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This case was last updated from Los Angeles County Superior Courts on 06/20/2019 at 02:46:24 (UTC).

MATTHEW WINSTON ET AL VS NICHOLAS KEROS ET AL

Case Summary

On 02/15/2017 MATTHEW WINSTON filed a Contract - Other Contract lawsuit against NICHOLAS KEROS. This case was filed in Los Angeles County Superior Courts, Stanley Mosk Courthouse located in Los Angeles, California. The Judge overseeing this case is RANDOLPH M. HAMMOCK. The case status is Pending - Other Pending.

Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    ****0916

  • Filing Date:

    02/15/2017

  • Case Status:

    Pending - Other Pending

  • Case Type:

    Contract - Other Contract

  • Court:

    Los Angeles County Superior Courts

  • Courthouse:

    Stanley Mosk Courthouse

  • County, State:

    Los Angeles, California

Judge Details

Presiding Judge

RANDOLPH M. HAMMOCK

 

Party Details

Plaintiffs, Petitioners and Appellants

PALM 504 AZ LLC

TROUSDALE AZ LLC

WINSTON MATTHEW

Defendants and Respondents

TROUSDALE NK LLC

2545 BOWMONT LLC

THRASHER NK LLC

KEROS NICHOLAS

DOES 1 TO 50

460 TROUSDALE LLC

LEVIN JENNIE

TROUSDALE US AUSSIE LLC [DOE 2]

LAW OFFICES OF JENNIE LEVIN P.C.

TROUSDALE DEVELOPMENT LLC [DOE 1]

STRANDGAARD HENRIK

Attorney/Law Firm Details

Plaintiff and Petitioner Attorney

LEONARD RICHARD C. ESQ.

Defendant Attorneys

MURPHY MICHAEL DONNELLY ESQ.

PC GERARD FOX LAW

AZADEGAN RAMIN ESQ.

Respondent Attorney

LEONARD RICHARD C.

Other Attorneys

LEONARD RICHARD

 

Court Documents

OPPOSITION OF NON-PAETIES JENNIE LEVIN AND THE LAW OFFICES OF JENNIE LEVIN, P.C. TO PLAINTIFF'S MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT

1/29/2018: OPPOSITION OF NON-PAETIES JENNIE LEVIN AND THE LAW OFFICES OF JENNIE LEVIN, P.C. TO PLAINTIFF'S MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT

PROOF OF SERVICE SUMMONS

3/2/2018: PROOF OF SERVICE SUMMONS

REQUEST FOR DISMISSAL

9/14/2018: REQUEST FOR DISMISSAL

ORDER APPOINTING COURT APPROVED REPORTER AS OFFICIAL REPORTER PRO TEMPORE

9/27/2018: ORDER APPOINTING COURT APPROVED REPORTER AS OFFICIAL REPORTER PRO TEMPORE

Declaration

3/18/2019: Declaration

SUMMONS

2/15/2017: SUMMONS

PROOF OF SERVICE SUMMONS

3/6/2017: PROOF OF SERVICE SUMMONS

Unknown

3/16/2017: Unknown

NOTICE OF CASE MANAGEMENT CONFERENCE

4/18/2017: NOTICE OF CASE MANAGEMENT CONFERENCE

Minute Order

4/19/2017: Minute Order

CASE MANAGEMENT ORDER

5/26/2017: CASE MANAGEMENT ORDER

Minute Order

6/27/2017: Minute Order

CROSS-DEFENDANT MATTHEW WINSTON'S ANSWER TO THE FIRST AMENDED CROSS-COMPLAINT

7/31/2017: CROSS-DEFENDANT MATTHEW WINSTON'S ANSWER TO THE FIRST AMENDED CROSS-COMPLAINT

REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF DEMURRER OF DEFENDANT TROUSDALE DEVELOPMENT, LLC TO PLAINTIFF MATTHEW WINSTON AND PURPORTED PLAINTIFFS TROUSDALE AZ, LLC AND PALM 504 AZ, LLC'S VERIFIED FIRST

9/1/2017: REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF DEMURRER OF DEFENDANT TROUSDALE DEVELOPMENT, LLC TO PLAINTIFF MATTHEW WINSTON AND PURPORTED PLAINTIFFS TROUSDALE AZ, LLC AND PALM 504 AZ, LLC'S VERIFIED FIRST

