30 days leave to amend, except without leave to amend as to the thirteenth cause of action. Defendants’ motion to strike is DENIED as moot.

I. DEMURRER

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., 430.30, et seq.) In particular, as is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. [Citation.]”)

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

“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.” (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Such demurrers “are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 14 Cal.App.5th 841, 848.)

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

A. Milam & Berling Demurrer

Defendants Gilbert Milam and Parker Berling (Defendants) and nominal Defendant Cookies Creative Consulting & Promotions, Inc. (Company) demurrer to the first amended complaint filed by Plaintiffs BR CO I, LLC and Nedco, LLC, derivatively on behalf of Company. Defendants contend that Plaintiffs’ claims fail because they have not complied with the procedural prerequisites for bringing a derivative claim, and have not pleaded with particularity their demand to the Company board to bring suit against Defendants for their alleged self-dealing conduct. (Demurrer at p. 17.) Defendants further argue that Plaintiff Nedco LLC is not alleged to have made any demand concerning any misconduct at issue, and therefore lacks standing to proceed on a derivative basis. (Demurrer at p. 18.) Defendants further argue that Plaintiff has not alleged facts rebutting the presumption that the Company board rejected Plaintiff’s demand in the sound exercise of its business judgment. (Demurrer at pp. 19–24.) Defendants finally argue that Plaintiffs’ claim for declaratory relief is an impermissible request for direct relief, and is not forward looking as declaratory relief should be. (Demurrer at pp. 24–25.)

As a general rule, management of a corporation, including decisions concerning the prosecution of actions, is vested in its board of directors. When the board refuses to enforce corporate claims, however, the shareholder derivative suit provides a limited exception to the rule that the corporation is the proper party plaintiff. In deference to the managerial role of directors and in order to curb potential abuse, the shareholder asserting a derivative claim must make a threshold showing that he or she made a presuit demand on the board to take the desired action.

(Apple Inc. v. Superior Court (2017) 18 Cal.App.5^th 222, 231–32, internal quotation marks omitted.)

Defendants point to Corporations Code 800, subd. (b)(2), which allows a shareholder plaintiff to bring a derivative suit only if

The plaintiff alleges in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.

Here, although Defendants argue that Plaintiffs do not plead their efforts to secure action from the board as to their complaints, the FAC contains allegations concerning Plaintiff’s demand to the Company board and the bases therefore. (FAC 38.) Defendants offer no authority for the proposition that such allegations are insufficiently detailed to satisfy Corporations Code 800. (Demurrer at pp. 17–18.)

Defendants are correct, however, that Plaintiffs have not alleged either demand futility or an abrogation of the business judgment rule with respect to the matters stated in their demand. Plaintiffs allege offering a demand to the Company board, and thereby have waived the argument that the demand was excused. (See Spiegel v. Buntrock (Del. 1990) 571 A.2d 767, 775 [“A shareholder who makes a demand can no longer argue that demand is excused.”].)[1] “‘[W]here demand on a board has been made and refused, [courts] apply the business judgment rule in reviewing the board's refusal to act pursuant to a stockholder's demand’ to file a lawsuit.” (Bezirdjian v. O'Reilly (2010) 183 Cal.App.4th 316, 323.) The rule creates a presumption in favor of the company’s decision to reject the demand, and “to rebut the presumption, a plaintiff must plead with particularity facts that create a reasonable doubt as to the good faith or reasonableness of a board's investigation.” (Id. at p. 323.) Here, however, Plaintiffs make no attempt to plead facts rebutting the presumption of the business judgment rule with respect to the rejection of Plaintiffs’ demand.[2] Plaintiffs instead merely argue that the board, after rejecting the demand, approved further misconduct, forming further basis for Plaintiffs’ causes of action.

This further conduct, concerning a Stock Purchase Agreement (SPA) that Plaintiffs allege was designed to benefit Defendants and their affiliates, is also not alleged with facts constituting a demand or an excuse of the demand requirement under Corporations Code 800. Neither Plaintiff alleges making any demand with respect to SPA (Nedco does not allege making a demand at all) and Plaintiffs offer no allegations to explain “the reasons for not making such effort” to get the board to investigate the SPA. Plaintiffs include allegations concerning Defendants Milam and Berling’s deriving benefits from the SPA, as well as Defendant and fellow board-member Lesjai Peronnet Chang’s going along with their wishes to approve the SPA, but such allegations are not framed as a reason for failure to demand action, and are not accompanied by allegations — mandatory under Corporations Code 800, subd. (b)(2) — that Plaintiffs have “either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.” (Corp. Code 800, subd. (b)(2).)

