Bui Simon etc. v. Angela Scott, et al

Case Number

23CV03184

Case Type

Hearing Date / Time

Wed, 07/10/2024 - 10:00

Nature of Proceedings

(1) Demurrer of Defendants to Second Amended Complaint (2) Motion of Defendants to Strike Portions of Second Amended Complaint

Tentative Ruling

For Plaintiff Bui Simon: Patricia L. Glaser, Cynthia E. Organ, Alexander R. Miller, Glaser Weil Fink Howard Jordan & Shapiro LLP                      

For Defendants Angela Scott, Scott Milden, and Milden, LLC: Bert H. Deixler, Patrick J. Somers, David T. Freenock, Kendall Brill & Kelly LLP

         

RULING

(1) For the reasons set forth herein, the demurrer of Defendants Angela Scott, Scott Milden, and Milden, LLC, to the second amended complaint of Plaintiff Bui Simon is sustained, with leave to amend, as to the seventh (fraud) and eighth (aiding and abetting fraud) causes of action and is otherwise overruled.

(2) For the reasons set forth herein, the motion of Defendants to strike portions of the second amended complaint is granted, with leave to amend, to strike paragraph 5 of the prayer, and is in all other respects denied.

(3) Plaintiff shall file and serve her third amended complaint on or before July 25, 2024.

(4) The Trial Date of 11/27/24 is confirmed. The case(s) was filed in July 2023 and should be tried or settled before the end of this calendar year.

Background

(1) Allegations of Second Amended Complaint

As alleged in Plaintiff’s first amended complaint (SAC):

Plaintiff Bui Simon (Simon) is a founder and 50 percent owner/member of The Office of Angela Scott LLC (TOOAS or Company). (SAC, ¶¶ 16-18.) Defendant Angela Scott (Scott) is the other 50 percent owner/ member of TOOAS. (SAC, ¶ 18.) TOOAS is a Texas limited liability company, formed on October 4, 2010, that is now headquartered and operated in Santa Barbara. (SAC, ¶ 16.) Scott was appointed as the original manager of TOOAS. (SAC, exhibit A, § 4.2.) On August 3, 2015, Simon and Scott entered into a Restated Operating Agreement (Operating Agreement) for TOOAS, which is the current operating agreement for the Company. (SAC, ¶ 19 & exhibit A.)

The Operating Agreement includes the following provisions (underscoring omitted):

“1.2   Term. The term of the Company commenced on October 4, 2010, the date on which the Certificate of Formation (‘Certificate’) was filed with the Texas Secretary of State, and shall continue until terminated under Section 9.1.”

“1.4   Business of the Company. Notwithstanding the purpose of the Company which is described in the Certificate, the Company shall not engage in any business other than the following without the approval of all of the Members:

          “(a)    The business of designing, licensing, manufacturing and selling footwear; and

          “(b)    Such other activities incidental to the foregoing business, including, but not limited to, the designing, licensing, manufacturing and selling of apparel, handbags and related fashion accessories.”

“3.5   Payments to Members. Except as specified in this Agreement or pursuant to a transaction permitted by Section 4.7, no Member, Manager, or person or entity controlled by, controlling or under common control with the Member or Manager, or person who is an officer, director, partner or trustee of the Member (each such person or entity is defined as an ‘Affiliate’), is entitled to remuneration for services rendered or goods provided to the Company. However, the Company shall reimburse the Members, Managers and their Affiliates for organizational expenses (including, without limitation, legal and accounting fees and costs) incurred to form the Company, prepare the Articles and this Agreement and, as approved by the Managers, for the actual cost of goods and materials used by the Company.”

