MyECheck Inc (fka MYEC)

[PhenixBleu]

CASE UPDATE - Demurrer to First Amended Cross-Complaint

Cross-defendant Signature Stock Transfer’s (“SST”) demurrer to defendant/cross-complainant in pro per Maciora’s First Amended Cross-complaint (“1AXC”) is ruled upon as follows.

Moving counsel failed to comply with CRC Rule 3.1110(b)(3)-(4).

Overview

This case presents a multi-party business dispute. Plaintiff MyECheck, Inc. (“MEC”) alleges its former CEO, defendant Zalunardo, falsified an employment agreement purportedly entitling him to MEC shares and that he purported to transfer these shares to defendant Maciora in 2015 and 2016, who paid de minimis consideration because Maciora knew the shares were fake. MEC further alleges Maciora and others maintain that a draft proposal to issue MEC shares to certain employees, which was never ratified, legitimizes the transfers to Maciora.

In his 1AXC Maciora alleges that in July 2016 MEC’s alter-ego, cross-defendant Edward Starrs contacted Jason Bogutski (“Bogutski”) of SST. At that time, Maciora had filed suit against SST, MEC’s stock transfer agent. Starrs “instructed [SST] to settle with Maciora through a settlement agreement in which Maciora would be issued 66,666,666 shares of MyECheck through a real and 100% genuine paper stock certificate signed by Edward Starrs and a representative of [SST] and that Maciora would be listed in the shareholder registrar as a registered shareholder.” (1AXC, ¶68.) Maciora alleges that Starrs told Bogutski that “when the day came that Maciora would choose to sell his stock, the cross-defendants would tell any buyer that Maciora obtained his shares through fraudulent and forged employment agreements and Maciora’s shares were therefore fraudulent” and SST agreed to the plan. (1AXC, ¶¶68-69.) The settlement agreement was signed by SST and Maciora.

In August 2016 SST sent Maciora 3 stock certificates which added up to 66,666,666 shares of MEC. (1AXC, ¶83.) Maciora then attempted to sell the stocks and contacted Bogutski to issue a stock certificate in saleable form. (1AXC, ¶¶84-86.) Maciora alleges that SST and others interfered with his attempt to sell his shares.

Maciora’s original cross-complaint was filed on 4/5/2018 and purported to assert against SST causes of action for (1) Negligence (2) Negligence per se, (3) Violation of Commercial Code §8401, (4) Violation of Commercial Code §8403, (5) Fraud, (6) Constructive Fraud and (7) Conspiracy to Defraud. SST demurred on the grounds of uncertainty and failure to state sufficient facts. This Court sustained with leave to amend SST’s demurrer to the causes of action for Negligence, Negligence per se and Constructive Fraud but overruled it as to the others as well as to the claim of uncertainty.

On 2/8/2019 Maciora filed his 1AXC which now purports to allege against SST causes of action for (1) Conversion, (2) Negligence (3) Negligence per se, (4) Violation of Commercial Code §8401, (5) Violation of Commercial Code §8403, (6) Fraud, (7) Constructive Fraud and (8) Conspiracy to Defraud. SST now demurs to all of these causes of action except the one based on Commercial Code §8401 on the grounds that the Conspiracy to Defraud cause of action is uncertain and that the other causes of action fail to plead facts sufficient to state a claim on which recovery can be had. Defendant/cross-complainant in pro per Maciora opposes.

Analysis

Conversion - The Court notes that while Maciora’s original 4/5/2018 cross-complaint included a cause of action for conversion, the conversion cause of action was not alleged against SST. Since SST did not demur to the conversion cause of action, the Court’s ruling which sustained SST’s prior demurrer with leave to amend did not authorize Maciora to amend the conversion cause of action by adding SST to the allegations. Instead, current California law holds that where leave to amend is granted following the sustaining of a demurrer, that leave to amend is limited to amending only those causes of action which were found to be deficient and does not authorize the addition of any new or different causes of action against any party. (See, e.g., Harris v. Wachovia Mortgage FSB (2010) 185 Cal.App.4th 1018, 1023.)
Given that Maciora failed to obtain leave to amend the cause of action for conversion, the Court hereby strikes same to the extent it purports to be directed against SST. To the extent Maciora desires to add such a cause of action as against SST, he must file a noticed motion to amend.

