Preovolos v. Preovolos CA4/1 ( 2024 )

Filed 10/30/24 Preovolos v. Preovolos CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
ATHANASIOS K. PREOVOLOS, D081718
Plaintiff and Appellant,
v. (Super. Ct. No.
37-2022-00006654-CU-BC-CTL)
PETER PREOVOLOS,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of San Diego County,
Richard S. Whitney, Judge. Reversed and remanded with directions.
Law Offices of Sondra S. Sutherland and Sondra S. Sutherland for
Plaintiff and Appellant.
Horvitz & Levy, Eric S. Boorstin and Jeremy B. Rosen; Caietti Law
Group, Robert M. Caietti and Kristin A. Kameen; Withers Bergman,
Jeremiah J. Moffit and Ann M. Wicks for Defendant and Respondent.
Plaintiff and appellant Athanasios (Thanasi) Preovolos appeals from a
judgment of dismissal entered after the trial court sustained without leave to
amend the demurrer of defendant and respondent Peter Preovolos,1 to
Thanasi’s first amended complaint. In that pleading, Thanasi alleged 20
individual causes of action based on what he claimed were his parents’ false
representations concerning ownership interests in family business assets,
and derivative causes of action to declare him and another company, Alpha &
Omega Financial Management Consultants, Inc. (Alpha), the owner of shares
of stock in PenChecks, Inc. (PenChecks). The trial court sustained Peter’s
demurrer without leave to amend. In part, it ruled Thanasi should have
pleaded some of his claims (the first, third, eighth, tenth and thirteenth
causes of action) as compulsory cross-claims in a legal malpractice action that
Peter brought against him. It ruled an oral breach of contract claim relating
to Peter’s promises to pay for Thanasi’s children’s private schooling (second
cause of action) was barred by the statute of limitations. The court ruled
Thanasi’s fraud claims (the fourth, fifth and sixth causes of action) did not
contain sufficiently specific and particular allegations. It ruled as to
Thanasi’s derivative claims that he had not alleged facts showing compliance
with Corporations Code section 800, subdivision (b)(2). The court also struck
Thanasi’s punitive damages allegations.
Thanasi challenges the court’s rulings, including on grounds it erred by
sustaining the demurrer—Peter’s first—without giving him any opportunity
to amend and cure defects. For some of the causes of action, Thanasi proffers
new allegations that assertedly make them viable. He contends the court
1 Athansios goes by the name Thanasi. Both Peter and Litsa Preovolos,
Thanasi’s parents, were defendants in the trial court. We refer to the parties
by their first names for clarity, not out of disrespect. We granted in part
Thanasi’s motion to augment the record on appeal with items required as
part of the clerk’s transcript, as well as other documents including Litsa’s
answer to Thanasi’s first amended complaint, a recusal order, and Peter’s
objections to Thanasi’s proposed judgment of dismissal.
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erred by striking his punitive damages allegations. We conclude that as to
Thanasi’s second cause of action—alleging breach of an asserted oral
agreement that Peter would pay for Thanasi’s children’s private schooling—
the trial court erred by applying the statute of frauds so as to sustain Peter’s
demurrer without leave to amend. As to that claim, we conclude the
complaint does not clearly and affirmatively show it is barred by the statute
of limitations. We further conclude the court should have sustained Peter’s
demurrer to Thanasi’s thirteenth declaratory relief cause of action with leave
to amend. Otherwise we hold the court did not err by sustaining Peter’s
demurrers without leave to amend. We affirm the court’s order striking
Thanasi’s punitive damages allegations, which fall with the nonviability of
his fraud claims. We reverse the judgment with directions that the court
enter a new order on Peter’s demurrer set forth below.
FACTUAL AND PROCEDURAL BACKGROUND
We take the underlying facts from the well-pleaded material factual
allegations in Thanasi’s operative first amended complaint, accepting those
allegations as true. (Quishenberry v. UnitedHealthcare, Inc. (2023) 14
Cal.5th 1057, 1062; Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6.)
Thanasi and his two brothers are the children of Peter and Litsa, who
raised them in the Greek and Orthodox tradition, and always insisted they
put family above individual needs. Thanasi and his brothers performed
household chores without any allowance, and later at Peter and Litsa’s
demand performed uncompensated work and services for the family business,
Alpha, which Litsa formed in about 1976. The siblings performed other
uncompensated work or services for Peter’s church program and then for an
office building Peter and Litsa purchased. Peter and Litsa repeatedly told
Thanasi and his siblings that they had to take care of the building because it
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was their inheritance. For years, Peter and Litsa stressed the importance of
private school, and promised Thanasi they would pay for his children to
attend private school through high school. In reliance on those promises,
Thanasi sent his children to private schools but paid for all of the expenses
himself. At the time of the first amended complaint’s filing two of Thanasi’s
children were in college, while the third was still in high school.
In 1979, Peter and Litsa gifted Thanasi and his brothers an interest in
Alpha. They received additional shares in 1985 and in 1997 from their
grandmother. Despite their ownership interest, Peter and Litsa initially
excluded Thanasi and his siblings from company governance. As Thanasi
and his siblings became more involved, they discovered that Peter and Litsa
were ignoring Alpha’s corporate formalities, paying their personal expenses
through the company, stripping it of cash, distributing all of its profits to
themselves, and taking personal loans from the company without repaying
them. Thanasi and his brothers demanded that Peter and Litsa change their
behavior, but they refused.
In 1994, Peter and Litsa started PenChecks with several other industry
partners. Alpha made the initial capital contribution on their behalf.
Thanasi, then a post-bar graduate law clerk, was required to provide legal
services on PenChecks’ behalf and did so uncompensated for over twelve
years. In lieu of compensation for Peter or Litsa, PenChecks paid Alpha for
services, so that Alpha essentially received a revenue share from PenChecks.
As this increased, it became obvious that this was an important source of
revenue for the family.
Beginning in about 1996, Peter and Litsa promised Thanasi that one
day he and his brothers would inherit the family business and their estate,
and thus Thanasi would be compensated “on the back end” for hours of his
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legal work. They promised Thanasi and his siblings that they would split
Peter and Litsa’s ownership in all of the various family businesses.
In about July 2003, PenChecks required an additional cash infusion.
Because neither Peter, Litsa, nor Alpha had available funds, Peter
approached Thanasi, who agreed to loan personal savings to Peter for the
capital contribution. Peter could not say when he and Litsa would be able to
repay the loan, but Thanasi told Peter he could repay it when he could, and
that the worst-case scenario was that Thanasi would get it back as part of his
inheritance. The loan has not been repaid, nor did Thanasi receive any
shares Peter and Litsa purchased.
Peter believed that PenChecks was an important asset for family
income and Peter and Litsa’s retirement, so their family decided to acquire as
much of PenChecks as possible. Thanasi assisted Peter and Litsa to do so,
and negotiated the purchase of two deceased shareholders’ interests such
that their family obtained a majority interest in PenChecks. To accomplish
this, Alpha took out two separate business loans and borrowed over $600,000,
repaying the bank for each loan. Peter and Litsa maintained the PenChecks
shares in their name and then in the name of their revocable living trust,
which was agreeable to Thanasi and his siblings as Peter and Litsa’s estate
plan had always named them as their heirs. Nevertheless, it was always the
intent that Alpha would acquire PenChecks.
In or about 2014, Peter and Litsa entered into a postmarital agreement
and irrevocable trust, which Thanasi drafted at their request. The
documents were consistent with their prior estate plans and their promises to
Thanasi and his siblings. At the end of 2015, Peter and Litsa first told
Thanasi’s siblings about these agreements and how they came about.
5
In or about 2016, Peter sought independent legal advice with respect to
the postmarital agreement and the irrevocable trust and his rights under
them. He told Thanasi that he wanted a second opinion to make sure that he
(Peter) and Litsa were treated equally.
In 2018, a disagreement developed between Peter and the other
shareholders over the way he ran PenChecks, specifically its failure to turn a
profit or distribute money to shareholders. Thanasi and one of his brothers
decided this was an opportunity to buy out the remaining shareholders,
which they accomplished after months of negotiations. Afterwards, Peter
began acting behind the backs of the other family members. He attempted to
sell PenChecks without anyone’s approval, he refused to attend family
meetings and he became angry if any family member disagreed with him.
In or about June 2020, Thanasi received a letter from Peter’s counsel
that Peter was “prepared to pursue his legal claims to the fullest extent of the
law . . .” in connection with the postmarital agreement and irrevocable trust
as well as the various family businesses. In the letter, Peter claimed Thanasi
had engaged in fraud and elder abuse, among other things, which entitled
him to heightened damages and attorney fees.
Due to their growing disconnection, and Peter’s erratic and threatening
behavior, Litsa filed for divorce in July 2020. In connection with that
dissolution proceeding, Peter and Litsa stipulated to set aside the postmarital
agreement and irrevocable trust. Later that year, Peter filed a lawsuit
(Preovolos v. Preovolos (Super. Ct. San Diego County, 2021, No. 37-2020-
00040896-CU-PN-CTL)) alleging Thanasi had committed legal malpractice in
preparing the postmarital and irrevocable trust (the legal malpractice
action). Peter also filed a probate matter (In the Matter of the Peter E.
