Superior Court, State of California



DATE: August 11, 2022 TIME: 9:00 A.M.

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TROUBLESHOOTING TENTATIVE RULINGS

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|LINE # |CASE # |CASE TITLE |RULING |

|LINE 1 | 21CV386240 |RAO CHERUKURI vs BALAJI PARIMI et al |Click line 1 or scroll to line 1 for tentative ruling. |

|LINE 2 | 21CV386240 |RAO CHERUKURI vs BALAJI PARIMI et al |Tentative ruling is included in line 1. |

|LINE 3 |19CV358848 |Cavalry SPV I, LLC vs Gaz Salihue |Motion of defendant Gaz Salihue for reconsideration and revoke ruling |

| | | |on the motion to strike |

| | | |No opposition to the motion is filed. However, no amended notice of |

| | | |hearing or proof of service filed showing service of notice of date |

| | | |and time of hearing. If defendant appears at hearing, motion will be |

| | | |continued for defendant to serve plaintiff with notice of date and |

| | | |time of hearing. If defendant does not appear, the motion will go |

| | | |off-calendar. |

|LINE 4 |19CV358848 |Cavalry SPV I, LLC vs Gaz Salihue |Motion of defendant Gaz Salihue for reconsideration and revoke ruling |

| | | |on the motion to dismiss. |

| | | |No opposition to the motion is filed. However, no amended notice of |

| | | |hearing or proof of service filed showing service of notice of date |

| | | |and time of hearing. If defendant appears at hearing, motion will be |

| | | |continued for defendant to serve plaintiff with notice of date and |

| | | |time of hearing. If defendant does not appear, the motion will go |

| | | |off-calendar. |

|LINE 5 | 18CV333834 |Charles Scrivner vs City of Palo Alto |Click line 5 or scroll to line 5 for tentative ruling. |

|LINE 6 | 20CV373467 |NORTHPOINT CAPITAL FUND, LLC* vs NORTHPOINT |Click line 6 or scroll to line 6 for tentative ruling. |

| | |CAPITAL FUND, LLC et al | |

|LINE 7 | 19CV345300 |Tuyet Nguyen vs Binh Nguyen |Click line 7 or scroll to line 7 for tentative ruling. |

|LINE 8 | 19CV356241 |Natalia Novoselova et al vs Pablo Matadamas |The petition for approval of compromise of claim of minor is approved.|

| | |et al |Petitioner shall prepare the orders of approval and for blocked |

| | | |account. |

| | | |Hearing for proof of deposit of funds is set for October 20, 2022, |

| | | |9:00 A.M. in Dept. 2. No appearance is required if proof of deposit |

| | | |of funds is filed prior to hearing. |

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Calendar lines 1-2

Case Name: Rao Cherukuri v. CloudKnox Security, Inc., et al.

Case No.: 21-CV-386240

Demurrers and Motions to Strike to the First Amended Complaint by Defendants Balaji Parimi and CloudKnox Security, Inc.

Factual and Procedural Background

This is an action for fraud and breach of fiduciary duty.

According to the first amended complaint (“FAC”), in January 2015, plaintiff Rao Cherukuri (“Plaintiff”) invented a new cloud security technology (the “Technology”) to address weaknesses and configuration issues in identity and access management layers across different Cloud platforms. (FAC at ¶ 9.) Continued reliance on the Cloud to store data made the Technology potentially lucrative. (Ibid.)

In April 2015, Plaintiff validated the commercial feasibility of the Technology and began working full time to develop a prototype. (FAC at ¶ 10.) In that regard, Plaintiff desired to create a team to help develop the prototype. (Ibid.)

Plaintiff had previously met defendant Balaji Parimi (“Parimi”) in 2000 and the two had prior work experience in the technology sector and startup companies. (FAC at ¶ 11.) By 2015, the two had become close personal friends, and their families socialized together. (Ibid.) Plaintiff approached defendant Parimi with the opportunity to work for him to develop the prototype. (Id. at ¶ 13.) Defendant Parimi accepted the opportunity, and in September 2015, he began working part time to assist in creating the prototype for the Technology. (Ibid.) In January 2016, Plaintiff, with the assistance of others, finished the prototype for the Technology. (Id. at ¶ 14.)

In February 2016, Plaintiff formed and registered defendant CloudKnox Security, Inc. (“CloudKnox” or the “Company”). (FAC at ¶ 15.) The parties agreed that Plaintiff would serve as the Chief Executive Officer (“CEO”) and own 55% of the Company, defendant Parimi would serve as the Chief Technology Officer (“CTO”) and own 45% of the Company. (Id. at ¶ 19.) On June 6, 2016, Plaintiff and defendant Parimi executed a Founders Stock Purchase Agreement (“FSPA”), which allocated 4,950,000 shares to Plaintiff and 4,050,000 shares to Parimi. (Id. at ¶ 20.) The parties allocated 1,000,000 shares for anticipated employee stock options. (Ibid.)

In September 2016, defendant Parimi informed Plaintiff that, through his efforts, the renowned venture capital firm KPCB wanted to invest in the Company. (FAC at ¶ 22.) But, in order to invest in the Company, Parimi told Plaintiff he would need to step down as CEO of the Company, resign from the board of directors, and dilute his majority shareholder interest in the Company. (Id. at ¶ 24.) Parimi told Plaintiff that KPCB would only invest in the Company if Plaintiff agreed to those terms and would only deal with Parimi because KPCB did not see Plaintiff’s value, or continued value, to the Company. (Ibid.)

Once defendant Parimi convinced Plaintiff to believe him, he presented Plaintiff with a written agreement whereby Plaintiff resigned his positions as an employee, officer, and director of the Company, and diluted his shareholder interest from 4,950,000 to 500,000, while also requiring Plaintiff to forego other vested and contractual rights in the FSPA. (FAC at ¶ 26.) Pursuant to the “Confidential Separation Agreement and General Release of All Claims” (the “Separation Agreement”), Parimi told Plaintiff he would get back a significant portion of the shares he relinquished—9.5% of the shares issued to the domain experts (the “Anti-Dilution Protections”). (Id. at ¶ 27.) Defendant Parimi also told Plaintiff he was protected through his board observer rights. (Ibid.) The parties executed the Separation Agreement on November 17, 2016. (Id. at ¶ 28.) As a result, Parimi became the CEO and majority shareholder for the Company. (Id. at ¶ 29.)

Even though the Separation Agreement named Plaintiff as a board observer, the Company did not hold any board meetings and/or shareholder meetings between the signing of the Separation Agreement and May 2017. (FAC at ¶ 30.) During that time, defendant Parimi verbally told Plaintiff that everything was going well with KPCB’s investment in the Company. (Ibid.) Plaintiff had received no information to suspect any wrongdoing and had no access to information to suspect any wrongdoing. (Ibid.)

