ECO Property Group, LLC v. Snider Investments, LLC, et al
ECO Property Group, LLC v. Snider Investments, LLC, et al
Case Number
19CV04971
Case Type
Hearing Date / Time
Wed, 05/07/2025 - 10:00
Nature of Proceedings
Defendants David Snider and Snider Investments, LLC’s Demurrer to Plaintiff ECO Property Group, LLC’s Second Amended Complaint
Tentative Ruling
For Plaintiff ECO Property Group, LLC: Shahrokh Sheik, Jason D. Annigian
For Defendants David Snider and Snider Investments, LLC: Robert B. Forouzandeh
[For additional appearances see list.]
RULING
For the reasons set forth below:
Defendants David Snider and Snider Investments, LLC’s demurrer to plaintiff ECO Property Group, LLC’s second amended complaint is overruled. David Snider and Snider Investments, LLC shall file and serve their answers to the second amended complaint no later than May 21, 2025.
Background
This action commenced on September 17, 2019, and arises out of a cannabis business venture. In 2016, plaintiff ECO Property Group, LLC (“ECO”) and defendant Snider Investments, LLC (“SIL”) formed Morongo Equity Partners I, LLC (“MEPI”) for the purpose of constructing and developing a cannabis cultivation facility at 13310 Little Morongo Road, Desert Hot Springs, California. Pursuant to the MEPI operating agreement, SIL owned an 80% interest in the company and ECO owned a 20% interest. The managers of MEPI were SIL and SIL member, defendant David Snider (“Snider”). The Morongo Road property included a 46,425 sq. ft. greenhouse that was leased by MEPI to Seed to Soul Management (“Seed to Soul”), a cannabis cultivation company. MEPI later terminated the lease with Seed to Soul pursuant to a settlement agreement.
On June 23, 2020, ECO filed a derivative complaint on behalf of MEPI in Riverside County (“derivative action”). While the case was still pending in Riverside County, and as part of that action, ECO filed a Notice of Pendency of Action (“lis pendens”) regarding the cannabis cultivation facility at 13310 Little Morongo Road, Desert Hot Springs. On September 1, 2020, this court ordered the Riverside case transferred and consolidated with this action.
On December 23, 2021, with leave of court, ECO filed its first amended complaint for: (1) Breach of Contract, (2) Breach of the Implied Covenant of Good Faith and Fair Dealing, (3) Breach of Fiduciary Duty of Loyalty, (4) Breach of Fiduciary Duty to Use Reasonable Care, (5) Conversion, (6) Money Had and Received, (7) Fraudulent Concealment, (8) Fraudulent Misrepresentation, (9) Declaratory Relief, (10) Violation of Corporations Code section 17704.10, (11) Violation of Corporations Code section 17713.07, (12) Violation of Corporations Code section 17713.06, and (13) Unfair Business Practices.
To summarize: ECO alleges that SIL and Snider breached the MEPI operating agreement and on September 17, 2019, filed its complaint for breach of contract, breach of fiduciary duty, conversion, fraudulent concealment, and unfair business practices. In response, SIL cross-complained against ECO and its members Eli Owens (“Owens”), Roger MacFarlane (“MacFarlane), Scott Newby (“Newby”), and Gary Walker, Jr. (“Walker”) for fraud and rescission of the MEPI operating agreement. SIL alleged that it was fraudulently induced to enter into the MEPI operating agreement by Owens, McFarlane, Newby, and Walker, who falsely represented that Seed to Soul was experienced in large-scale cannabis operations and was fully capitalized. In a separate cross-action, MEPI sought rescission of the lease between MEPI and Seed to Soul, as well as rescission of the settlement agreement between the two parties. In still another cross-action, Owens, MacFarlane, Newby, and Walker asserted claims against MEPI for breach of the settlement agreement and against former Seed to Soul member Brent Buhrman (“Buhrman”) for breach of the Seed to Soul partnership agreement.
Trial of the action was divided into two phases. Phase 1, consisting of the SIL and MEPI cross-complaints, plus the cross-complaint of the Seed to Soul members, was tried over thirteen days in November and December 2021. Phase 2, consisting of ECO’s direct complaint has not yet taken place.
On January 20, 2022, the court entered its final statement of decision (“SOD”) for Phase 1. The court found in favor of SIL and MEPI on their cross-complaints for recission of the MEPI operating agreement, the commercial lease between MEPI and Seed to Soul, and the settlement agreement between MEPI and Seed to Soul, and for damages. The court also found in favor of cross-defendants on the cross-complaint of Seed to Soul members Owens, MacFarlane, Newby, and Walker.
