Opinion
B301717
12-29-2020
GERMAN MUNOZ et al., Plaintiffs and Appellants, v. DAVID WELCH et al., Defendants and Respondents.
Kashfian & Kashfian, Ryan D. Kashfian and Robert A. Kashfian for Plaintiffs and Appellants. D|R Welch Attorneys at Law and Aluyah I. Imoisili for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. TC028783) APPEAL from a judgment of the Superior Court of Los Angeles County, Maurice A. Leiter, Judge. Reversed and remanded. Kashfian & Kashfian, Ryan D. Kashfian and Robert A. Kashfian for Plaintiffs and Appellants. D|R Welch Attorneys at Law and Aluyah I. Imoisili for Defendants and Respondents.
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German Munoz, Connie Lopez and Therapeutic Health Collective (THC) (collectively the Munoz parties) sued David Welch, Michael Blazevich and Anna Blazevich (collectively the Welch parties), as well as several other defendants, for conversion, fraud, intentional interference with prospective economic relations and related claims arising from an alleged fraudulent assumption of the business identity of THC, a medical marijuana collective. The Munoz parties appeal the judgment dismissing the Welch parties from the action after the trial court sustained the Welch parties' demurrer to the operative third amended complaint without leave to amend.
In a footnote in their respondents' brief the Welch parties state Michael Blazevich died on November 2, 2019. Nothing in the record on appeal supports that assertion. If evidence of his death is presented on remand, the Munoz parties must be permitted to move to substitute the proper person or entity pursuant to Code of Civil Procedure section 377.41.
The Munoz parties contend the trial court erred in ruling all their causes of action against the Welch parties were barred by the statute of limitations; concluding the Munoz parties had failed to plead their fraud cause of action against Welch with particularity; and, in any event, denying them leave to amend. The Welch parties, in addition to disputing the Munoz parties' contentions of trial court error, assert the Munoz parties lack standing to pursue their claims. We reverse.
FACTUAL AND PROCEDURAL BACKGROUND
The factual summary relies on facts alleged in the Munoz parties' pleadings (including attached exhibits) or as shown by judicially noticeable matters, including exhibits attached to the Munoz parties' unopposed April 10, 2020 request for judicial notice filed with this court, which we grant.
1. The Munoz Parties
THC is a corporation established in 2007. On June 10, 2010 THC's articles of incorporation were amended to reflect its change in corporate structure to a nonprofit mutual benefit corporation and to state its purpose to provide medical goods and services to its members. Those goods and services include the operation of a medical marijuana dispensary.
Munoz acquired an interest in THC in 2010 and became its president and secretary at that time. Sometime later Lopez acquired an interest in THC from Munoz and became THC's chief executive officer, secretary and chief financial officer.
2. Pacoima Recovery Collective, Inc. and the Fraudulent Merger Agreement
In early August 2011 a statement of information was filed with the California Secretary of State on behalf of Pacoima Recovery Collective, Inc. (PRC) listing Anna Blazevich as its chief executive officer, secretary and registered agent. Michael Blazevich was listed as its chief financial officer.
In 2012, without the Munoz parties' knowledge or permission, the Welch parties and other defendants initiated efforts to operate under THC's name. On August 16, 2012 PRC's articles of incorporation, signed by Anna Blazevich as PRC's president and Michael Blazevich as its secretary, were amended to change PRC to a nonprofit corporation.
On November 13, 2013 Michael Blazevich, as THC's ostensible president and secretary, and Anna Blazevich, as PRC's president and secretary, executed a fraudulent merger agreement purporting to merge PRC into THC. The terms of the merger agreement provided the separate existence of PRC would cease; THC would be the surviving corporation; the two shareholders of PRC would gain one membership interest each in the surviving corporation; and title to all real estate and other property owned by THC and PRC would be vested in THC as the surviving corporation. At the same date and time as the execution of the merger agreement, Michael Blazevich signed a certificate of approval of the merger agreement in which he certified he was THC's president and secretary, THC had only one class of members and the total number of THC members entitled to vote on the merger was one. On November 14, 2013 the merger agreement was filed with the California Secretary of State.
3. The Fraudulent Statements of Information and the Criminal Case Against Munoz
Defendant Pete Cortez, who is not a party to this appeal, subsequently signed a statement of information fraudulently indicating he was THC's chief executive officer, secretary and chief financial officer. Although Cortez signed the false statement of information on May 1, 2014, the document was not filed with the California Secretary of State until November 7, 2014.
On June 20, 2014, after the fraudulent assumption of the Munoz parties' business identity, a criminal complaint was filed against Munoz based on unlawful transfers of the dispensary license issued to THC by the City of Los Angeles. Although the criminal complaint was ultimately dismissed in February 2017, Welch met Munoz in court during the prosecution of the criminal case and offered to provide assistance as amicus curiae. Welch instead obtained from Munoz confidential information regarding THC, which was used to put Michael and Anna Blazevich on THC's statements of information.
On September 18, 2015 Michael Blazevich filed a statement of information purportedly on behalf of THC, which fraudulently indicated he was THC's chief executive officer, secretary and chief financial officer. On February 5, 2018 Michael and Anna Blazevich signed and submitted a statement of information, which fraudulently indicated Michael was THC's chief executive officer and chief financial officer and Anna was THC's secretary.
From the period November 2014 through 2018 and beyond, several statements of information were filed inconsistently naming different defendants, including Michael and Anna Blazevich, as THC's chief executive officer, secretary and chief financial officer and listing different addresses as THC's principal place of business. The Munoz parties first became aware of the defendants' actions in the latter part of 2016.