In May 2017, defendant Parimi contacted Plaintiff stating that, while the KPCB investment was going well, the Company needed to obtain additional and interim seed funding to carry the Company until KPCB’s investment was finalized. (FAC at ¶ 31.) In that regard, Parimi verbally told Plaintiff that, for the Company to get the interim financing, the interested investors insisted Plaintiff relinquish his position as a board observer. (Ibid.) Parimi further stated the interim seed investors were concerned about Plaintiff’s Anti-Dilution Protections in the Separation Agreement, and thus Plaintiff needed to relinquish his board observer rights and Anti-Dilution Protections. (Ibid.)

Given his personal and professional relationship with defendant Parimi, Plaintiff reasonably believed his representations concerning the interim seed investor, and that such actions were necessary and in the best interests of the Company. (FAC at ¶ 32.) Thus, Plaintiff relinquished his board observer rights and Anti-Dilution Protections via a June 9, 2017 Letter Agreement (“Letter Agreement”). (Ibid.) As a result of the Letter Agreement, Parimi’s shareholder interest in the Company swelled to approximately 89%, as he now held approximately 4,050,000 shares and Plaintiff held only 500,000 shares. (Id. at ¶ 33.)

On January 28, 2020, Plaintiff read an article in which defendant Parimi stated the Company “secure[d] another round of funding.” (FAC at ¶ 36.) According to the article, the venture capital firm, Sorenson Ventures, had recently invested in the Company. (Ibid.) The article listed its previous investors but did not mention KPCB, the venture capital firm that Parimi said had agreed to invest in the Company upon Plaintiff’s resignation and share dilution. (Ibid.) Also absent from the list was any mention of the alleged interim seed investor that supposedly demanded Plaintiff relinquish his board observer rights and further dilute his share interests. (Ibid.)

On July 21, 2021, Microsoft announced it was acquiring the Company. (FAC at ¶ 37.) Shortly thereafter, Plaintiff, as a minority shareholder, received some information about the proposed sale to Microsoft. (Ibid.) At that time, Plaintiff discovered defendant Parimi’s statement about the Company hiring domain experts never occurred. (Ibid.)

After reading the article, Plaintiff made futile demands to the Company, defendant Parimi, Microsoft and KPCB to obtain information regarding the alleged fraudulent statements. (FAC at ¶ 38.) The Company and Parimi (collectively, “Defendants”) however stonewalled Plaintiff’s access for such information. (Ibid.)

On July 29, 2021, Plaintiff filed a complaint against Defendants alleging causes of action for:

(1) Fraud – Intentional Misrepresentation;

(2) Negligent Misrepresentation;

(3) Breach of Fiduciary Duty;

(4) Breach of Duty of Loyalty;

(5) Unfair Competition;

(6) Unjust Enrichment; and

(7) Declaratory Relief.

On February 17, 2022, Plaintiff filed the operative FAC against Defendants setting forth causes of action for:

(1) Fraud – Intentional Misrepresentation;

(2) Negligent Misrepresentation;

(3) Breach of Fiduciary Duty; and

(4) Breach of Duty of Loyalty;

On March 21, 2022, Defendants separately filed demurrers and motions to strike to the FAC. Defendant Parimi filed a request for judicial notice in conjunction with his motions. Plaintiff filed written oppositions, including opposition to the request for judicial notice. Defendants filed reply papers.

A further case management conference is also set for August 11, 2022.

Parimi’s Demurrer to the FAC

Defendant Parimi demurs to each cause of action on the following grounds: (1) Plaintiff’s claims are barred by the statute of limitations; (2) Plaintiff executed an enforceable general release which bars his claims; and (3) each claim fails to state a cause of action. (Code Civ. Proc., § 430.10, subd. (e); see Kendrick v. City of Eureka (2000) 82 Cal.App.4th 364, 367 [“Where a complaint shows on its face that the action is barred by the statute of limitations, a general demurrer for failure to state a cause of action will lie.”].)

Request for Judicial Notice

“Judicial notice is the recognition and acceptance by the court, for use by the trier of fact or by the court, of the existence of a matter of law or fact that is relevant to an issue in the action without requiring formal proof of the matter.” (Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1117.)

In support of the motions, defendant Parimi requests judicial notice of the following:

(1) Founder Stock Purchase Agreement signed by Plaintiff on June 6, 2016 (Ex. A);

(2) Email chain between Plaintiff and defendant Parimi beginning October 1, 2016 (Ex. B);

(3) Confidential Separation Agreement and General Release of all Claims, signed by Plaintiff and defendant Parimi on November 17, 2016 and attached Warrant to Purchase Common Stock (Ex. C);

(4) Letter Agreement signed by Plaintiff on June 9, 2017 (Ex. D);

(5) Press Release from CloudKnox published on October 3, 2018 and titled “CloudKnox Launces Cloud Security Platform to Control the Most Significant Risk for Hybrid— Cloud Environments—Overprivileged Identities” (Ex. E);

(6) Fortune article published on October 3, 2018 and titled “Startup CloudKnox Scores $10 Million Investment to Prevent Cloud Catastrophes” (Ex. F).

The court takes judicial notice of Exhibits A, C, and D as these agreements are referenced in the FAC and their contents are not in dispute. (See FAC at ¶¶ 20, 27-33; Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1285, fn. 3 [appellate court took judicial notice of documents referred to in a pleading]; see also Ascherman v. General Reinsurance Corp. (1986) 183 Cal.App.3d 307, 310-311 [appellate court took judicial notice of terms of reinsurance contract referenced in complaint, where the parties did not dispute the existence of the contract].)

The court declines to take judicial notice of Exhibits B, E, and F which are not proper subjects of judicial notice. (See Plaintiff’s OPP to Request for Judicial Notice [“RJN”] at pp. 2-4; LaChance v. Valverde (2012) 207 Cal.App.4th 779, 783 [denying request for judicial notice of email]; see also Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 115 [“[A] court cannot by means of judicial notice convert a demurrer into an incomplete evidentiary hearing in which the demurring party can present documentary evidence and the opposing party is bound by what that evidence appears to show.”].)

Therefore, the request for judicial notice as to Exhibits A, C, and D is GRANTED. The request for judicial notice is DENIED as to Exhibits B, E, and F.

Legal Standard

“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘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.’ ” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

“The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. … [I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.)

First Cause of Action: Fraud – Intentional Misrepresentation

Statute of Limitations

A statute of limitations prescribes the period “beyond which a plaintiff may not bring a cause of action. [Citations.]” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806.) It “strikes a balance among conflicting interests. If it is unfair to bar a plaintiff from recovering on a meritorious claim, it is also unfair to require a defendant to defend against possibly false allegations concerning long-forgotten events, when important evidence may no longer be available.” (Pooshs v. Philip Morris USA, Inc. (2011) 51 Cal.4th 788, 797.)

“A plaintiff must bring a claim within the limitations period after accrual of the cause of action. In other words, statutes of limitation do not begin to run until a cause of action accrues. Generally speaking, a cause of action accrues at the time when the cause of action is complete with all its elements.” (V.C. v. Los Angeles Unified School Dist. (2006) 139 Cal.App.4th 499, 509-510, internal citations and quotation marks omitted.)