PLAINTIFFS' OPPOSITION TO DEMURRERS OF TROUSDALE DEVELOPMENT, LLC AND TROUSDALE US AUSSIE, LLC TO THE FIRST AMENDED COMPLAINT; DECLARATION OF RICHARD C. LEONARD

10/2/2017: PLAINTIFFS' OPPOSITION TO DEMURRERS OF TROUSDALE DEVELOPMENT, LLC AND TROUSDALE US AUSSIE, LLC TO THE FIRST AMENDED COMPLAINT; DECLARATION OF RICHARD C. LEONARD

PLAINTIFFS' REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF THEIR MOTION FOR LEAVE TO FILE SUPPLEMENTAL COMPLAINT

11/16/2017: PLAINTIFFS' REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF THEIR MOTION FOR LEAVE TO FILE SUPPLEMENTAL COMPLAINT

EX PARTE APPLICATION OF PLAINTIFF PURSUANT TO CODE OF CIVIL PROCEDURE 437C(H) FOR AN ORDER DENYING, OR IN THE ALTERNATIVE CONTINUING, THE HEARING DATE ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT OR IN

11/22/2017: EX PARTE APPLICATION OF PLAINTIFF PURSUANT TO CODE OF CIVIL PROCEDURE 437C(H) FOR AN ORDER DENYING, OR IN THE ALTERNATIVE CONTINUING, THE HEARING DATE ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT OR IN

Minute Order

11/22/2017: Minute Order

196 More Documents Available

 

Docket Entries

  • 05/03/2019
  • at 08:30 AM in Department 47, Randolph M. Hammock, Presiding; Hearing on Motion for Attorney Fees - Not Held - Taken Off Calendar by Party

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  • 04/30/2019
  • at 08:30 AM in Department 47, Randolph M. Hammock, Presiding; Trial Setting Conference - Not Held - Advanced and Vacated

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  • 04/30/2019
  • at 08:30 AM in Department 47, Randolph M. Hammock, Presiding; Hearing on Demurrer - without Motion to Strike - Not Held - Advanced and Vacated

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  • 04/30/2019
  • at 08:30 AM in Department 47, Randolph M. Hammock, Presiding; Hearing on Demurrer - without Motion to Strike - Not Held - Advanced and Vacated

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  • 03/18/2019
  • Declaration (OF JOSEPH CARUCCI IN SUPPORT OF DEFENDANT THE LAW OFFICES OF JENNIE LEVIN, P.C.'S DEMURRER TO PLAINTIFFS' THIRD AMENDED COMPLAINT); Filed by Jennie Levin (Defendant); Law Offices of Jennie Levin, P.C. (Defendant)

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  • 03/18/2019
  • Demurrer - without Motion to Strike; Filed by Jennie Levin (Defendant); Law Offices of Jennie Levin, P.C. (Defendant)

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  • 03/18/2019
  • Declaration (OF JOSEPH CARUCCI IN SUPPORT OF DEFENDANT JENNIE LEVIN'S DEMURRER TO PLAINTIFFS' THIRD AMENDED COMPLAINT); Filed by Jennie Levin (Defendant); Law Offices of Jennie Levin, P.C. (Defendant)

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  • 03/18/2019
  • Request for Judicial Notice; Filed by Jennie Levin (Defendant); Law Offices of Jennie Levin, P.C. (Defendant)

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  • 03/18/2019
  • Demurrer - without Motion to Strike; Filed by Jennie Levin (Defendant); Law Offices of Jennie Levin, P.C. (Defendant)

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  • 03/13/2019
  • Appeal - Notice Court Reporter to Prepare Appeal Transcript; Filed by Clerk

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424 More Docket Entries
  • 02/28/2017
  • PROOF OF SERVICE OF SUMMONS

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  • 02/28/2017
  • Proof of Service (not Summons and Complaint); Filed by Palm 504, AZ, LLC (Plaintiff); Trousdale AZ, LLC (Plaintiff); Matthew Winston (Legacy Party)

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  • 02/28/2017
  • PROOF OF SERVICE OF SUMMONS

