Tentative Ruling on SST's 02/04/2019 Hearing on Demurrer to Maciora's Cross-Complaint
2016-00202624-CU-SL
MyECheck, Inc. vs. Kenneth Maciora
Nature of Proceeding: Hearing on Demurrer to Cross-Complaint
Filed By: Howard, Jeffrey M.
*** If oral argument is requested, the parties must at the time oral argument is requested notify the clerk and opposing counsel of the causes of action that will be addressed at the hearing. The parties are also reminded that pursuant to local court rules, only limited oral argument is permitted on law and motion matters. ***
Cross-Defendant Signature Stock Transfer’s (“SST”) demurrer to Defendant/Cross-Complainant in pro per Kenneth Maciora’s (“Maciora”) Cross-Complaint (“XC”) is ruled upon as follows.
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 Maciora in 2015 and 2016, paying de minimis consideration because he 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 XC, Maciora alleges that in July 2016, MEC’s alter-ego, cross-defendant Edward Starrs (“Starrs”) contacted Jason Bogutski (“Bogustki”) of SST. At that time, Maciora had filed suit against SST, MEC’s stock transfer agent. Starrs “instructed Signature Stock Transfer 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 Signature Stock Transfer and that Maciora would be listed in the shareholder registrar as a registered shareholder.” (XC, ¶ 68.) Maciora alleges that Starrs told Bogustki 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. (Id.) 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. Maciora then attempted to sell the stocks and contacted Bogustki to issue a stock certificate in saleable form. Maciora alleges that SST and others interfered with his attempt to sell his shares.
As against SST, Maciora asserts causes of action for: (1) Negligence (2) Negligence per se, (3) Violation of Commercial Code §8401, (4) Violation of Corp. Code §8403, (5) Fraud, (6) Constructive Fraud, and (7) Conspiracy to Defraud.
SST demurs to each on the ground that Maciora fails to state sufficient facts and uncertainty.
Uncertainty
SST contends that the following two paragraphs in the XC are inconsistent and therefore uncertain.
Paragraph 79 states “Starrs, representing his alter egos MyECheck and GreenPay, upon information and belief knew Maciora was going to rely on the fact that Starrs told Signature Stock Transfer and Signature's attorney that Starrs would forever agree that Maciora is a registered shareholder and that he should be issued the stock.”
Paragraph 190 states “Maciora is informed and believes, thereon alleging, that MyECheck, GreenPay Starrs and Signature Stock Transfer agreed in July of 2016 never to recognize Maciora as a shareholder and to never recognize his stock certificate as genuine even though they were agreeing and representing to Maciora that he would receive a stock certificate and be a registered shareholder.” SST further insists that paragraph 79 is a “judicial admission” that there was no agreement to defraud Maciora.
The Court disagrees with SST that the two paragraphs are inconsistent, and that paragraph 79 is a judicial admission. Paragraph 79 is an allegation regarding Starrs’ knowledge that Maciora would rely on certain representations. Paragraph 190 is an allegation regarding the cross-defendants plan/intent to deceive.
The demurrer is OVERRULED.
Negligence
SST demurs on the ground that as a transfer agent, it owed no common law duty to Maciora. The Court agrees with SST.
At common law, a transfer agent is not liable to a stockholder for damages for mere “nonfeasance” such as a failure to act to remove restrictive legends on stock. (See Mears v. Crocker First Nat. Bank (1950) 97 Cal.App.2d 482, 485 (Mears); Lacoe v. Wolfe (1933) 133 Cal.App. 159, 161; Yuen v. U.S. Stock Transfer Co. (C.D.Cal. 1997) 966 F.Supp. 944, 950; see also Kenler v. Canal National Bank (1st Cir. 1973) 489 F.2d 482, 485 & fn. 3.) This is because the transfer agent serves only as the agent for the issuing corporation. (See Kenler, supra, 489 F.2d 482, 485 & fn. 3.) As explained in Mears, “[t]he theoretical basis of the rule is that the delay or refusal is a nonfeasance, the nonperformance of a duty owed to the principal only because of the existing agency relation, not a misfeasance or malfeasance, the breach of a duty owed individually to third parties independent of such agency relation.” (Mears, supra, 97 Cal.App.2d 485.)