Preovolos & Litsa S. Preovolos Irrevocable Trust Dated July 31, 2014 (Super.
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Ct. San Diego County, 2021, No. 37-2020-00035119-PR-TR-CTL)) against the
other family members to, among other things, invalidate the various
documents Thanasi had prepared.
In February 2022, Thanasi filed suit against Peter and Litsa, alleging
numerous individual and derivative causes of action. The following month he
filed a first amended complaint adding claims for a constructive trust and
specific performance. Thanasi alleged causes of action for breaches of Peter
and Litsa’s oral agreements to compensate Thanasi for his legal work,
provide a share of the various family businesses as an inheritance, or pay for
his children’s private schooling, as well as breach of the covenant of good
faith and fair dealing. He alleged causes of action for fraud, breach of
fiduciary duty, conversion, defamation, unjust enrichment, intentional
interference with prospective economic relations and intentional infliction of
emotional distress. He asked for declaratory relief, an accounting and a
constructive trust as well as specific performance of the post-marital
agreement and irrevocable trust. Thanasi also filed derivative claims on
Alpha’s behalf for breach of fiduciary duty, unjust enrichment, declaratory
relief and specific performance. The derivative claims are based on the fact
Peter and Litsa are the sole owners of PenChecks despite Alpha’s investment
and contribution to its acquisition; these claims seek restitution,
disgorgement of profits and compensation as well as a judicial declaration
that Alpha owns all PenChecks shares held by Peter and Litsa.
In response to Peter’s ex parte application, the court ordered Peter’s
legal malpractice action and the present case related to each other and
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assigned them to the same department.2 Peter then demurred to all of the
causes of action in Thanasi’s first amended complaint, partly based on the
overlap and effect of the legal malpractice action and various probate actions.
He broadly argued Thanasi’s complaint had been filed so as to avoid the
probate court’s and family court’s exclusive jurisdiction as well as to obtain
relief, including a constructive trust, in order to “strip Peter of most of his
assets [and] deprive Peter of their use, providing them instead to [Thanasi].”
Peter asserted specific flaws with each cause of action, including based on
Thanasi’s failure to allege them as compulsory counterclaims, the statutes of
limitation, litigation privilege, deficient pleading standards including as to
fraud, and, for the derivative claims, failure to allege compliance with
Corporations Code section 800, subdivision (b). Peter asserted a plea in
abatement. (Code Civ. Proc., § 430.10, subd. (c).) He asked the court to take
judicial notice of several of the prior actions and petitions, as well as other
court records and this court’s opinion affirming an order disqualifying
Thanasi’s law firm from representing Thanasi in connection with one of
Peter’s probate petitions. Peter also moved to strike Thanasi’s defamation
cause of action, as well as the punitive damages allegations in the first
amended complaint.
Thanasi opposed the motion. He argued his claims in the first
amended complaint did not arise out of the same transactions or occurrences
as Peter’s malpractice case, and thus were not compulsory cross-claims. He
argued he sufficiently pleaded his claims for breach of contract, fraud,
intentional infliction of emotional distress, breach of fiduciary duty,
2 The court also ordered Preovolos v. Preovolos (Super. Ct. San Diego
County, 2023, No. 37-2022-00014821-CU-MC-CTL) related, though Peter did
not include that case in his application.
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declaratory relief, specific performance, and for an accounting, and that the
breach of contract claims were not barred by the statute of frauds. He argued
for purposes of his derivative claims the facts alleged in his complaint
demonstrated it would have been futile to make a demand on Alpha’s board.
According to Thanasi, Peter’s plea of abatement failed in view of the fact
Peter had “filed three lawsuits against his family.” Thanasi also opposed
Peter’s motion to strike, arguing first that the court could not determine at
the pleading stage the propriety of punitive damages, but that in any event
the evidence would establish Peter’s actions and conduct were “fraudulent
and malicious and subject to punitive damages.”
In his demurrer reply papers, Peter pointed out that Thanasi had not
addressed the defamation, unjust enrichment, and intentional interference
with prospective economic advantage (ninth, tenth and eleventh causes of
action).3 He argued Thanasi’s opposing arguments were conclusory and
deficient for various reasons, and asked the court to sustain the demurrer
without leave to amend. As for his motion to strike, Peter asserted Thanasi
had not made valid opposing arguments, and had conceded the propriety of
striking his defamation claim.
3 On appeal, Thanasi does not address the ninth, eleventh, and
seventeenth causes of action for defamation, interference with prospective
economic advantage, or derivative claim for unjust enrichment. He
maintains he has challenged the court’s ruling as to his eighth, tenth, and
fourteenth causes of action for conversion, unjust enrichment, and
declaratory relief in connection with other claims. Though the trial court did
not address the fourteenth cause of action in its ruling, it sustained Peter’s
demurrer to the entire complaint, implicitly including this declaratory relief
cause of action. Thanasi gives us no reason to disturb the court’s ruling as to
these causes of action.
9
After considering the parties’ arguments and evidence,4 the trial court
sustained Peter’s demurrer without leave to amend. It ruled some of the
causes of action (the first, third, eighth, tenth, eleventh and thirteenth) were
related to Peter’s legal malpractice action, and Thanasi should have raised
them in that action.5 It ruled the first breach of oral contract cause of action
was additionally barred as based on promises to make a will without
supporting facts meeting Probate Code section 21700, subdivision (a)
requirements, and the second breach of oral contract cause of action
alleging Peter’s promise to pay for Thanasi’s children’s private schooling
violated Civil Code section 1624, subdivision (a)(2), which invalidates
contracts for a “special promise to answer for the debt, default, or miscarriage
of another . . . .” According to the court, Thanasi’s fraud claims (fourth, fifth
and sixth causes of action) were “insufficiently particular, at a minimum, as
to when, by what means, and how the [fraudulent] representations were
made.” As to those claims, it further ruled “[t]here is no indication of how
4 The court’s ruling begins: “The Court, having taken the above-entitled
matter under submission . . . , and having fully considered the argument of
all parties, both written and oral, as well as the evidence presented, now rules
as follows:” (Italics added.) We read the emphasized part of the order as
granting Peter’s request for judicial notice of various documents. Thanasi
does not advance any argument on appeal that the court in ruling on the
demurrer erred by considering these items.
5 As the court acknowledged, Peter also argued that the eleventh and
twelfth causes of action should have been brought as compulsory cross claims
in the legal malpractice action. In its ruling, the court stated the eleventh
cause of action concerned rendering of legal services. It also referenced
Thanasi’s claim for intentional infliction of emotional distress—stating it was
“unclear what [Thanasi] is asserting is the basis for the [emotional distress]
cause of action.” The court ultimately sustained the demurrer to the eleventh
and twelfth causes of action on different grounds.
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often the alleged promises were made, whether [Peter] or [Litsa] or both
made the promises at specific times, or whether they were spoken, written, or
made in some other manner.” The court ruled there were “no facts to support
[Peter] or [Litsa] ‘knew [the representations] to be false’ and ‘were made with
the intent to defraud and deceive [Thanasi].’ ” For various other reasons set
out more fully below, it ruled Thanasi’s allegations were insufficient to
support his remaining individual claims for breach of fiduciary duty,
conversion, unjust enrichment, intentional infliction of emotional distress,
declaratory relief, an accounting, constructive trust, and specific
performance.
As for Thanasi’s derivative claims, the court pointed to Thanasi’s
allegation that a demand on Alpha’s board would be a “futile and useless act”
as “[i]t is clear that Peter and Litsa will not vote against their interests and
any vote by the board on a demand by [Thanasi] would result in in a 2-2
stalemate.” The court ruled Thanasi failed to point to alleged facts
supporting the “conclusory statements.” It ruled Thanasi “[i]n any event . . .
has not alleged he complied with Corporations Code section 800[, subdivision]
(b)(2). [Thanasi] must allege he ‘has either informed the corporation or the
board in writing of the ultimate facts of each cause of action against each
defendant or delivered to the corporation or the board a true copy of the
complaint which [Thanasi] proposes to file.’ ”
Finally, the court granted Peter’s motion to strike Thanasi’s punitive
damages allegations, reasoning that because Thanasi had not properly
alleged any cause of action he could not allege “despicable conduct carried on
by [Peter] with a willful and conscious disregard of the rights or safety of
others,” conduct “ ‘so vile, base, or contemptible that it would be looked down
11
on and despised by reasonable people,’ ” or conduct “ ‘ “[having] the character
of outrage frequently associated with crime.” ’ ”
Thanasi filed this appeal from the ensuing judgment of dismissal.
DISCUSSION
I. Standard of Review
“ ‘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.’ [Citation.] ‘ “ ‘ “We treat the
demurrer as admitting all material facts properly pleaded, but not
contentions, deductions or conclusions of fact or law. . . . Further, we give
the complaint a reasonable interpretation, reading it as a whole and its parts
in their context.’ ” ’ ” (Mathews v. Becerra (2019) 8 Cal.5th 756, 768; see also
Zhang v. Superior Court (2013) 57 Cal.4th 364, 370.) “ ‘If the complaint
states a cause of action under any theory, regardless of the title under which
the factual basis for relief is stated, that aspect of the complaint is good
against a demurrer. “[W]e are not limited to plaintiffs’ theory of recovery in
testing the sufficiency of their complaint against a demurrer, but instead
must determine if the factual allegations of the complaint are adequate to
state a cause of action under any legal theory . . . .” ’ ” (Zhang, at p. 370, see
also id. at p. 383.) We examine the trial court’s “ ‘result for error, and not its
legal reasoning’ ” in sustaining the demurrer. (Bains v. Moores (2009) 172
Cal.App.4th 445, 478; Shaeffer v. Califia Farms, LLC (2020) 44 Cal.App.5th
1125, 1145.)
