Tentative Rulings

Case Number: *******6630 Hearing Date: January 24, 2022 Dept: 51

Superior Court of California

County of Los Angeles

Department 51

Tentative Ruling: GRANT the consolidation as to DE MIRANDA, TAUBER and JUDICIAL DISSOLUTION cases. DENY as to SCHLAIFER small claims matter.

ALAV’s motion for judgment on the pleadings in the Tauber Action is GRANTED as to the second and third causes of action with 20 days leave to amend.

Background

1. The de Miranda Action (*******6630)

On May 3, 2021, plaintiff Jay R. de Miranda filed this action against defendants Assisted Living America V, LLC (ALAV) and Assisted Living America, LLC (ALA), alleging a cause of action for breach of a written promissory note. ALA has a 40% interest in two entities, BE La Cienega LLC and BE 1022 La Cienega LLC (collectively, “BE”), which owns real property commonly known as 1022, 1026, 1032, and 1042-54 South La Cienega Blvd., Los Angeles, California (the “Property”). ALAV and DIDM Development Corporation (“DIDM”) are allegedly the only members of ALA. De Miranda alleges that ALA/ALAV spent over fifteen years attempting to develop the Property into assisted living and skilled nursing facilities. He also alleges that he is an unsecured lender to ALA/ALAV and is its largest creditor. His loans to ALA/ALAV total approximately $6,641,356 in principal. Each loan has also accrued interest at a rate of 10%, totaling approximately $4,921,340.06 to date. The loans are in default. De Miranda alleges that BE is in escrow for the sale of the Property for a price between $32 million and $35 million and that ALA/ALAV does not intend to repay plaintiff at all using any proceeds of the sale. Instead, plaintiff alleges that ALA/ALAV intends to divert those funds to its own members.

On August 13, 2021, plaintiff filed a voluntary dismissal of the complaint without prejudice, which was entered by the clerk.

1. The Tauber Action (21STCV25825)

On July 14, 2021, plaintiff Jacob Tauber filed an action against ALAV, alleging causes of action for:

C/A 1: Breach of Contract

C/A 2: Fraud and Deceit

C/A 3: Declaratory Relief

Tauber alleges that in 2008, he entered into an agreement with ALAV, in which ALAV borrowed money from Tauber. Pursuant to the terms for the agreement, ALAV agreed to pay plaintiff $1,004,169.99 on or before July 14, 2017. Tauber alleges that ALAV breached that agreement and has failed to repay Tauber.

1. The Judicial Dissolution Action (21STCV30834)

On August 19, 2021, plaintiff 1022 S. La Cienega Manager, LLC (“La Cienega”) filed a complaint for judicial dissolution of ALAV. La Cienega is an affiliate of a turnaround, receivership and workout group that was recently brought in to manage ALAV by its investors to address significant issues with DIDM, ALAV’s prior manager, to monetize the assets of ALAV, to distribute money, to wind up the affairs of, and to dissolve ALAV. This action seeks judicial dissolution of ALAV pursuant to California Corporations Code section 17707.03, including seeking an order effectuating a claims procedure, approving recommendations and payment of claims, authorizing distributions pursuant to the operating agreement and contracts with various creditors/investors, and an order dissolving ALAV and releasing/discharging plaintiff. The action names approximately 80 defendants who all claim any legal or equitable right, title, estate, lien, or interest in any assets of ALAV—e.g., members, investors, creditors, etc.

On January 7, 2022, defendant and cross-complainant Craig Webb filed a cross-complaint against ALAV, La Cienega, and David Stapleton, alleging causes of action for:

X-C/A 1: Breach of Contract

X-C/A 2: Accounting

X-C/A 3: Money Had and Received

X-C/A 4: Negligence

X-C/A 5: Negligent Misrepresentation

X-C/A 6: Concealment

X-C/A 7: Unjust Enrichment

Webb alleges that on January 17, 2007, ALAV’s predecessor-in-interest executed a promissory note for a loan in the amount of $319,000 from Webb. The loan was amended multiple times from 2009 through 2015. On September 1, 2015, Webb added a fourth amendment to the note, granting an extension through October 31, 2020 and removing a deed of trust against the property to allow the financing of the existing first and second deeds on the Property to avoid an impeding foreclosure. The Property was sold on July 15, 2021, but was intentionally concealed from Webb. Webb was never repaid.