Although the statute of limitations is a factual issue, it can be subject to demurrer if the pleading discloses that the statute of limitations has expired regarding one or more causes of action. (Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 962.) If a demurrer demonstrates that a pleading is untimely on its face, it becomes the plaintiff’s burden “even at the pleading stage” to establish an exception to the limitations period. (Aryeh v. Cannon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1197.)

A court may sustain a demurrer on the ground of failure to state sufficient facts if “the complaint shows on its face the statute [of limitations] bars the action.” (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315 (E-Fab, Inc.).) A demurrer is not sustainable if there is only a possibility the cause of action is time-barred; the statute of limitations defense must be clearly and affirmatively apparent from the allegations in the pleading. (Id. at pp. 1315-1316.)

When evaluating whether a claim is time-barred, a court must determine (1) which statute of limitations applies and (2) when the claim accrued. (E-Fab, Inc., supra, 153 Cal.App.4th at p. 1316.)

The statute of limitations for an intentional misrepresentation cause of action is three years. (Code Civ. Proc., § 338, subd. (d).) The cause of action does not accrue “until the discovery, by the aggrieved party, of the facts constituting the fraud.” (Ibid.)

The fraud claim includes alleged misrepresentations by defendant Parimi in September 2016 and May 2017. (See FAC at ¶¶ 22-26, 31-33, 41-42.) Parimi argues that Plaintiff was on notice of the fraud no later than May 2017 given his role as either a CEO or shareholder of the Company. This argument however is not persuasive as Plaintiff alleges he did not suspect any fraud until January 28, 2020 when he reviewed the article discussing how the Company had secured its funding. (Id. at ¶ 36.) Plaintiff alleges also he had no reason to suspect that defendant Parimi was misleading him either in September 2016 or May 2017. (Id. at ¶¶ 29, 34.) In fact, defendant Parimi had reassured Plaintiff that all was well with the business and thus Plaintiff would likely not suspect that Parimi was guilty of any wrongdoing prior to January 2020. (Id. at ¶¶ 30, 35.) In addition, Plaintiff claims he had no access to information that would have allowed him to discover any wrongdoing sooner. (Id. at ¶ 30.) Even though Parimi disputes these allegations, they must be accepted as true for purposes of this motion and therefore the statute of limitations argument is not sustainable on demurrer.

Accordingly, the demurrer to the first cause of action on the ground that it is barred by the statute of limitations is OVERRULED.

General Release

Defendant Parimi also contends the general release signed by Plaintiff in connection with the Separation Agreement bars his claims in this action.

“A release is ‘the abandonment, relinquishment or giving up of a right or claim to the person against whom it might have been demanded or enforced [citations] and its effect is to extinguish the cause of action…’ [Citation.] Thus, a release ‘conclusively estops the parties from reviving and relitigating the claim released.’ [Citation.] ‘ “The general rule is that when a person with the capacity of reading and understanding an instrument signs it, he is, in the absence of fraud and imposition, bound by its contents, and is estopped from saying that its provisions are contrary to his intentions or understanding…” ’ [Citation.]” (In re Mission Ins. Co. (1995) 41 Cal.App.4th 828, 838.)

Here, the parties Separation Agreement includes the following language with respect to the General Release:

General Release. Employee unconditionally, irrevocably and absolutely releases and discharges the Company…from all claims related in anyway to the transactions or occurrences between them to date, to the fullest extent permitted by law, including, but not limited to, Employee’s employment with the Company, the termination of Employee’s employment, and all other losses, liabilities, claims, charges, demands and causes of action, known or unknown, suspected or unsuspected, arising directly or directly out of or in any way connected with Employee’s employment with the Company. This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, common law, constitutional or other statutory claims…Employee expressly waives Employee’s right to recover of any type, including damages or reinstatement, in any administrative or court action, whether state or federal and whether brought by Employee or on Employee’s behalf, related in any way to the matters released herein… (See RJN at Ex. C.)

The Separation Agreement also includes a waiver under Civil Code section 1542 which states:

California Civil Code Section 1542 Waiver. Employee expressly acknowledges and agrees that all rights under section 1542 of the California Civil Code are expressly waived. That section provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR. (See RJN at Ex. C.)

Defendant Parimi argues Plaintiff, a sophisticated businessman, entered into the Separation Agreement, and, having signed it, the general release bars all claims in this action. But, as stated above, such a release in not enforceable in the presence of fraud as is the case here.

“ ‘A party to a contract who has been guilty of fraud in its inducement cannot absolve himself or herself from the effects of his or her fraud by any stipulation in the contract, either that no representations have been made, or that any right that might be grounded upon them is waived. Such a stipulation or waiver will be ignored, and parol evidence of misrepresentations will be admitted, for the reason that fraud renders the whole agreement voidable, including the waiver provision. [Citations.]’ [Citation.]” (Manderville v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, 1500-1501.)

According to the FAC, Plaintiff alleges, based on defendant Parimi’s misrepresentations, he exited the Company and entered into the Separation Agreement. (FAC at ¶ 46.) Having been induced to enter in to the Separation Agreement, as pled, the general release does not bar Plaintiff’s claims and this argument is not sustainable on demurrer. (See Blankenheim v. E.F. Hutton & Co. (1990) 217 Cal.App.3d 1463, 1472 [Civil Code section 1668 provides that contracts exempting a party from liability for fraud are against the policy of the law].)

Therefore, the demurrer to the first cause of action on the ground that the claim is barred by the general release is OVERRULED.

Failure to State a Claim

“The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage.” (Port Medical Wellness, Inc. v. Connecticut General Life Ins. Co. (2018) 24 Cal.App.5th 153, 178.)

“Fraud must be pleaded with specificity rather than with general and conclusory allegations. The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made.” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793 (West), citation and quotation marks omitted.)

Courts enforce the specificity requirement in consideration of its two purposes. (West, supra, 214 Cal.App.4th at p. 793.) The first purpose is to give notice to the defendant with sufficiently definite charges that the defendant can meet them. (Ibid.) The second is to permit a court to weed out meritless fraud claims on the basis of the pleadings; thus, the pleading should be sufficient to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud. (Ibid.)

Defendant Parimi asserts there is no claim stated for intentional misrepresentation as Plaintiff fails to allege specific misrepresentations, knowledge of falsity or justifiable reliance. The court disagrees, finding sufficient allegations for fraud have been pled in the first cause of action along with prior facts included in the FAC. (See FAC at ¶¶ 22-29, 31-34, 37, 39-47.)

Consequently, the demurrer to the first cause of action on the ground that it fails to state a claim is OVERRULED.

Second Cause of Action: Negligent Misrepresentation

Statute of Limitations

The demurrer to the second cause of action based on the statute of limitations is OVERRULED for the reasons stated above.

General Release

The demurrer to the second cause of action based on the general release is OVERRULED for the reasons stated above.

Failure to State a Claim

“The elements of a negligent misrepresentation are ‘(1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.’ [Citation.] Negligent misrepresentation does not require knowledge of falsity, unlike a cause of action for fraud. [Citation.]” (Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1252.)