It is Thanasi’s burden to show in what manner he can amend his
pleading and how that amendment will change its legal effect. (See HFH,
Ltd. v. Superior Court (1975) 15 Cal.3d 508, 513, fn. 3.) Such a showing may
be made for the first time on appeal. (Smith v. BP Lubricants USA Inc.
12
(2021) 64 Cal.App.5th 138, 144-145.) But when a party’s first demurrer to an
operative pleading has been sustained without leave to amend, the question
becomes whether the pleading shows on its face that it is incapable of
amendment. (City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 747
[“[L]eave to amend is properly granted where resolution of . . . legal issues
does not foreclose the possibility that the plaintiff may supply necessary
factual allegations”]; City of Santa Cruz v. Superior Court of Santa Cruz
County (2024) 101 Cal.App.5th 475, 490; Apple Inc. v. Superior Court (2017)
18 Cal.App.5th 222, 258-259.) In such a case, “ ‘[d]enial of leave to amend is
appropriate only when it conclusively appears that there is no possibility of
alleging facts under which recovery can be obtained.’ ” (Eghtesad v. State
Farm General Insurance Company (2020) 51 Cal.App.5th 406, 411, 412; see
also Association for Los Angeles Deputy Sheriffs v. County of Los Angeles
(2023) 94 Cal.App.5th 764, 800.)
II. The Parties’ Requests for Judicial Notice
Both parties request we judicially notice items that they assert are
relevant to the issues on appeal. Thanasi has filed two separate requests,
and Peter one request.
Thanasi first requests we judicially notice an order granting Peter
leave to file a second amended and supplemental complaint in his legal
malpractice action, and the fact Peter filed a second amended complaint.6
Thanasi asserts the documents are relevant to “show subsequent events
rendering moot the court’s order sustaining Peter’s demurrer to the first,
third and thirteenth causes of action for failure to file compulsory cross-
complaints.” Thanasi’s counsel states in an accompanying declaration her
6 Thanasi had also sought judicial notice of a demurrer he had filed to
that complaint, but withdrew that request.
13
belief that the “items are relevant to the issues on appeal for the reasons
dissuss [sic] in this motion and in the opening [appellate] brief.” (Some
capitalization omitted.)
Peter requests judicial notice of operative complaints filed by Alpha
against him after entry of judgment in this case (Alpha & Omega Financial
Management Consultants, Inc. v. Preovolos, et al. (Super. Ct. San Diego
County, 2023, case No. 37-2023-00023235-CU-BT-CTL) and Alpha & Omega
Financial Management Consultants, Inc. v. Preovolos, et al. (Super. Ct. San
Diego County, 2023, No. 37-2023-00046755-CU-BT-CTL)), Thanasi’s answer
to Peter’s second amended complaint in his legal malpractice action, and this
court’s February 24, 2022 nonpublished opinion, Prevolos v. Prevolos,
D078711 (Feb. 24, 2022). Peter argues Alpha’s claims duplicate Thanasi’s
derivative claims, and thus are “relevant to whether Thanasi can plausibly
allege that the Alpha . . . board refused his requests to bring claims against
Peter or whether making such a request would have been futile.” Peter cites
to multiple pages of Thanasi’s opening brief, as well as a section of his
respondent’s brief, as support. Peter argues Thanasi’s answer shows he did
not file any cross-claims in Peter’s legal malpractice action. With respect to
this court’s prior opinion, Peter asserts that it shows “Thanasi’s longtime
representation of Peter and the family companies,” and is “relevant to
Thanasi’s adequacy as a plaintiff to bring a derivative action against Peter.”
Again, Peter cites to a portion of his respondent’s brief as support.
In opposition to Peter’s request (which is limited to Thanasi’s answer
and the prior appellate opinion), and also in his reply brief on appeal,
Thanasi admits he has answered Peter’s legal malpractice second amended
complaint without asserting a cross-complaint. He states that as a result,
“the issue remaining on appeal is whether his thirteenth cause of action [for
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declaratory relief] is ‘related.’ ” Based on this concession, Thanasi withdraws
one of his arguments concerning his need to file compulsory cross-claims, that
is, the inapplicability of Code of Civil Procedure section 426.30.
We grant Peter’s unopposed request as to the Alpha lawsuits, taking
judicial notice of their filing and the nature of the actions as court records
(Evid. Code, §§ 452, subd. (d), 459) but not the truth of facts stated in them.
(People v. Franklin (2016) 63 Cal.4th 261, 280; Day v. Sharp (1975) 50
Cal.App.3d 904, 914.) This is proper notwithstanding the fact the complaints
were not before the trial court, which generally prohibits judicial notice on
grounds “ ‘ “an appellate court will consider only matters which were part of
the record at the time the judgment was entered.” ’ ” (Weiss v. City of Del
Mar (2019) 39 Cal.App.5th 609, 625.) An exception to this rule exists in cases
in which “subsequent events have caused issues to become moot.” (Reserve
Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 813 [taking judicial notice of
records demonstrating insurer’s postjudgment insolvency].) As discussed
below, Alpha’s filing of its own lawsuits against Peter (and also Litsa, in one
of the actions) moots the issues relating to Thanasi’s derivative claims.
We otherwise deny the requests for judicial notice. Thanasi’s judicial
admission (see Davenport v. Blue Cross of California (1997) 52 Cal.App.4th
435, 444, fn. 4 [taking factual assertions in appellate briefing as admissions];
Black v. Department of Mental Health (2000) 83 Cal.App.4th 739, 747 [same])
that he answered Peter’s legal malpractice action without asserting a cross-
complaint eliminates any need for us to take judicial notice of Peter’s
pleading.
And both Thanasi’s and Peter’s requests, which make conclusory points
and incorporate arguments from portions of appellate briefs, are unsupported
by meaningful legal argument as to their relevance in any event. It is settled
15
that such incorporation by reference is improper. (Soukup v. Law Offices of
Herbert Hafif (2006) 39 Cal.4th 260, 294, fn. 20 [it is well settled the Court of
Appeal does not permit incorporation by reference of arguments advanced in
appellate briefs].) That Peter fails to explain or develop his contentions, or
cite any relevant legal authority in support, forfeits them. (See Landry v.
Berryessa Union School Dist. (1995) 39 Cal.App.4th 691, 699-700 [“When an
issue is unsupported by pertinent or cognizable legal argument it may be
deemed abandoned and discussion by the reviewing court is unnecessary”];
see also Jones v. Superior Court (1994) 26 Cal.App.4th 92, 99.) Though an
appellate court can take judicial notice of its prior unpublished opinions (ZF
Micro Devices, Inc. v. TAT Capital Partners, Ltd. (2016) 5 Cal.App.5th 69, 73,
fn. 3), we do not do so here absent a meaningful discussion of their relevance.
In his second request, Thanasi seeks judicial notice of the register of
actions as well as Peter’s demurrer papers in the Alpha lawsuits. Thanasi
admits these items were not before the trial court; he argues they are
nevertheless relevant to Peter’s assertion that Thanasi cannot bring
derivative claims in view of Alpha’s lawsuits. According to Thanasi, they
show Peter is “failing to disclose his efforts to eliminate any path forward for
Alpha . . . to litigate its claims” and “seeks to deny relief to Alpha . . .
anywhere” as Peter is using the dismissal of Thanasi’s derivative claims in
this case to persuade the court in Alpha’s lawsuits to dismiss Alpha’s claims
based on res judicata. Thanasi maintains the documents “rebut Peter’s
suggestion of mootness . . . .” His counsel’s supporting declaration again
advances her belief that these “items are relevant to the issues on appeal for
the reasons discussed in this motion and in the opening brief.” (Some
capitalization omitted.)
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We decline to take judicial notice of these items due to the improper
incorporated-by-reference argument. But we conclude further that the
demurrer papers are not relevant. (See Aquila, Inc. v. Superior Court (2007)
148 Cal.App.4th 556, 569 [judicial notice is confined to those matters which
are relevant to the issue at hand]; Hughes Electronics Corp. v. Citibank
Delaware (2004) 120 Cal.App.4th 251, 266, fn. 13 [“As a general matter,
judicial notice is not taken of matters irrelevant to the dispositive points on
appeal”].) It is for the lower court in the Alpha lawsuits to pass on the merits
of Peter’s demurrers; the operative fact that moots Thanasi’s derivative
claims is Alpha’s effort to take its own remedial action against Peter and
Litsa. This fact also deprives Thanasi of standing to maintain the derivative
claims, as we explain below.