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  • 02/21/2017
  • Summons; Filed by Plaintiff/Petitioner

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  • 02/21/2017
  • VERIFIED FIRST AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF; AND FOR DAMAGES FOR BREACH OF CONTRACT AND BREACH OF FIDUCIARY DUTY

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  • 02/21/2017
  • SUMMONS ON FIRST AMENDED COMPLAINT

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  • 02/21/2017
  • First Amended Complaint; Filed by Palm 504, AZ, LLC (Plaintiff); Trousdale AZ, LLC (Plaintiff); Matthew Winston (Legacy Party)

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  • 02/15/2017
  • VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF; AND FOR DAMAGES FOR BREACH OF CONTRACT

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  • 02/15/2017
  • SUMMONS

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  • 02/15/2017
  • Complaint; Filed by Palm 504, AZ, LLC (Plaintiff); Trousdale AZ, LLC (Plaintiff)

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Tentative Rulings

Case Number: BC650916    Hearing Date: February 24, 2021    Dept: 71

Superior Court of California

County of Los Angeles

DEPARTMENT 71

TENTATIVE RULING

MATTHEW WINSTON, et al.,

vs.

NICHOLAS KEROS, et al.

Case No.: BC650916

Hearing Date: February 24, 2021

Defendants Jennie Levin and Law Offices of Jennie Levin, PC’s demurrers to Plaintiffs’ fourth amended complaint are sustained without leave to amend.

Defendants Jennie Levin (“Levin”) and The Law Offices of Jennie Levin, P.C. (“LOJL”) (collectively, “Defendants”) demur to the 1st (breach of fiduciary duty) cause of action in the fourth amended complaint (“Fourth Amended Complaint” or “4AC”) of Plaintiff Matthew Winston (“Winston”) derivatively on behalf of Trousdale AZ, LLC (“Trousdale AZ”) and Palm 504 AZ, LLC (“Palm”) (collectively “Plaintiffs”).

Defendants argue Plaintiffs’ cause of action does not state facts sufficient to constitute a cause of action because Winston failed to satisfy a prerequisite of bringing this derivative claim on behalf of Trousdale AZ and Palm (collectively, “Arizona LLCs”), the cause of action is barred by the doctrines of law of the case and/or collateral estoppel, and Plaintiffs do not have legal standing to sue. (Notice of Demurrer, pgs. 1-2.) Defendants’ demurrer is accordingly based on Winston’s failure to satisfy the prerequisite requirements for bringing a derivative claim on behalf of the Arizona LLCs and not whether Plaintiffs have sufficiently alleged the elements of breach of fiduciary duty against Defendants.

The Court notes that while Defendants’ demurrers are filed as to the 4AC, the arguments set forth in the Memorandum of Points and Authorities refer to the Third Amended Complaint. However, Plaintiffs concede the breach of fiduciary duty cause of action against Defendants in the TAC is identical to the one asserted in the 4AC. (Opposition, pg. 11.)

Requests for Judicial Notice

Defendants’ 8/27/20 request for judicial notice is granted. However, the Court will not take judicial notice of the truth of the matters asserted in the Second Amended Complaint (“SAC”) and Third Amended Complaint (“TAC”). The Court notes that while the request indicates it attaches various Court rulings and minute orders as Exhibits thereto, only the SAC and TAC are attached as exhibits. (See D-RJN, Nos. 3-7, Exhs. A, B.) However, Defendants previously filed a request for judicial notice on November 16, 2020 in connection with their demurrers to the TAC, which requests the Court take judicial notice of the same rulings and orders as the instant request, and properly attaches the rulings and orders thereto. (Compare 11/16/20 D-RJN Nos. 3-7 and 1/7/21 D-RJN Nos. 3-7.) Accordingly, the Court finds the documents are sufficiently before it, and grants the request for judicially notice. (1/7/21 D-RJN, Exhs. A [TAC], B [SAC]; 11/16/20 D-RJN, Exhs. A, B, C, D.)

Plaintiffs’ 1/26/21 request for judicial notice is granted. (P-RJN, Nos. 1-10.) However, the Court will not take judicial notice of the truth of the matters asserted in the Complaint, FAC, SAC, TAC, and 4AC. (P-RJN, Nos. 1-5.)