4. The Complaint, First Amended Complaint and Second Amended Complaint
On May 3, 2017 Munoz and THC filed a complaint against the Welch parties and other defendants alleging causes of action for conversion, fraud by intentional misrepresentation, intentional interference with prospective economic relations and unjust enrichment (constructive trust). The complaint also requested declaratory and injunctive relief. On August 9, 2017 Lopez, who replaced Munoz as plaintiff, and THC filed a first amended complaint, which the defendants answered.
On February 21, 2019 all three of the Munoz parties filed a second amended complaint upon stipulation of the parties. The second amended complaint, among other changes, added a cause of action for unfair competition (violation of Business and Professions Code section 17200 et seq.).
5. The Demurrer to the Second Amended Complaint and Order Sustaining Demurrer with Leave To Amend
On April 26, 2019 the Welch parties demurred to the second amended complaint. They argued, among other matters, Munoz lacked standing to bring any claims because he had transferred his interest in THC to Lopez; Munoz and Lopez lacked standing to bring derivative claims on THC's behalf; the fraud cause of action had not been pleaded with particularity; and Welch should be dismissed because the second amended complaint contained only conclusory, rather than material factual, allegations pertaining to him.
The Welch parties further argued several of the causes of action were time-barred. The merger agreement, which indicated Michael Blazevich was THC's president, had been filed with the California Secretary of State on November 14, 2013. As a result, they contended, the Munoz parties had actual or constructive notice and knowledge of any conversion, unjust enrichment or interference by that date. Because the complaint was originally filed more than three years later, on May 3, 2017, the Welch parties contended the causes of action for conversion, fraud, unjust enrichment and intentional interference with prospective economic relations were time-barred, and the request for declaratory relief was also time-barred because it was related to the conversion and fraud causes of action. In addition, the second amended complaint alleged defendants' wrongful conduct began in or about 2012.
The fact the merger agreement was filed with the Secretary of State on November 14, 2013 was alleged in paragraph 41 of the second amended complaint and was also the subject of a request for judicial notice filed by the Welch parties in support of their demurrer to that pleading.
In their opposition papers the Munoz parties argued the Welch parties' demurrer did not assert any defect appearing in the pleading or matters properly subject to judicial notice; rather, the demurrer relied on conjecture or improper extrinsic evidence to contend Munoz had assigned to Lopez his right to bring claims against the Welch parties and to argue the Munoz parties should have discovered their claims on the date the merger agreement was filed with the California Secretary of State. The Munoz parties acknowledged the need to amend their pleading to bring derivative causes of action and requested leave to do so.
On June 4, 2019 the trial court took judicial notice of the fact the merger agreement had been filed with the California Secretary of State on November 14, 2013. The court explained the Welch parties argued the filing of the merger agreement provided inquiry notice of any alleged wrongdoing. However, it stated a limitations argument was well-taken even without consideration of the merger agreement: Although the second amended complaint alleged the defendants' wrongful conduct began in 2012, the pleading failed to allege when the Munoz parties discovered those actions. Finding the Munoz parties failed to specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence, as required by the Supreme Court in Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808, the court sustained the Welch parties' demurrer to the second amended complaint with leave to amend. The trial court did not address the fact the Welch parties had not argued the seventh cause of action for unfair competition was time-barred.
As for standing, the trial court observed the Munoz parties conceded the second amended complaint must be amended to allege derivative claims on behalf of THC. The court also found, because the second amended complaint alleged Munoz transferred his interest in THC to Lopez, Munoz's ability to maintain a claim was questionable and the Munoz parties must adequately allege Munoz's standing to bring the action. Finally, the court ruled the fraud allegations against Welch needed to be pleaded with more specificity. The second amended complaint alleged Welch "obtained information regarding the licensing of THC and used this information to divest [the Munoz parties] of their rightful ownership interest in THC." The court determined the Munoz parties "must provide more specifics as to what information Welch used [and] how he allegedly facilitated their divestment."
Although the trial court did not address all of the Welch parties' arguments in support of their demurrer, it rejected their contention a cause of action for conversion could not be based on the taking of any of the Munoz parties' intangible property. The court also rejected their challenge to the cause of action for intentional interference with prospective economic relations, premised on the contention Health and Safety Code section 11362.765, subdivision (a), does not authorize the earning of profit from the sale or distribution of marijuana: The court determined the statute allows for recoupment of out-of-pocket expenses and payment for labor and services.
6. The Third Amended Complaint and Demurrer
On June 17, 2019 the Munoz parties filed the operative third amended complaint, which set forth the same causes of action as their prior pleading. It alleged the Munoz parties suffered harm that included lost earnings; lost investment funds spent in building a storefront; damage to THC's name due to confusion of location and operational control; and injury attributable to the criminal complaint, including reputational harm.
On July 29, 2019 the Welch parties demurred to the third amended complaint for failure to state facts sufficient to constitute a cause of action, including again arguing that Munoz lacked standing to bring his claims because he had transferred his interest in THC to Lopez and that Munoz and Lopez lacked standing to bring derivative claims because the third amended complaint still lacked the required allegations for a derivative action (membership in THC and demand on the corporation's board of directors or reasons for futility of the demand).
As for the statute of limitations, the Welch parties again contended the Munoz parties' claims accrued when the merger agreement was filed with the California Secretary of State on November 14, 2013 and the causes of action for conversion, fraud, unjust enrichment, intentional interference with prospective economic relations and request for declaratory relief were time-barred. They argued, although the third amended complaint added conclusory allegations (such as the new allegation the Munoz parties did not become aware of the Welch parties' wrongful actions until "the latter portion of Calendar year 2016"), the Munoz parties failed to plead specific facts to show the time and manner of discovery and the inability to have made earlier discovery despite reasonable diligence.