Negligence - SST again demurs on the ground that as a transfer agent, it owed no common law duty to Maciora and as support, SST cites both Yuen v. U.S. Stock Transfer Co. (C.D.Cal. 1997) 966 F.Supp. 944, 950 and Mears v. Crocker First Nat. Bank (1950) 97 Cal.App.2d 482, 485, which this Court relied upon in sustaining SST’s demurrer to the original negligence cause of action. As the question of whether a duty of care exists in a particular case remains a question of law for the Court alone to decide and as the existing decisional law of this State including Mears confirms that a transfer agent is not liable to a stockholder for damages for failing to remove restrictive legends on stock, SST’s demurrer to this cause of action must be sustained.

Negligence Per Se - The demurrer to this cause of action must be sustained since negligence per se is not a separate cause of action but is instead merely a presumption of negligence which arises in from a statutory violation provided that certain conditions exist. (See, e.g., Evidence Code §669.) However, Maciora has failed to identify any statute which this Court finds gives rise to a duty of care on the part of SST so as to trigger potential liability under a negligence theory. Thus, the demurrer to the negligence per se separate cause of action shall be sustained as well.

Violation of Commercial Code §8403 - SST’s demurrer to this cause of action is overruled because SST’s argument relating to the application of Wyoming law could have been advanced in SST’s demurrer to the original cross-complaint but was not and thus, SST is barred from raising this argument here pursuant to the express provisions of Code of Civil Procedure §430.41(b). This subdivision provides in its entirety: A party demurring to a pleading that has been amended after a demurrer to an earlier version of the pleading was sustained shall not demur to any portion of the amended complaint, cross-complaint, or answer on grounds that could have been raised by demurrer to the earlier version of the complaint, cross-complaint, or answer. (Underline added for emphasis.) In short, SST is barred from now demurring to this cause of action based on Wyoming law which was not provided in connection with the earlier demurrer to the original cross-complaint.

Fraud - SST again demurs to the fraud cause of action on the ground that Maciora fails to allege SST intended to defraud Maciora but as this same argument was previously overruled (thereby obviating the need for Maciora to amend the allegation relating to “intent to defraud”), the Court need not consider this contention a second time here. Still, it is worth adding that “intent to defraud” is technically not an element of misrepresentation but rather, the “intent to induce” reliance is what must be shown to establish intentional or negligent misrepresentation. (See, e.g., Civil Code §1709; CACI 1900, 1903.) For these reasons, the demurrer to the fraud cause of action is (again) overruled.

Constructive Fraud - SST again demurs to this cause of action on the ground that it owed to Maciora no duty of disclosure since the 1AXC fails to plead facts establishing the necessary existence of a fiduciary or confidential relationship between SST and Maciora. The Court agrees and will again sustain the demurrer to this cause of action.

Conspiracy to Defraud - SST’s demurrer to this “cause of action” on the ground of uncertainty must be overruled because SST could have demurred to this “cause of action” on the same ground of uncertainty in connection with SST’s earlier demurrer to the original cross-complaint but did not. Consequently, Code of Civil Procedure §430.41(b) precludes SST from now advancing this argument for the first time in the present challenge to the 1AXC.

Conclusion

Maciora’s cause of action for conversion is stricken since he did not obtain leave to allege this against SST.

SST’s demurrer to the causes of action for Violation of Commercial Code §8403, Fraud and Conspiracy to Defraud is overruled but is sustained as to the causes of action for Negligence, Negligence per se and Constructive Fraud.

As the Court finds that Maciora has no reasonable possibility of curing the above-cited defects in the Negligence, Negligence per se and Constructive Fraud causes of action, leave to amend these causes of action is denied.