Background

Plaintiffs filed the initial complaint in the instant action on February 15, 2017, and their first amended complaint (“FAC”) on February 21, 2017. Defendants were not named in either the initial complaint or the FAC. Following the Court’s February 16, 2018 order granting Plaintiffs’ motion for leave to amend, Plaintiffs filed their SAC on February 20, 2018, naming Defendants for the first time. Specifically, the SAC’s 6th (breach of fiduciary duty), 7th (intentional interference with contract) and 8th (conspiracy to defraud) causes of action were asserted against Defendants. (SAC ¶¶92-96, 97-101, 102-106.)

On March 22, 2018, the Court issued its final ruling on the demurrer brought by Defendants Nicholas Keros (“Keros”), Trousdale NK, LLC (“Trousdale NK”), 460 Trousdale, LLC (“460 Trousdale”), 2545 Bowmont, LLC (“Bowmont”), Thrasher NK, LLC (“Thrasher”), Trousdale US Aussie, LLC (“Trousdale US”), and Trousdale Development, LLC (“Trousdale Dev”) (collectively, “Demurring Defendants”). The Court sustained the demurrer as to the TAC’s 1st, 2nd, 4th, 7th, and 8th causes of action, noting that Plaintiff may have leave to amend to allege any individual claims which he may currently have against any party in the action, however, denied leave to amend as to any derivative claims which he may in any capacity have on behalf of Trousdale AZ and/or Palm (the “Arizona LLCs”). (5/22/18 Ruling, pg. 2.) Specifically, the Court ruled the 1st, 2nd, and 4th causes of action were derivative claims of the Arizona LLCs and not direct claims of Winston since, on the face of the pleading, these causes of action involved actions taken by 460 Trousdale and Bowmont (collectively, “the Primary LLCs”), and/or their managers, and while the Arizona LLCs were members of the Primary LLCs, Winston was not alleged to have been a member of the Primary LLCs, and as such, he had no rights under the Primary LLCs Operating Agreements. (5/22/18 Ruling, pgs. 13-15.)

The Court found that given the Arizona LLCs are limited liability companies organized under the laws of the state of Arizona, Corp. Code §17708.01(a) provides that the law of Arizona applies, and moreover, Arizona law governing derivative lawsuits applies to any derivative claims asserted in the SAC. (5/22/18 Ruling, pgs. 3-4.) The Court ruled that, to the extent Plaintiff seeks to assert derivative claims which belong to the Arizona LLCs, Plaintiff was required to comply with the Ariz. Rev. Stat. § 29-831, which, among other requirements, requires that a member made a demand on the manager or members with such authority requesting that the manager or members cause the LLC to sue in its own right and that the demand was wrongfully refused or failed to receive a response. (5/22/18 Ruling, pgs. 5, 10.) In addition, the Court declined to expand the application of Arizona law to include a demand futility exception to derivative claims given Section 29-831’s express requirement. (5/22/18 Ruling, pg. 10.) The Court noted Plaintiff’s admission that he did not seek Strandgaard’s approval prior to filing the action and the exhibits to the SAC reflected Winston was not the manager of the Arizona LLCs as of October 27, 2016 [at the relevant time], notwithstanding Winston’s allegation he was the manager. (5/22/18 Ruling, pg. 11, citing SAC ¶22, Exh. 16.) Moreover, given Winston’s allegation he was only a 49% member of the Arizona LLCs (with a 50% economic interest in each), his removal as manager, without his permission, did not violate the terms of the Arizona LLCs’ operating agreements. (5/22/18 Ruling, pg. 11, SAC ¶19, Exhs. 3, 4.)