Here, since MEC is the issuing corporation, SST owed no common law duty to Maciora for nonfeasance. Maciora counters that Mears is distinguishable since it involved an action for conspiracy. This is a distinction without a difference given the rationale behind the rule - that the duty is owed to the issuing corporation and not the stockholder.
The demurrer is SUSTAINED with leave to amend.
Negligence per se
SST demurs on the grounds that pursuant to Mears, it owed no duty to Maciora. In opposition, Maciora advances that he has sufficiently alleged duties based on Commercial Code §§ 8401, 8403 and 8407, and that SST failed to comply with those duties.
Negligence per se, this is not a separate cause of action but instead is a presumption regarding the standard of care rather than the duty of care. (Rosales v. City of L.A. (2000) 82 Cal.App.4th 419, 430.) Since SST owed no common law duty to Maciora, the demurrer is SUSTAINED with leave to amend.
Violation of Commercial Code §§8401 and 8403
Maciora alleges that SST violated its duties pursuant to Commercial Code §§ 8401 and 8403. SST demurs on the ground that pursuant to Mears and Yuen v. U.S. Stock Transfer Co. (C.D.Cal. 1997) 966 F.Supp. 944, 950, there is no common law duty imposed on SST.
The demurrer is OVERRULED. Here, these cause of action are not based on a common law duty, but rather the statutory duties imposed by Commercial Code §§8401 and 8403. As an aside, the Court notes that the court in Yuen v. U.S. Stock Transfer Co. (C.D.Cal. 1997) 966 F.Supp. 944, 500, recognized that the Commercial Code has a choice of law provision which requires that the law of the issuer’s jurisdiction determines the duties owed by the issuer. (Com. Code § 8110.) With respect to a transfer agent, the Yuen court explained that “the law of incorporation of the issuer establishes the transfer duties under the UCC, including obligations of a transfer agent.” (Id.) Here, MEC is the issuer of the stocks. MEC is a Wyoming corporation.
Neither party has addressed this choice of law provision in the Commercial Code, and the Court will not do so here.
Fraud
SST’s demurrer on the ground that Maciora fails to allege that SST intended to defraud him is OVERRULED. Construing the complaint liberally, Maciora has sufficiently alleged an intent to defraud.
Constructive Fraud
The elements of constructive fraud are: (1) a fiduciary or confidential relationship; (2) nondisclosure (breach of fiduciary duty); (3) intent to deceive; and (4) reliance and resulting injury. (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal. App. 4th 1105, 1131.)
Here, as stated above, Maciora fails to sufficiently plead duty. The demurrer is SUSTAINED with leave to amend.
Conspiracy to Defraud
"Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration." (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511.) "By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors. (Id.) "The conspiring defendants must have actual knowledge that a tort is planned and concur in the tortious scheme with knowledge of its unlawful purpose. (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1582.) "The elements of a civil conspiracy are '(1) the formation and operation of the conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) the damage resulting.'" (Mosier v. Southern Cal.Physicians Ins. Exch. (1998) 63 Cal.App.4th 1022, 1048.)
SST demurs on the ground that conspiracy is not a cause of action. However, since the Court has overruled the demurrer to the fraud cause of action, the conspiracy claim is sufficient. The demurrer is OVERRULED.
Where leave to amend is granted, Maciora may file and serve a first amended crosscomplaint ("FAXC") by no later than February 14, 2019, Response to be filed and served within 30 days thereafter, 35 days if the FAXC is served by mail. (Although not required by any statute or rule of court, Maciora is requested to attach a copy of the instant minute order to the FAXC to facilitate the filing of the pleading.)
The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.
Moving counsel’s notice of motion does not provide notice of the Court’s tentative ruling system, as required by Local Rule 1.06. Moving counsel is directed to contact Maciora and advise him of Local Rule 1.06 and the Court’s tentative ruling procedure and the manner to request a hearing. If moving counsel is unable to contact Maciora prior to hearing, moving counsel is ordered to appear at the hearing in person or by
telephone.
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