III. Thanasi’s Breach of Contract/Good Faith Fair Dealing Causes of Action
A. First (Oral Breach of Contract) and Third (Breach of Covenant of Good
Faith Fair Dealing) Causes of Action Regarding Future Inheritance
As stated, the trial court sustained Peter’s demurrer without leave to
amend to Thanasi’s first and third causes of action for breach of oral contract
and breach of the covenant of good faith and fair dealing, which are based on
allegations that in exchange for his unpaid legal services, Peter and Litsa
promised he and his brothers would inherit the family businesses and their
estate. It ruled Thanasi should have asserted them as compulsory cross-
claims in Peter’s legal malpractice action. It also ruled the first cause of
action was a claim for a contract to make a will under Probate Code section
21700, but that Thanasi did not allege facts supporting the requirements for
such a claim.
Thanasi concedes the court properly sustained the demurrer, but only
because these claims, which he appears to agree sound in contract to make a
17
will, are unripe for adjudication as Peter and Litsa are still alive. He argues
that his future claims therefore will not be barred by res judicata or the
statute of limitations.
These arguments—which merely propose a different ground on which
the order is correct—give us no reason to disturb the court’s ruling. Even on
demurrer review, we presume the court correctly ruled on the unchallenged
compulsory cross-complaint theory as to these two causes of action. (Accord,
Beverage v. Apple, Inc. (2024) 101 Cal.App.5th 736, 752; Pinto Lake MHP
LLC v. County of Santa Cruz (2020) 56 Cal.App.5th 1006, 1012 [judgment or
order is presumed correct even on appeal from an order sustaining
demurrer].) Thanasi’s assertions about the viability of future claims he may
bring upon Peter and Litsa’s deaths in effect seek an advisory opinion, which
we decline to address. (Dow v. Lassen Irrigation Co. (2022) 75 Cal.App.5th
482, 492 [“courts do not render advisory opinions on hypothetical future
disputes”].) Likewise, we do not address Thanasi’s arguments about his
“[u]nappealed [c]laims,” namely his causes of action for conversion (eighth),
defamation (ninth), unjust enrichment (tenth), intentional interference with
prospective economic (eleventh), declaratory relief (thirteenth), specific
performance (seventeenth), as well as his derivative claim for unjust
enrichment (nineteenth) which he says may be viable in the future despite
his failure to challenge the judgment as to them.
B. Second Cause of Action for Breach of Oral Contract for Reimbursement of
Private Tuition Expenses
“The elements of a breach of oral contract cause are: ‘(1) existence of
the contract; (2) plaintiff’s performance or excuse for nonperformance; (3)
defendant’s breach; and (4) damages to plaintiff as a result of the breach.’ ”
(Aton Center, Inc. v. United Healthcare Ins. Co. (2023) 93 Cal.App.5th 1214,
18
1230.) The second cause of action for breach of oral contract relates to Peter’s
alleged promise to pay for or reimburse Thanasi for his children’s private
schooling. The trial court ruled the claim violated the statute of frauds,
codified at Civil Code section 1624 (Zakk v. Diesel (2019) 33 Cal.App.5th 431,
449), invalidating contracts for a “ ‘special promise to answer for the debt . . .
of another’ ” unless made in writing.7 It ruled Thanasi did not “assert nor
demonstrate that [any exception to the statute of frauds provided in [Civil
Code section] 2794 applies.”
Given Thanasi responded to Peter’s first demurrer, the question for the
trial court was whether Thanasi’s pleading was on its face incapable of
amendment. (City of Stockton v. Superior Court, supra, 42 Cal.4th at p. 747.)
Thanasi argues on appeal he can allege “Peter attended private school and
believed his grandchildren should too because it provides a superior
education to public school, and public schools were (in his view) too liberal,”
bringing the claim within the Civil Code section 2794, subdivision (4)
exception for a promise made “upon a consideration beneficial to [Peter] . . . .”
Peter maintains Thanasi cannot allege any such exception because “a
grandchild attending a private school is not ‘consideration’ to the
7 Civil Code section 1624 provides in part: “(a) The following contracts
are invalid, unless they, or some note or memorandum thereof, are in writing
and subscribed by the party to be charged or by the party’s agent: [¶] . . . [¶]
(2) A special promise to answer for the debt, default, or miscarriage of
another, except in the cases provided for in [Civil Code s]ection 2794.”
Civil Code section 2794 provides, in part: “A promise to answer for the
obligation of another, in any of the following cases, is deemed an original
obligation of the promisor, and need not be in writing: [¶] . . . [¶] (4) Where
the promise is upon a consideration beneficial to the promisor, whether
moving from either party to the antecedent obligation, or from another
person.”
19
grandparent” as a matter of law and any interest Peter had in their schooling
was “too attenuated” to remove the promises from the statute of frauds.
We hold the trial court erred by sustaining the demurrer to this claim
on statute of frauds grounds. Thanasi alleges Peter and Litsa promised him
they would pay for his children to attend private school through high school.
“[T]here is not a contract to answer for the debt of another within the statute
of frauds where the alleged guarantor promises the debtor, rather than the
creditor to pay the former’s debt.” (King v. Smith (1948) 33 Cal.2d 71, 74; see
also 20th Century Cigarette Vendors v. Shaheen (1966) 241 Cal.App.2d 391,
395 [“the statute of frauds in no way bars enforcement of the third party
beneficiary contract, since the promise to pay [a] note was made to the
debtor”].) Peter’s cited cases—McClenahan v. Keyes (1922) 188 Cal. 574 and
Swim v. Juhl (1925) 72 Cal.App. 363—are inapposite on this point.
(McClenahan v. Keyes, at pp. 582-583 [mother’s agreement with doctor to pay
for daughter’s medical treatments was an unenforceable oral contract to
answer for the debt of another]; Swim v. Juhl, at p. 364 [mother’s promise to
pay medical debt in case of the default of her daughter, who employed the
physician, was void under statute of frauds].)
Peter also argues the claim is untimely under Code of Civil Procedure
section 339’s two-year statute of limitations as “Thanasi’s children have
attended private elementary school and high school for over a decade before
this lawsuit” and it is untenable for the absence of reasonable reliance on the
alleged promises. The trial court rejected Peter’s statute of limitations
arguments, correctly pointing out that under Lee v. Hanley (2015) 61 Cal.4th
1225, any “ ‘ “ ‘defect must clearly and affirmatively appear on the face of the
complaint; it is not enough that the complaint shows that the action may be
barred.’ ’’ ’ ” (Id. at p. 1232; see also Committee for Green Foothills v. Santa
20
Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42; Spears v. Spears
(2023) 97 Cal.App.5th 1294, 1304.) The court relied on Thanasi’s allegations
that Peter and Litsa’s promises were “repeatedly made” and concluded they
showed Thanasi “could have reasonably relied on [Peter’s] representations
until June of 2020,” when Thanasi received a communication from Peter’s
lawyer. Thanasi alleges that by this June 2020 letter, “Peter made clear that
he no longer intended to provide [Thanasi] the things he had previously
promised . . . .” (Italics added.) Thanasi filed suit less than two years later,
in February 2022.
Under Code of Civil Procedure section 339, for a breach of an oral
contract cause of action, “a two-year [statute of limitations] period governs.
[Citations.] A cause of action for breach of a contract generally accrues upon
the alleged breach. [Citation.] If a contract calls for a party’s performance on
separate occasions such that the contractual duties are divisible, each breach
triggers a separate limitations period. [Citation.] To determine whether
breach of an agreement to repay a debt gives rise to one or multiple
limitations periods, a court must first examine whether the contract requires
periodic payments. [Citation.] If it does, then the court must then ‘determine
whether or not the duty to make a [periodic] payment is divisible from the
duty to pay the full amount of the debt.’ ” (Spears v. Spears, supra, 97
Cal.App.5th at pp. 1304-1305.)
The first amended complaint refers to Peter’s “continual promises” to
pay for Thanasi’s children’s private schooling. It does not set out the ages of
Thanasi’s children, but Thanasi alleges that “[t]wo of [his] children are now
in college while the third is still in high school.” Thanasi’s pleading “does not
disclose enough details about [his] agreement [with Peter and Litsa] to
determine how to apply the two-year statute of limitations,” but because
21
Thanasi’s children are of different ages, it suggests the private school
payments were intended to be periodic. This “creates a possibility that the
periodic payments were intended to be divisible from the overall obligation to
repay the debt, thus triggering separate limitations periods for each
payment.” (Spears v. Spears, supra, 97 Cal.App.5th 1294, 1305.) Further,
Thanasi’s “pleading does not indicate how many payments [Peter and Litsa
were] obligated to make or specify the amount of the payments from which
one could calculate the number of required payments or the date when the
last payment was due,” and the fact the agreement was made years ago does
not permit an inference the debt was intended to be repaid such that all
applicable limitations periods would have expired. (Accord, ibid.)8 This
makes it improper to sustain a demurrer on statute of limitations grounds.
(Ibid.)
8 Spears involved an alleged oral agreement by a father to his son to
repay $60,000 received from the State of California that was intended for the
son and his wife. (Spears v. Spears, supra, 97 Cal.App.5th at pp. 1298, 1305.)
The son alleged the father promised to pay the money in periodic payments
and that the debt would become due and payable in full upon his death. (Id.
at p. 1298.) He alleged his father never made any payments and after his
death the son brought a creditor’s claim on the father’s estate. (Id. at pp.