Accordingly, the demurrer is SUSTAINED with leave to amend as to the first, third, fourth, sixth, eighth, and tenth through fourteenth causes of action. Defendants have filed a motion to strike allegations post-dating Plaintiffs’ demand and the prayer for punitive damages against Defendants Milam and Berling. As the demurrer disposes of all causes of action currently pleaded, the motion to strike is DENIED as moot.

B. 12/12 Ventures Demurrer

Defendants 12/12 Ventures Fund I, LLC, 12/12 Ventures GP I, LLC, 12/12 SPV I, Cookies LLC, and Mesh Ventures LLC (Defendants) join the demurrer of Defendants Milam, Berling, and Cookies, and are therefore entitled to a ruling in their favor on the same bases, namely Plaintiffs’ failure to plead demand futility or facts rebutting application of the business judgment rule. (Demurrer at p. 11.)

Defendants argue that the unjust enrichment claim fails because, despite alleging harm resulting to the Company from self-dealing transactions entered with Defendants through Milam and Berling, the FAC pleads no facts suggesting that any actual harm was suffered. (Demurrer at pp. 11–13.)

The argument is persuasive. To state a claim for unjust enrichment, one must allege actual damages. (See Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1594.) Here, the FAC does not allege that the Company suffered harm as a result of any transaction with the demurring defendants. It alleges that they misappropriated the Company’s information to promote themselves, without any allegation that such promotion harmed the Company. FAC 32.) Although the FAC alleges that the Company suffered harm as a result of entering into self-dealing transactions, these transactions are not with Defendants, but with their “portfolio companies.” (FAC 32.) The demurrer is properly SUSTAINED to the sixth cause of action with leave to amend for this additional reason.

Defendants further argue against the thirteenth cause of action for unfair competition on the grounds that no UCL claim may be brought in a derivative shareholder action. (Demurrer at pp. 14–15.) The sole authority that appears to exist upon the question is in two federal district cases, both of which have concluded that shareholder derivative actions cannot contain UCL claims, as the class of persons entitled to bring actions, even representative actions, under the UCL are “consumers and competitors.”UFCW Local 1500 Pension Fund v. Mayer (N.D. Cal., Oct. 19, 2016, No. 16-CV-00478-RS) 2016 WL 6122458, at *13, and Burt on Behalf of McDonnell Douglas Corp. v. Danforth (E.D. Mo. 1990) 742 F.Supp. 1043, 1053. This authority is persuasive. Derivative shareholders do not belong to the class of persons that the UCL is intended to protect.

Accordingly, the demurrer is SUSTAINED as to all causes of action with leave to amend, except without leave to amend as to the thirteenth cause of action. Defendants’ motion to strike, which concerns Plaintiff’s prayer for punitive damages and allegations not included in their demand to the Company board, are DENIED as moot.

Case Number: *******2764 Hearing Date: June 12, 2023 Dept: 61

Defendants Cookies Creative Consulting & Promotions, Gilbert Milam, and Parker Berling’s Motion to Stay Proceedings is DENIED.

I. MOTION FOR STAY

“Trial courts generally have the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency.” (Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1489.) The decision of a trial court to stay proceedings is thus generally a matter of discretion. (Bains v. Moores (2009) 172 Cal.App.4th 445, 480.)

Defendants Cookies Creative Consulting & Promotions, Gilbert Milam, and Parker Berling (Defendants) move for a stay of proceedings in this action pending resolution of an arbitration proceeding on similar facts, alleged against these same Defendants by nonparties Red Tech Holdings, LLC and Gron Ventures Fund I, LP (Claimants). (Motion at pp. 7–10.)

Granting a stay in a case where the issues in two actions are substantially identical [citations] is a matter addressed to the sound discretion of the trial court. ‘In exercising its discretion the court should consider the importance of discouraging multiple litigation designed solely to harass an adverse party, and of avoiding unseemly conflicts with the courts of other jurisdictions. It should also consider whether the rights of the parties can best be determined by the court of the other jurisdiction because of the nature of the subject matter, the availability of witnesses, or the stage to which the proceedings in the other court have already advanced.