“4.2   Appointment and Removal of Managers. The initial Manager or Managers of the Company shall be appointed with the approval of all of the Members and each such Manager shall serve until the earlier of (i) such Manager’s resignation, retirement, death or permanent disability; (ii) such Manager ceasing to be an individual Member or an individual then serving as an officer, manager, director, partner, trustee or other controlling person of a Member which is not an individual; or (iii) such Manager’s removal for cause by the Members. The Members initially appoint Angela Marie Scott as the sole Manager. A Manager may be removed with cause at any time upon the approval of the Members excluding, however, any Voting Interest held by the Manager to be removed for cause. For the purpose of this section, ‘cause’ shall mean the gross negligence or willful misconduct of such Manager in the performance of his or her obligations under this Agreement. If such Manager is also a Member, such removal for cause shall not affect the Manager’s rights as a Member except as provided in this section 4.2 or constitute a withdrawal of a Member. Upon a Manager’s removal for cause by the Members, a new Manager shall be appointed by the approval of the Members excluding, however, any Voting Interest held by the Manager removed for cause. Upon a Manager’s resignation, retirement, death or disability, a new Manager shall be appointed by a majority of the remaining Managers or the sole remaining Manager, as the case may be, or if there is no remaining Manager, by the approval of all of the Members.”

“4.3.  Management and Powers. Except as provided by Section 4.4 below, the Managers shall have full, complete and exclusive authority, power, and discretion to manage and control the business, property, and affairs of the Company, to make all decisions regarding those matters, and to perform any and all other acts or activities customary or incident to the management of the Company’s business,

property, and affairs, subject in all cases to the other provisions of this Agreement and the requirements of applicable law.”

“4.4   Limitations on Power of Managers. No Manager shall have authority to (i) do any act in contravention of this Agreement, (ii) do any act which would make it impossible to carry on the ordinary business of the Company, or (iii) confess a judgment against the Company. Additionally, no Manager shall have authority to cause the Company to engage in the following transactions without first obtaining the approval of all of the Members:

          “A.    The sale, exchange or other disposition of all, or substantially all of the properties or assets of the Company.

          “B.    The hypothecation or encumbrance of any of the properties

or assets of the Company.

          “C.    The merger of the Company with or the acquisition by the Company of the assets of another limited liability company, general partnership, limited partnership, corporation or other entity.

          “D.    The hiring of employees, accountants and attorneys for the

Company.

          “E.     An alteration of the authorized business of the Company as

set forth in Section 1.4.”

“4.5   Devotion of Time; Compensation. So long as she is a Manager, Angela shall devote full business time to the business and affairs of the Company. Each other Manager shall devote whatever time or effort as such Manager deems appropriate for the furtherance of the Company’s business. Each Manager shall be entitled to compensation for such Manager’s services to the Company as shall be determined by the approval of all of the Members, and to reimbursement for all expenses reasonably incurred by such Manager in the performance of such Manager’s duties under this Agreement.”

“11.6 Amendments. All amendments to this Agreement shall be in writing and signed by all of the Members in order to be valid.”

“11.8 Governing Law. Except as otherwise specified in this Agreement, the parties hereto agree that for as long as Bui is a Member, the laws of the State of California concerning contracts entered into and to be performed wholly within California between residents of California shall govern the validity of this Agreement, the interpretation and enforcement of its terms, and the rights and duties of the parties hereto (whether a cause of action is asserted in contract, in tort, or otherwise).”

In the fall of 2022, Scott approached Simon requesting a $500,000 bonus to make a down payment on a house. (SAC, ¶ 23.) Simon agreed to review the Company’s finances to see if the Company was in a financial position to pay such a bonus. (Ibid.) Instead, Simon discovered that Scott had been improperly receiving compensation and reimbursements of personal expenses from the Company. (Ibid.) In order to confirm this wrongdoing and to attempt to undertake the scope of Defendants’ malfeasance, Simon personally commissioned a forensic audit by the firm of Nigro Karlin Segal & Feldstein, LLP (Nigro) in April 2023, and an inventory audit by Tiger Valuation Services, LLC (Tiger) in March 2023. (Ibid.) Simon was forced to pay for the audits personally even though their cost was properly a Company expense because Scott, who was then the sole manager of the Company, refused to authorize the expenditure of Company funds for the audit. (Ibid.) The preliminary results of the audits, which are ongoing, confirm that Defendants have embezzled more than $2.5 million in undisclosed compensation and personal expenditures in violation of the Operating Agreement. (Ibid.)