1297, 1305.) The Court of Appeal—treating the defendant’s arguments as
equivalent to a demurrer and applying rules applicable to the two year
statute of limitations (id. at p. 1304)—held the claim was not properly
dismissed on statute of limitations grounds given the fact the payments were
intended to be periodic and could have been divisible from the overall
obligation to repay the debt. (Id. at p. 1305.) The court explained that the
father and son’s “agreement was made over ten years ago, but we cannot
infer from that fact alone that the debt was intended to be repaid more than
two years prior to [the father’s] death so that all applicable limitations
periods would have expired before he died. The trial court therefore could not
have dismissed this aspect of [the son’s] claim based on the statute of
limitations.” (Ibid.)
22
Peter’s arguments on appeal do not demonstrate that the first amended
complaint’s allegations clearly and affirmatively show this claim is time-
barred under the two-year statute of limitations (Code Civ. Proc., § 339, subd.
(1)), only that it may be barred. There is no basis to sustain the demurrer on
statute of limitations grounds.
As to this claim, Thanasi further contends he can amend his pleading
to state a promissory estoppel cause of action.9 He also contends more
generally his allegations state a separate cause of action for breach of an oral
or implied general partnership agreement. According to Thanasi, neither the
statute of frauds nor the two-year statute of limitations bars his claims
related to the private school payments or partnership agreement.
Because we hold the court erred by sustaining the demurrer to the
second cause of action, Thanasi following remand will have an opportunity to
seek leave of court to allege a promissory estoppel claim. (Code Civ. Proc.,
§ 473, subd. (a)(1) [“court may . . . in its discretion, after notice to the adverse
party, allow, upon any terms as may be just, an amendment to any pleading
. . . in other particulars”]; see Mac v. Minassian (2022) 76 Cal.App.5th 510,
519 [California courts have a policy of great liberality in allowing
9 “Promissory estoppel is ‘a doctrine which employs equitable principles
to satisfy the requirement that consideration must be given in exchange for
the promise sought to be enforced.’ ” (Kajima/Ray Wilson v. Los Angeles
County Metropolitan Transp. Authority (2000) 23 Cal.4th 305, 310.) It “was
developed to do rough justice when a party lacking contractual protection
relied on another’s promise to its detriment.” (Id. at p. 315.) Under the
doctrine, “ ‘[a] promise which the promisor should reasonably expect to induce
action or forbearance on the part of the promisee or a third person and which
does induce such action or forbearance is binding if injustice can be avoided
only by enforcement of the promise. The remedy granted for breach may be
limited as justice requires.’ ” (Id. at p. 310.) The promisee’s reliance must be
both reasonable and foreseeable. (Laks v. Coast Federal Savings & Loan
Assn. (1976) 60 Cal.App.3d 885, 890.)
23
amendments at any stage of the proceeding so as to dispose of cases upon
their substantial merits where the authorization does not prejudice the
substantial rights of others].)
IV. Asserted Claim for Breach of Oral or Implied General Partnership
Agreement
Thanasi contends he should be permitted to amend his pleading to
allege that Peter and Litsa breached an oral or implied general partnership
agreement. Though Thanasi says he makes this claim only in connection
with his second oral breach of contract cause of action that we have held
survives demurrer, in fact he argues he can amend his pleading with these
new allegations to assert viable claims for breach of fiduciary duty (seventh
cause of action), declaratory relief (thirteenth cause of action) and an
accounting (fifteenth cause of action).
As to this purported general partnership claim, Thanasi argues he can
“more precisely allege that a general partnership was formed by an oral
and/or implied agreement among himself, his parents and his brothers to
carry on as co-owners of four businesses for profit, with an overarching
purpose to create and share family wealth. Those businesses are Alpha . . . ,
its subsidiary PenChecks, the Preovolos Family Limited Partnership (the
‘Preovolos LP’) and Rose Hedge Limited Partnership #1 (‘Rose Hedge’)” and
that “each family member/partner contributed funds and/or work, labor and
services in exchange for an equal share of the profits and losses, with the
concomitant right and responsibility to participate in managing and
controlling the partnership businesses.” Thanasi argues he can allege “these
businesses are presumed to be partnership property since they were
purchased with partnership assets under Corporations Code section 16204,
subdivision (c)” and that Peter and Litsa “breached this agreement in and
24
after June 2020 by (i) treating the partnership’s property as their own, in
violation of Corporations Code section 16203 . . . and (ii) denying Thanasi an
equal share of the partnership profits, as required by Corporations Code
section 16401, subdivision (b).”
Peter responds that Thanasi’s attempt to allege the existence of a
general partnership is “futile” because he cannot adequately allege facts
supporting such a claim; any such partnership would be voidable at Peter’s
election due to Thanasi’s ethical lapse in entering into such an agreement as
Peter’s attorney; and the claim would be untimely. On his first point, Peter
argues Thanasi’s factual allegations in his first amended complaint—that he
expected to receive an interest in the family businesses as an inheritance—
negate the possibility of a general partnership giving Thanasi a present right
to share in profits. This argument invokes the so-called “sham pleading”
doctrine.
There is merit to Peter’s sham pleading argument, as Thanasi sets out
without explanation a fundamentally different factual scenario from his
original pleading. The difference between an agreement for a future right to
inherit an interest in two of the family businesses (Alpha and PenChecks),
and an agreement to enter into a partnership with a present right to share in
profits and losses of not only those businesses but two others, is significant.
“Under the sham pleading doctrine, ‘if a verified complaint contains
allegations fatal to a cause of action, a plaintiff cannot cure the defect by
simply omitting those allegations in an amended pleading without
explanation.’ [Citations.] ‘But amendment in this manner is allowed where a
plaintiff clearly shows that the earlier pleading is the result of mistake or
inadvertence.’ [Citation.] ‘[T]he sham pleading doctrine “cannot be
mechanically applied.” [Citation.] It “is not intended to prevent honest
25
complainants from correcting erroneous allegations or to prevent the
correction of ambiguous facts.” [Citation.] Instead “the rule must be taken
together with its purpose, which is to prevent [an] amended pleading which is
only a sham, when it is apparent that no cause of action can be stated
truthfully.” ’ ” (Dones v. Life Insurance Company of North America (2020) 55
Cal.App.5th 665, 688.) The rule applies even when a complaint is not
verified. (Hendy v. Losse (1991) 54 Cal.3d 723, 742-743.)
“Unless the plaintiff provides a ‘plausible’ explanation for dropping the
harmful allegations (such as the need to correct a mistaken allegation or to
clarify ambiguous facts), the trial court will take judicial notice of the
harmful allegations and disregard the new and contrary allegations.” (Smyth
v. Berman (2019) 31 Cal.App.5th 183, 195.) The doctrine will not apply
where an amended pleading is consistent with prior versions of a complaint.
(See Zakk v. Diesel, supra, 33 Cal.App.5th at p. 449 [sham pleading doctrine
inapplicable where amended pleading alleging multiple oral contracts was
not inconsistent with prior iterations of the complaint, which, while alleging
a single overarching oral or implied-in-fact contract, in context involved more
than one contract].) But it can be applied where an amendment “alter[s] the
fundamental facts on which the claim was based.” (Compare Dones v. Life
Insurance Co. of North America, supra, 55 Cal.App.5th at p. 688 [rejecting
application of doctrine where amendment did not alter fundamental facts on
which claim was based].)
In reply, Thanasi maintains the sham pleading doctrine does not apply.
According to him, his first amended complaint’s allegations and the new
allegations are not inconsistent; his first pleading “do[es] not state that [he]
performed services or lent money solely and exclusively in exchange for the
promised inheritance, but manifest an intention and expectation of sharing
26
[the family businesses’] profits during the parties’ lifetimes.” He points to the
alleged facts that the primary family business, Alpha, is owned by all five
family members and that he acquired an interest in Alpha during his
lifetime.10 He cites paragraph No. 17 of the first amended complaint as an
example of an allegation showing Peter promised to equally share ownership
of the family businesses during his lifetime as well as pass it down as an
inheritance.
We cannot read the operative complaint in that manner. Paragraph
No. 17 of the first amended complaint reads in part: “Peter and Litsa always
explained that they were a family and that everyone in the family had to
work together. They would repeatedly tell [Thanasi] and his siblings that
they needed to work hard and do their best because they were really working
for their future as all the assets would be passed down to them when Peter
and Litsa passed. In fact, this was a constant discussion around the family
dinner table.” Elsewhere, the complaint describes the tasks Thanasi and his
siblings performed without compensation “based upon the expectation of
Peter and Litsa and in exchange for the promise to receive the family assets
in the future.” (Italics added.) The complaint alleges “Peter and Litsa
required [Thanasi] and his siblings to provide services on behalf of the
organization because it was part of their obligation to the family” and that
10 The cited portion of the first amended complaint, paragraph No. 30,
states: “Plaintiff and his brothers first acquired their interest in Alpha . . . in
1979, via a gift from their parents. They also received additional shares in
1985 and in 1997 from their grandmother, who was an original investor in
the business and provided the initial seed money. Despite their ownership
interest, Peter and Litsa initially excluded Plaintiff and his siblings from
company governance.” There are no allegations indicating Peter and Litsa
promised to give all their children a present equal share in all of the family
businesses.