To reenforce their contention the Munoz parties could not support with specific facts the conclusory allegation of their inability to have made an earlier discovery, the Welch parties cited Munoz's and Lopez's objections to the Welch parties' special interrogatories requesting a detailed description of why they were unable to do so. The Welch parties also argued, under the sham pleading doctrine, the Munoz parties could not avoid the effect of their former factual allegations that defendants began their alleged actions in or around 2012—allegations that had been omitted from the third amended complaint without explanation. The demurrer and supporting memorandum did not specifically address the timeliness of the seventh cause of action for unfair competition or challenge the specificity of the fraud allegations.
7. The Trial Court's Ruling Sustaining the Demurrer to the Third Amended Complaint Without Leave To Amend and Subsequent Order of Dismissal
On August 27, 2019 the trial court sustained the Welch parties' demurrer. Observing the third amended complaint alleged that defendants purportedly merged THC with PRC in 2013, as evidenced by the recorded merger agreement, the trial court found the Munoz parties had failed to comply with the requirement to specifically plead facts regarding their discovery of their causes of action, including reasonable diligence. Because it had sustained the Welch parties' demurrer to the second amended complaint for failure to plead discovery with the requisite specificity and finding the third amended complaint suffered from the same defect, the trial court sustained without leave to amend the Welch parties' demurrer to the third amended complaint based on the statute of limitations. The court also ruled the Munoz parties had failed to supplement their fraud allegations against Welch with the required specificity although that issue had not been raised in the demurrer.
On September 16, 2020 the court ordered the Welch parties dismissed from the action.
We augment the record to include the September 16, 2020 order of dismissal on our own motion, pursuant to California Rules of Court, rule 8.155(a)(1)(A).
The Munoz parties' October 21, 2019 notice of appeal was filed after entry of the August 27, 2019 minute order sustaining the demurrer to the third amended complaint without leave to amend, a nonappealable order, but before entry of the September 16, 2020 order dismissing the Welch parties from the action. We exercise our discretion and deem the notice of appeal, otherwise premature, to have been filed immediately after entry of the order of dismissal. (Cal. Rules of Court, rule 8.104(d)(2), (e).)
DISCUSSION
1. Demurrers
A demurrer tests the legal sufficiency of the factual allegations in a complaint. We independently review the superior court's ruling on a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action or discloses a complete defense. (Mathews v. Becerra (2019) 8 Cal.5th 756, 768; T.H. v. Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 162.) We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 20; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) However, we are not required to accept the truth of the legal conclusions pleaded in the complaint. (Mathews, at p. 768; Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) We affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the trial court's stated reasons (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967; Las Lomas Land Co., LLC v. City of Los Angeles (2009) 177 Cal.App.4th 837, 848), but liberally construe the pleading with a view to substantial justice between the parties. (Code Civ. Proc., § 452; Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 726; see Schifando, at p. 1081.) "Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
A demurrer based on an affirmative defense will be sustained only where the face of the complaint and matters judicially noticed clearly disclose the defense or bar to recovery. (See Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 224; see also Stella v. Asset Management Consultants, Inc. (2017) 8 Cal.App.5th 181, 191; Marina Tenants Assn. v. Deauville Marina Development Co. (1986) 181 Cal.App.3d 122, 130-132.) If "'the complaint's allegations or judicially noticeable facts reveal the existence of an affirmative defense, the "plaintiff must 'plead around' the defense, by alleging specific facts that would avoid the apparent defense. Absent such allegations, the complaint is subject to demurrer for failure to state a cause of action."'" (Esparza v. County of Los Angeles (2014) 224 Cal.App.4th 452, 459.)
"'Where the complaint is defective, "[i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his [or her] complaint."'" (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at p. 970.) However, "leave to amend should not be granted where, in all probability, amendment would be futile." (Vaillette v. Fireman's Fund Ins. Co. (1993) 18 Cal.App.4th 680, 685; accord, Ivanoff v. Bank of America, N.A., supra, 9 Cal.App.5th at p. 726.) A plaintiff may demonstrate for the first time to the reviewing court how a complaint can be amended to cure the defect. (Code Civ. Proc., § 472c, subd. (a) ["[w]hen any court makes an order sustaining a demurrer without leave to amend the question as to whether or not such court abused its discretion in making such an order is open on appeal even though no request to amend such pleading was made"]; see Rubenstein v. The Gap, Inc. (2017) 14 Cal.App.5th 870, 881 ["'[w]hile such a showing can be made for the first time to the reviewing court [citation], it must be made'"]; Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711.)
2. The Welch Parties' Standing Arguments Lack Merit
The Welch parties contend, as a threshold matter, the Munoz parties lack standing to sue, as purportedly held by the trial court, and thus the order dismissing the Welch parties from the action should be affirmed regardless of any error by the trial court raised by the Munoz parties on appeal. (See Boorstein v. CBS Interactive, Inc. (2013) 222 Cal.App.4th 456, 465 ["[a] litigant's standing to sue is a 'threshold issue to be resolved before the matter can be reached on the merits'"].) Specifically, they assert in a conclusory fashion, "There is no question that all of the causes of action in the [third amended complaint] should be derivative, not direct"; and, because the Munoz parties failed to include allegations for a derivative action required by Corporations Code section 7710, the trial court's decision to sustain the demurrer based on lack of standing should be affirmed. The Welch parties further contend, to the extent the third amended complaint purports to assert direct causes of action by THC, there is no allegation Munoz or Lopez currently sits on, or controls, THC's board of directors and thus neither controls THC.