(St. Paul Fire and Marine Insurance Company v. AmerisourceBergen Corporation (2022) 80 Cal.App.5th 1, 14.)

Defendants assert that a stay here is warranted because the factual bases of this action and the pending arbitration overlap. Namely, in both actions, the plaintiffs assert that Defendants Milam and Berling engaged in a series of self-dealing transactions to the detriment of Defendant Cookies and its shareholders. (Motion at p. 8.) Defendants provide charts comparing the allegations of the FAC in this action with the demand and amended demand filed in the arbitration, noting the many identical transactions alleged in these actions. (Becher Decl. Exh. F; Supp. Becher Decl. Exh. N.) Defendants also note that, although the arbitration is being prosecuted by nonparties, the plaintiffs in both actions are represented by the same counsel, and one of Plaintiff BR CO’s managing members (Thomas Linovitz) is the manager of the general partner of Gron Ventures, a claimant in the arbitration. (Motion at p. 8.) Defendants thus argue that this action is part of a coordinated strategy to harass Defendants, a factor militating in favor of a stay. (Motion at p. 9.)

Defendants have not shown entitlement to a discretionary stay in this matter. First, the overlap of these two proceedings is not as substantial as Defendants claim. It is true that the wrongful conduct alleged is very similar — Milam and Berling’s alleged series of self-dealing actions, culminating in an illicit stock purchase agreement (SPA). But the bases of the two actions are fundamentally different. In the arbitration, Gron and Red Tech sue in their own rights, pursuant to the contracts and representations incidental to their purchase of interests in Defendant Cookies. The alleged series of self-dealing actions in the arbitration are alleged to be actionable because those actions violated express guarantees contained in their contracts. (Becher Decl. Exh. N, 12–17.) Similarly, although the arbitration claimants also seek a declaration that the SPA is void or voidable, the basis for their position is contractual: the contention that Red Tech converted its note into Series A Preferred Stock prior to the closing of the SPA, thus requiring its consent for the transaction. (Becher Decl. Exh. N 47.) Plaintiffs here, although they target the same transactions, do so on the grounds that Defendants violated their fiduciary duties to Cookies. For this reason, the likelihood of “unseemly conflicts” with the arbitration proceeding is thus reduced, and the rights of the parties asserted here, derivatively, cannot be determined in the arbitration, which concerns the contractual rights of other parties.

Plaintiffs in opposition present authority that suggests a stay order would be of doubtful authority. In the case Gregg v. Superior Court (1987) 194 Cal.App.3d 134, the appellate court determined that the trial court had abused its discretion by ordering a stay in an action between a plaintiff franchisee against a defendant franchisor, where the claims asserted by the plaintiff were similar to other claims pursued by other franchisees through the same attorney against the same defendant in federal court. (Id. at pp. 137–138.) The court noted that the plaintiff before them was “not a party to a related action in another forum,” and stated, “We find no precedent for preventing a litigant in the circumstances of this case from pursuing an action because other litigants are suing the same defendants over similar grievances in another forum.” (Id. at p. 138.) Defendants in reply contend that the parties in this case are not so separate from the parties to the arbitration, noting the identity of attorneys and the overlap in BR CO’s and Gron’s ownership. (Reply at pp. 8–9.) But Gregg decision also involved the same attorneys across actions, a fact which the court found “can lend no support to the imposition of a stay.” (Gregg, supra, 194 Cal.App.3d at pp. 138.) Defendant’s evidence that the two actions are part of a campaign of coordinated harassment, meanwhile, is thin, supported only by the existence of overlapping management between BR CO and Gron. This is not a showing, however, that the parties to the arbitration and this action are “substantially identical.” (Gregg, supra, 194 Cal.app.3d at p. 137.) Accordingly, no stay of proceedings is proper here.