For example, as a result of Simon’s investigation, Simon discovered that the Company has been making substantial payments for multiple Porsches being driven by Scott during the years 2015 through 2023 for primarily personal purposes. (SAC, ¶¶ 24-26.) The payment of these expenses with Company funds were never approved by Simon. (Ibid.) Scott used Company expense to pay for unauthorized personal expenses, including retail shopping and personal trips. (SAC, ¶¶ 27, 28.)

Defendant Scott Milden (Milden) is Defendant Scott’s husband. (SAC, ¶ 1.) Defendant Milden, LLC (Milden LLC) is a California limited liability company with Milden as its sole member and manager. (SAC, ¶ 7.) Milden was given multiple Company credit cards by Scott that were used for improper personal expenses. (SAC, ¶ 32.) Simon has identified more than $1 million in payments to Milden. (SAC, ¶ 39.) Milden was paid as an employee of the Company without the approval of Simon. (SAC, ¶¶ 39, 40.) Improper payments were also made to Milden LLC. (SAC, ¶¶ 41-42.)

On July 19, 2023, Simon took the step of removing Scott as manager of the Company “for cause” under the Operating Agreement. (SAC, ¶¶ 47-50.) Simon then appointed Gene Montesano as Manager. (SAC, ¶ 50.) Montesano was succeeded by Todd Steele. (SAC, ¶ 60.) Scott has disputed whether she has been removed as manager. (SAC, ¶¶ 52-54, 61.)

(2) Procedural History

On June 2, 2023, Simon filed the original complaint in the related action, Simon etc. v. Scott, et al., case number 23CV02376 (the Derivative Action). The Derivative Action makes allegations and asserts causes of action against Scott, Milden, and Milden LLC derivatively on behalf of TOOAS based upon the same underlying transactions as in this action.

On July 24, 2023, Simon filed the original complaint in this action (sometimes, Direct Action). On September 12, 2023, without any answer or other response having been filed in this action, Simon filed the FAC. The FAC asserted nine causes of action: (1) declaratory relief; (2) breach of contract; (3) inducing breach of contract; (4) intentional interference with contractual relations; (5) breach of fiduciary duty; (6) aiding and abetting breach of fiduciary duty; (7) fraud; (8) aiding and abetting fraud; and (9) injunctive relief. These claims are all asserted by Simon directly.

On October 12, 2023, Defendants Scott, Milden, and Milden LLC (collectively, Defendants) filed their answer to the FAC, generally denying the allegations thereof and asserting 29 affirmative defenses.

On December 29, 2023, Defendants filed a motion for judgment on the pleadings. Defendants argued that all of Plaintiffs’ claims fail because they are derivative claims of TOOAS and cannot be asserted directly. Defendants also argued that the declaratory relief claim is duplicative of the same claim in the Derivative Action and that the ninth cause of action fails because there is no cause of action for injunctive relief. Simon opposed the motion.

On March 13, 2024, the Court granted the motion for judgment on the pleadings, with leave to amend, as to the second through ninth causes of action, and denied the motion as to the first cause of action.

On April 12, 2024, Simon filed the SAC. The SAC asserts eight causes of action: (1) declaratory relief; (2) breach of contract; (3) inducing breach of contract; (4) intentional interference with contractual relations; (5) breach of fiduciary duty; (6) aiding and abetting breach of fiduciary duty; (7) fraud; (8) aiding and abetting fraud. These claims are all asserted by Simon directly.

On May 29, 2024, Defendants filed their demurrer to the third through eighth causes of action of the SAC (erroneously identified in the notice of motion as the first through sixth causes of action). Defendants concurrently move to strike allegations from the SAC. The demurrer and motion to strike are opposed by Simon.

Analysis:

(1)     Demurrer

“ ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. ... We also consider matters which may be judicially noticed.’ ... Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Mathews v. Becerra (2019) 8 Cal.5th 756, 768, internal quotation marks and citations omitted.)