Corporations Code section 7710, subdivision (b), provides, "No action may be instituted or maintained in the right of any corporation by any member of such corporation unless both of the following conditions exist: [¶] (1) The plaintiff alleges in the complaint that plaintiff was a member at the time of the transaction or any part thereof of which plaintiff complains, or that plaintiff's membership thereafter devolved upon plaintiff by operation of law from a holder who was a holder at the time of transaction or any part thereof complained of; and [¶] (2) The plaintiff alleges in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file."
The Welch parties mischaracterize the trial court's ruling, which sustained their demurrer without leave to amend based on the statute of limitations and, as to the fraud cause of action against David Welch, for failure to plead fraud with specificity. Indeed, although the Welch parties demurred to the third amended complaint on the ground individual plaintiffs Munoz and Lopez lacked standing to assert any claims, they ignored THC's direct action. Nevertheless, lack of standing, a jurisdictional defect, may be raised at any time. (Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432, 438 ["contentions based on a lack of standing involve jurisdictional challenges and may be raised at any time in the proceeding"]; Qualified Patients Assn. v. City of Anaheim (2010) 187 Cal.App.4th 734, 751 ["lack of standing constitutes a jurisdictional defect and therefore may be raised at any time, even for the first time on appeal"].)
a. THC's standing
Among the wrongful conduct alleged in the third amended complaint is the Welch parties' interference with THC's prospective economic relations and unfair business practices through the fraudulent assumption of THC's business identity. Implicitly conceding in their respondents' brief and expressly acknowledging at oral argument that THC's interests are directly affected by this alleged fraudulent activity, the Welch parties challenge on appeal the propriety of causes of action asserted in its name on the ground the third amended complaint fails to allege Munoz or Lopez sit on or control THC's board of directors.
Although not supported with coherent argument or citation to legal authority, we construe the Welch parties' contention essentially as follows: The attorney who filed the third amended complaint on THC's behalf and who is pursuing the action with THC as a named plaintiff had not secured the corporation's approval to do so, and THC thus does not have an "actual" interest in the subject matter of the action necessary to impart standing as a real party in interest. (See Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 83 [standing requirement "ensures that 'courts will decide only actual controversies between parties with a sufficient interest in the subject matter of the dispute to press their case with vigor'"]; Summers v. Colette (2019) 34 Cal.App.5th 361, 367 ["'[o]nly a real party in interest has standing to prosecute an action, except as otherwise provided by statute'"]; Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 855 ["'"[s]tanding" derives from the principle that "[e]very action must be prosecuted in the name of the real party in interest"'"; "'"[t]he real party in interest has '"an actual and substantial interest in the subject matter of the action," and stands to be "benefited or injured" by a judgment in the action'"'"]; but see Jasmine Networks, Inc. v. Superior Court (2009) 180 Cal.App.4th 980, 991-992 [section 367 "is not the equivalent of, and provides no occasion to import, federal-style 'standing' requirements"; "section 367 simply requires that the action be maintained in the name of '[t]he person who has the right to sue under the substantive law,'" and "[i]t is only when [the plaintiff] seeks to assert the rights of others instead of his own that the question may properly arise whether his action is barred by a lack of 'standing'"].)
However, paragraph 1 of the third amended complaint alleged THC is among the plaintiffs filing it. By signing the pleading as THC's attorney, THC's attorney represented he had obtained the corporation's authorization to file the pleading on its behalf. (See Code Civ. Proc., § 128.7.) In disputing corporate approval, the Welch parties fail to demonstrate the issue of THC's standing involves a pure question of law based on undisputed facts, let alone a defect appearing on the face of the third amended complaint or from judicially noticeable matters, and is thus appropriate for appellate determination.
The Munoz parties' counsel Randall T. Longwith signed the third amended complaint as "Attorney for Plaintiffs."
The Welch parties have not cited—and we are not aware of—any legal authority requiring a plaintiff corporation to include allegations in its operative complaint identifying the specific source of its authorization to file the pleading. Moreover, not only did the Welch parties fail to argue in their demurrer that the pleading stated insufficient facts to show THC's standing to assert its direct causes of action, but also a demurrer lies for lack of standing only when the defect appears on the pleading's face or from judicially noticeable matters. (Qualified Patients Assn. v. City of Anaheim, supra, 187 Cal.App.4th at pp. 752-753.)
The Welch parties argue the Munoz parties in their opposition to the demurrer to the second amended complaint acknowledged the need to amend the pleading to allege derivative claims, which, the Welch parties assert, demonstrated a lack of authorization to pursue THC's claims in a direct action. The requisite corporate approval for filing the third amended complaint in THC's name, however, may have been obtained after the ruling on the second amended complaint. Certainly nothing on the face of the third amended complaint refutes that possibility. We decline to speculate further the reason the Munoz parties' trial attorney filed another pleading asserting a direct action by THC.
b. Munoz's and Lopez's standing
The issue of Munoz's and Lopez's standing is somewhat more complicated. At oral argument counsel for the Munoz parties essentially conceded any loss of earnings through the fraudulent diversion of members and the alleged conversion of THC's permits were direct injuries to THC and not direct claims by Munoz and Lopez. Nonetheless, Munoz and Lopez have adequately alleged individual injury that is sufficient to permit them to continue as plaintiffs.