The court found, among other things, that ECO fraudulently induced Snider and SIL into the operating agreement. As such, the operating agreement was rescinded. As a result, ECO is no longer a member of MEPI. The lease of the property and the settlement agreement between MEPI were also rescinded due to fraudulent inducement by ECO.
ECO appealed the judgment arguing that substantial evidence did not support the court’s finding of fraudulent inducement. The appellate court treated the appeal as a petition for an extraordinary writ and rejected ECO’s arguments. This court’s judgment, with respect to this aspect of the appeal, was affirmed.
The court of appeals findings included:
“We agree that the judgment on the cross-complaints fully adjudicated ECO’s derivative complaint.” “The rescission of the Operating Agreement means that ECO lacked standing to bring the derivative action on behalf of Morongo because it was never a member of the limited liability company.”
On November 7, 2024, Snider and SIL demurred to the FAC.
On January 2, 2025, ECO filed an opposition to the demurrer. By way of the opposition, ECO acknowledged that, in light of the Phase 1 rulings, the demurrer was meritorious but requested leave to amend.
On January 15, 2025, the court sustained the demurrer with leave to amend.
On January 21, 2025, ECO filed its SAC for: (1) Fraud, and (2) Restitution for Unjust Enrichment.
As alleged in the SAC:
In 2016, Snider was looking for partners for a project to build and operate a cannabis cultivation facility in Desert Hot Springs. (SAC, ¶ 11.)
From May through October 2016, by way of telephone conversations, in-person conversations, and emails, Snider made multiple false representations to ECO about the project. (SAC, ¶¶ 29, 30.) Snider and SIL knew the representations were false at the time they made them. (SAC, ¶ 31.) ECO did not know that Snider and SIL were concealing facts or making false representations. (SAC, ¶ 33.) Snider and SIL intended to deceive ECO by concealing facts and making false representations, and intended for ECO to rely on the false representations. (SAC, ¶¶ 37, 38.)
ECO gave Snider and SIL $1,000,000.00, towards the project, in October 2016, and $100,000.00 in 2017. (SAC, ¶ 39.) In doing so, ECO was relying on the misrepresentations and lack of knowledge of concealed facts. (SAC, ¶ 40.)
As a result of the fraud, ECO has been damaged by: (1) Not receiving any proceeds from the rental of a building; (2) Not receiving any proceeds from the partial sale of the building; (3) Not receiving any proceeds corresponding to Snider and SIL improperly investing ECO’s contribution in another building; and (4) Losing the opportunity costs and interest from ECO’s inability to use its contribution for other purposes. (SAC, ¶ 42.)
Snider and SIL now demur to the SAC based, primarily, on the argument that the recission of the operating agreement in Phase 1 of the trial, as affirmed by the appellate court, is binding on the rest of this action and that ECO cannot state a valid cause of action because ECO’s claims are premised upon the representations that were made memorializing the operating agreement that no longer exists.
ECO opposes the demurrer. By way of the opposition, ECO does not dispute that the operating agreement has been rescinded. Rather, ECO argues that the two causes of action are based on different wrongful actions and corresponding primary rights than those established by the, now rescinded, operating agreement.
Analysis
Request for Judicial Notice
Snider and SIL request that the court take judicial notice of the May 6, 2024, appellate opinion confirming this court’s statement of decision in phase 1 and the recission of the operating agreement.
Records of the courts of any State may be judicially noticed pursuant to Evidence Code section 452, subdivision (d).
The court will take judicial notice of the opinion. However, as noted above, ECO is not disputing the fact that the operating agreement has been rescinded. As such, the opinion has no effect on the analysis of the present demurrer.
Demurrer
“When any ground for objection to a complaint, cross-complaint, or answer appears on the face thereof, or from any matter of which the court is required to or may take judicial notice, the objection on that ground may be taken by a demurrer to the pleading.” (Code Civ. Proc., § 430.30, subd. (a).) “Our consideration of the facts alleged includes ‘those evidentiary facts found in recitals of exhibits attached to [the] complaint.’ [Citation.]” (Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1250.)
“[A] court must treat a demurrer as admitting all material facts properly pleaded, it does not, however, assume the truth of contentions, deductions or conclusions of law.” (Travelers Indem. Co. of Connecticut v. Navigators Specialty Ins. Co. (2021) 70 Cal.App.5th 341, 358, citing Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)
“If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer. “ ‘[W]e are not limited to plaintiffs’ theory of recovery in testing the sufficiency of their complaint against a demurrer, but instead must determine if the factual allegations of the complaint are adequate to state a cause of action under any legal theory. The courts of this state have . . . long since departed from holding a plaintiff strictly to the ‘form of action’ he has pleaded and instead have adopted the more flexible approach of examining the facts alleged to determine if a demurrer should be sustained.’ ” [Citations.]” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38-39.)