Defendants ask alternatively for a stay of discovery pending resolution of their demurrer, effectively for the entry of a protective order under Code of Civil Procedure 2019.020. (Motion at pp. 10–12.) No such stay is warranted. “Pleading deficiencies generally do not affect either party's right to conduct discovery, and this right (and corresponding obligation to respond) is particularly important to a plaintiff in need of discovery to amend its complaint.” (Mattco Forge, Inc. v. Arthur Young & Co. (1990) 223 Cal.App.3d 1429, 1436 fn. 3.) Here, although Defendant argues that Plaintiff is not entitled to discovery to buttress allegations that Defendants failed to adequately investigate their demand (See Bezirdjian v. O’Reilly (2010) 183 Cal.App.4^th 316, 326 [“Under Delaware law, discovery of evidence pertaining to a corporations' decision to refuse to pursue a lawsuit is generally not available.”]), Plaintiff cites additional authority that suggests discovery is available to support a theory of demand futility. (Opposition at p. 18, citing Melzer v. CNet Networks, Inc. (Del. Ch. 2007) 934 A.2d 912; King v. VeriFone Holdings, Inc. (Del. 2011) 12 A.3d 1140.) Although Defendants argue that Plaintiff cannot attempt to plead demand futility because they served a demand with respect to the conduct at issue in this action, this is not true of alleged wrongful conduct that postdates the demand and for which no demand was made, such as the SPA. (See Spiegel v. Buntrock (Del. 1990) 571 A.2d 767, 775 [“A shareholder who makes a demand can no longer argue that demand is excused.”].)

Accordingly, the motion for stay is DENIED.

Case Number: *******2764 Hearing Date: June 6, 2023 Dept: 61

Defendants Cookies Creative Consulting & Promotions, Gilbert Milam, and Parker Berling’s Demurrer and Motion to Strike Portions of the First Amended Complaint are SUSTAINED with 30 days leave to amend as to the first, third, fourth, sixth, eighth, and tenth through fourteenth causes of action. The motion to strike is DENIED as moot.

Defendants to provide notice.

I. DEMURRER

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., 430.30, et seq.) In particular, as is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. [Citation.]”)

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

“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.” (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Such demurrers “are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 14 Cal.App.5th 841, 848.)

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

Defendants Gilbert Milam and Parker Berling (Defendants) and nominal Defendant Cookies Creative Consulting & Promotions, Inc. (Company) demurrer to the first amended complaint filed by Plaintiffs BR CO I, LLC and Nedco, LLC, derivatively on behalf of Company. Defendants contend that Plaintiffs’ claims fail because they have not complied with the procedural prerequisites for bringing a derivative claim, and have not pleaded with particularity their demand to the Company board to bring suit against Defendants for their alleged self-dealing conduct. (Demurrer at p. 17.) Defendants further argue that Plaintiff Nedco LLC is not alleged to have made any demand concerning any misconduct at issue, and therefore lacks standing to proceed on a derivative basis. (Demurrer at p. 18.) Defendants further argue that Plaintiff has not alleged facts rebutting the presumption that the Company board rejected Plaintiff’s demand in the sound exercise of its business judgment. (Demurrer at pp. 19–24.) Defendants finally argue that Plaintiffs’ claim for declaratory relief is an impermissible request for direct relief, and is not forward looking as declaratory relief should be. (Demurrer at pp. 24–25.)

As a general rule, management of a corporation, including decisions concerning the prosecution of actions, is vested in its board of directors. When the board refuses to enforce corporate claims, however, the shareholder derivative suit provides a limited exception to the rule that the corporation is the proper party plaintiff. In deference to the managerial role of directors and in order to curb potential abuse, the shareholder asserting a derivative claim must make a threshold showing that he or she made a presuit demand on the board to take the desired action.

(Apple Inc. v. Superior Court (2017) 18 Cal.App.5^th 222, 231–32, internal quotation marks omitted.)

Defendants point to Corporations Code 800, subd. (b)(2), which allows a shareholder plaintiff to bring a derivative suit only if

The plaintiff alleges in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.

Here, although Defendants argue that Plaintiffs do not plead their efforts to secure action from the board as to their complaints, the FAC contains allegations concerning Plaintiff’s demand to the Company board and the bases therefore. (FAC 38.) Defendants offer no authority for the proposition that such allegations are insufficiently detailed to satisfy Corporations Code 800. (Demurrer at pp. 17–18.)

