Camden Systems v. Young CA2/7 ( 2024 )

Filed 1/10/24 Camden Systems v. Young CA2/7
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
CAMDEN SYSTEMS, LLC, B321117
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No.
v. 21STCV11537)
JEFFREY S. YOUNG,
Defendant and
Respondent.
APPEAL from an order of dismissal of the Superior Court
of Los Angeles County, Barbara M. Scheper, Judge. Affirmed.
Law Offices of David M. Wolf and David M. Wolf for
Plaintiff and Appellant.
Kaufman Dolowich & Voluck, Vincent S. Green and Steve
R. Segura for Defendant and Respondent.
____________________________
Camden Systems, LLC appeals from the order of dismissal
entered after the trial court sustained without leave to amend the
demurrer filed by Jeffrey Young. On appeal, Camden Systems
argues the trial court erred in holding the second amended
complaint failed to state a claim for breach of fiduciary duty
based on Young’s alleged knowing violation of the Americans
with Disabilities Act of 1990 (42 U.S.C. § 12101 et seq.; ADA).
Because the second amended complaint does not allege Young
knew his actions (or inactions) violated the ADA, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Allegations of the Second Amended Complaint
On March 25, 2021 Camden Systems, in its individual
capacity and derivatively on behalf of 409 North Camden, LLC,
filed this action against Young, the manager of 409 North
Camden, alleging breach of fiduciary duty. After the trial court
sustained demurrers to the complaint and first amended
complaint with leave to amend, Camden Systems filed the second
amended complaint, again alleging breach of fiduciary duty by
Young.1
According to the second amended complaint, 409 North
Camden was formed in 2016 as a manager-managed limited
liability company, and it is the owner of a two-story office
building in Beverly Hills (the office building). Young was the sole
1 The complaint and amended complaints also named as
defendants 409 North Camden and its members and alleged
additional causes of action for breach of fiduciary duty, breach of
contract, and declaratory relief. Only the breach of fiduciary duty
claim against Young is at issue in this appeal.
2
manager of 409 North Camden since its formation.2 Camden
Systems became a member of 409 North Camden in 2020, at
which point there were 10 members of the company, including
Camden Systems.
Camden Systems alleged the elevator in the office building
had been inoperable since at least 2016 and, as a result, “disabled
persons, including those in wheelchairs, are unable to access the
professional offices of the health care providers located on the
second floor.” Further, “the elevator being inoperable is violative
of the ADA,” which requires removal of “barriers to access when
doing so is readily achievable.”3 In addition, “the repair or
replacement of the elevator . . . is readily achievable” because the
office building is “debt-free” and “worth many millions of dollars
and generates hundreds of thousands of dollars of income
annually.”
2 While Young is not a member of 409 North Camden in his
individual capacity, the second amended complaint alleged he
was a co-trustee of a trust that is a member.
3 Camden Systems also alleged additional building features
that were out of compliance with the ADA, including lack of
ramps, accessible parking, and stairway handrails. On appeal
Camden Systems limits its argument to whether the inoperable
elevator violated the ADA. As we discuss below, for existing
facilities like the office building, discrimination under the ADA
includes the failure to remove an architectural barrier “where
such removal is readily achievable.” (42 U.S.C.
§ 12182(b)(2)(A)(iv); see 28 C.F.R. § 36.304.) “Readily
achievable,” in turn, means “easily accomplishable and able to be
carried out without much difficulty or expense.” (42 U.S.C.
§ 12181(9); see 28 C.F.R. §§ 36.104, 36.304.)
3
Young was aware of the inoperable elevator, and in 2020 he
hired a certified access specialist to inspect the office building.
The specialist’s report stated, “If the current health care
providers remain as tenants in their current suites, the issue of
second floor accessibility must be addressed.” Young then
retained a law firm to assess whether the inoperable elevator
would violate the ADA. The law firm opined that the presence of
health care providers on the second floor “‘would likely bar the
application of the elevator exemption [from liability under the
ADA] to the Camden Drive property in its current tenant
configuration. . . . [¶] If [a] Plaintiff makes the prima facie
showing of discrimination and demands the removal of the
barrier to access, the Defendant may assert as an affirmative
defense that removal of the barrier is not ‘readily achievable.’ . . .
Whether [the $363,000 estimated cost to repair the elevator]
would make the elevator repair ‘readily achievable’ would be a
question for the trier of fact.’”