27
they “[c]ontinuously reinforced” that “family is paramount, every member
had to contribute, and that we were building a ‘legacy’ which we would
inherit.” (Italics added.) Thanasi alleges they “were going to inherit the
collectively built wealth.” He alleges “[a]ll work was performed by [him] and
his siblings for the promise of their inheritance.”
Thanasi’s new allegations would drastically change the theory; his
proposed family partnership claim would add two entirely new businesses, as
well as an agreement to presently share equally in Alpha’s and PenCheck’s
profits and losses. In our view, the claim would “alter the fundamental facts
upon which the [oral contract] claim was based” (Dones v. Life Insurance Co.
of North America, supra, 55 Cal.App.5th at p. 688) and prevents Thanasi
from making such new allegations.
V. Thanasi’s Declaratory Relief (Thirteenth) Cause of Action and Failure to
Assert it as a Compulsory Cross-Claim in Peter’s Legal Malpractice Action
As stated in the above discussion, Thanasi now admits he did not
assert any cross-complaint in Peter’s legal malpractice action. The trial court
ruled that Thanasi’s first, third, eighth, tenth and thirteenth causes of action
(for breach of oral contract and covenant of good faith and fair dealing,
conversion, unjust enrichment and declaratory relief) all “relate to
[Thanasi’s] legal services, including those related to the post-marital
agreement and irrevocable trust” (some capitalization omitted) and thus he
should have raised those as compulsory cross-claims in the legal malpractice
action.
Thanasi’s challenge to this portion of the court’s ruling is limited to his
thirteenth declaratory relief cause of action, which he contends is not related
to the legal malpractice action. In this cause of action, Thanasi
reincorporated all of his prior allegations, then alleged “a controversy exists
28
between the parties regarding their respective rights and duties towards each
other.” He stated he “seeks a judicial declaration stating that he performed
services, including legal services, for which he should be paid as well as a
judicial declaration that he is entitled to an additional ownership interest in
various family businesses.” (Italics added.) On appeal, Thanasi maintains
this claim “relates to the disputed ownership of family businesses and
whether the parties’ promises and contracts create a general partnership.”
He states his legal services “pre-date and are unrelated by subject matter to
his limited task of drafting the 2014 post-marital agreement and irrevocable
trust.” (Some capitalization omitted.)
To state a claim for declaratory relief, the plaintiff must allege facts
showing there is a dispute between the parties concerning their legal rights,
constituting an “actual controversy” within the meaning of the declaratory
relief statute. (Code Civ. Proc., § 1060;11 Artus v Gramercy Towers
Condominium Assn. (2018) 19 Cal.App.5th 923, 930.) “ ‘The language of Code
of Civil Procedure section 1060 appears to allow for an extremely broad scope
of an action for declaratory relief[.]’ ” (Linda Vista Village San Diego
Homeowners Assn., Inc. v. Tecolote Investors, LLC (2015) 234 Cal.App.4th
166, 181.) A plaintiff need not establish that he is also entitled to a favorable
declaration. (Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82
11 Code of Civil Procedure section 1060 provides in part: “Any person
interested under a written instrument, excluding a will or a trust, or under a
contract, or who desires a declaration of his or her rights or duties . . . in
respect to . . . property, . . . may, in cases of actual controversy relating to the
legal rights and duties of the respective parties, bring an original action or
cross-complaint in the superior court for a declaration of his or her rights and
duties in the premises, including a determination of any question of
construction or validity arising under the instrument or contract.”
29
Cal.App.4th 592, 606; accord, Bennett v. Hibernia Bank (1956) 47 Cal.2d 540,
549-550 [where pleading requirements for declaratory relief are met, “the
court must declare the rights of the parties whether or not the facts alleged
establish that the plaintiff is entitled to a favorable declaration”].) But
“ ‘where a complaint sets forth a good cause of action for declaratory relief
regarding only a disputed question of law, declarations on the merits
unfavorable to a plaintiff have been upheld although such determinations
were made in the form of a judgment sustaining a demurrer.’ ” (Nede Mgmt.,
Inc. v. Aspen American Ins. Co. (2021) 68 Cal.App.5th 1121, 1131, quoting
Jefferson, Inc. v. City of Torrance (1968) 266 Cal.App.2d 300, 303.)
In sustaining Peter’s demurrer to Thanasi’s declaratory relief claim,
the court quoted from the complaint the allegations that Thanasi had loaned
Peter funds for purposes of making the initial capital contribution for
PenChecks, and that Peter told Thanasi he would “ ‘repay it when he could,
and that the worst-case scenario was that he would get it back as part of his
inheritance.’ ” It then ruled: “To the extent [Thanasi] relies upon promises
as to an inheritance, the claim is not permissible. (Code Civ. Proc., § 1060;
Prob. Code, § 21700[, subd.] (a). To the extent [Thanasi] relies upon the
claim for repayment of the $10,000 loan made in 2003, [Thanasi] fails to
explain how he could be entitled to ownership in PenChecks based on a loan
when the promise was for repayment, not ownership in PenChecks.” The
court further ruled Thanasi “fail[ed] to explain how the claim is not time-
barred.”
Thanasi’s claims do not raise disputed questions of law. And again,
Thanasi was responding to Peter’s first demurrer, so the trial court should
have given Thanasi leave to amend to plead entitlement to a judicial
declaration regarding Peter’s obligation to repay the $10,000 loan, or facts
30
permitting him to plead around any statute of limitations issue with regard
to that promise. We also conclude Thanasi should have been given leave to
amend to state facts supporting the requirements of Probate Code section
21700. Under subdivision (a)(4) of Probate Code section 21700, a contract to
“make a will or devise or other instrument” need not be in writing if it can be
established by “[c]lear and convincing evidence of an agreement between the
decedent and the claimant or a promise by the decedent to the claimant that
is enforceable in equity.” On a demurrer, it is irrelevant whether Thanasi
can prove such a claim. (Quelimane Co. v. Stewart Title Guaranty Co. (1998)
19 Cal.4th 26, 47 [on review of an order sustaining a demurrer, “ ‘ “the
question of plaintiff’s ability to prove these allegations, or the possible
difficulty in making such proof does not concern the reviewing court” ’ ”].)
And because Thanasi’s claim is for declaratory relief, he need not establish he
is entitled to a favorable judicial declaration. But in view of the sham
pleading doctrine barring any claim changing the fundamental facts of
Thanasi’s pleading, Thanasi may not support an amended declaratory relief
cause of action with the entirely new general partnership theory.
VI. Fraud (Fourth, Fifth, Sixth) Causes of Action
As stated, the trial court sustained Peter’s demurrer to Thanasi’s fraud
(fourth, fifth and sixth) causes of action without leave to amend, ruling they
did not contain sufficiently particular allegations. Specifically, the court
ruled they lacked specifics “at a minimum, as to when, by what means, and
how the representations were made”; that is, Thanasi did not state “how
often the alleged promises were made, whether [Peter and Litsa] or both
made the promises at specific times, or whether they were spoken, written, or
made in some other manner”; and “there [were] no facts to support [Peter and
31
Litsa] ‘knew [the representations] to be false’ and ‘were made with the intent
to defraud and deceive [Thanasi].’ ”
Thanasi contends he should have been granted leave to amend his
fraud causes of action, and if he is given the opportunity, he can combine the
three causes of action into two for false promise and intentional
misrepresentation. As discussed below he proffers allegations to support his
claims, using civil jury instructions (CACI Nos. 1900, 1902) as templates.
A. False Promise
For a false promise cause of action,12 Thanasi proffers the following
allegations:
• “Thanasi currently owns approximately [five] percent of the
outstanding shares in Alpha . . . , [five] percent of Rose Hedge, and 16.67
percent of Preovolos LP. On several occasions from Thanasi’s teen years
through June 2020, Peter verbally promised Thanasi at regular (usually
weekly) family gatherings and meetings that the family members would
equally share ownership of the family businesses (i.e., Alpha . . . [and thereby
PenChecks], Rose Hedge and Preovolos LP.)”
• “Peter did not intend to perform these promises when he made them
. . . .”
12 The elements of a cause of action for promissory fraud are: “ ‘(1) a
promise made regarding a material fact without any intention of performing
it; (2) the existence of the intent not to perform at the time the promise was
made; (3) intent to deceive or induce the promisee to enter into a transaction;
(4) reasonable reliance by the promisee; (5) nonperformance by the party
making the promise; and (6) resulting damage to the promise[e].’ [Citation.]
As with any other form of fraud, each element of a promissory fraud claim
must be alleged with particularity.” (Rossberg v. Bank of America, N.A.
(2013) 219 Cal.App.4th 1481, 1498; see Gruber v. Gruber (2020) 48
Cal.App.5th 529, 540.)
32
• “Peter intended that Thanasi rely on these promises and exploited
their relationship of trust to coerce a wide array of uncompensated work,
labor and services out of Thanasi” including “without limitation legal,
business, accounting and human resources work.”
• “Thanasi reasonably relied on Peter’s promises . . . and performed
the work, labor and services requested of him by Peter.”
• “Peter did not transfer an equal (20 [percent]) ownership of Alpha
. . . , PenChecks, Rose Hedge or Preovolos LP to Thanasi, but instead
reneged on his promises in or about June 2020.”