The Welch parties' principal argument is that Munoz and Lopez lack standing to bring derivative claims on behalf of THC because the third amended complaint fails to include allegations necessary under Corporations Code section 7710 for derivative actions—specifically, Munoz's and Lopez's membership in THC and demand on THC's board of directors for the initiation of the action or the reasons such demand would be futile. (Gantman v. United Pacific Ins. Co. (1991) 232 Cal.App.3d 1560, 1567 [citing Corporations Code section 7710 for the proposition "[a] member of a nonprofit corporation is prohibited from instituting or maintaining an action in the right of the corporation unless the action is a derivative suit"].) Munoz and Lopez, however, do not claim they have alleged a derivative suit on THC's behalf. THC is a named plaintiff in the action. Because the third amended complaint alleges THC has filed suit, Munoz and Lopez have no need to bring a derivative suit to seek redress for injury to the corporation. (Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106-107 (Jones) ["[a] shareholder's derivative suit seeks to recover for the benefit of the corporation and its whole body of shareholders when injury is caused to the corporation that may not otherwise be redressed because of failure of the corporation to act"; "'the stockholders derive no benefit [from a derivative suit] except the indirect benefit resulting from a realization upon the corporation's assets'"].)
Rather than pursuing a derivative action on behalf of THC, Munoz and Lopez argue they have properly alleged claims for injuries they directly suffered. Specifically, they contend the Welch parties' wrongful actions injured Munoz's and Lopez's "individual rights in THC," including "their status as shareholder, president, secretary, manager."
An "'action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock or 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.'" (Jones, supra, 1 Cal.3d at p. 106.) "[W]here conduct . . . causes damage to the corporation, . . . the individual shareholder may not bring an action for indirect personal losses (i.e., decrease in stock value) sustained as a result of the overall harm to the entity. [Citations.] A contrary rule 'would "authorize multitudinous litigation and ignore the corporate entity."'" (Bader v. Anderson (2009) 179 Cal.App.4th 775, 788.)
"An individual cause of action exists only if damages to the shareholders were not incidental to damages to the corporation." (Schuster v. Gardner (2005) 127 Cal.App.4th 305, 313; accord, Jones, supra, 1 Cal.3d at p. 107 ["[i]f the injury is not incidental to an injury to the corporation, an individual cause of action exists"].) "[A] stockholder may sue as an individual where he is directly and individually injured although the corporation may also have a cause of action for the same wrong." (Sutter v. General Petroleum Corp. (1946) 28 Cal.2d 525, 530; see Orozco v. WPV San Jose, LLC (2019) 36 Cal.App.5th 375, 404 ["'[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'"]; 3 Ballantine & Sterling, Cal. Corporation Laws (2020) § 413.02 ["for mutual benefit corporations, it is quite possible that members could show that a special duty owed to them was breached by a wrongdoer whose acts had also injured the corporation"].)
The third amended complaint, although alleging injury to THC that would encompass indirect losses to Munoz and Lopez as THC members and for which Munoz and Lopez may not bring a direct action, includes additional allegations that support Munoz's and Lopez's standing to assert a direct action in their individual capacities. In particular, Munoz and Lopez allege that they have suffered reputational harm as a result of the Welch parties misrepresenting on an ongoing basis that they are the rightful officers of THC. In addition, the third amended complaint alleges, after the wrongful assumption of THC's business identity by the Welch parties and other defendants, Munoz became the subject of criminal charges for municipal code violations attributable to multiple transfers of a dispensary license issued to THC by the City of Los Angeles, causing Munoz individually, as well as THC, economic harm.
Moreover, the cause of action for declaratory relief, which seeks a declaration Lopez is the president and secretary of THC, does not solely implicate an injury to a right or interest held by Lopez as a THC member arising indirectly from overall harm to THC. To the contrary, the allegations show Lopez in an individual capacity, independent of any status as a member of THC, has an actual and substantial interest in a determination whether Lopez is THC's president and secretary and stands to be benefited or injured by that determination. In sum, the Welch parties have not shown Munoz's and Lopez's lack of standing appears on the face of the third amended complaint or from judicially noticeable matters.
Addressing a different matter as to Munoz, the Welch parties contend he lacks standing because he no longer has an interest in THC. Specifically, they argue the trial court had sustained with leave to amend their demurrer to the second amended complaint on the ground that pleading alleged Munoz "transferred his interest in THC" to Lopez pursuant to a written agreement and, despite the trial court's permission to cure that defect by adequately alleging Munoz's standing, the Munoz parties failed to do so. Although the third amended complaint no longer alleged the transfer was pursuant to a written agreement, the operative pleading continued to allege Munoz transferred his interest in THC to Lopez. However, as now pleaded, this allegation does not necessarily mean Munoz transferred all of his interests, including the right to bring the action at bar (for example, for injuries that predated the transfer to Lopez). Moreover, the Welch parties are mistaken in contending the Munoz parties ignored the trial court's instruction: The third amended complaint alleged Munoz transferred "an interest" in THC to Lopez, which, reasonably construed, indicated Munoz had not transferred all of his interests in THC to Lopez. (CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 635 [a demurrer is not "the appropriate procedure for determining . . . what inferences should be drawn where competing inferences are possible"].) In any event, the transfer of interest in THC did not by necessity divest Munoz of standing to pursue the action: "[A] right of action for damage to property is distinct from the title to the property, and from any right in the property, and . . . the transfer of the latter does not by itself effect a transfer or diminution of the former." (Jasmine Networks, Inc. v. Superior Court, supra, 180 Cal.App.4th at p. 995.) Johnson v. County of Fresno (2003) 111 Cal.App.4th 1087, 1096, on which the Welch parties rely to argue an assignor cannot assert claims that it has assigned, is inapposite because the third amended complaint does not allege Munoz assigned his claims (as opposed to an interest in THC) to Lopez.