Defendants are correct, however, that Plaintiffs have not alleged either demand futility or an abrogation of the business judgment rule with respect to the matters stated in their demand. Plaintiffs allege offering a demand to the Company board, and thereby have waived the argument that the demand was excused. (See Spiegel v. Buntrock (Del. 1990) 571 A.2d 767, 775 [“A shareholder who makes a demand can no longer argue that demand is excused.”].)[1] “‘[W]here demand on a board has been made and refused, [courts] apply the business judgment rule in reviewing the board's refusal to act pursuant to a stockholder's demand’ to file a lawsuit.” (Bezirdjian v. O'Reilly (2010) 183 Cal.App.4th 316, 323.) The rule creates a presumption in favor of the company’s decision to reject the demand, and “to rebut the presumption, a plaintiff must plead with particularity facts that create a reasonable doubt as to the good faith or reasonableness of a board's investigation.” (Id. at p. 323.) Here, however, Plaintiffs make no attempt to plead facts rebutting the presumption of the business judgment rule with respect to the rejection of Plaintiffs’ demand.[2] Plaintiffs instead merely argue that the board, after rejecting the demand, approved further misconduct, forming further basis for Plaintiffs’ causes of action.

This further conduct, concerning a Stock Purchase Agreement (SPA) that Plaintiffs allege was designed to benefit Defendants and their affiliates, is also not alleged with facts constituting a demand or an excuse of the demand requirement under Corporations Code 800. Neither Plaintiff alleges making any demand with respect to SPA (Nedco does not allege making a demand at all) and Plaintiffs offers no allegations to explain “the reasons for not making such effort” to get the board to investigate the SPA. Plaintiffs include allegations concerning Defendants Milam and Berling’s deriving benefits from the SPA, as well as Defendant and fellow board-member Lesjai Peronnet Chang’s going along with their wishes to approve the SPA, but such allegations are not framed as a reason for failure to demand action, and are not accompanied by allegations — mandatory under Corporations Code 800, subd. (b)(2) — that Plaintiffs have “either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.” (Corp. Code 800, subd. (b)(2).)

Accordingly, the demurrer is SUSTAINED with 30 days leave to amend as to the first, third, fourth, sixth, eighth, and tenth through fourteenth causes of action. Defendants have filed a motion to strike allegations post-dating Plaintiffs’ demand and the prayer for punitive damages against Defendants Milam and Berling. As the demurrer disposes of all causes of action currently pleaded, the motion to strike is DENIED as moot.

Case Number: *******2764 Hearing Date: April 17, 2023 Dept: 61

Defendants 12/12 Ventures Fund I, LLC, 12/12 Ventures GP I, LLC, and 12/12 SPV I: Cookies LLC’s Applications to Admit Jose A. Lopez and Katherine E. May Pro Hac Vice are GRANTED.

Defendants to provide notice.

I. PRO HAC VICE

“A person who is not a member of the State Bar of California but who is a member in good standing of and eligible to practice before the bar of any United States court or the highest court in any state . . . and who has been retained to appear in a particular cause pending in a court of this state, may in the discretion of such court be permitted upon written application to appear as counsel pro hac vice, provided that an active member of the State Bar of California is associated as attorney of record.” (Cal. Rules of Court (“CRC”) Rule 9.40(a).) An applicant may not be a resident of the State of California, regularly employed in the State of California, or regularly engaged in substantial business, professional, or other activities in the State of California. (CRC 9.40(a)(1–3.)

“A person desiring to appear as counsel pro hac vice in a superior court must file with the court a verified application together with proof of service by mail in accordance with Code of Civil Procedure section 1013a of a copy of the application and of the notice of hearing of the application on all parties who have appeared in the cause and on the State Bar of California at its San Francisco office.” (CRC 9.40(c)(1).) Notice must be given sixteen days before the hearing.

“The application must state; (1) The applicant's residence and office address; (2) The courts to which the applicant has been admitted to practice and the dates of admission; (3) That the applicant is a member in good standing in those courts; (4) That the applicant is not currently suspended or disbarred in any court; (5) The title of court and cause in which the applicant has filed an application to appear as counsel pro hac vice in this state in the preceding two years, the date of each application, and whether or not it was granted; and (6) The name, address, and telephone number of the active member of the State Bar of California who is attorney of record.” (CRC 9.40(d)(1–6.) Additionally, a $50 must be paid to the California Bar. (CRC 9.40(e).)

Defendants 12/12 Ventures Fund I, LLC, 12/12 Ventures GP I, LLC, and 12/12 SPV I: Cookies LLC (Defendants) apply to admit Jose A. Lopez and Katherine E. May to appear pro hac vice on their behalf in this matter. The applications comply with the above requirements.

The applications are GRANTED.