          (A)    Direct Claims

Defendants principally argue that Simon’s causes of action are derivative and owned by the Company, and thus cannot be brought directly by Simon individually.

“ ‘Because a corporation exists as a separate legal entity, the shareholders have no direct cause of action or right of recovery against those who have harmed it. The shareholders may, however, bring a derivative suit to enforce the corporation’s rights and redress its injuries when the [corporation] fails or refuses to do so.’ [Citation.] ‘An action is deemed derivative “ ‘if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.’ ” [Citation.]’ [Citation.] ‘A personal claim, in contrast, asserts a right against the corporation which the shareholder possesses as an individual apart from the corporate entity: “If the injury is not incidental to an injury to the corporation, an individual cause of action exists.” [Citation.]’ [Citation.] ‘[T]he principles of derivative lawsuits applicable to corporations likewise apply to a limited liability compan[ies].’ [Citation.]” (Sprengel v. Zbylut (2019) 40 Cal.App.5th 1028, 1040.)

“Under California law, ‘a shareholder cannot bring a direct action for damages against management on the theory their alleged wrongdoing decreased the value of his or her stock (e.g., by reducing corporate assets and net worth). The corporation itself must bring such an action, or a derivative suit may be brought on the corporation’s behalf.’ [Citations.]” (Schuster v. Gardner (2005) 127 Cal.App.4th 305, 312.) “Shareholders may bring a derivative suit to, for example, enjoin or recover damages for breaches of fiduciary duty directors and officers owe the corporation. [Citation.] An individual cause of action exists only if damages to the shareholders were not incidental to damages to the corporation. [Citation.] Examples of direct shareholder actions include suits brought to compel the declaration of a dividend, or the payment of lawfully declared or mandatory dividends, or to enjoin a threatened ultra vires act or enforce shareholder voting rights.” (Id. at pp. 312–313, italics omitted.)

The nature of the right sued upon, and the damage suffered, thus determines whether the action is derivative or direct, or both. “[I]t is settled that one who has suffered injury both as an owner of a corporate entity and in an individual capacity is entitled to pursue remedies in both capacities.” (Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1221.)

The first two causes of action of the SAC are for declaratory relief (first) and for breach of contract (second). Despite the misnumbering of the causes of action in Defendants’ demurrer, Defendants do not challenge either of these causes of action on demurrer. Simon’s third cause of action is for inducing breach of contract; Simon’s fourth cause of action is for intentional interference with contractual relations. The two torts are both asserted against Milden and Milden LLC.

The tort of inducing breach of contract is a species of the tort of intentional interference with contractual relations. (1-800 Contacts, Inc. v. Steinberg (2003) 107 Cal.App.4th 568, 585.) The elements of the inducing breach tort are: “a valid contract between the Plaintiff and a third party, Defendant’s knowledge of it, ‘Defendant’s intentional acts designed to induce a breach ... of the contractual relationship,’ consequent breach, and resulting damage. [Citation.]” (Ibid.)

Tortious interference with contractual relations is a broader tort based on the same concepts with the following elements: “(1) [T]he existence of a valid contract between the Plaintiff and a third party; (2) the Defendant’s knowledge of that contract; (3) the Defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1141.)

The difference is that “[t]he tort of inducing breach of contract requires proof of a breach, whereas the tort of interference with contractual relations requires only proof of interference.” (Jenni Rivera Enterprises, LLC v. Latin World Entertainment Holdings, Inc. (2019) 36 Cal.App.5th 766, 782.)

Simon’s third cause of action for inducing breach of contract against Milden and Milden LLC is based upon the allegations that:

“Defendant Milden and Defendant Milden, LLC, with knowledge of the existence of the contract, and with the intent to induce breach of the agreement between Plaintiff and Defendant Scott, intentionally and deliberately, advised, counseled, persuaded and induced Defendant Scott to breach her contract with Plaintiff by wrongfully, unlawfully, falsely and fraudulently advising, persuading and inducing Defendant Scott to fail and refuse to honor her contractual commitments by, among other things: (1) paying Defendant Scott, Defendant Milden, and Defendant Milden, LLC, compensation from the Company without authorization; (2) improperly reimbursing personal expenses from Defendant Scott and Defendant Milden without authorization; and (3) hiring employees and attorneys for the Company without authorization.” (SAC, ¶ 73.)