1. The Schlaifer Small Claims Action (21STSC03587)

On September 27, 2021, plaintiff Jack Schlaifer filed a claim in small claims court against ALA for $10,000. Schlaifer alleges that in 2013, he invested $100,000 in ALA and became a joint venture partner in BE to develop an assisted living facility. The venture failed and the property was sold. La Cienega stated that equity in ALA has been reduced to 8-15% of the money invested. He is suing for his portion of his equity in ALA and BE.

1. Related Cases

On November 2, 2021, the court found that the de Miranda Action, the Tauber Action, the Judicial Dissolution Action, and the Schlaifer Small Claims Action were all related, with the de Miranda Action being assigned as the lead case. The court also continued the non-jury trial in the Schlaifer Small Claims Action to January 24, 2022 in Department 51.

1. Pending Motion to Consolidate

On November 29, 2021, ALAV filed a motion to consolidate these four actions in the de Miranda Action. A notice of the motion was also filed in the Tauber Action, the Judicial Dissolution Action, and the Schlaifer Small Claims Action. ALAV argues that each of these cases relate to creditors of, and investors in, ALAV, including how much and what priority each should be paid from ALAV’s assets. They argue that the Judicial Dissolution action, in which La Cienega seeks an order to distribute ALAV’s share of proceeds from the sale of the Property to various creditors and investors, share the same overlapping issues and facts as the other three actions. Further, La Cienega argues that the former manager has stonewalled La Cienega’s attempts to obtain the documents necessary to determine how the proceeds should be distributed among creditors and investors. Determination of the Judicial Dissolution action will necessarily resolve similar actions raised in the other remaining actions.

At this time, the de Miranda Action has been dismissed. Tauber, the plaintiff in the Tauber Action, has stipulated to consolidation of these cases during a November 2, 2021 hearing. Schlaifer would not stipulate to consolidation of these cases, but did not file an opposition to the motion. The court finds that Schlaifer’s failure to file an opposition is a waiver of any argument to oppose consolidation.

The only defendant (out of approximately 80) who filed an opposition was Webb, the cross-complainant in the Judicial Dissolution Action. Webb argues that his claims do not relate to common questions of law or fact and would prejudice him. Webb contends that his initial loan was made six years prior to the operating agreement’s existence. Accordingly, Webb never signed the loan, is not listed as a member, and is not a “class member” bound by the terms of the operating agreement. He contends that, as an initial creditor, he is owed the “highest repayment priority upon dissolution of ALAV.”

On January 14, 2022, ALAV filed a reply, responding to Webb’s arguments.

1. Pending Motion for Judgment on Pleadings in Tauber Action

On December 23, 2021, ALAV filed a motion for judgment on the pleadings in the Tauber Action regarding the second cause of action for fraud and deceit and the third cause of action for declaratory relief. ALAV argues that Tauber fails to allege fraud with the requisite specificity. Further, ALAV argues that because the declaratory relief action is identical to Tauber’s first cause of action for breach of contract, it is improper.

Tauber did not file an opposition. He did however file a First Amended Complaint on January 20, 2021, suggesting he concedes the motion.

Motion to Consolidate Standard

“When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.” (Cal. Civ. Proc. Code 1048).

Under California Rules of Court, rule 3.350, subdivision (a)(1), a notice of motion to consolidate must: (A) List all named parties in each case, the names of those who have appeared, and the names of their respective attorneys of record; (B) Contain the captions of all the cases sought to be consolidated, with the lowest numbered case shown first; and (C) Be filed in each case sought to be consolidated. (2) The motion to consolidate: (A) Is deemed a single motion for the purpose of determining the appropriate filing fee, but memorandums, declarations, and other supporting papers must be filed only in the lowest numbered case; (B) Must be served on all attorneys of record and all non-represented parties in all of the cases sought to be consolidated; and (C) Must have a proof of service filed as part of the motion.