“To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)
Snider and SIL, as they have previously done, generally argue that, because the operating agreement was rescinded by operation of the Phase 1 judgment, and because the court found that ECO committed fraud upon Snider and SIL, ECO has no viable causes of action to assert against them.
While the court fully understands the arguments presented by Snider and SIL, the demurrer seeks to have this court perform an evidentiary analysis that is far beyond the scope of what may be considered on demurrer. As noted above, a demurrer may be sustained only if the defect appears on the face of the complaint or matters which may be judicially noticed. This is not a motion for judgment on the pleadings or a motion for summary judgment. The court must make its ruling based on the law as it pertains to demurrers.
“At this stage in the proceedings, we are concerned only with whether a plaintiff has stated a hypothetical case; whether or not it can be proven is beyond our review.” (Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 962.) “At the demurrer stage, [plaintiff] is the master of his complaint, and we must accept his allegations at face value.” (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1202.)
ECO, acknowledging that the operating agreement has been rescinded and that it is as though the operating agreement never existed, argues that the SAC sets forth causes of action that are predicated on different wrongful actions and corresponding primary rights than established by the now rescinded operating agreement. As such, the question is whether ECO has stated sufficient facts to constitute causes of action that fall outside of the now rescinded operating agreement. The court finds that, for pleading purposes, the SAC does state causes of action that survive demurrer.
Fraud
“ ‘To establish a claim for fraudulent misrepresentation, the plaintiff must prove: ‘ “(1) the defendant represented to the plaintiff that an important fact was true; (2) that representation was false; (3) the defendant knew that the representation was false when the defendant made it, or the defendant made the representation recklessly and without regard for its truth; (4) the defendant intended that the plaintiff rely on the representation; (5) the plaintiff reasonably relied on the representation; (6) the plaintiff was harmed; and (7) the plaintiff’s reliance on the defendant’s representation was a substantial factor in causing that harm to plaintiff.” ’ ” [Citation.]” (Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 605-606.)
The SAC, as quoted above, clearly alleges all the elements of fraud. Again, this is a demurrer and solely limited to whether a defect, or complete defense, appears on the face of the complaint. Snider and SIL’s arguments focus on the rescission of the operating agreement without adequately explaining how that fact provides them with a complete defense to allegations regarding events that allegedly took place prior to entering into that agreement. Despite arguing that ECO fails to adequately plead “multiple elements of fraud,” (Demurrer, p. 14, l. 12), the only cogent argument that Snider and SIL make regarding the actual elements of fraud is that ECO was not harmed because its investment has been returned. This ignores the fact that ECO pleads other damages, as set forth above, at paragraph 42 of the SAC. The pleading is sufficient to overcome demurrer to the fraud cause of action.
Unjust Enrichment
“The elements of a cause of action for unjust enrichment are simply stated as “ ‘receipt of a benefit and unjust retention of the benefit at the expense of another.’ ” [Citation.]” (Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc. (2018) 29 Cal.App.5th 230, 238.) “ ‘The term ‘ “benefit” ’ ‘ “denotes any form of advantage.” ’ ” [Citation.] “ ‘[T]he benefit that is the basis of a restitution claim may take any form, direct or indirect. It may consist of services as well as property. A saved expenditure or a discharged obligation is no less beneficial to the recipient than a direct transfer.’ ” [Citation.]” (Ibid.)
Rather than argue that ECO has not adequately pled the elements of unjust enrichment, Snider and SIL argue that ECO cannot recover because it has already been determined that ECO committed fraud against SIL, thereby triggering the unclean hands doctrine. While Snider and SIL may be correct in this assertion, it is not a proper basis for demurrer. (see Stine v. Dell’Osso (2014) 230 Cal.App.4th 834, 844.)
Here, ECO has pled facts which, if proven, may constitute unjust enrichment. While Snider and SIL may have a valid defense to the cause of action, a demurrer is not the proper means of asserting that defense.
Snider and SIL do not meet their burden of proof in showing any defect, or complete defense, that appears on the face of the SAC. Snider and SIL’s arguments are more properly brought forward as affirmative defenses in their answers to the SAC. The demurrer will be overruled, and defendants will be ordered to answer the SAC.