J.E. GROUP, LLC, A NEVADA LIMITED LIABILITY COMPANY, ET AL. VS CSM SYCAMORE, LLC, A DELAWARE LIMITED LIABILITY COMPANY, ET AL.

Tentative Rulings

Case Number: *******8660 Hearing Date: March 3, 2023 Dept: 54

Hearing Date: March 3, 2023

Department 54, Judge Maurice A. Leiter

Motion to Enforce Subpoena for Financial Records

Moving Party: Defendants Capital Stone Holdings, Inc. and Robert Spiro

Responding Party: Plaintiff J.E. Group, LLC

T/R: PLAINTIFFS’ MOTION IS GRANTED.

WELLS FARGO IS ORDERED TO COMPLY WITH THE SUBPOENA WITHIN 10 DAYS OF NOTICE OF RULING.

PLAINTIFFS TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, and reply.

BACKGROUND

On December 21, 2020, Plaintiffs J.E. Group, LLC and 1999 Sycamore, LLC sued Defendants CSM Sycamore, LLC, Capital Stone Management, Inc., and Cole Harris. This action arises out of a joint venture to acquire real property. Plaintiffs allege Defendants improperly encumbered the property.

ANALYSIS

CCP 1987.1 provides, “[i]f a subpoena requires the attendance of a witness or the production of books, documents, electronically stored information, or other things before a court, or at the trial of an issue therein, or at the taking of a deposition, the court, upon motion reasonably made by any person described in subdivision (b), or upon the court's own motion after giving counsel notice and an opportunity to be heard, may make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon those terms or conditions as the court shall declare, including protective orders.”

Plaintiffs move to enforce a subpoena served on third-party Wells Fargo Bank seeking “Any and all documents concerning [four accounts], including, but not limited to account statements, cancelled checks, signatory or signor forms, deposit and withdrawal receipts, notifications, correspondence, and wire transfer documents from January 1, 2016, through October 31, 2022.” Plaintiffs served the subpoena on October 18, 2022. Plaintiffs assert that Defendants have refused to allow Plaintiffs’ access to Sycamore’s financial records and that Defendants have used various companies to shift money. These records are relevant and discoverable.

In opposition, Defendants assert Plaintiffs’ counsel cannot serve as the deposition officer on the subpoenas. CCP 1985(c) allows an attorney to sign and issue subpoenas.

Plaintiffs’ motion is GRANTED.

Hearing Date: March 3, 2023

Department 54, Judge Maurice A. Leiter

Demurrer to First Amended Complaint and Motion to Strike

Moving Party: Defendants Capital Stone Holdings, Inc. and Robert Spiro

Responding Party: Plaintiff J.E. Group, LLC

T/R: DEFENDANTS’ DEMURRER IS OVERRULED.

DEFENDANTS’ MOTION TO STRIKE IS DENIED.

DEFENDANTS TO FILE AND SERVE ANSWERS TO THE FIRST AMENDED COMPLAINT WITHIN 20 DAYS OF NOTICE OF RULING.

DEFENDANTS TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, and reply.

BACKGROUND

On December 21, 2020, Plaintiffs J.E. Group, LLC and 1999 Sycamore, LLC sued Defendants CSM Sycamore, LLC, Capital Stone Management, Inc., and Cole Harris. This action arises out of a joint venture to acquire real property. Plaintiffs allege Defendants improperly encumbered the property.

REQUEST FOR JUDICIAL NOTICE

Defendants’ request for judicial notice of 1999 Sycamore, LLC’s operating agreement is DENIED.

ANALYSIS

A demurrer to a complaint may be taken to the whole complaint or to any of the causes of action in it. (CCP 430.50(a).) A demurrer challenges only the legal sufficiency of the complaint, not the truth of its factual allegations or the plaintiff's ability to prove those allegations. (Picton v. Anderson Union High Sch. Dist. (1996) 50 Cal. App. 4th 726, 732.) The court must treat as true the complaint's material factual allegations, but not contentions, deductions or conclusions of fact or law. (Id. at 732-33.) The complaint is to be construed liberally to determine whether a cause of action has been stated. (Id. at 733.)

A. Alter Ego

To invoke the alter ego doctrine, the plaintiff must plead unity of interest and ownership, and that an inequity will result if the corporate entity is treated as the sole actor. (See Vasey v. California Dance Co. (1977) 70 Cal.App.3d 742, 749.)

Defendants assert Plaintiffs have failed to allege alter ego liability. In opposition, Plaintiffs present the complex web of entities and their connections to each other. Plaintiffs allege Defendants converted Plaintiffs’ funds for personal use using their status as manager of Plaintiffs. This is sufficient to allege alter ego liability.

B. Breach of Fiduciary Duty

The elements for a breach of fiduciary duty cause of action are “the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.” (Thomson v. Canyon (2011) 198 Cal.App.4th 594, 604.)