“Plaintiff’s personal damages include, among other things, the costs associated with the forensic audit by Nigro and the inventory audit performed by Tiger that Plaintiff was forced to incur to investigate Defendants’ misconduct, as such investigatory expenses resulting from a breach of the Operating Agreement were reasonably foreseeable at the time the parties entered into the Operating Agreement.” (SAC, ¶ 76.)

Defendants argue that the Simon has alleged only damages of the Company, pointing out that the allegations of paragraph 73 are not damages individual to Simon for the reasons discussed in the Court’s ruling on the earlier demurrer. Defendants further argue that the alleged personal damages set forth in paragraph 76 are also damages to the Company because Simon alleges that she “was forced to pay for the audits personally even though their cost was properly a Company expense because Defendant Scott, who was the sole Manager of the Company, refused to authorize the expenditure of Company funds for the audits.” (SAC, ¶ 23.)

As the above discussion of the difference between a derivative action and an individual action demonstrates, the underlying concept is that the party who suffered the harm directly is the party who may bring the action. Where the entity is the real party in interest, that is, the party that suffered the harm directly, the action must be derivative because the resulting judgment is to compensate the entity for the harm it suffered, which compensation necessarily remedies the indirect harm to the owners by making the entity whole. Owners of the entity do not suffer direct harm by the loss to the entity, and so must sue derivatively. (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 125–126.) Here, Simon alleges that she personally incurred the expense of the audits, which expense was not suffered by the Company. The type of damage alleged to have been suffered by Simon is therefore direct and individual, and is measured by the loss of such expense. In general, “ ‘special losses that a party incurs in a reasonable effort to avoid losses resulting from a breach are recoverable as damages.’ [Citation.]” (Millikan v. American Spectrum Real Estate Services California, Inc. (2004) 117 Cal.App.4th 1094, 1105.)

In noting that Simon’s claim for audit expenses is a direct claim, it is useful to note that it is irrelevant that the claim could, or even should, have been a Company expense. Assuming that the audit should have been an expense borne by the Company, Simon’s ability to sue the Company for reimbursement (payment for which the Company would give rise to a subrogation right in the Company to recover from Scott) does not impede Simon’s right to seek recovery of the personal loss directly against the alleged tortfeasor causing the injury. (See Code Civ. Proc., § 379, subd. (a)(1) [availability of joinder of Defendants for joint, several, or alternative liability]; Brawley v. J.C. Interiors, Inc. (2008) 161 Cal.App.4th 1126, 1135 [only one compensation for the same injury].)

Moreover, in the more general case of the fourth cause of action for interference with contractual relations, “the Plaintiff need not show the Defendant induced an actual or inevitable breach of the contract. It is sufficient to show the Defendant’s conduct made the Plaintiff’s performance, and inferentially enjoyment, under the contract more burdensome or costly.’ [Citation.]” (Ghazarian v. Magellan Health, Inc. (2020) 53 Cal.App.5th 171, 191.) Simon has alleged the need to conduct audits as reasonably necessary to protect her personal interests under the Operating Agreement. This is sufficient for pleading purposes to state a causes of action for inducing breach of contract and for interference with contractual relations. The demurrer to these causes of action will be overruled on this ground.

The same analysis applies to the fifth (breach fiduciary duty), sixth (aiding and abetting breach of fiduciary duty), seventh (fraud), and eighth (aiding and abetting fraud). The demurrer to these causes of action will be overruled on this ground.

Based on this determination, it is not necessary for the Court to address other theories relating to the alleged existence of damages sufficient to state a direct claim.