Defendant Parimi argues in part that the negligent misrepresentation claim is not adequately stated as it relies on future conduct. “A representation generally is not actionable unless it is about ‘past or existing facts.’ [Citation.] Although a false promise to perform in the future can support an intentional misrepresentation claim, it does not support a claim for negligent misrepresentation.” (Stockton Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 458.) But, as the opposition points out, at least some of the pleaded facts refer to Plaintiff resigning his position as CEO and forfeiting his shares based on misrepresentations from Parimi. (See FAC at ¶¶ 24-26, 54-55.) Such actions are sufficient to state a claim for negligent misrepresentation and do not constitute future conduct. Furthermore, the balance of defendant Parimi’s arguments with respect to this cause of action have been considered and rejected by the court for reasons stated above. (See Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 845 [“Hospital’s complaint, which we have already determined sufficiently pleads the elements of Hospital’s alternative claim that if intentional fraud cannot be established, then the facts are sufficient to establish the existence of a cause of action for negligent misrepresentation.”].)

Therefore, the demurrer to the second cause of action on the ground that it fails to state a claim is OVERRULED.

Third Cause of Action: Breach of Fiduciary Duty

Statute of Limitations

The demurrer to the third cause of action based on the statute of limitations is OVERRULED for the reasons stated above.

General Release

The demurrer to the third cause of action based on the general release is OVERRULED for the reasons stated above.

Failure to State a Claim

Fiduciary and confidential have been used synonymously to describe any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. (Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 271 (Richelle L.).) Such a relation arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he or she voluntarily accepts or assumes to accept the confidence, can take no advantage from his or her acts relating to the interest of the other party without the latter’s knowledge or consent. (Ibid.) The essence of a fiduciary or confidential relationship is the parties do not deal on equal terms, because the person in whom trust and confidence is reposed and who accepts that trust and confidence is in a superior position to exert unique influence over the dependent party. (Ibid.)

California recognizes that one standing in a confidential or fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation. (Richelle L., supra, 106 Cal.App.4th at p. 273.)

“ ‘In order to plead a cause of action for breach of fiduciary duty, there must be shown the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. The absence of any one of these elements is fatal to the cause of action.’ [Citation.]” (Brown v. Cal. Pension Adm’rs & Consultants (1996) 45 Cal.App.4th 333, 347-348.)

As CloudKnox is incorporated in the State of Delaware, defendant Parimi urges the court to adopt Delaware law in connection with the third and fourth causes of action.[1] (See State Farm Mutual Automobile Ins. Co. v. Super. Ct. (2003) 114 Cal.App.4th 434, 442 [“States normally look to the State of a business’ incorporation for the law that provides the relevant corporate governance general standard of care.”].)

Under Delaware law, “[a] claim for breach of fiduciary duty requires proof of two elements: (1) that a fiduciary duty existed and (2) that the defendant breached that duty.” (Beard Research, Inc. v. Kates 8 A.3d 573, 601 (Del. Ch. 2010).) “A breach of fiduciary duty occurs when a fiduciary commits an unfair, fraudulent, or wrongful act, including misappropriation of trade secrets, misuse of confidential information, solicitation of employer’s customers before cessation of employment, conspiracy to bring about mass resignation of an employer’s key employees, or usurpation of the employer’s business opportunity.” (Id. at p. 602.)

Contrary to the argument raised in the moving papers, the breach of fiduciary duty claim does not arise from statements made in 2016, but in 2017. (See FAC at ¶¶ 68-70.)

Specifically, paragraph 68 of the FAC provides:

“However, in or around May 2017, Defendant [Parimi] defrauded Plaintiff by misrepresenting that (1) KPCB was still interested and intended to invest in the Company; and (2) that Plaintiff was required to relinquish his board observer rights and Anti-Dilution Protections per demands of interim seed investors.”

Defendant Parimi contends he did not owe any fiduciary duty to Plaintiff with respect to his board observer rights and Anti-Dilution Protections as they are Plaintiff’s unique contractual rights. But, as the opposition points out, Parimi still had a duty to deal honestly with Plaintiff, a minority shareholder in 2017. (See FAC at ¶ 66; see also Malone v. Brincat 722 A.2d 5, 10-11 (1998) [“Shareholders are entitled to rely upon the truthfulness of all information disseminated to them by the directors they elect to manage the corporate enterprise.”].) At a minimum, this duty to deal honestly would extend to defendant Parimi’s other misrepresentation stating that KPCB was still interested and intended to invest in the Company. (FAC at ¶ 68.) The moving papers do not address this allegation and a party is not permitted to demur to a portion of a cause of action. (See Financial Corp. of America v. Wilburn (1987) 189 Cal.App.3d 764, 778 [“[A] defendant cannot demur generally to part of a cause of action”] see also PH II, Inc. v. Super. Ct. (1995) 33 Cal.App.4th 1680, 1682 [“A demurrer does not lie to a portion of a cause of action”]; Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 274 [“A demurrer challenges a cause of action and cannot be used to attack a portion of a cause of action”].)

Accordingly, the demurrer to the third cause of action on the ground that it fails to state a claim is OVERRULED.

Fourth Cause of Action: Breach of Duty of Loyalty

Statute of Limitations

The demurrer to the fourth cause of action based on the statute of limitations is OVERRULED for the reasons stated above.

General Release

The demurrer to the fourth cause of action based on the general release is OVERRULED for the reasons stated above.

Failure to State a Claim

The demurrer to the fourth cause of action on the ground that it fails to state a claim is OVERRULED for the reasons stated above in connection with the third cause of action.

Parimi’s Motion to Strike to the FAC

Defendant Parimi also moves to strike the following portions of the FAC:

(1) Paragraph 38, subdivision (7);

(2) Paragraph 39, the phrase reading “That wrongful conduct continues to this day as Plaintiff has not been paid for his 500,000 shares in the Company that was sold to Microsoft;

(3) Paragraphs 49-50 of the First Cause of Action;

(4) Paragraphs 61-62 of the Second Cause of Action;

(5) Paragraphs 73-74 of the Third Cause of Action;

(6) Paragraphs 83-84 of the Fourth Cause of Action; and

(7) Paragraphs 3, 4, 6 through 8 of the Prayer for Relief.

Legal Standard

A court may strike out any irrelevant, false, or improper matter asserted in a pleading. (Code Civ. Proc., § 436, subd. (a).) A court may also strike out all or any part of a pleading not filed in conformity with the laws of the State of California. (Code Civ. Proc., § 436, subd. (b).) 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).)

Microsoft Allegations

The FAC alleges the following in part against Microsoft:

¶ 38, subdivision (7): Plaintiff has demanded that Defendant (Parimi), Company and Microsoft provide him with information as to why he has not been paid anything for his 500,000 shares in the Company that was sold to Microsoft. No such information was ever provided, and Plaintiff has never been paid anything for his 500,000 shares.