3. The Trial Court Erred in Sustaining the Demurrer on the Ground the Munoz Parties' Claims Are Time-barred
a. Governing law: the delayed discovery rule
"The limitations period, the period in which a plaintiff must bring suit or be barred, runs from the moment a claim accrues." (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191.) Traditionally, a claim accrues "'"when [it] is complete with all of its elements"—those elements being wrongdoing, harm, and causation.'" (Ibid.; accord, Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 815.) "This is [known as] the 'last element' accrual rule." (Aryeh, at p. 1191.)
An exception to the general rule of accrual is the delayed discovery rule, "which postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action." (Fox v. Ethicon Endo-Surgery, Inc., supra, 35 Cal.4th at p. 807.) "Under the discovery rule, the statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her." (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110.) In other words, the limitations period begins "'once the plaintiff has notice or information of circumstances to put a reasonable person on inquiry. [Citation.] Subjective suspicion is not required. If a person becomes aware of facts which would make a reasonably prudent person suspicious, he or she has a duty to investigate further and is charged with knowledge of matters which would have been revealed by such an investigation.'" (McCoy v. Gustafson (2009) 180 Cal.App.4th 56, 108; accord, Fox, at pp. 807-808; Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1251.)
"In order to rely on the discovery rule for delayed accrual of a cause of action, '[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.'" (Fox v. Ethicon Endo-Surgery, Inc., supra, 35 Cal.4th at p. 808.) "When a plaintiff reasonably should have discovered facts for purposes of the accrual of a cause of action or application of the delayed discovery rule is generally a question of fact, properly decided as a matter of law only if the evidence . . . can support only one reasonable conclusion." (Stella v. Asset Management Consultants, Inc., supra, 8 Cal.App.5th at p. 193; accord, Broberg v. The Guardian Life Ins. Co. of America (2009) 171 Cal.App.4th 912, 921.)
b. Conversion
The trial court essentially found all the Munoz parties' causes of action, including conversion, accrued when the merger agreement was executed and filed in 2013. Because the complaint was originally filed more than three years later on May 3, 2017, it reasoned, the entire third amended complaint was time-barred absent operation of the discovery rule. However, the Munoz parties failed to comply with the pleading requirements for the discovery rule (that is, to specifically plead facts showing (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence). Accordingly, the court sustained the demurrer on the ground the Munoz parties' claims were all time-barred.
The Munoz parties contend the trial court erred in finding all their causes of action accrued upon the filing of the merger agreement. As to the conversion cause of action, which has a three-year limitations period (Code Civ. Proc., § 338, subd. (c)) triggered by the act of wrongfully taking property (AmerUS Life Ins. Co. v. Bank of America, N.A. (2006) 143 Cal.App.4th 631, 639), the Munoz parties point out the complaint alleged the Welch parties' wrongful acts included "[t]aking physical possession of [the Munoz parties'] seller's permit." Because the statute of limitations is an affirmative defense (Aryeh v. Canon Business Solutions, Inc., supra, 55 Cal.4th at p. 1191) and the pleading does not indicate when that wrongful taking allegedly occurred, the trial court erred in sustaining the demurrer to this cause of action. (See, e.g., Union Carbide Corp. v. Superior Court (1984) 36 Cal.3d 15, 25 [plaintiff had no "obligation to anticipate the [statute of limitations] defense and plead facts to negative the bar" where the face of the complaint failed to show action was barred by the statute of limitations]; United Western Medical Centers v. Superior Court (1996) 42 Cal.App.4th 500, 505 ["[w]hile a demurrer based on statute of limitations lies where the dates in question are shown on the face of the complaint, if those dates are missing, there is no ground for a general demurrer"]; Childs v. State of California (1983) 144 Cal.App.3d 155, 161 ["'"[a] demurrer on the ground of the bar of the statute of limitations does not lie where the complaint merely shows that the action may have been barred"'"; "'"[i]t must appear affirmatively that, upon the facts stated, the right of action is necessarily barred"'"].)
"'Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff's ownership or right to possession of the property at the time of the conversion; the defendant's conversion by a wrongful act or disposition of property rights; and damages. It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.'" (AmerUS Life Ins. Co. v. Bank of America, N.A. (2006) 143 Cal.App.4th 631, 642, fn. 4; accord, Oakdale Village Group v. Fong (1996) 43 Cal.App.4th 539, 543-544; see AmerUS, at p. 641 ["to establish a conversion claim, a '"plaintiff must establish an actual interference with his ownership or right of possession"'"].) "In determining whether property that was taken is subject to a conversion claim, courts have recognized that '[p]roperty is a broad concept that includes "every intangible benefit and prerogative susceptible of possession or disposition."'" (Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 211.)
c. Fraud and interference with prospective economic relations
The fraud by intentional misrepresentation cause of action alleged the Welch parties falsely identified new THC officers repeatedly in government filings, which ultimately caused THC to lose business, as well as inflicting reputational damages, due to confusion of location and operational control. The alleged misrepresentations included the filing of the statement of information on September 18, 2015 falsely identifying Michael Blazevich as THC's chief executive officer, secretary and chief financial officer and the statement of information on February 5, 2018 falsely identifying Michael Blazevich as THC's chief executive officer and chief financial officer and Anna Blazevich as THC's secretary. Similarly, the cause of action for interference with prospective economic relations alleged the Welch parties interfered with the Munoz parties' economic relationship with THC members after the fraudulent filings by misrepresenting themselves as THC officers.