          (B)     Interference Claims

Defendants additionally argue that Simon has failed to allege the causes of action for interference with contract, inducing breach of contract, and aiding and abetting each of these. Defendants argue that Simon alleges that Milden and Milden LLC were aware of the contract between Simon and Scott but does not allege facts to support this conclusion. (Demurrer, at p. 20.) However, knowledge is an ultimate fact and may be sufficiently alleged in conclusory terms. (City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 803.) Defendants also argue what conduct of Milden or Milden LLC intended to disrupt performance or made performance more expensive. (Demurrer, at p. 20.) Simon alleges the underlying breaches of contract as including the improper reimbursement and hiring of Milden and Milden LLC. (SAC, ¶ 66.) Simon adequately alleges disruption by the participation of Milden and Milden LLC in these activities. These allegations are sufficient to allege conduct supporting direct interference with contract and inducing breach of contract causes of action, and also aiding and abetting interference with contract and inducing breach of contract causes of action.

          (C)     Fraud Claims

Defendants further argue that Simon has failed to allege the cause of action for fraud and for aiding and abetting fraud.

“The elements of fraud, which give rise to the tort action for deceit, 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.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) “In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] … [¶] This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.]” (Id. at p. 645, internal quotation marks omitted.)

Simon alleges the fraudulent misrepresentation as follows: “On information and belief, Defendant Scott and Defendant Milden fraudulently induced Plaintiff into entering the Operating Agreement, by making knowingly false representations and/or concealing and omitting and not disclosing to Plaintiff as the only other member of TOOAS that Defendant Scott, Defendant Milden, and Defendant Milden, LLC were improperly taking funds from the Company, wrongfully seeking reimbursement of personal expenses from the Company, and/or operating the Company in contravention of the Operating Agreement. On information and belief, this includes by providing Plaintiff with false and/or misleading Company  information, including monthly financial reports, and by failing to report to Plaintiff that Defendant Scott, Defendant Milden, and Defendant Milden, LLC were improperly taking compensation from the Company and seeking reimbursement for unauthorized personal expenses.” (SAC, ¶ 102.)

Defendants argue that Simon cannot allege fraud in the inducement to enter the Operating Agreement because the allegations all relate to actions occurring after Simon entered into the Operating Agreement. In opposition, Simon argues that these allegations encompass subsequent misrepresentations and fraud may be based upon such subsequent misrepresentations. While it is true that misrepresentations after the fact may, under appropriate circumstances, be a basis for a claim for fraud, Simon does not allege such facts. Simon alleges only fraudulent inducement into the contract and alleges the means of inducement as post-contract activity.

While SAC is to be reasonably construed, the text of the SAC does not support a claim—now argued by Simon—based on post-contract activity. Simon alleges only that Simon relied upon the post-contract fraudulent misrepresentations and was injured (SAC, ¶¶ 104, 107), but Simon does not allege what Simon did or did not do in reliance upon the fraudulent misrepresentations post-contract so as to take the fraud claim outside of the express allegations of a claim based on inducement to enter into the contract.

The demurrer to the seventh cause of action will be sustained. Because there is no fraud cause of action stated, the demurrer to the eighth cause of action for aiding and abetting fraud will also be sustained.

(2)     Motion to Strike

Defendants also seek to strike from the SAC paragraphs 67 through 69, 75 through 77, 83 through 85, 91 through 93, 98 through 100, 108, 109, 114, and 115, and prayers for relief paragraphs 3 through 5. (Notice of Motion, at p. 1.) The Court does not consider striking items not expressly identified in the notice of motion. (See Cal. Rules of Court, rule 3.1322(a).)

“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 inserted in any pleading.” (Code Civ. Proc., § 436.) “Irrelevant matter” includes a “demand for judgment requesting relief not supported by the allegations of the complaint.” (Code Civ. Proc., § 431.10, subds. (b)(3), (c).) “The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the Court is required to take judicial notice.” (Code Civ. Proc., § 437, subd. (a).)