¶ 39: … “That wrongful conduct continues to this day as Plaintiff has not been paid for his 500,000 shares in the Company that was sold to Microsoft…”

Defendant Parimi moves to strike these allegations as irrelevant as the instant lawsuit pertains to conduct that transpired prior to Microsoft’s acquisition of the Company in July 2021. In opposition, Plaintiff argues the acquisition is relevant to his claim for damages stemming from Defendants’ fraud. The allegations here appear reasonably relevant to Plaintiff’s claims in this action and thus a motion to strike at this early stage is not warranted. If defendant Parimi later determines evidence regarding Microsoft to be irrelevant at the time of trial, he may file the appropriate motion in limine with the trial court either excluding or limiting such evidence. (See Kelly v. New West Federal Savings (1996) 49 Cal.App.4th 659, 669 [“The usual purpose of motions in limine is to preclude the presentation of evidence deemed inadmissible and prejudicial by the moving party.”].)

Therefore, the motion to strike these allegations is DENIED.

Remedies Allegations

Defendant Parimi also moves to strike the remedies alleged in paragraphs 49-50, 61-62, 73-74, 83-84, and paragraphs 3, 4, 6 through 8 in the Prayer for Relief. Such remedies include restitution, injunction, disgorgement, restitution and unjust enrichment. Parimi argues these equitable remedies are unnecessary as Plaintiff already has adequate remedies at law in this action. In support, Parimi relies on DVD Copy Control Assn., Inc. v. Kaleidescape, Inc. (2009) 176 Cal.App.4th 697, 726 stating equitable remedies are usually unavailable where the remedy at law is adequate. That case, addressing a judgment after a court trial, did not consider whether a party can separately plead both legal and equitable remedies. (See Stamps v. Super. Ct. (2006) 136 Cal.App.4th 1441, 1456 [cases are not authority for propositions not considered].) In fact, as the opposition points out, “a party may seek rescission or damages for breach of contract or fraud ‘in the event rescission cannot be obtained’ in the same action.” (Wong v. Stoler (2015) 237 Cal.App.4th 1375, 1385; see Meister v. Mensinger (2014) 230 Cal.App.4th 381, 396 [where a breach of fiduciary duty occurs, a variety of equitable remedies are available, including imposing a constructive trust, rescission, and restitution].)

Consequently, the motion to strike these allegations is DENIED.

CloudKnox’s Demurrer and Motion to Strike to the FAC

Defendant CloudKnox separately demurs to the first and second causes of action on the same grounds as defendant Parimi. The motion to strike is also nearly identical to the motion filed by Parimi. As the court has already considered and rejected these arguments for reasons stated above, the demurrer to the first and second causes of action is OVERRULED in its entirety. The motion to strike is DENIED in its entirety.

Disposition

The demurrer to the first, second, third, and fourth causes of action by defendant Parimi is OVERRULED in its entirety.

The motion to strike portions of the FAC by defendant Parimi is DENIED in its entirety.

The demurrer to the first and second causes of action by defendant CloudKnox is OVERRULED in its entirety.

The motion to strike portions of the FAC by defendant CloudKnox is DENIED in its entirety.

Defendants shall file their answer within 20 days of this Order.

The court will prepare the Order.

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Case Name: Scrivner, et al. v. City of Palo Alto, et al.

Case No.: 18CV333834

According to the allegations of the second amended complaint (“SAC”), on December 3, 2017, plaintiff Charles Daniel Scrivner (“Charles”) was riding his bicycle on Stanford Avenue in Palo Alto towards a pathway in Peers Park and was unable to see a hidden, inadequately marked chain that blocked access to the pathway. (See SAC, ¶ 1.) When his bicycle struck the chain, Plaintiff was ejected from his bicycle and landed on the roadway causing severe and permanent injuries. (Id.) The pathway was owned, maintained, controlled, transferred, designed, built, patrolled, funded and/or operated by defendant City of Palo Alto (“City”). (See SAC, ¶ 2.) In a deposition in January 2020, it was discovered that defendants URS Corporation (“URS”), Anderson Pacific Engineering Construction, Inc. (“APEC”) and AAA Fence Company, Inc. (“AAA”) carelessly and negligently designed, planned, built, constructed, controlled and/or maintained the accident location. (See FAC, ¶¶ 16-21.)

On August 27, 2018, plaintiffs Charles and Charles’ wife, Amy Scrivner (“Amy”), (collectively, “Plaintiffs”) filed a complaint against City, asserting a single cause of action for dangerous condition of public property. On August 6, 2020, Plaintiffs filed the first amended complaint against City, URS and APEC, asserting causes of action for dangerous condition of public property (against City), and negligence (against URS APEC and AAA). On May 10, 2022, Plaintiffs filed the SAC against City, URS, APEC and AAA (collectively, “Defendants”).

APEC moves for summary judgment.

I. APEC’S MOTION FOR SUMMARY JUDGMENT

Defendant’s burden on summary judgment

“A defendant seeking summary judgment must show that at least one element of the cause of action cannot be established, or that there is a complete defense to the cause of action. … The burden then shifts to the plaintiff to show there is a triable issue of material fact on that issue.” (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72; internal citations omitted; emphasis added.)

“The ‘tried and true’ way for defendants to meet their burden of proof on summary judgment motions is to present affirmative evidence (declarations, etc.) negating, as a matter of law, an essential element of plaintiff’s claim.” (Weil et al., Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2007) ¶ 10:241, p.10-91, citing Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 334; emphasis original.) “The moving party’s declarations and evidence will be strictly construed in determining whether they negate (disprove) an essential element of plaintiff’s claim ‘in order to avoid unjustly depriving the plaintiff of a trial.’” (Id. at § 10:241.20, p.10-91, citing Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107.)

“Another way for a defendant to obtain summary judgment is to ‘show’ that an essential element of plaintiff’s claim cannot be established. Defendant does so by presenting evidence that plaintiff ‘does not possess and cannot reasonably obtain, needed evidence’ (because plaintiff must be allowed a reasonable opportunity to oppose the motion.) Such evidence usually consists of admissions by plaintiff following extensive discovery to the effect that he or she has discovered nothing to support an essential element of the cause of action.” (Id. at ¶ 10:242, p.10-92, citing Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854-855.)

Defendant APEC’s contentions

Defendant APEC moves for summary judgment asserting that: Plaintiffs’ claims against APEC are time-barred because the complaint was filed more than four years after the date of completion and the alleged defective conditions are a patent defect; APEC is not liable for negligence under the accepted work doctrine; and, Plaintiffs’ cause of action for negligence against APEC fails for lack of causation due to the intervening and superseding, unilateral acts of City.

APEC fails to meet its initial burden to support its assertion that the cause of action against APEC is time-barred.

APEC asserts that the negligence cause of action is time-barred pursuant to Code of Civil Procedure section 337.1, which states:

(a) Except as otherwise provided in this section, no action shall be brought to recover damages from any person performing or furnishing the design, specifications, surveying, planning, supervision or observation of construction or construction of an improvement to real property more than four years after the substantial completion of such improvement for any of the following:

(1) Any patent deficiency in the design, specifications, surveying, planning, supervision or observation of construction or construction of an improvement to, or survey of, real property;

(2) Injury to property, real or personal, arising out of any such patent deficiency; or

(3) Injury to the person or for wrongful death arising out of any such patent deficiency.