• “Thanasi was harmed . . . by not receiving an equal share of the
profits of Alpha . . . , PenChecks, Rose Hedge and Preovolos LP.”
• “Thanasi’s reliance on Peter’s promises was a substantial factor in
causing his harm.”
Because this proposed cause of action relies on the contradictory factual
allegations about the parties’ agreement to form a general partnership, facts
we disregard under the sham pleading doctrine, we conclude Thanasi has not
demonstrated he should be granted leave to amend to state such a claim.
B. Intentional Misrepresentation
“The elements of intentional misrepresentation, or actual fraud, are:
‘(1) misrepresentation (false representation, concealment, or nondisclosure);
(2) knowledge of falsity (scienter); (3) intent to defraud (i.e., to induce
reliance); (4) justifiable reliance; and (5) resulting damage.’ ” (Anderson v.
Deloitte & Touche (1997) 56 Cal.App.4th 1468, 1474; see also Civ. Code,
§§ 1709, 1710.) These elements must be pleaded “ ‘ “factually and
specifically[ ], and the policy of liberal construction of the pleadings . . . will
not ordinarily be invoked to sustain a pleading defective in any material
respect.” ’ ” (Quelimane Co. v. Stewart Title Guaranty Co., supra, 19 Cal.4th
33at p. 47; Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th
221, 234.)
For his proposed intentional misrepresentation claim, Thanasi proffers
allegations that Peter “repeatedly” orally promised “[o]n several occasions
from Thanasi’s teen years through June 2020” and “at regular (usually
weekly) family meetings and gatherings that each member of the family had
a mandatory duty and familial obligation to perform uncompensated work,
labor and services to benefit Peter and the family businesses as and when
directed by Peter.” He says he will allege Peter’s representations were false
“because children have no such duty”; Peter knew the representations were
false and made them to induce Thanasi to provide uncompensated work and
to rely on the representations; Thanasi justifiably relied on them given
Peter’s “position of authority” as father and patriarch of the family; Thanasi
was harmed by the lack of compensation and by not receiving an equal share
of the profits of Alpha, PenChecks, Rose Hedge and Preovolos, L.P.; Thanasi
would not have performed the uncompensated work but for Peter’s
representations; and Thanasi’s reliance was a substantial factor in causing
his harm.
Peter responds with several arguments as to why this claim is still
insufficient, including that it is fatally nonspecific and Thanasi does not
allege facts showing he did not intend to perform on his promises or knew his
representations were false at the time they were made. Peter argues the
complaint shows Peter’s perception of Thanasi’s disloyalty, which caused him
to change his mind and “disavow the purported representations and
promises.” In addition to arguing the allegations are sham pleadings, Peter
argues we should disregard Thanasi’s new allegations on grounds they allege
Peter’s expression of nonactionable opinion about his and his siblings’
34
“ ‘mandatory duty and familial obligation’ ” to perform uncompensated work
for the family’s behalf. In a footnote, Peter maintains any reliance by
Thanasi on his opinions, assuming they addressed a legal duty, would be
unreasonable in any event.
Peter’s latter arguments have merit. His alleged remarks about
familial obligations or duties can only be characterized as one of opinion, not
a false factual assertion. It is settled that expressions of opinion are not
generally treated as factual representations for purposes of maintaining a
fraud claim. (See Neu-Visions Sports, Inc. v. Soren/McAdam/Bartells (2000)
86 Cal.App.4th 303, 308.) An exception will be made when one party states
an opinion as a fact, or holds himself out as possessing superior information
regarding the subject, but in that case the other party must be “so situated
that he may reasonably rely upon such supposed superior knowledge or
special information . . . .” (Ibid.)
That cannot be the case here. The complaint’s allegations show that
Thanasi began providing legal services for Peter and Litsa “[b]eginning in or
about 1996 . . . .” It is unreasonable for Thanasi, an attorney, to rely on
Peter’s expressions about a child’s uncompensated labor being a familial
obligation or duty so as to maintain a fraud claim based on those assertions.
“ ‘[W]hether a party’s reliance was justified may be decided as a matter of law
if reasonable minds can come to only one conclusion based on the facts
[alleged].’ ” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239.)
A demurrer may properly be sustained where plaintiffs allege in support of a
fraud claim statements on which no reasonable person could rely. (See, e.g.,
Murphy v. Twitter, Inc. (2021) 60 Cal.App.5th 12, 40 [dealing with fraud
prong of Unfair Competition Law].) That is the case here. Absent Thanasi’s
35
ability to allege reasonable reliance on such statements, his intentional
misrepresentation claim fails.
VII. Breach of Fiduciary Duty (Seventh) Cause of Action and Constructive
Trust Remedy
In his seventh cause of action for breach of fiduciary duty, Thanasi
reincorporated his prior allegations, and alleged that “[b]y virtue of the
attorney-client relationship that existed between Peter and Litsa, on the one
hand, and [Thanasi], on the other hand, as well as the relationship that
existed between Peter and Litsa as trustees of the subject trusts, and
[Thanasi] as the trust protector, a fiduciary duty existed.” He further alleged
Peter and Litsa “knowingly acted against [his] interests . . . and their actions
were a substantial factor in causing [him] harm . . . .”
The trial court sustained Peter’s demurrer to this cause of action
without leave to amend, ruling Thanasi “does not deny that [he], as an
attorney, owed the fiduciary duty, not the clients—[Peter and Litsa]—to
[Thanasi]. While [Thanasi] asserts he has alleged other relationships, [he]
fails to explain how any of them created a fiduciary duty from [Peter and
Litsa] to [him].”
Thanasi does not challenge that part of the court’s ruling as to who
owed the fiduciary duties; he contends the court erred by sustaining the
demurrer to this claim without leave to amend. Proffering new allegations,
he maintains he can state a cause of action based on Peter and Litsa’s
fiduciary duties of loyalty and care as partners in the Preovolos family
general partnership under Corporations Code section 16404. He argues he
can allege they did so by “(i) failing to account to the partnership for the
partnership’s profits or to hold them as trustee; and (ii) dealing with the
partnership in the conduct of its businesses (i.e., Alpha . . . PenChecks, Rose
36
Hedge and Preovolos LP) in a manner adverse to the partnership.” He says
he can allege that “[b]y doing these things, Peter and Litsa knowingly acted
against Thanasi’s interest and/or acted only out of self-interest,” that he “did
not give informed consent to Peter and Litsa’s actions” and he was harmed by
the breach. Acknowledging that a constructive trust is an equitable remedy
and not a cause of action, Thanasi maintains he can establish the conditions
necessary for such relief as part of his fiduciary duty cause of action.
Because Thanasi’s proposed amendment depends on the new and
factually contradictory general partnership allegations, this claim fails.
Thanasi provides no basis to disturb the trial court’s demurrer ruling as to
his claims for breach of fiduciary duty or constructive trust.
VIII. Intentional Infliction of Emotional Distress (Twelfth Cause of Action)
“To state a cause of action for intentional infliction of emotional
distress, a plaintiff must allege the following elements: ‘ “ ‘(1) extreme and
outrageous conduct by the defendant with the intention of causing, or
reckless disregard of the probability of causing, emotional distress; (2) the
plaintiff’s suffering severe or extreme emotional distress; and (3) actual and
proximate causation of the emotional distress by the defendant’s outrageous
conduct.’ ” ’ [Citation.] For conduct to be outrageous, it ‘ “must be so extreme
as to exceed all bounds of that usually tolerated by a civilized community.” ’ ”
(Faunce v. Cate (2013) 222 Cal.App.4th 166, 172; see also Hughes v. Pair
(2009) 46 Cal.4th 1035, 1050-1051.) The defendant’s conduct must also be
“ ‘ “ ‘intended to inflict injury or engaged in with the realization that injury
will result.’ ” ’ ” (Hughes v. Pair, at p. 1051.) “ ‘Severe emotional distress
means “ ‘emotional distress of such substantial quality or enduring quality
that no reasonable [person] in civilized society should be expected to endure
it.’ ” ’ ” (Ibid.) “Whether behavior is extreme and outrageous is a legal
37
determination to be made by the court, in the first instance.” (Faunce v. Cate,
at p. 172.)
In sustaining the demurrer to Thanasi’s intentional infliction of
emotional distress cause of action without leave to amend, the court ruled
Thanasi could not rely on his fraud allegations, the promises of an
inheritance, the filing of lawsuits or the defamation claim. It ruled: “What
remains are essentially allegations of a failure to compensate a child for his
efforts towards building family businesses.” It ruled such allegations were
insufficient to show Peter and Litsa’s conduct was extreme and outrageous.
Thanasi does not challenge this ruling, but argues the court erred by
denying him leave to amend. He contends he can amend to state a cause of
action with the following allegations:
• “Peter and Litsa engaged in the prolonged exploitation and abuse of
Thanasi, beginning during his teen years and continuing through June 2020,
treating him as property and an indentured servant by manipulating and
exercising coercive control over him anchored by false promises of financial
security, and then discarding him and betraying his trust when required to
honor their promises.”