Consolidation Analysis

Preliminary, the court finds that ALAV has complied with CRC 3.350 and has satisfied the procedural requirements for a motion for consolidation.

Substantively, the court finds that all four actions raise common questions of law and fact. Specifically, the legal questions raised in the Judicial Dissolution Action, in which Webb filed his cross-complaint, encompasses all of the questions of facts and law that a trier of fact must determine in all four actions. In other words, a determination in the Judicial Dissolution, regarding the assets, the identity of investors and creditors, the amount of debt owed to each investor and creditor, and the priority of payment of each investor and creditor are common questions that must be determined—an issue that the trier of fact must also resolve in the remaining three actions. Further, La Cienega alleges facts against ALAV’s former managers and the concealment of ALAV’s assets such that the facts to uncover the true extent and value of ALAV’s assets are common facts that need to be uncovered across all four actions.

In Webb’s opposition, Webb primarily focuses on the allegations that he makes in his cross-complaint. In so doing, Webb argues that those specific allegations differ from the bigger picture legal issues and facts relating to all of ALAV’s other investors and creditors. However, what Webb fails to recognize is that Webb’s cross-complaint was filed in the Judicial Dissolution Action—i.e., it is part and parcel of the action that contains global dissolution issues amongst all other investors and creditors. Litigating the Judicial Dissolution Action, in which Webb’s cross-complaint was filed, will necessarily require Webb’s claims to be litigated in the context of other creditor/investor claims. Further, as Webb admits, the crux of his opposition is that he should have a super priority over other investors. That common question is raised across multiple creditors (e.g., de Miranda, Tauber, and Schlaifer all allege that they made loans to ALAV prior to the execution of the operating agreement and should be repaid). The very point of the Judicial Dissolution Action is to determine each creditors’/investors’ debt amount owed and priority from ALAV’s assets.

Accordingly, the disputed allegations by each of the creditors/investors raise common questions of law and fact regarding the parties’ intertwined relationships, the related agreements between the parties, the chronological determination of when each creditor/investor’s alleged claim arose, each creditor/investor’s priority, whether claims were secured and/or unsecured, the parties’ conduct over the years, and any breaches by the former/current managers of ALAV. A trier of fact must determine the same questions of law (creditor claim amounts and priority). The court finds that in the interest of efficiency and to avoid the risk of inconsistent results, good cause exists to consolidate these actions such that one trier of fact could resolve these related issues at once.

The court is not inclined, however, to consolidate the Schlaifer Action. As a small claims matter, the time for trial is controlled by Code of Civil Procedure section 116.330 (“not more than 70 days from date of the order” directing the parties to appear. Plaintiff Schlaifer’s Claim and Order to Go to Small Claims Court was filed September 27, 2021 and the original hearing date was November 12, 2021.

Motion for Judgment on the Pleadings Standard

“A motion for judgment on the pleadings performs the same function as a general demurrer, and hence attacks only defects disclosed on the face of the pleadings or by matters that can be judicially noticed. [Citations.]” (Burnett v. Chimney Sweep (2004) 123 Cal.App.4th 1057, 1064.) The court must assume the truth of all properly pleaded material facts and allegations, but not contentions or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Wise v. Pacific Gas and Elec. Co. (2005) 132 Cal.App.4th 725, 738.) “A judgment on the pleadings in favor of the defendant is appropriate when the complaint fails to allege facts sufficient to state a cause of action. (Code Civ. Proc., 438, subd. (c)(3)(B)(ii).)” (Kapsimallis v. Allstate Ins. Co. (2002) 104 Cal.App.4th 667, 672.) “Presentation of extrinsic evidence is therefore not proper on a motion for judgment on the pleadings. [Citation.]” (Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 999.)