The Court noted that “a distinction must be made” between Winston’s membership interests in the Arizona LLCs versus the Arizona LLCs’ membership interest in the Primary LLCs, in which Winston does not purport to hold any direct interest, either as a member or economically. (5/22/18 Ruling, pg. 11.) The Court also noted that Strandgaard did not divest Winston of his direct interests, either member or economic, in the Arizona LLCs given he still held a 49% membership interest and 50% economic interest in them. (5/22/18 Ruling, pg. 12.) As such, the Court found that, to the extent Winston complains about Demurring Defendants’ activities with respect to the real property held by the Primary LLCs, the claims Winston seeks to assert are derivative on behalf of the Arizona LLCs, not individual claims held by Winston. (5/22/18 Ruling, pgs. 12-13.) With this discussion in mind, the Court proceeded to address whether each cause of action asserted against the Demurring Defendants constituted a direct claim belonging to Winston and/or a derivative claim belonging to the Arizona LLCs. (5/22/18 Ruling, pg. 13.) The Court concluded that since each of the 1st, 2nd, and 4th causes of action involved actions taken by the Primary LLCs, in which Winston had no direct interest, they were the Arizona LLCs’ derivative claims. (5/22/18 Ruling, pgs. 13-15.) The Court did not reach the issue of whether the claims asserted in the 6th (breach of fiduciary duty) cause of action asserted against Defendants amounted to derivative or individual claims, since the Court ruled the demurrer as to this cause of action moot given it was asserted against non-Demurring Defendants. (5/22/18 Ruling, pg. 15.)

Defendants were not party to the demurrer brought by Demurring Defendants, and on December 6, 2018, Defendants filed their own demurrers to the SAC. Prior to the demurrers’ opposition deadline, Plaintiffs filed a TAC on January 29, 2019, asserting a single cause of action for breach of fiduciary duty against Defendants, and on February 15, 2019, the Court ruled Defendants’ demurrers to the SAC untimely and moot and also ruled the TAC appropriately filed, deeming it the operative pleading. Defendants thereafter filed demurrers to the TAC on March 18, 2019. Notably, Winston filed the TAC as a derivative action on behalf of the Arizona LLCs, not as a direct action on his or the entities’ own behalf. (TAC ¶5.) Winston alleged that on June 6, 2018, he gave notice to the Arizona LLCs of the claims contained in this action by giving notice to Strandgaard. (TAC ¶5, Exh. 1.) As such, the TAC concedes the breach of fiduciary duty claim asserted in the SAC was a derivative claim, given Plaintiff appears to no longer assert direct claims against Defendants.

On December 27, 2018, Plaintiffs appealed the Court’s November 5, 2018 order of dismissal as to Trousdale NK, Thrasher NK, Trousdale US, and Trousdale Dev (collectively “Respondents”) based on the Court’s May 22, 2018 ruling. On April 8, 2019, the Court stayed the instant action along with the related action Plaintiff had failed against Demurring Defendants (and other named defendants) on September 18, 2018 [Case No. BC723164 (“the Related Action”)] pending the outcome of the appeal. On May 22, 2020, the Court of Appeal issued its unpublished opinion on the appeal addressing the sole issue of whether the 7th cause of action failed to state a claim for intentional interference with contractual relations, and in which the Court of Appeal found this Court had erred in sustaining the demurrer as to the 7th cause of action against Respondents, and accordingly reversed the Court’s order dismissing Trousdale NK and Thrasher NK from the action. (D-RJN, Exh. E, pgs. 21, 26-27.) In its ruling, the Court of Appeal observed Plaintiff did not challenge the Court’s ruling precluding him from raising derivative claims in this action and acknowledged Plaintiff’s filing of the Related Action. (D-RJN, Exh. E, pg. 26, fn. 15.) The Court of Appeal remanded to this Court with instructions to vacate its order sustaining the demurrer to the SAC and issue a new order that overrules Trousdale NK and Thrasher NK’s demurrer to the 7th cause of action and is otherwise consistent with the Court of Appeal’s opinion. (D-RJN, Exh. E, pg. 27.) On August 5, 2020 the Remittitur was issued.

In accordance with the Remittitur, the Court vacated its order sustaining the demurrer to the SAC and issued a new order overruling Trousdale NK and Thrasher NK’s demurrer to the 7th cause of action. (11/17/20 Minute Order.) Accordingly, the Court’s ruling as to the remaining causes of action and parties, remained unchanged. The Court instructed the parties to meet and confer regarding a Fourth Amended Complaint incorporating language consistent with the Court of Appeal ruling. Plaintiffs filed their Fourth Amended Complaint on December 14, 2020, in which the 1st (breach of fiduciary duty) cause of action is asserted against Defendants derivatively by Winston on behalf of the Arizona LLCs, and in which the 2nd (intentional interference with contract) cause of action is asserted by Winston individually against Trousdale NK and Thrasher. Defendants filed the instant demurrers on January 7, 2021.