Although the Munoz parties also purport to plead a cause of action for unjust enrichment, "'[u]njust enrichment is not a cause of action, . . . or even a remedy, but rather "'"'a general principle, underlying various legal doctrines and remedies.'"'"'" (Bank of New York Mellon v. Citibank, N.A. (2017) 8 Cal.App.5th 935, 955.) Regardless of any mislabeling by the Munoz parties, however, a cause of action based on a theory of unjust enrichment may generally be viable. (See, e.g., McBride v. Boughton (2004) 123 Cal.App.4th 379, 388 [construing "purported cause of action for unjust enrichment as an attempt to plead a cause of action giving rise to a right to restitution"; "[t]here are several potential bases for a cause of action seeking restitution," including "where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct"].) To the extent the Munoz parties' unjust enrichment cause of action, which seeks imposition of a constructive trust, is based on fraud or mistake, a three-year limitations period applies. (Code Civ. Proc., § 338, subd. (d); Day v. Greene (1963) 59 Cal.2d 404, 411 [applying three-year limitations period to action to impose constructive trust where there was unjust enrichment because "[c]onstructive fraud is the substantive basis of the action to impose a constructive trust in the present case"].)
The limitations periods applicable to the Munoz parties' causes of action for fraud and interference with prospective economic relations are two or three years. The Munoz parties argue they suffered no actual and appreciable harm or injury upon the mere filing of the merger agreement, which they alleged did not actually effect a merger. (See Davies v. Krasna (1975) 14 Cal.3d 502, 514 ["a right to recover nominal damages will not trigger the running of the period of limitation"; rather, "the infliction of appreciable and actual harm, however uncertain in amount, will commence the statutory period"]; Choi v. Sagemark Consulting (2017) 18 Cal.App.5th 308, 323 ["[i]f the last element to occur in a tort action is damages, 'the statute of limitations begins to run on the occurrence of "appreciable and actual harm, however uncertain in amount," that consists of more than nominal damages'"].) Rather, the fraudulent merger agreement and subsequent false filings were the instrumentalities through which the Welch parties unlawfully diverted THC's business.
Code of Civil Procedure section 338, subdivision (d), specifies a three-year limitations period for actions grounded on fraud or mistake, and "[t]he cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." The statute of limitations for interference with prospective economic relations is two years. (Code Civ. Proc., § 339, subd. 1; see Augusta v. United Service Automobile Assn. (1993) 13 Cal.App.4th 4, 10 ["[i]t is now well established that a cause of action for interference with prospective economic advantage, an action involving a property right, is governed by the two-year limitations period of section 339, subdivision 1"].)
Accepting the Munoz parties' theory of the case, as we must at the pleading stage, the third amended complaint and judicially noticeable matters do not show when the Munoz parties first incurred appreciable and actual harm, including lost earnings, as a result of the Welch parties' wrongful actions. (See, e.g., Stofer v. Shapell Industries, Inc. (2015) 233 Cal.App.4th 176, 190 ["plaintiff has the right to a jury trial on disputed issues of fact regarding when her causes of action accrued, such as whether and when there was actual and appreciable harm to her property"].) The operative pleading thus does not show on its face that the Munoz parties' claims would be barred without the benefit of the discovery rule, and the trial court erred in sustaining the demurrer to the fraud, interference and unjust enrichment causes of action for failure to specifically plead delayed discovery.
d. Declaratory relief
The "choice of the statute of limitations applicable to [mandamus and declaratory judgment] remedies depends on the right or obligation sought to be enforced, and the statute's application generally follows its application to actions for damages or injunction on the same rights and obligations." (Howard Jarvis Taxpayers Assn. v. City of La Habra, supra, 25 Cal.4th 809 at p. 821.) The Welch parties in their demurrer to the third amended complaint argued the declaratory relief cause of action (which among other matters seeks a declaration regarding the rightful holder of the seller's permit and the rightful officers, including the secretary, of THC) was related to the conversion and fraud causes of action and was thus time-barred for the same reasons. For the reasons discussed as to those causes of action, the trial court erred in sustaining the demurrer to the declaratory relief cause of action as time-barred.
Although asserted by the Munoz parties as a separate cause of action, injunctive relief is a remedy, not a cause of action. (Ivanoff v. Bank of America, supra, 9 Cal.App.5th at p. 734.) "A cause of action must exist before a court may grant a request for injunctive relief." (Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 65; accord, City of South Pasadena v. Department of Transportation (1994) 29 Cal.App.4th 1280, 1293.) Because the trial court erred in sustaining without leave to amend the demurrer to the causes of action for fraud and conversion, the request for injunctive relief (which seeks, among other matters, to require the Welch parties to return all permits, licenses and certificates wrongfully taken) properly remains in the lawsuit.
e. Unfair competition
The limitations period for unfair competition causes of action is four years. (Bus. & Prof. Code, § 17208.) Even if this cause of action accrued when the merger agreement was filed in November 2013, the original May 3, 2017 complaint was filed well within this limitations period.
4. The Munoz Parties Must Be Granted Leave To Amend the Fraud Cause of Action Against Welch
"'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.) "'Promissory fraud' is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud." (Ibid.) "In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] 'Thus "'the policy of liberal construction of the pleadings . . . will not ordinarily be invoked to sustain a pleading defective in any material respect.'" [Citation.] [¶] This particularity requirement necessitates pleading facts which "show how, when, where, to whom, and by what means the representations were tendered."'" (Id. at p. 645.)
For the fraud cause of action against Welch, the third amended complaint alleged, during the prosecution of the criminal case against Munoz based on the multiple transfers of the dispensary license and "[s]ubsequent to assumption of [the Munoz parties'] business identity," Welch met Munoz in court and offered to provide "'amicus curiae' service." Welch, however, allegedly obtained instead confidential information entrusted to him by Munoz regarding THC's licensing and used that information to usurp the Munoz parties' rightful ownership interest in THC by "put[ting] Defendants [Michael] Blazevich and [Anna] Blazevich on the Statements of Information and Merger Agreements."