Motion for Judgment on the Pleadings Analysis

Tauber’s Second Cause of Action for Fraud

ALAV argues that Tauber did not sufficiently plead fraud with specificity. The court agrees.

The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (See Civil Code 1709.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) Fraud must be pleaded with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means (oral or written) the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.) A plaintiff must also allege what was specifically said, by whom, and, in the case of a corporate defendant, under what authority to bind the corporation. (See Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.) As one court explained, “this statement of the rule reveals that it is intended to apply to affirmative misrepresentations.” (Alfaro (2009) 171 Cal. App. 4th at 1384.) One of the purposes of the specificity requirement is “notice to the defendant, to ‘furnish the defendant with certain definite charges which can be intelligently met.” (Cansino, supra, 224 Cal. App. 4^th at 1459).

Tauber’s allegations fail to meet this standard. He repeats his breach of contract allegations without alleging any of the elements for fraud, let alone those elements with any specificity. For example, Tauber fails to allege that any misrepresentations were made, what those misrepresentations were, when those misrepresentations were made, by whom and to whom those misrepresentations were made, how were those misrepresentations made, how was Tauber induced, and how Tauber changed his position as a result of any alleged misrepresentations. Merely realleging the elements of a breach of contract cause of action is insufficient to allege a fraud claim.

The motion for judgment on the pleadings is granted with leave to amend.

Declaratory Relief

ALAV argues that Tauber’s declaratory relief seeks identical relief as his breach of contract cause of action and is, therefore, improper. The court agrees.

“Any person interested ... under a contract ... may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action ... in the superior court for a declaration of his or her rights and duties ... including a determination of any question of construction or validity arising under the ... contract. He or she may ask for a declaration of rights or duties, either alone or with other relief; and the court may make a binding declaration of these rights or duties, whether or not further relief is or could be claimed at the time. The declaration may be either affirmative or negative in form and effect, and the declaration shall have the force of a final judgment. The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought.” (Cal. Civ. Proc. Code 1060.) “The court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.” (Cal. Civ. Proc. Code 1061.)

“Declaratory relief operates prospectively, serving to set controversies at rest. If there is a controversy that calls for a declaration of rights, it is no objection that past wrongs are also to be redressed; but there is no basis for declaratory relief where only past wrongs are involved. Hence, where there is an accrued cause of action for an actual breach of contract or other wrongful act, declaratory relief may be denied.” (Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 365–366 (citation omitted) (“Osseous”)). For example, in Osseous,

“Osseous, a potential defendant to a breach of contract action, sued DiscoveryOrtho for declaratory relief. This preemptive action could be based on a desire to resolve its dispute without delay and/or to select the litigation forum. Osseous does not have a readily apparent claim for breach of contract; a declaratory action is the only way Osseous could initiate litigation between the parties. Less understandable is why a potential breach of contract plaintiff would sue a defendant for declaratory relief when such a plaintiff had the ability to bring a plain vanilla breach of contract action.”

(Id. at 366.) As such, the Osseous court affirmed a trial court’s sustaining a demurrer on a declaratory relief action without leave to amend on the basis that a breach of contract action would be an adequate remedy where there are no continuing contractual relationships and future consequences.

Here, for his declaratory relief cause of action, Tauber repeats his breach of contract allegations. Tauber does not allege any future contractual obligations or future consequences/performance between the parties. Further, Tauber is not requesting that the court interpret any provision of the agreement between the parties over which there is a dispute (nor does Tauber allege that any party disputes the enforceability of the agreement). Instead, Tauber is requesting a finding that ALAV breached the agreement—i.e., the same basis for Tauber’s breach of contract claim. As the Osseous court found “less understandable is why a potential breach of contract plaintiff would sue a defendant for declaratory relief when such plaintiff had the ability to bring a plain vanilla breach of contract action.” Without more, Tauber’s breach of contract cause of action provides Tauber with an adequate remedy at law. The motion for judgment on the pleadings is granted as to this cause of action with leave to amend.

Dated: January 21. 2022

Honorable Lawrence Riff

Judge of the Superior Court