…

(e) As used in this section, “patent deficiency” means a deficiency which is apparent by reasonable inspection.

(Code Civ. Proc. § 337.1.)

As APEC states, “[t]he test to determine whether a construction defect is patent is an objective test that asks ‘whether the average consumer, during the course of a reasonable inspection, would discover the defect.’” (Creekridge Townhome Owners Assn., Inc. v. C. Scott Whitten, Inc. (2009) 177 Cal.App.4th 251, 256.) “This test generally presents a question of fact, unless the defect is obvious in the context of common experience; then a determination of patent defect may be made as a matter of law (including on summary judgment).” (Id.)

APEC contends that “there is no dispute as to when it was understood by all parties that Anderson Pacific’s contract was terminated—October 30, 2013… occur[ring] more than four years prior to Mr. Scrivner’s December 3, 2017 bicycling accident.” (Def.’s memorandum of points and authorities in support of motion for summary judgment (“Def.’s memo”), p.9:22-23.) Further, APEC argues that “[t]here is no question that the four-year statute of limitations applies in case, because as in Renown Inc. v. Hensel Phelps Construction Co. (1984) 154 Cal.App.3d 413], the alleged defect by Plaintiff should have been apparent to the owner—the CITY—and in fact was demonstrably known per its own approved designs as well as the decision to use plain bollards instead of striped bollards at the ACCIDENT LOCATION.” (Def.’s memo, p.9:22-28.)

In support of its motion, APEC presents the following material facts: APEC was hired by the public bidding process as a general contractor to perform demolition, reconstruction and improvements to five well sites in the city of Palo Alto, including at Peers Park (see Def.’s separate statement of undisputed material facts in support of its motion for summary judgment, no. (“UMF”) 1); contemplated by the APEC contract was the installation of two bollards and chain at the access driveway to Peer’s Park (UMF 2); according to plans drawn by URS and approved by City, the referenced bollards were to be striped with black and yellow paint to warn of the presence of the bollards (UMF 3); at some point, City determined that the candy-striped bollards were for gas meters protection in commercial districts and the plain bollards were for residential areas and accordingly decided to use the plain bollards (UMF 4); APEC subcontracted the installation of the two bollards and chain to AAA (UMF 5); AAA installed the bollards and chain in September 2012 (UMF 6); on September 20, 2012, APEC submitted its notice of substantial completion to City (UMF 7); the work was accepted and APEC received a formal Notice of Acceptance of Completion from City dated October 30, 2013 (UMF 8); and, more than four years after the “conclusion of City’s contract” with APEC, Plaintiff’s alleged bicycle occurred which served as the basis of this lawsuit (UMF 9).

Here, APEC fails to meet its initial burden to demonstrate that section 337.1 applies. The first paragraph of the FAC alleges that “Plaintiff was unable to see a hidden, inadequately marked chain that blocked the pathway causing Plaintiff to be ejected from his bicycle and impact on the roadway causing severe and permanent injuries.” (FAC, ¶ 1.) The SAC alleges the same. (See SAC, ¶ 1.) In support of UMF 9, APEC cites to the FAC, unspecified numbers of responses to URS’ form interrogatories, and paragraphs 13 14 of the declaration of Todd P. Drakeford (“Drakeford decl.”), all of which cite to or quote the same allegation from paragraph 1 of the FAC and SAC that “Plaintiff was unable to see a hidden, inadequately marked chain that blocked the pathway causing Plaintiff to be ejected from his bicycle and impact on the roadway causing severe and permanent injuries.” (Drakeford decl., ¶ 13, exh. K, form interrogatory 20.8; FAC, ¶ 1.) It is unclear why APEC believes the “hidden, inadequately marked chain” that was the cause of Plaintiff’s injuries to be a patent deficiency. APEC’s evidence supports that the bollards “were to be striped with black and yellow paint to warn of the presence of the bollards” but this does not address the alleged cause of injury despite acknowledging that the subject contract contemplated “the installation of the two bollards and chain at the access driveway.” Moreover, APEC presents no evidence to demonstrate that the average consumer, during the course of a reasonable inspection, would discover the alleged defect. As such, APEC fails to meet its initial burden with respect to whether the negligence cause of action is time-barred pursuant to Code of Civil Procedure section 337.1.

APEC fails to meet its initial burden to support its assertion that it is not liable pursuant to the completed and accepted work doctrine. However, even if it had met its initial burden, there is a triable issue of material fact as to whether APEC actually completed the work.

APEC asserts that “[t]he ‘Completed and Accepted Work Doctrine’ holds that contractors whose work has been approved and/or accepted by an owner cannot be held liable to third parties for alleged patent defects with their work.” (Def.’s memo, p.10:12-14.) “It therefore follows that even if Anderson Pacific’s work caused or contributed to the patently exposed bollards and security chain used to restrict through-traffic of the service entrance to Peer’s Park, Anderson Pacific cannot be held liable to Plaintiffs because such work had been accepted by the CITY more than four years prior to Plaintiff Charles Scrivner’s accident.” (Id. at p.10:14-18.)

As APEC asserts, “[u]nder the completed and accepted doctrine, once work has been completed and accepted by the owner, the contractor is not liable to third parties for patent defects.” (Neiman v. Leo A. Daly Co. (2012) 210 Cal.App.4th 962, 972.) However, again, while APEC acknowledges that the subject contract contemplated “the installation of the two bollards and chain at the access driveway” (UMF 11; see also UMFs 14-15), APEC fails to present any evidence regarding the allegedly “hidden, inadequately marked chain” and why such chain was a patent defect such that the completed and accepted work doctrine would apply. As such, APEC again fails to meet its initial burden with respect to whether APEC is not liable for the negligence cause of action pursuant to the completed and accepted work doctrine.

Even if APEC were to have demonstrated the applicability of the completed and accepted work doctrine, there is a triable issue as to the actual completion of the work by APEC. (See Pls.’ evidence in support of opposition to motion for summary judgment, exhs. C, E-N.)

APEC likewise fails to meet its initial burden to demonstrate that the negligence cause of action fails for lack of causation due to the intervening and superseding, unilateral acts of City.

APEC lastly argues that:

… as discussed under previous section, CITY was aware that its own approved plans called for striped bollards and unilaterally decided to leave the bollards unstriped. Regardless of whether moving party bore any responsibility for installation of the bollards at the time of construction, CITY accepted ultimate responsibility for them subsequent to termination of the contract, and decided to leave them unstriped. For CITY to have affirmatively abandoned its own design for the project was unforeseeable. So too was it unforeseeable, in the grand scheme of the five well-site Rehabilitation Project that CITY’s decision would result in an accident of the type that injured Mr. Scrivner. As such, CITY’s actions broke the chain of causation that linked Anderson Pacific for lack of causation.

(Def.’s memo, pp.14:27-28, 15:1-9.)