Allegations of Fourth Amended Compliant

The Court notes that while the Fourth Amended Complaint is filed by Plaintiffs collectively, the only relevant cause of action is asserted by Winston as a derivative action on behalf of nominal defendants Arizona LLCs. (4AC ¶1.) Plaintiffs’ breach of fiduciary duty cause of action is based on allegations that Defendants, as counsel for the Arizona LLCs, owed “Plaintiffs” fiduciary duties in connection with their representation of those LLCs and the protection of the interests of the members of the LLCs. (SAC ¶93.)

Winston alleges he has been a member of the Arizona LLCs from the time of their formation in August 2015, owning a 49% membership interest and a 50 economic interest in each and was the original managing member of each. (4AC ¶3.) Winston alleges Henrik Strandgaard (“Strandgaard”) is the only other member of the Arizona LLCs, owning a 51% membership interest and 50% economic interest in each. (4AC ¶4.) As in the TAC, Winston alleged he is filing this action derivatively on behalf of the Arizona LLCs and that on June 6, 2018, he gave notice to the Arizona LLCs of the claims contained in this action by giving notice to Strandgaard. (4AC ¶5, Exh. 1.) Winston alleges that prior to September 1, 2015, Defendants represented Strandgaard, and from September 1, 2015 through 2017, Defendants represented the Arizona LLCs. (4AC ¶¶7, 15.)

For background, the Primary LLCs, 460 Trousdale and Bowmont, were each formed for the sole purpose of acquiring, developing, and selling real properties located at 460 Trousdale Place and 2545 Bowmont Drive, respectively (collectively the “Properties”). (TAC ¶12.) Winston alleges that after the Arizona LLCs were formed in August 2015 when they acquired their membership interests in the Primary LLCs and their beneficial interests in the Properties owned by the Primary LLCs, Defendants represented the Arizona LLCs. (4AC ¶15.) Specifically, the Primary LLCs’ memberships were as follows: (1) 460 Trousdale’s only members were Trousdale AZ (one of the Arizona LLCs) and Trousdale NK (a Keros Entity); and (2) Bowmont’s only members were Palm (the other Arizona LLC) and Thrasher (a Keros Entity). (4AC ¶20.) Thrasher and Trousdale were each owned and controlled by Nicholas Keros (“Keros”). Winston alleges Defendants were aware of these facts at all relevant times, and Defendants represented the Arizona LLCs in connection with the negotiations with Keros concerning the formation of the Primary LLCs. (4AC ¶20.) Winston alleges the Arizona LLCs’ initial capital contribution to each of the Primary LLCs was to arrange for a loan of funds from Ricius above the Properties’ mortgage amounts to enable the Primary LLCs to acquire the Properties (“Ricius Loans”), while the Keros Entities’ capital contribution to each of the Primary LLCs was an assignment of their rights to the Properties. (4AC ¶22.) To the extent the Keros Entities had advanced funds in connection with the acquisition of the Properties prior to the formation of the Primary LLCs, such funds were repaid to the Keros Entities once the Primary LLCs were formed, and as a result, Keros, Strandgaard, and Winston did not have any monetary investment in the Properties at the time the Primary LLCs were formed and acquired the Properties. (4AC ¶22.)