Defendants assert Plaintiffs have failed to allege Defendants owed Plaintiffs fiduciary duties. Plaintiffs allege Defendants owed Sycamore a fiduciary duty as Sycamore’s manager and owed JE Group fiduciary duties as a member of Sycamore. Managers of an LLC owe the LLC and the LLC’s members duties of loyalty and care. (See Corp. Code 17704.09)

Defendants’ demurrer to the fourth through seventh causes of action is OVERRULED.

C. Fraud

The elements of fraud are: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) In California, fraud, including negligent misrepresentation, must be pled 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 the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.)

Defendants assert Plaintiffs have failed to allege fraud with the requisite specificity. Plaintiffs allege Defendants concealed the terms of the Preferred Bank loan, which was never authorized by J.E. Group; and that: a forged document purporting to be J.E. Group's consent to the loan was submitted to Preferred Bank; the loan was improperly cross-collateralized with another property owned by an entity managed by Spiro, Harris and Capital Stone; proceeds of the loan and other of Sycamore's funds were misappropriated by various Defendants, including Spiro and CSH; Defendants bore a fiduciary relationship to Plaintiffs and a duty to disclose the terms of the loan to Plaintiffs and to obtain J.E. Group's consent; Defendants intended to deceive Plaintiffs by concealing these facts; if Plaintiffs had been aware of these facts they would not have allowed the loan; Plaintiffs have suffered damages in excess of $1,800,000. This is sufficient to establish a cause of action for fraud.

Defendants’ demurrer to the second cause of action for fraud is OVERRULED.

D. Gross Negligence, Conversion, Civil Conspiracy and Unjust Enrichment

Defendants demur to the causes of action for conversion, unjust enrichment, gross negligence and civil conspiracy on the ground that Plaintiffs have failed to allege Defendants owed Plaintiffs a fiduciary duty. As discussed, this argument fails.

Defendants’ demurrer to the third, eighth, tenth and eleventh causes of action is OVERRULED.

E. Motion to Strike

“Any party, within the time allowed to response to a pleading, may serve and file a notice of motion to strike the whole or any part" of that pleading. (CCP 435(b)(1).) “The Court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false or improper matter asserted in any pleading; (b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the Court." (CCP 436.)

Defendants move to strike the FAC as to Plaintiff Sycamore because it is not represented by counsel. In opposition, Plaintiffs assert that any omission of Sycamore as a represented party was in error. Plaintiffs assert Sycamore is represented by the same counsel as Plaintiff JE Group.

Defendants’ motion to strike is DENIED.

Case Number: *******8660 Hearing Date: November 22, 2022 Dept: 54

Hearing Date: November 22, 2022

Department 54, Judge Maurice A. Leiter

Motion for Leave to Amend

Moving Party: Plaintiff J.E. Group, LLC

Responding Party: Defendants CSM Sycamore, LLC, Capital Stone Management, Inc. and Cole Harris

T/R: PLAINTIFF’S MOTION IS GRANTED.

PLAINTIFF TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, and reply.

BACKGROUND

On December 21, 2020, Plaintiffs J.E. Group, LLC and 1999 Sycamore, LLC sued Defendants CSM Sycamore, LLC, Capital Stone Management, Inc. and Cole Harris. This action arises out of a joint venture to acquire real property. Plaintiffs allege Defendants improperly encumbered the property.

ANALYSIS

The Court may allow, in furtherance of justice, and “upon any terms as may be just, an amendment to any pleading or proceeding in other particulars….” (CCP 473(a)(1).) A motion to amend a pleading before trial must be accompanied by a separate declaration that specifies (1) the effect of the amendment; (2) why the amendment is necessary and proper; (3) when the facts giving rise to the amended allegations were discovered; and (4) the reasons why the request for amendment was not made earlier. (CRC Rule 3.1324(b).)

It is not an abuse of discretion of the court to grant the motion unless there is a “showing that actual unfairness or obvious prejudice has resulted from the allowance of such an amendment”. (Posz v. Burchell (1962) 209 Cal.App.2d 324, 334.) “Counsel on the firing line in an actual trial must be prepared for surprises, including requests for amendments of pleading.” (Ibid.) Absent a showing of prejudice, delay alone is insufficient grounds for denial. (See Higgins v. Del Faro (1981) 123 Cal. App. 3d 558, 564–65.)

Plaintiff moves for leave to a file a first amended complaint, adding five defendants and three causes of action. Plaintiff asserts it recently learned of the identities of the five defendants and their connection to Defendants. Plaintiff represents that the new defendants assisted Defendants in misappropriating funds from Sycamore. The amendment also contains additional facts and exhibits.

In opposition, Defendants assert that Plaintiff failed to provide timely notice of this motion and failed to include a declaration in conformity CRC Rule 3.1324(b). Defendants have responded to the motion on the merits and Plaintiff has filed an amended declaration in reply. The Court will not deny the motion on these grounds.

Defendants also argue that Plaintiff has been dilatory in bringing this motion, and that the claims against the new defendants are barred by the statute of limitations. Defendants may challenge the merits of the allegations via demurrer. Delay alone is not grounds to deny the motion.

Amendment is liberally granted. The Court finds the amendment is in the interests of justice. Plaintiff’s motion is GRANTED.