Again, APEC’s argument is similarly deficient since it essentially relies on its arguments “discussed under previous section.” Like the prior bases for the motion, APEC acknowledges that the subject contract contemplated “the installation of the two bollards and chain at the access driveway.” (UMF 19; see also UMFs 22-23.) Yet, APEC fails to present any evidence regarding the allegedly “hidden, inadequately marked chain.” Thus, APEC again fails to meet its initial burden with respect to demonstrate that the negligence cause of action fails for lack of causation due to the intervening and superseding, unilateral acts of City.

APEC’s objections to the separate statement

In connection with its reply brief, APEC submitted “Objections to Plaintiffs’ Separate Statement of Undisputed Material facts in Support Thereof in Opposition to Anderson Pacific Engineering Construction’s Motion for Summary Judgment.” However, neither the separate statement of undisputed material facts nor the characterization of facts presented by Plaintiffs are evidence. APEC’s objections are OVERRULED in their entirety.

APEC’s motion for summary judgment is DENIED in its entirety.

The Court will prepare the Order.

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Case Name: NORTHPOINT CAPITAL FUND, LLC* vs NORTHPOINT CAPITAL FUND, LLC et al

Case no.: 20CV373467

Background

On October 30, 2018, plaintiff Northpoint Capital (“plaintiff”) and defendant The Overlook Road Los Gatos Development, LLC (“Overlook”) entered into a promissory note and deed of trust; the security for note and deed of trust is the real property at 19042 Overlook Road, Los Gatos, CA (“subject property”). Plaintiff is the beneficiary and Overlook is trustor under the deed of trust. The note and deed of trust were signed by Saul Flores on behalf of Overlook. On April 24, 2019, the note was superseded by updated note executed by Overlook.

The deed of trust and updated note each have a provision for award of attorneys’ fees and costs. The provisions for attorneys’ fees and costs are included in the deed of trust attached to the operative complaint and referenced in the declaration of attorney for plaintiff submitted in support of the instant motion. Overlook subsequently defaulted on payments under the updated note.

On June 24, 2020, defendant Northpoint Capital Fund, LLC (“defendant Northpoint”) was formed with Saul Flores as manager and CEO, and with the same business address as defendants Overlook and James McClenahan (“McClenahan”). Defendant Northpoint recorded a notice substituting itself as trustee of the deed of trust and reconveying the deed to trust.

As a result, on November 13, 2020, plaintiff filed complaint against defendants Northpoint, Overlook, and McClenahan (collectively “defendants”). On December 20, 2020, plaintiff filed the operative first amended complaint alleging six causes of action for fraud, declaratory relief, breach of fiduciary duty and aiding and abetting breach of fiduciary duty, aiding and abetting fraud, conspiracy, and conversion of collateral and aiding and abetting conversion (“FAC”).

On March 8, 2022, plaintiff’s motion for summary judgment on all causes of action of the FAC was granted against all defendants. Judgment was entered and filed on April 1, 2022.

On May 26, 2022, plaintiff filed the instant motion for attorneys’ fees.

On July 29, 2022, defendants filed opposition, and on August 4, 2022, plaintiff filed reply.

Summary of contentions

Plaintiff asserts that the lawsuit is an action “on a contract” under Civil Code section 1717 because the provision for attorneys’ fees encompasses the claims of the FAC and the gravamen of the lawsuit is to enforce the note and deed of trust. Plaintiff is the prevailing party in the action and is entitled to recover plaintiff’s attorneys’ fees and costs of suit pursuant to the provisions of the note and deed of trust which are broad in scope and encompass the claims. Plaintiff asserts that plaintiff’s attorneys’ fees incurred in the action and sought in the motion are reasonable.

In opposition, defendants assert that the attorneys’ fee provisions of the note and deed of trust are limited to actions to enforce the note, and that the lawsuit was not for enforcement of the note or deed of trust, but instead to negate the reconveyance of the deed of trust by defendant Northpoint.

Further, defendants assert that the obligor under the note and deed of trust is Overlook and not defendants Northpoint and McClenahan, and an award of attorneys’ fees cannot be entered against non-parties to the documents. Accordingly, the general “American Rule” that each party bears the party’s own litigation expenses, including attorneys’ fees, is applicable in this instance as to plaintiff and defendants Northpoint and McClenanhan.

As to defendant Overlook, defendants assert that the instant motion is subject to automatic stay from the filing of a bankruptcy petition by Overlook in June 2022. Defendants concede that the stay does not apply to defendants Northpoint and McClenahan. However, because defendants Northpoint and McClenahan are not parties to the note or deed of trust, application of the “American Rule” precludes recovery of attorneys’ fees against Northpoint and McClenahan.

Analysis

The original note and deed of trust are attached to the FAC. The pertinent provision for attorneys’ fees is set forth in section A.(3) of the deed of trust which provides that “A. To protect the security of this Deed of Trust, and with respect to the property above described, Trustor agrees: … (3) To appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, and to pay all costs and expenses, including cost of evidence of title and attorney’s fees in a reasonable sum, in any action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed of Trust.”

The mutual intent of the parties evidenced from the express provision is sufficiently clear and provides for recovery of all costs and reasonable attorneys’ fees in “any action or proceeding in which Beneficiary or Trustee may appear”, and infers that this includes “any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee” set forth in same sentence.

This language is broad in scope and is not limited to actions to enforce the note and deed of trust. “Any action” to “affect the security hereof or the rights or powers of Beneficiary” infers inclusion of contractual and non-contractual causes of action, including tort, for declaratory relief, breach of fiduciary duty or other claims, provided the cause of action affects the security or rights or powers of the plaintiff – beneficiary under the deed of trust. The express provision does not support plaintiff’s narrow reading.

Here, the allegations of the FAC make clear that the causes of action pertain to and affect the security and the rights of the beneficiary (plaintiff) and/or the trustee under the deed of trust, which are actions in which the beneficiary may appear. Accordingly, the causes of action invoke and are encompassed in the provision for attorneys’ fees and costs in the deed of trust.

The updated note contains a provision for recovery of attorneys’ fees in an action to enforce plaintiff’s rights in the context of judicial foreclosure which the FAC does not involve.

The judgment establishes that Overlook failed to pay sums due under the note, and that defendants engaged in fraudulent conduct in forming defendant Northpoint, substituting defendant Northpoint as trustee of the deed of trust, and then reconveying the deed of trust - actions that affected the security and rights of plaintiff-beneficiary under the deed of trust.

While the complaint does not assert a cause of action for breach of contract, the gravamen of the action and asserted causes of action arise from the note and deed of trust, and conduct of defendants that affected the rights, obligations and duties of plaintiff pursuant to those documents; actions which are encompassed by the provision for attorneys’ fees in the deed of trust.

While defendants Northpoint and McClenahan are not signatory parties to the note or deed of trust, summary judgment and judgment are entered against all defendants on all causes of action of the complaint. This encompasses proof of the elements and allegations of the causes of action, including that each defendant is the alter ego of the other defendants.