Young also sent a letter to the members of 409 North
Camden stating, “I just want to remind you, as I have discussed
with you before, any deficiency under the ADA can result in a
potential lawsuit and penalties if a disabled person encounters a
deficiency while on the property.” (Boldface omitted.)
Camden Systems alleged Young’s awareness of the
inoperative elevator and the elevator’s potential noncompliance
with the ADA established that Young engaged in a knowing
violation of law and, thus, breached his fiduciary duty to
409 North Camden. The second amended complaint sought
monetary damages and an injunction requiring repair or
replacement of the elevator.
4
B. The Demurrer to the Second Amended Complaint
On December 16, 2021 Young filed a demurrer to the
fiduciary duty cause of action in the second amended complaint.
He argued the allegations that he was aware of the building’s
inoperable elevator and other deficiencies were insufficient to
state a claim for a knowing violation of law and, therefore, did
not state a claim for breach of fiduciary duty. Further, the
second amended complaint failed to allege he acted in bad faith,
which was necessary to overcome the presumption of the business
judgment rule, which applied under 409 North Camden’s
operating agreement and statutory and common law.4 Finally,
Young argued the second amended complaint did not allege any
harm from the alleged ADA violations and Camden Systems
lacked standing to sue because the alleged violations existed
prior to the formation of 409 North Camden and Camden
System’s membership in the company.
4 Camden Systems argued in its opposition that although the
operating agreement provided that a manager’s fiduciary duties
were governed by the business judgment rule, Camden Systems
was not bound by that provision because Corporations Code
section 17701.10, subdivision (e), requires for modification of a
manager’s fiduciary duties that the members give their “informed
consent” to the modification, and Camden Systems had
adequately alleged it had not given its informed consent. (See
ibid. [“The fiduciary duties of a manager to a manager-managed
limited liability company and to the members of the limited
liability company . . . shall only be modified in a written
operating agreement with the informed consent of the
members.”].) Further undesignated statutory references are to
the Corporations Code.
5
C. The Trial Court’s Ruling
After a hearing, on February 4, 2022 the trial court
sustained without leave to amend the demurrer to the fiduciary
duty cause of action against Young. The court found 409 North
Camden’s operating agreement, attached to the second amended
complaint, limited the fiduciary duties of the manager so that the
manager would not be liable for honest mistakes of judgment or
actions taken in good faith that were reasonably believed to be in
the best interests of the company. Further, the second amended
complaint failed to allege Young acted in bad faith. The court
found in the alternative that the second amended complaint did
not allege damages caused by Young’s actions because the
elevator had been inoperable prior to formation of 409 North
Camden. Accordingly, Young’s actions or inactions could not
have caused any diminution in the office building’s value.
On April 27, 2022 the trial court signed and filed an order
of dismissal with prejudice of the fiduciary duty cause of action
against Young. At Camden Systems’s request, the clerk
subsequently entered a dismissal without prejudice of the
remaining causes of action against Young. Camden Systems
timely appealed.
DISCUSSION
A. Governing Law and Standard of Review
With some enumerated exceptions, where, as here, a
limited liability company is established as a manager-managed
company, “any matter relating to the activities of the limited
liability company is decided exclusively by the managers.”
(§ 17704.07, subd. (c)(1).) A manager owes fiduciary duties of
loyalty and care to the company and its members. (§ 17704.09,
6
subds. (a), (f)(1).) However, the manager’s duty of care is “limited
to refraining from engaging in grossly negligent or reckless
conduct, intentional misconduct, or a knowing violation of law.”
(Id., subds. (c), (f)(1).)5
“‘In reviewing an order sustaining a demurrer, we examine
the operative complaint de novo to determine whether it alleges
facts sufficient to state a cause of action under any legal theory.’”
(Mathews v. Becerra (2019) 8 Cal.5th 756, 768; accord, T.H. v.
Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 162.)
When evaluating the complaint, “we assume the truth of the
allegations.” (Brown v. USA Taekwondo (2021) 11 Cal.5th 204,
209; accord, Lee v. Hanley (2015) 61 Cal.4th 1225, 1230.)