As discussed above, the Court will sustain the demurrer to the seventh and eighth causes of action. The motion to strike is therefore moot as to paragraphs 108, 109, 114, and 115 of the text of the SAC, which paragraphs appear in those causes of action. Moreover, for the reasons described above, Simon has sufficiently alleged audit expenses as damages for the respective causes of action in this complaint. For that reason, the allegations and prayer for an award of such damages is proper under the pleadings. The motion to strike will be denied as to paragraphs 67, 68, 75, 76, 83, 84, 91, 92, 98, and 99 of the text of the SAC, and prayer paragraph 3.

In denying the motion to strike as to these paragraphs, the Court does not imply that all types of damages encompassed within the broad language of some of these paragraphs is available in a direct action. As discussed in the Court’s ruling on the motion for judgment on the pleadings, other types of damages are available only by derivative action. “Irrelevant and redundant matter inserted in a pleading may be stricken by the Court. [Citation.] But a motion to strike cannot be made to serve the purpose of a special demurrer. Where a motion to strike is so broad as to include relevant matters, the motion should be denied in its entirety.” (Hill v. Wrather (1958) 158 Cal.App.2d 818, 823.) The inclusion of other types of damages in the allegations are reasonably viewed as relevant context to Simon’s claims.

The remaining paragraphs of text that are subject to this motion all relate to the recovery of nominal damages. Defendants incorporate their arguments as to nominal damages as set forth in their demurrer, and in particular, argue that nominal damages are not sufficient for tort liability of the sort required by the causes of action asserted in the SAC. “We agree with the fundamental proposition that damages are an essential element of a tort cause of action.” (Star Pacific Investments, Inc. v. Oro Hills Ranch, Inc. (1981) 121 Cal.App.3d 447, 457.) Simon responds by noting the general availability of nominal damages: “When a breach of duty has caused no appreciable detriment to the party affected, he may yet recover nominal damages.” (Civ. Code, § 3360.)

“ ‘Nominal damages are properly awarded in two circumstances: (1) Where there is no loss or injury to be compensated but where the law still recognizes a technical invasion of a Plaintiff’s rights or a breach of a Defendant’s duty; and (2) although there have been, real, actual injury and damages suffered by a Plaintiff, the extent of Plaintiff’s injury and damages cannot be determined from the evidence presented.’ [Citation.]” (Genisman v. Carley (2018) 29 Cal.App.5th 45, 53.)

With respect to the first circumstance identified in Genisman, supra, the issue is whether actual damages is an element of a cause of action. (See Code Civ. Proc., § 431.10, subd. (a) [“A material allegation in a pleading is one essential to the claim or defense and which could not be stricken from the pleading without leaving it insufficient as to that claim or defense.”].) Each of the causes of action in which the subject allegations for nominal damages appear must therefore be considered.

Paragraph 69 is within Simon’s second cause of action for breach of contract. “Nominal damages may be properly awarded for the violation of a contractual right because ‘failure to perform a contractual duty is, in itself, a legal wrong that is fully distinct from the actual damages.’ [Citation.]” (Elation Systems, Inc. v. Fenn Bridge LLC (2021) 71 Cal.App.5th 958, 965–966.) The allegation of nominal damages is therefore appropriate in paragraph 69. The remainder of the causes of action are torts.

Paragraph 77 is in the cause of action for inducing breach of contract. As quoted above, “resulting damage” is an element of this tort. (1-800 Contacts, Inc. v. Steinberg, supra, 107 Cal.App.4th at p. 585.) Paragraph 85 is in the cause of action for intentional interference with contract. As quoted above, “resulting damage” is also an element of this tort. (Ixchel Pharma, LLC v. Biogen, Inc., supra, 9 Cal.5th at p. 1141.) Paragraphs 93 and 100 are in the causes of action for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, respectively. Actual damages is an element in a cause of action for breach of fiduciary duty. (Thomson v. Canyon (2011) 198 Cal.App.4th 594, 604; see also Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 343–344 [aiding and abetting].) As to each of these causes of action, nominal damages alone are not a sufficient basis to state a cause of action.