In awarding attorneys’ fees in this context, courts consider theories of recovery asserted and evidence in support. Plaintiff prevailed in the first through sixth causes of action of the complaint which include allegations that each defendant is the alter ego of the other defendant. The gravamen of the causes of action involve the note and deed of trust, and because plaintiff prevailed on the causes of action, plaintiff prevails on the claim of alter ego of defendants, and each defendant is therefore liable on the note and deed of trust entered into by co-defendant Overlook. See Reynolds Metal Co. v. Alperson (1979) 25 Cal.3d 124, 129.

Here, the effect of the summary judgment and judgment, and evidence submitted in support of the motion for summary judgment, support findings and proof of facts set forth in plaintiff’s reply, including that each defendant is deemed the alter ego of the other defendants.

Stay of action; bankruptcy action of Overlook

Defendants attach to opposition a notice of bankruptcy case filing of Overlook, and plaintiff, in reply, does not contest the assertions of the filing and automatic stay. The sole debtor indicated in the notice of bankruptcy case is defendant Overlook.

An automatic stay of all actions against a debtor arises from the filing of a petition for protection of the debtor with the United States Bankruptcy Court. See United States Bankruptcy Code section 362, subdivision (a). Accordingly, this civil action, including the instant motion, is stayed as to debtor-defendant Overlook. That said, the instant motion is not stayed as to non-debtors, defendants Northpoint and McClenanhan.

Reasonableness of attorneys’ fees

Plaintiff’s motion seeks an award of $30,367 in attorneys’ fees composed of $27,800 for legal services rendered in the action and $2,567 for services after September 30, 2021 in preparing the attorneys’ fee motion. There is an additional $1,250 of previously ordered attorneys’ fees as sanctions, for a total sum of attorneys’ fees of $31,617. The declarations of plaintiff’s attorneys, are submitted in support of services rendered, hourly rates charged and time incurred and billed.

Defendants do not contest the reasonableness of the asserted rates, hours or services.

In determining reasonable attorneys’ fees, the court determines the lodestar figure which is the number of hours reasonably expended multiplied by the reasonable hourly rate of the attorneys. See PLCM Group, Inc. v. Drexler (2000) 22 Cal4th 1084, 1095-96. The court may adjust this figure upward or downward based on factors specific to the case in order to fix the fee at the fair market value for the services rendered. Id. at p. 1095.

The court finds the hourly rates of plaintiff’s attorneys, Joshua Borger ($500 - 525) and Leila Sockolov ($395) are reasonable and within rates charged by attorneys in Santa Clara County with comparable experience and skill in the subject matter of the litigation. Plaintiff has not requested an upward adjustment to the lodestar amount.

The court finds that the time expended and services rendered are reasonable.

Disposition

For the reasons stated, the plaintiff and defendant Overlook are parties to the note and deed of trust. Defendants Overlook, Northpoint and McClenanhan are alter egos of each other generally and specifically in connection with the matters encompassed in the action, including the note and deed of trust.

The gravamen of the action is breach of the note and deed of trust, and the conduct of defendants that affected the security and the rights of plaintiff pursuant to the note and deed of trust. The action is therefore encompassed under the terms of the note and deed of trust, including the provisions for recovery of attorneys’ fees and costs to the prevailing party. Plaintiff is the prevailing party in the action.

Accordingly, the provisions of the note and deed of trust, including provisions for attorneys’ fees and costs, are enforceable against defendants Overlook, Northpoint and McClenanhan.

That said, Overlook’s filing of petition with the United States Bankruptcy Court imposes an automatic stay of all proceedings, including the instant motion, as to the debtor, defendant Overlook. However, the stay does not prevent plaintiff from proceeding against defendants Northpoint and McClenahan.

The court finds that the sum of $30,367 is the reasonable fair market value for the services of attorneys for plaintiff in this action and motion. The court further finds that the additional sum of $1,250 of attorneys’ fees that defendants were previously ordered to pay as sanctions has not been paid, and will be added to and included in this order. Plaintiff is therefore awarded $31,617 against defendants Northpoint and McClenahan, jointly and severally, which shall be paid by defendants Northpoint and McClenahan to plaintiff on or before 30 days from date of hearing.

Plaintiff shall prepare the order.

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Case Name: Tuyet Nguyen vs Binh Nguyen

Case no.: 19CV345300

Background

The instant motion is brought by plaintiff Tuyet Nguyen (“plaintiff”) for order for defendant Binh Nguyen (“defendant”) to pay one-half of court reporter’s fees for trial.

On July 8, 2022, defendant filed opposition and on July 15, 2022, plaintiff filed reply.

According to plaintiff, at trial setting conference, defendant agreed to share the cost of a court reporter for trial, but has reneged on the agreement. Neither party has been granted waiver of court reporter fees. Attorney for plaintiff’s declaration is submitted in support.

Analysis

Plaintiff asserts that Government Code section 68086 mandates that the parties pay their prorata share of the reporter’s fees incurred for trial.

In opposition, defendant asserts that plaintiff’s reliance on section 68086 is misplaced because the section applies to services of an official court reporter appointed pursuant to Code of Civil Procedure section 269, and here, plaintiff seeks appointment of a private reporter as official reporter pro tempore.

The court does not provide an official court reporter for trial of this civil action. A party or parties who wish to have the proceeding reported by an official reporter pro tempore must make arrangements in advance, privately retain and pay the private reporter, and file a request for appointment. These procedures should be known to counsel, and are set forth in detail on the court’s website.

Here, Government Code section 68086 does not mandate the parties to share the expense of a private court reporter who is appointed as official reporter pro tempore. An agreement of the parties is required to share the expense, otherwise the party retaining the private reporter pays the reporter’s fees. This may be a recoverable cost if the party prevails in the action.

That said, defendant does not present evidence or argument contesting the evidence from the declaration of the attorney for plaintiff that defendant, through defendant’s counsel, agreed at the trial setting conference to share the cost. The trial setting conference was reported by private reporter; however, attorney for plaintiff does not state whether the agreement was stated on the record.

The court considers an agreement stated before the court on the record a stipulation which a party may request entry of an order. While plaintiff by the instant motion requests the agreement be entered as an order, the declaration in support does not indicate that it was stated on the record. The hearing was reported by private reporter, but no transcript is submitted to evidence the agreement. The court does not have specific recollection of the statements of counsel at the hearing. However, counsel for the parties are officers of the court, and attorney for defendant does not contest the declaration of attorney for plaintiff evidencing the agreement. Accordingly, the court finds that the evidence supports that the parties agreed to share the cost of a private reporter for trial. “Share” infers equal, and in the absence of evidence to the contrary, the court finds that plaintiff and defendant agreed to pay the private reporter’s fees equally.

Disposition

The court orders that plaintiff and defendant pay the private reporter’s fees for the trial directly to the reporter in equal shares, subject to plaintiff obtaining appointment of the reporter pro tempore.

If the court reporter fees are not paid for any reason, and the reporter does not appear at the trial, the trial will proceed without court reporter.

The request for “conditional” sanctions is DENIED.

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[1] Plaintiff does not object to the use of Delaware law with respect to these claims.

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