Winston alleges that by June 2016, disputes had arisen between Strandgaard and Winston with respect to the relationship between the Arizona LLCs and the Keros Entities concerning the Primary LLCs’ operation and handling of the Properties. (4AC ¶24.) Winston alleges that in September 2016, Keros’s counsel wrote to Defendants, claiming the Arizona LLCs had breached the Primary LLCs’ Operating Agreements by failing to make additional loans to the Primary LLCs, an assertion Winston alleges was incorrect. (4AC ¶¶26-28.) Winston alleges Defendants responded on behalf of the Arizona LLCs, stating Keros could not take unilateral actions with respect to the Properties. (4AC ¶28, Exh. 9.) Winston alleges that on October 26, 2016, Defendants (on behalf of the Arizona LLCs), wrote to the Primary LLCs’ counsel, complaining of Keros’s breaches of the Primary LLCs’ Operating Agreements. (4AC ¶29, Exh. 10.) Winston alleges Primary LLCs’ counsel responded stating the Arizona LLCs had no right to participate in the Primary LLCs’ management, business and affairs given their purported breaches, and indicated Keros was willing to offer a payoff of the Ricus Loans plus 9% interest in exchange for the Arizona LLCs’ transfer of their interest in the Primary LLCs to the Keros Entities, an offer Defendants knew was below market value. (4AC ¶30, Exhs. 11, 22.) Winston alleged Strandgaard wanted to accept this offer, Winston was opposed to this offer, and Defendants were aware of this conflict. (4AC ¶31.) Winston alleged his counsel informed Strandgaard, Defendants, and Primary LLCs’ counsel that the Arizona LLCs could not take action without Winston’s approval and conflicts had developed in Defendants’ representation given they were representing the Arizona LLCs whose members, Winston and Strandgaard, had conflicting interests. (4AC ¶¶33-35.)

The breach of fiduciary duty cause of action is based on allegations that Defendants breached fiduciary duties they owed to the Arizona LLCs by taking actions solely on behalf of Strandgaard, without notifying Winston, that had the purpose of: (1) denying the Arizona LLCs any interest in the Properties or the Primary LLCs; and (2) allowing Strandgaard to exit from the investment in the Properties and repay the Ricius Loans, notwithstanding Defendants’ knowledge that Winston was the Arizona LLCs’ manager [a contradicted allegation] and that both Winston and Strandgaard’s approval was needed for the Arizona LLCs to take certain actions including transfer their interests in the Primary LLCs. (4AC ¶¶38-39.) Winston alleges Defendants also breached fiduciary duties owed to the Arizona LLCs by assisting in the creation, execution, and alleged backdating of certain resolutions to remove Winston as manager of the Arizona LLCs as of October 27, 2016. (4AC ¶40.) Winston alleges Defendants further breached duties owed by causing Articles of Termination of the Arizona LLCs to be prepared in January 2017 and filed in September 2017. (4AC ¶41.) Winston alleged that on October 31, 2016, Defendants worked with Strandgaard to cause the LLCs to assign and transfer their membership interests in the Primary LLCs to the Keros Entities (“Assignments”), without notifying Winston of such Assignments in violation of the Arizona LLCs’ operating agreements, and ultimately finalized the Assignments on November 11, 2016 and became effective on payment by the Keros Entities to Strandgaard on December 15, 2016. (4AC ¶¶44-49.) Winston alleges that in further breach of fiduciary duties, Defendants allowed Keros, on behalf of the Keros Entities, to enter into agreements to refinance the Properties via loan modifications on the Properties to obtain the necessary cash to pay for the Assignments. (4AC ¶51.) Winston alleges these loan modifications were not done with appropriate approval of the Arizona LLCs. (4AC ¶51.)

Winston alleges that Defendants breached fiduciary duties by solely representing Strandgaard’s interests in connection with the Assignments of the Arizona LLCs’ membership interests in the Primary LLCs to the Keros Entities, knowing they were unauthorized and benefited Strandgaard at the expense of the Arizona LLCs. (4AC ¶55.) Winston alleges Defendants also breached fiduciary duties by filing Articles of Termination in an attempt to deprive the Arizona LLCs of the right to bring this action. (4AC ¶55.)

The Court notes these allegations are substantively the same as those alleged against Defendants’ in the SAC. (See SAC ¶¶28-39, 41-59, 93-96.) Namely, Winston does not allege any new underlying conduct by Defendants in support of his breach of fiduciary duty cause of action.

Breach of Fiduciary Duty (1st COA)

The only issue before the Court in ruling on the instant demurrer is whether the demurrer should be sustained for the same reason the Court sustained Demurring Defendants’ demurrers to the SAC’s 1st, 2nd and 4th causes of action, namely, that since the causes of action were facially derivative claims, Winston was required to follow Arizona state law demand procedures prior to their filing. Accordingly, here the Court must address whether the claims asserted against Defendants in the SAC were facially derivative claims actually belonging to the Arizona LLCs, such that Winston’s failure to follow the demand procedure prior to filing the SAC would bar the claims for lack of standing given they were actually claims belonging to the Arizona LLCs.