Nonetheless, as the second circumstance identified in Genisman, supra, notes, nominal damages may be available where actual damages are suffered, but the extent of Plaintiff’s injury and damages cannot be determined from the evidence presented. As discussed above in the context of the demurrer, Simon alleges actual injury sufficient to state these causes of action. The Court cannot state as a matter of law on the face of the SAC that the allegations of nominal damages cannot fall within this second circumstance. The motion to strike will therefore be denied as to these paragraphs. Similarly, because nominal damages may be available based upon at least one cause of action of the SAC, the motion to strike prayer paragraph 4 will also be denied.

Finally, Defendants move to strike the prayer for punitive damages (prayer, ¶ 5). The only argument made in support of this part of the motion to strike is that “because Simon cannot allege actual damages, Defendants submit her allegations related to punitive damages for fraud and Prayer for Relief No. 5, which requests ‘punitive and exemplary damages,’ should be struck from the SAC.” (Motion, at p. 4.) The only causes of action for which punitive damages are alleged are the seventh (fraud, SAC, ¶ 110) and eighth (aiding and abetting fraud, SAC, ¶ 116). Because the Court will sustain the demurrer to these two causes of action, there is no remaining basis alleged to support a claim for punitive damages. The motion will therefore be granted to strike prayer paragraph 5.

(3)     Procedural Matters

In opposition to the demurrer, Simon generally argues that the fraud cause of action exists beyond inducing the formation of the Operating Agreement. The Court will therefore grant leave to amend as to the sustaining of the demurrer. Because these claims are the basis for the claim for punitive damages, the Court will also grant leave to amend as to the motion to strike.

In the opposition and reply, the parties argue over the sufficiency of the meet and confer process. The purpose of the meet and confer requirements of Code of Civil Procedure sections 430.41 and 435.5 is to attempt to resolve objections to the pleadings by amendment, if appropriate, without the necessity of motion practice. The issues appear to be sufficiently addressed in the meet and confer process to demonstrate that no agreement would be reachable by the parties; the Court resolves the merits of the demurrer and motion to strike as discussed herein.

In reply, Defendants assert that the oppositions were untimely served because they were not personally served. This hearing is on July 10. Nine Court days before July 10 (with the Independence Day holiday) was June 26. (See Code Civ. Proc., § 1005, subd. (b) [“All papers opposing a motion so noticed shall be filed with the Court and a copy served on each party at least nine Court days, and all reply papers at least five Court days before the hearing.”].) The proofs of service of the opposition documents show electronic service on June 26, the same day as filing.

“Notwithstanding any other provision of this section, all papers opposing a motion and all reply papers shall be served by personal delivery, facsimile transmission, express mail, or other means consistent with Sections 1010, 1011, 1012, and 1013, and reasonably calculated to ensure delivery to the other party or parties not later than the close of the next business day after the time the opposing papers or reply papers, as applicable, are filed.” (Code Civ. Proc., § 1005, subd. (c).) Electronic service is authorized where service by facsimile transmission is authorized. (Code Civ. Proc., § 1010.6, subds. (a)(3)(A), (b)(2); Cal. Rules of Court, rule 2.251(a), (c)(1).) “Any document that is served electronically between 12:00 a.m. and 11:59:59 p.m. on a Court day shall be deemed served on that Court day.” (Code Civ. Proc., § 1010.6, subd. (a)(4).) Electronic service is consistent with the service statutes and is reasonably calculated to ensure delivery not later than the close of the next business day. Service of the oppositions was timely and are, in any event, considered by the Court.

NOTICE: We may not have a court reporter for the trial of your case. We do have a court reporter for CMC and L&M Calendars. Check with the Court before you hire your own court reporter. If counsel wants to hire a court reporter, it will be your obligation to retain one for the trial. There can only be one official record of Court proceedings, and only a reporter appointed by the Court may report a Court proceeding.  Only one reporter will be allowed to report a Court proceeding at any given time.  If the parties cannot agree on a reporter, the Court will make the selection after you submit the name and address of the court reporter each counsel has engaged. Counsel will notify the Court 10 days in advance of the trial date if you are going to provide a Court reporter. You may request that the electronic recording system that is already installed in the Courtroom be used. Information about that may be obtained from the Court’s website.