“However, we are not required to accept the truth of the factual
or legal conclusions pleaded in the complaint.” (Marina Pacific
Hotel and Suites, LLC v. Fireman’s Fund Ins. Co. (2022)
81 Cal.App.5th 96, 105; accord, Centinela Freeman Emergency
Medical Associates v. Health Net of California, Inc. (2016)
5 A member in a limited liability company may bring a
derivative lawsuit on the company’s behalf when the manager
refuses to do so. (See Beachcomber Management Crystal Cove,
LLC v. Superior Court (2017) 13 Cal.App.5th 1105, 1118.) In
such a case, the member must “allege[ ] in the complaint with
particularity the plaintiff’s efforts to secure from the managers
the action the plaintiff desires or the reasons for not making that
effort, and allege[ ] further that the plaintiff has either informed
the limited liability company or the managers in writing of the
ultimate facts of each cause of action against each defendant or
delivered to the limited liability company or the managers a true
copy of the complaint that the plaintiff proposes to file.”
(§ 17709.02, subd. (a)(2).) The parties do not address whether
Camden Systems pleaded these facts with particularity.
7
1 Cal.5th 994, 1010 [“‘“‘We treat the demurrer as admitting all
material facts properly pleaded, but not contentions, deductions
or conclusions of fact or law.’”’”].)
B. The Trial Court Did Not Err in Sustaining Young’s
Demurrer
The second amended complaint did not allege Young
breached his fiduciary duties by engaging in grossly negligent or
reckless conduct or intentional misrepresentation. Instead,
Camden Systems contends Young breached his fiduciary duty to
the company by engaging in a knowing violation of law.
Specifically, Camden Systems argues Young committed a
knowing violation of law by allowing the office building to be out
of compliance with the ADA, including by failing to fix the
inoperable elevator. The second amended complaint did not
adequately allege a knowing violation by Young.6
Title III of the ADA prohibits discrimination against
disabled individuals in places of public accommodation.
(42 U.S.C. § 12182(a).)7 “The purpose of Title III is ‘“to bring
6 Because we conclude the second amended complaint did not
adequately allege a knowing violation of the ADA by Young, we
do not reach Young’s argument the business judgment rule
applies under the operating agreement. A dismissal entered
after a demurrer has been sustained without leave to amend “will
be affirmed if proper on any grounds stated in the demurrer,
whether or not the court acted on that ground.” (Carman v.
Alvord (1982) 31 Cal.3d 318, 324; accord, Ko v. Maxim Healthcare
Services, Inc. (2020) 58 Cal.App.5th 1144, 1150.)
7 Title III of the ADA states, “No individual shall be
discriminated against on the basis of disability in the full and
equal enjoyment of the goods, services, facilities, privileges,
advantages, or accommodations of any place of public
8
individuals with disabilities into the economic and social
mainstream of American life . . . in a clear, balanced, and
reasonable manner. Congress intended that people with
disabilities have equal access to the array of goods and services
offered by private establishments and made available to those
who do not have disabilities.’” (Martinez v. San Diego Credit
Union (2020) 50 Cal.App.5th 1048, 1059-1060 (Martinez).)
Consistent with this purpose, Title III sets forth specific criteria
for accessibility of physical facilities of public accommodations.
“Congress adopted two distinct standards for regulating
building accessibility: one to apply to facilities existing before
January 26, 1993, and the other to apply to facilities newly
constructed or altered on or after January 26, 1993. (42 U.S.C.
§§ 12182(b)(2)(A)(iv), 12183(a).)” (Californians for Disability
Rights v. Mervyn’s LLC (2008) 165 Cal.App.4th 571, 584
(Californians for Disability Rights).) As a House Committee on
Judiciary report explained, “[T]he distinction between existing
and new facilities ‘reflects the balance between the need to
provide access for persons with disabilities and the desire to
impose limited cost on businesses. Because retrofitting existing
structures to make them fully accessible is costly, a far lower
standard of accessibility has been adopted for existing
structures.’ (H.R.Rep. No. 101-485(III), 2d Sess., p. 60 (1990).)”
(Ibid.)
For existing facilities, such as the one at issue here,
discrimination is defined to include “a failure to remove
architectural barriers . . . where such removal is readily
accommodation by any person who owns, leases (or leases to), or
operates a place of public accommodation.” (42 U.S.C.
§ 12182(a).)
9
achievable.” (42 U.S.C. § 12182(b)(2)(A)(iv); see 28 C.F.R.