For the reasons discussed below, Winston failed to allege sufficient facts to constitute the cause of action. Specifically, Winston failed to allege facts suggesting he has standing to bring the instant cause of action as a derivative action on behalf of the Arizona LLCs given he did not issue a demand to Strandgaard until after he filed the SAC which alleged the same cause of action based on the same underlying factual allegations.

Defendants argue the breach of fiduciary duty claim is an improper derivative claim because Plaintiffs failed to comply with the required pre-lawsuit demand requirement under applicable Arizona law before filing their lawsuit against Defendants. (Demurrer, pg. 2.)

Winston argues the causes of action asserted against Defendants in the SAC were not brought derivatively, but by Winston as an individual and as a manager of the Arizona LLCs. (Opposition, pgs. 6, 11.) However, this argument fails to acknowledge that, as discussed above, Plaintiffs did not bring any of the SAC’s causes of action derivatively, and in ruling on the Demurring Defendants’ demurrer, the Court first determined whether the causes of action were, on their face, derivative claims belonging to the Arizona LLCs such that Plaintiff’s failure to follow the proper procedure for asserting a derivative claim under Arizona Law prior to filing the pleading barred the claims. In applying the Court’s reasoning to the causes of action originally filed against Defendants and thereafter amended in the TAC and 4AC, this Court finds that the breach of fiduciary duty cause of action is also facially a derivative claim.

Winston also argues that the Court’s previous finding that Strandgaard properly removed Winston as a manager of the Arizona LLCs such that Winston did not have standing to maintain claims belonging to the Arizona LLCs cannot be applied to the instant claim because the Court did not reach the 6th cause of action. (Opposition, pg. 7.) However, this argument is without merit. The fact the Court previously did not address whether the SAC’s 6th cause of action was derivative, because Defendants had not yet demurred thereto, does not preclude the SAC’s 6th cause of action from having been facially derivative and belonging to the Arizona LLCs. Moreover, Winston subsequently filed his amended pleading in this action conceding the previously alleged breach of fiduciary duty cause of action is brought derivatively on behalf of the Arizona LLCs, and not brought directly on behalf of the Arizona LLCs or Winston himself.

The Court finds the breach of fiduciary duty as alleged in the 4AC is substantively the same as the cause of action alleged in the SAC, which was facially a derivative cause of action belonging to the Arizona LLCs. The Court’s prior ruling that certain claims in the SAC were facially derivative/belonged to the Arizona LLCs was limited in scope to claims based on complaints about Defendants’ activities with respect to the Properties held by the Primary LLCs. Here, Winston complains about Defendants’ activities that were taken solely on behalf of Strandgaard and had the purpose of denying the Arizona LLCs any interest in the Properties or the Primary LLCs (which owned the Properties), among other fiduciary breaches. As such, the claims alleged against Defendants in the SAC, the TAC, and the 4AC ultimately involve complaints about Defendants’ activities with respect to the Properties held by the Properties held by the Primary LLCs. Accordingly, Winston was required to follow the Arizona state law procedure for issuing a demand prior to asserting these claims, notwithstanding the fact the claims were previously asserted as “direct” claims on behalf of the Arizona LLCs themselves through Winston as their manager in the SAC. Regardless of the label assigned to the claim in the SAC, it facially constituted a derivative claim at that time, and as such, Winston did not have standing to bring them on behalf of the Arizona LLCs prior to issuing the demand. Winston alleges he did not make a demand on the Arizona LLCs of the breach of fiduciary claim against Defendants belonging to the Arizona LLCs until June 6, 2018, which is after Winston filed the SAC asserting the breach of fiduciary duty cause of action against Defendants in this action on February 20, 2018. Accordingly, Winston did not properly follow Arizona state law requiring the issuance of a demand prior to initiating the action, and Winston lacks standing to assert the claims in this action against Defendants, derivatively on behalf of the Arizona LLCs.

Based on the foregoing, Defendants’ demurrers to the Fourth Amended Complaint are sustained without leave to amend.

Dated: February ____, 2021

Hon. Monica Bachner

Judge of the Superior Court

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