Case Number: *******8660 Hearing Date: September 16, 2022 Dept: 54

Hearing Date: September 16, 2022

Department 54, Judge Maurice A. Leiter

Motion to Compel Further Responses to Discovery

Moving Party: Plaintiff J.E. Group, LLC

Responding Party: Defendants CSM Sycamore, LLC, Capital Stone Management, Inc. and Cole Harris

T/R: PLAINTIFF’S MOTION IS DENIED AS MOOT.

THE PARTIES’ REQUESTS FOR SANCTIONS ARE DENIED.

PLAINTIFF TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, and reply.

BACKGROUND

On December 21, 2020, Plaintiffs J.E. Group, LLC and 1999 Sycamore, LLC sued Defendants CSM Sycamore, LLC, Capital Stone Management, Inc., and Cole Harris. This action arises out of a joint venture to acquire real property. Plaintiffs allege Defendants improperly encumbered the property.

ANALYSIS

The moving party on a motion to compel further responses to requests for production of documents (“RPDs”) must submit “specific facts showing good cause justifying the discovery sought by the inspection demand.” (CCP 2031.310(b)(1).) If the moving party has shown good cause for the RPDs, the burden is on the objecting party to justify the objections. (Kirkland v. Sup.Ct (2002) 95 Cal. App.4th 92, 98.)

Plaintiff moves to compel further responses to requests for production of documents. In opposition, Defendant asserts that further responses were served on August 4, 2022, before this motion was filed. In reply, Plaintiff states that it did not receive the August 4, 2022 responses, but acknowledges receipt of further responses served on August 26, 2022. Plaintiff asserts the responses remain deficient.

As Defendant has served further responses, the motion is MOOT. The Court will not consider the sufficiency of these responses before the parties meaningfully meet and confer about them.

Case Number: *******8660 Hearing Date: January 5, 2022 Dept: 54

Hearing Date: January 5, 2022

Department 54, Judge Maurice A. Leiter

Motion for Sanctions

Moving Party: Plaintiff J.E. Group, LLC

Responding Party: Defendants CSM Sycamore, LLC, Capital Stone Management, Inc. and Cole Harris

T/R: PLAINTIFF’S MOTION FOR ISSUE AND EVIDENTIARY SANCTIONS IS DENIED.

PLAINTIFF’S MOTION FOR MONETARY SANCTIONS IS GRANTED IN THE REDUCED AMOUNT OF $2,500.00.

PLAINTIFF TO SERVE RESPONSES TO DISCOVERY AND PAY SANCTIONS IN CONNECTION WITH THIS MOTION AND THE AUGUST 24, 2021 DISCOVERY ORDER WITHIN 30 DAYS OF NOTICE OF RULING.

PLAINTIFF TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:30 am on the day of the hearing.

The Court considers the moving papers, opposition and reply.

BACKGROUND

On December 21, 2020, Plaintiffs J.E. Group, LLC and 1999 Sycamore, LLC filed a complaint against Defendants CSM Sycamore, LLC, Capital Stone Management, Inc. and Cole Harris. This action arises out of a joint venture to acquire real property. Plaintiffs allege Defendants improperly encumbered the property.

ANALYSIS

It is a misuse of the discovery process to fail “to respond or to submit to an authorized method of discovery,” (CCP 2023.010(d)) or to disobey “a court order to provide discovery.” (CCP 2023.010(g).) Under CCP 2023.030, courts have the authority to issue monetary sanctions, evidentiary sanctions, or terminating sanctions after giving parties proper notice and the opportunity to be heard.

In determining whether sanctions should be imposed, courts consider the totality of the circumstances, including the “conduct of the party to determine if the actions were willful; the detriment to the propounding party; and the number of formal and informal attempts to obtain the discovery.” (Lang v. Hochman (2000) 77 Cal. App. 4th 1225, 1246.) “The penalty should be appropriate to the dereliction, and should not exceed that which is required to protect the interests of the party entitled to but denied discovery.” (Wilson v. Jefferson (1985) 163 Cal. App. 3d 952, 959.)

Plaintiff J.E. Group, LLC moves for issue, evidentiary and monetary sanctions against Defendants CSM Sycamore, LLC, Capital Stone Management, Inc. and Cole Harris. Plaintiff asserts that Defendants have failed to comply with the Court’s August 24, 2021 discovery order requiring Defendants to provide responses to form interrogatories, special interrogatories and requests for production by September 23, 2021 and to pay $3,360.00 in sanctions.

The issue and evidentiary sanctions sought by Plaintiff essentially require Defendants admit to the allegations in the complaint and prevent them from bringing evidence to dispute the allegations. The Court finds such sanctions inappropriate at this stage. In opposition, Defendants’ counsel asserts that responses will be served by the date of the hearing on this motion. Assuming this is the case, issue and evidentiary sanctions are unnecessary. However, as Plaintiff was forced to file this motion to elicit responses, the Court will impose monetary sanctions.

Plaintiff seeks $8,544.40 in sanctions against Defendants. The Court finds this excessive and instead will allow $2,500.00 in sanctions.