§ 36.304.) “Readily achievable” means “easily accomplishable and
able to be carried out without much difficulty or expense. In
determining whether an action is readily achievable, factors to be
considered include—[¶] (A) the nature and cost of the action
needed under this chapter; [¶] (B) the overall financial resources
of the facility or facilities involved in the action; the number of
persons employed at such facility; the effect on expenses and
resources, or the impact otherwise of such action upon the
operation of the facility; [¶] (C) the overall financial resources of
the covered entity; the overall size of the business of a covered
entity with respect to the number of its employees; the number,
type, and location of its facilities; and [¶] (D) the type of
operation or operations of the covered entity, including the
composition, structure, and functions of the workforce of such
entity; the geographic separateness, administrative or fiscal
relationship of the facility or facilities in question to the covered
entity.” (42 U.S.C. § 12181(9); see 28 C.F.R. §§ 36.104, 36.304.)8
To establish a violation of the ADA, “a plaintiff must show:
(1) a covered disability; (2) ‘the defendant is a private entity that
8 In contrast, “new and altered facilities must be ‘readily
accessible and usable,’ and must comply with extensive and
detailed regulations.” (Californians for Disability Rights, supra,
165 Cal.App.4th at p. 584; see 42 U.S.C. § 12183(a).) There is an
exception for new and altered facilities where “an entity can
demonstrate that it is structurally impracticable” to meet
accessibility requirements. (28 C.F.R. § 36.401(c)(1).) However,
“[f]ull compliance will be considered structurally impracticable
only in those rare circumstances when the unique characteristics
of terrain prevent the incorporation of accessibility features.”
(Ibid.)
10
owns, leases, or operates a place of public accommodation; and
(3) the plaintiff was denied public accommodations by the
defendant because of [the] disability.’” (Martinez, supra,
50 Cal.App.5th at p. 1060.) As to the third element, a plaintiff
can meet the burden to show discrimination (denial of an
accommodation) based on a disability by showing “a failure to
remove architectural barriers . . . in existing facilities . . . where
such removal is readily achievable.” (42 U.S.C.
§ 12182(b)(2)(A)(iv); see Medina-Rodriguez v. Farmacia Medina
Inc. (D.P.R. 2017) 302 F.Supp.3d 479, 484.) A place of public
accommodation is defined to include the office of a health care
provider. (42 U.S.C. § 12181(7)(F).)
At trial, the plaintiff bears the initial burden to produce
evidence that removal of an existing architectural barrier is
readily achievable, but once a plaintiff meets its burden of
production, “[t]he defendant bears the ultimate burden of proving
that removal of an architectural barrier is not readily achievable,
as an affirmative defense.” (Californians for Disability Rights,
supra, 165 Cal.App.4th at p. 592.) Federal courts have found the
burden on a plaintiff to allege a prima facie claim under federal
pleading standards requires the plaintiff to allege “a plausible
claim that their removal [of architectural barriers] is readily
achievable.” (Medina-Rodriguez v. Fernandez Bakery, Inc.
(D.P.R. 2017) 255 F.Supp.3d 334, 343 [“This Court finds it
plausible that removing the alleged barriers is readily achievable,
including modifying parking lot spaces, adding seating in the food
court accessible to persons with disabilities, and adding grab bars
and accessible restroom signs.”]; accord, Melo v. South Broadway
Law Realty Trust (D. Mass., Feb. 1, 2016, No. 1:15-CV-13475-
FDS) 2016 Lexis 11583, at *5 [“Here, the complaint alleges that
11
as to each of the 23 alleged violations, removal of the barrier is
‘readily achievable and can be accomplished and carried out
without much difficulty or expense.’ . . . Given the nature of the
violations alleged, that is at least plausible.”].)
Camden Systems argues the second amended complaint
sufficiently pleaded Young’s breach of fiduciary duty based on a
knowing violation of law because it alleged Young knew the
offices of a health care provider were located on the second story
of the office building (thus bringing the building within the
definition of a public accommodation under the ADA); Young
knew the elevator was inoperable and therefore constituted an
architectural barrier under the ADA; and Young refused to repair
the elevator to bring the building into compliance with the ADA.
The second amended complaint further alleged the repair of the
elevator was readily achievable because 409 North Camden “had
the ability to pay for the cost of repairing or replacing the
elevator.”
These allegations, if made by a person with a disability who
was denied access, may state a claim under the ADA. However,
they do not subject Young to liability for breach of fiduciary duty
for knowingly violating the law because there are multiple
contingencies that must be met before a person in Young’s
position would know he was violating the law. Camden Systems
alleges on information and belief that the inoperable elevator and
other accessibility issues “are violative of the ADA,” but the
supporting factual allegations do not show Young knew a
violation of the ADA had occurred. The accessibility specialist’s
report states only that if the health care provider remains a
second-floor tenant, “‘accessibility must be addressed.’” Likewise,
the attorney’s report opined certain tenants “‘likely’” qualify as
12
healthcare providers, which would “‘likely”” require an elevator;
however, if a person with a disability were to demand repair of
the elevator, 409 North Camden could make a showing a repair
was not readily achievable, which would “‘be a question for the
trier of fact.’” Rather than showing Young knew there was an
ADA violation, these opinions informed Young only of potential
liability under the ADA.