As discussed, THC's loss of business as a result of the Welch parties' allegedly fraudulent activity must be pursued as a direct claim by THC. A properly pleaded cause of action alleging fraudulent misrepresentations that caused them to lose their ownership interests in THC, in contrast, are individual to Munoz and Lopez.
The trial court found the pleading, which essentially (as summarized by the trial court) asserted Welch approached the Munoz parties "under the guise of offering legal help but instead obtained sensitive information to divest" the Munoz parties of their interest in THC, alleged insufficient facts to support a fraud claim against Welch. Specifically, the court determined the Munoz parties should have alleged specific facts as to "what information Welch used and how it allegedly facilitated divestment." The trial court also found the Munoz parties had pleaded essentially the same set of facts for their fraud cause of action against Welch in their third amended complaint as in their previous complaint to which the Welch parties had successfully demurred. Nevertheless, the court, having already sustained the demurrer to the third amended complaint without leave to amend based on the statute of limitations, did not indicate whether it would have again granted the Munoz parties leave to amend their fraud cause of action absent its ruling on the statute of limitations issues.
The Munoz parties on appeal challenge the trial court's ruling they failed to plead fraud with the requisite specificity. However, by asserting a conclusory argument without further explanation or citation to legal authority that "the facts are sufficient," they forfeited that issue. (See Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 52 ["[w]hen legal argument with citation to authority is not furnished on a particular point, we may treat the point as forfeited and pass it without consideration"]; Maral v. City of Live Oak (2013) 221 Cal.App.4th 975, 984 ["'[a]n appellate court is not required to examine undeveloped claims, nor to make arguments for parties'"]; Kaufman v. Goldman (2011) 195 Cal.App.4th 734, 743 [appellate court may treat as forfeited any argument not "supported by both coherent argument and pertinent legal authority"].)
Even if the current allegations are insufficient, the Munoz parties argue they can, and thus should be permitted to, allege additional facts to satisfy the requirement to plead fraud with particularity. For example, with respect to pleading specifically what information Welch used and how that information facilitated divestment of an interest in THC, the Munoz parties propose alleging Munoz, at the courthouse on July 10, 2014, told Welch how he had come to obtain an interest in THC and Welch used that information, as well as documents in a discovery packet he, as amicus curiae counsel, had obtained from the prosecution at the courthouse on July 10, 2014, to "divest THC and its assets."
The Munoz parties also identify factual allegations of a misrepresentation by Welch other than his alleged offer to provide legal assistance as an amicus curiae: Welch told Munoz at the courthouse on July 10, 2014 that the criminal charges against Munoz had been dismissed that day and that Munoz no longer needed to appear; Welch's statements to Munoz were false, as the matter had not been dismissed on July 10, 2014, but had instead been continued to August 14, 2014; Welch's misrepresentations were intended to, and did, deceive Munoz by inducing "a false sense of security and belief THC was not being pilfered and his personal interest in THC was not compromised"; Munoz justifiably relied on Welch's misrepresentations because Munoz lacked sophistication in legal matters and Welch portrayed himself as honest, reputable and knowledgeable about the law; Munoz, relying on Welch's misrepresentations and unaware he was required to reappear in his criminal case, failed to make required court appearances, resulting in the issuance of multiple bench warrants against him; it was not until after Munoz, in late 2016 or early 2017, retained his own counsel, who explained to the prosecution "what transpired," that the criminal case against Munoz was dismissed on February 24, 2017 and that Munoz essentially discovered, after consulting with his counsel, the implications of the fraudulent Secretary of State filings, the fraudulent assumption of THC's business identity and injury to his personal interest in THC.
The Welch parties do not provide any argument for denying leave to amend, other than to contend that any proposed amendment would not cure alleged defects related to the statute of limitations and standing (specifically, Munoz's and Lopez's standing to bring derivative claims and Munoz's standing after transferring his interest in THC). As discussed, however, the Welch parties failed to establish their demurrer was properly sustained on those grounds. Accordingly, the Munoz parties should be granted leave to amend the fraud cause of action against Welch.
The Welch parties do not contend the proposed amendments are insufficient to cure the defects specified by the trial court. Rather, to support their argument the trial court did not err in its decision to sustain the demurrer as to the fraud cause of action against Welch (as opposed to their argument the court properly denied leave to amend), they contend the Munoz parties have been unable to allege any false statements (or promises) to, or reliance by, anyone. The Welch parties also contend the existing fraud cause of action contains logical inconsistencies: Welch could not have used information obtained by his July 10, 2014 offer of amicus curiae assistance to put Anna and Michael Blazevich on the merger agreement and otherwise usurp THC's business identity because the third amended complaint expressly alleged that the merger agreement had been executed on or about November 13, 2013, prior to Welch's offer of assistance. However, the proposed new factual allegations of Welch's representations to Munoz regarding the dismissal of Munoz's criminal charges do not have those potential problems. The new allegations sufficiently plead false statements to, and reliance on those statements by, Munoz. Moreover, the Welch parties' arguments challenging aspects of the existing fraud cause of action that were not presented in the trial court in support of their demurrer to the third amended complaint have been forfeited. (See, e.g., In re Marriage of Nassimi (2016) 3 Cal.App.5th 667, 695.)
DISPOSITION
The judgment is reversed, and the cause remanded with directions to the trial court to vacate its order sustaining the demurrer to the third amended complaint without leave to amend and to enter a new order overruling the demurrer as to all causes of action other than for fraud against Welch and sustaining the demurrer to the fraud cause of action against Welch with leave to amend. The Munoz parties are to recover their costs on appeal.
PERLUSS, P. J.
We concur:
SEGAL, J.
FEUER, J.