Munoz v. Welch

GERMAN MUNOZ et al., Plaintiffs and Appellants, v. DAVID WELCH et al., Defendants and Respondents.

B301717

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

December 29, 2020

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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.

____________________ German Munoz, Connie Lopez and Therapeutic Health Collective (THC) (collectively the Munoz parties) sued David Welch, Michael Blazevich¹ 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.

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 BACKGROUND²

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'spresident 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 dispensarylicense 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, 2017Lopez, 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, 2013.³ 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 originallyfiled 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.

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 earlierdiscovery despite reasonable diligence, as required by the Supreme Court in Fox v....