In fact, the only allegation in the second amended
complaint directly evidencing Young’s state of mind was his letter
to the members of the company that stated “‘any deficiency under
the ADA can result in a potential lawsuit and penalties if a
disabled person encounters a deficiency while on the property.’”
(Italics added and boldface omitted.) This language establishes
only that Young knew of potential liability under the ADA, not
that he knew there had been a violation of law.
The structure of the ADA itself precludes the inference
Young knew an ADA violation occurred in the existing office
building absent additional factual allegations because the ADA
requires a case-by-case analysis to determine whether a person
with a disability has been denied access as a result of a physical
barrier, and if so, whether removal of the physical barrier is
readily achievable. (See Californians for Disability Rights, supra,
165 Cal.App.4th at p. 577 [“removal of barriers to access is not
readily achievable in this instance, and thus not legally
mandated”], italics added; Disability Support Alliance v.
Heartwood Enterprises, LLC (8th Cir. 2018) 885 F.3d 543, 548
[explaining with respect to whether external ramp installation
was readily achievable, “‘whether removal of a barrier is readily
achievable is subject to a case by case inquiry’”]; Andrews v. Blick
Art Materials, LLC (E.D.N.Y. 2017) 268 F.Supp.3d 381, 403-404
13
[“The defendant’s principal complaint appears to be that it wants
there to be black-and-white rules for ADA compliance, and here,
there may be shades of gray. But the anti-discrimination
provisions the defendant is accused of violating are not simple
checklists of clear-cut rules—they are standards that are meant
to be applied contextually and flexibly.”]; see also Martinez,
supra, 50 Cal.App.5th at pp. 1072-1073 [“‘“[T]he ADA and its
implementing regulations are intended to give public
accommodations maximum flexibility in meeting the statute’s
requirements.”]; Robles v. Domino’s Pizza, LLC (9th Cir. 2019)
913 F.3d 898, 908 [same].)9
C. The Trial Court’s Denial of Leave to Amend Was Not an
Abuse of Discretion
A trial court abuses its discretion by sustaining a demurrer
without leave to amend where “‘there is a reasonable possibility
that the defect can be cured by amendment.’” (Loeffler v. Target
Corp. (2014) 58 Cal.4th 1081, 1100; accord, City of Dinuba v.
County of Tulare (2007) 41 Cal.4th 859, 865.) “‘The plaintiff has
9 Our conclusion that Camden Systems has not adequately
alleged a knowing violation of the ADA to state a claim for
Young’s breach of fiduciary duty under section 17704.09,
subdivision (c), does not mean the allegations would not have
been sufficient to support a punitive damages award for violation
of the ADA, which requires a plaintiff allege a defendant engaged
in intentional discrimination “with malice or with reckless
indifference to the federally protected rights of an aggrieved
individual.” (42 U.S.C. § 1981a(b)(1); see Kolstad v. American
Dental Ass’n (1999) 527 U.S. 526, 534; EEOC v. AutoZone, Inc.
(7th Cir. 2013) 707 F.3d 824, 835.) That question is not before us
in this appeal.
14
the burden of proving that [an] amendment would cure the legal
defect, and may [even] meet this burden [for the first time] on
appeal.’” (Sierra Palms Homeowners Assn. v. Metro Gold Line
Foothill Extension Construction Authority (2018) 19 Cal.App.5th
1127, 1132; see Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th
962, 971.)
Camden Systems asserts it can cure the defects in the
second amended complaint by adding allegations that Young had
discretion under the operating agreement to repair the elevator.
But the proposed amendment would not cure the absence of
sufficient factual allegations that Young engaged in a knowing
violation of the ADA. Accordingly, Camden Systems has not met
its burden to show it could amend the complaint to cure the legal
deficiencies in the breach of fiduciary duty cause of action.
DISPOSITION
The order of dismissal is affirmed. Young is to recover his
costs on appeal.
FEUER, Acting P.J.
We concur:
MARTINEZ, J. EVENSON, J.*
* Judge of the Alameda County Superior Court, assigned by
the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
15