• “Peter and Litsa abused their position of authority over Thanasi as
his parents (particularly in a Greek Orthodox family) that gave them real or
apparent power to affect Thanasi’s pecuniary interests. As his parents, Peter
and Litsa knew Thanasi was particularly vulnerable to emotional distress in
dealing with his family, and especially them.”
• “Peter and Litsa knew their conduct would likely harm their son
Thanasi due to mental distress.”
38
• “Peter and Litsa intended to cause Thanasi emotional distress . . . ,
or knew emotional distress would probably result from their prolonged
exploitation, abuse, manipulation and coercive control over him, followed by
their betrayal of the love and trust he placed in them as his parents, with
little or no thought to the probable effects of their conduct.”
Thanasi says he would allege he “suffered severe and extreme
emotional distress . . . in the form of prolonged suffering, anguish, grief,
worry and shock” and that his parents’ conduct “was a substantial factor in
causing his prolonged suffering, anguish, grief, worry and shock.”
We cannot agree Thanasi states a viable cause of action with these
allegations of unspecific “abuse” and “exploitation,” or his treatment as an
“indentured servant,” in view of the allegations concerning the specific types
of uncompensated tasks Thanasi and his siblings were required to perform
39
for their family businesses.13 Such treatment by parents against a child’s
assertedly pecuniary interests does not rise to the level of extreme and
outrageous conduct. “In evaluating whether the defendant’s conduct was
outrageous, it is ‘not . . . enough that the defendant has acted with an intent
which is tortious or even criminal, or that he has intended to inflict emotional
distress, or even that his conduct has been characterized by “malice,” or a
degree of aggravation which would entitle the plaintiff to punitive damages
for another tort. Liability has been found only where the conduct has been so
outrageous in character, and so extreme in degree, as to go beyond all
13 The first amended complaint alleges: “Plaintiff and his brothers were
required to perform services on behalf of the company. Naturally, the work
performed was commensurate with the age and ability of the children. For
example, the children were required to clean out trash cans, clean the
bathrooms, vacuum, etc. As they got older, they were required to do the
research filing, plan administration, computer IT and network integration
work, accounting work and eventually legal work. [¶] . . . [Thanasi] began
performing office filing, legal research filing, and data entry beginning in the
4th grade. Among other accomplishments, [Thanasi] built an excel
spreadsheet to automate certain testing for the company. [Thanasi] handled
the plan administration duties for various smaller plans, including preparing
breakouts and handling distributions, and completing plan tax returns.
[Thanasi] handled administrative tasks, including billing assistant [sic], as
well as plan amendments, as they were required to be performed. To put this
into perspective, [Thanasi] and his siblings did by hand what enterprise
software does today. [¶] . . . [Thanasi] and his siblings would go directly to
the office after school and work until an after-school activity or until Peter
and Litsa completed their work and it was time to go home for dinner.
[Thanasi] and his brothers routinely worked 15-20 hours each week for the
business, as well as weekend hours. During tax season, [Thanasi] and his
brothers worked well over 20 hours a week. For [Thanasi], this work
continued, even while he was in college. [¶] . . . When [Thanasi] received his
driver’s license, he began running all family and business errands, and
making all bank deposits, purchasing supplies for the company, and picking
up the mail were added to his duties, until his siblings received their driver’s
licenses.”
40
possible bounds of decency, and to be regarded as atrocious, and utterly
intolerable in a civilized community.’ ” (Cochran v. Cochran (1998) 65
Cal.App.4th 488, 496, quoting Rest.2d Torts, § 46, com. d, p. 73.)
Thanasi’s new allegations about his vulnerability do not suffice either
absent outrageous conduct. (See Cochran v. Cochran, supra, 65 Cal.App.4th
at pp. 495-496 [“Assuming for discussion’s sake alone that appellants have
sufficiently alleged facts showing they were susceptible to emotional distress,
‘ “major outrage is still essential to the tort; and the mere fact that the actor
knows that the other will regard the conduct as insulting, or will have his
feelings hurts [sic], is not enough” ’ ”].) It is true that “extreme and
outrageous” conduct may arise from a defendant’s knowledge that a plaintiff
is peculiarly susceptible to emotional distress, by virtue of age, or some
physical or mental condition or peculiarity. (See Crouch v. Trinity Christian
Center of Santa Ana, Inc. (2019) 39 Cal.App.5th 995, 1008 [defendant’s
conduct toward the plaintiff, a 13-year-old girl who had been drugged and
raped], citing Rest.2d Torts, § 46, com. f, p. 75; KOVR-TV, Inc. v. Superior
Court (1995) 31 Cal.App.4th 1023, 1027, 1029-1032 [television station
employee interrogated on camera eleven-, seven- and five-year-old children
about murder of next-door-neighbor children who were their playmates; the
tape “reveal[ed] an uninvited, intrusive encounter by adult strangers with
children of tender years not in a public place but in their home”]; McDaniel v.
Gile (1991) 230 Cal.App.3d 363, 370, 372-373 [attorney who represented
client in dissolution of marriage proceeding and withheld legal services when
client rejected sexual advances engaged in outrageous conduct for purposes of
overcoming summary judgment; attorney knew client was peculiarly
susceptible to emotional distress because of her pending dissolution, and
acted in a position of actual or apparent power over her].) But Thanasi’s bare
41
allegation that Peter and Litsa knew he was vulnerable to emotional distress
dealing with family does not demonstrate some particular mental or physical
condition on Thanasi’s part from which we can infer extreme or outrageous
conduct.
IX. Accounting (Fifteenth Cause of Action)
In sustaining Peter’s demurrer to Thanasi’s claim for an accounting,
the trial court correctly recognized that such a claim “ ‘requires a showing
that a relationship exists between the plaintiff and defendant that requires
an accounting, and that some balance is due the plaintiff that can only be
ascertained by an accounting.’ ” (See Sass v. Cohen (2020) 10 Cal.5th 861,
869 [“An action for an accounting has two elements: (1) ‘that a relationship
exists between the plaintiff and defendant that requires an accounting’ and
(2) ‘that some balance is due the plaintiff that can only be ascertained by an
accounting’ ”; it is not available where a plaintiff alleges the right to recover a
sum certain], quoting Teselle v. McLoughlin (2009) 173 Cal.App.4th 156,
179.) The court sustained Peter’s demurrer to that cause of action, ruling
Thanasi “cannot rely upon his allegations that [Peter and Litsa] owed [him] a
fiduciary duty, as discussed above,” then stating: “[Thanasi], in his
opposition, discusses partners being required to account to other partners,
but [Thanasi] has not alleged he was a partner with Defendant [sic].”
On appeal, Thanasi contends he should have been granted leave to
amend on the basis of a “fiduciary (partnership) relationship.” He maintains
based on this relationship and a partner’s right to access partnership books
and records under Corporations Code section 16403, he can allege that a
balance is due for his share of the partnership’s profits and that he should be
granted full access to the partnership’s and Alpha’s books and records.
Thanasi also maintains he has similar rights to an accounting of Alpha’s
42
books and records as a shareholder under Corporations Code section 1601.
He argues he can allege “that a balance, which is not fixed and needs to be
calculated via an accounting, is due for Peter and Litsa’s conduct in stripping
Alpha . . . of all cash, distributing all its profits to themselves, taking
personal loans from the company without repaying them, and paying
personal expenses through the company.”
To the extent this claim rests on Thanasi’s general partnership
allegations, it is untenable. To the extent the accounting claim is based on
Thanasi’s right as an Alpha shareholder, Peter points out that Thanasi
should not be granted leave to amend to state such a claim, because he
cannot allege he made a written demand on Alpha that was rebuffed,14 and
the cause of action is against Peter as an individual rather than the
corporation. In reply, Thanasi reiterates that he has a right as a partner to
maintain an equitable action for an accounting. He states he cited
Corporations Code section 1601 “as ancillary support only, to show his right
to inspect Alpha[‘s] . . . books and records.” He concedes “that a proper
written demand is required to invoke this right” but argues that “does not
eliminate [his] right to a partnership accounting under [Corporations Code]
section 16405, subdivision (b).”
Thanasi’s arguments do not demonstrate he can allege a viable
shareholder claim to inspect Alpha’s books and records. Corporations Code
section 1601 requires, inter alia, that a corporation make available for
inspection by any shareholder the corporation’s “accounting books, records,
and minutes of proceedings” “upon the written demand on [a] corporation of
14 Peter states Thanasi’s inability to make such an allegation is
“understandable because Thanasi has been corporate counsel for Alpha . . .
since 1996, participates in many ongoing projects for the company including
preparing its taxes, and already has access to its accounts.”
43
any shareholder . . . for a purpose reasonably related to the holder’s interests
as a shareholder.” (Corp. Code, § 1601, subd. (a)(1), italics added.) Section
1603 addresses the enforcement of this right by providing that, “[u]pon
refusal of a lawful demand for inspection, the superior court of the proper
county . . . may enforce the right of inspection with just and proper
conditions.” (Corp. Code, § 1603, subd. (a), italics added.) Thanasi could
have, but has not made a proffer of factual allegations of the requisite
condition for enforcement: that Alpha refused his written demand for
inspection for a purpose related to his shareholder interests. The trial court
did not err by sustaining Peter’s demurrer to the accounting cause of action
without leave to amend.
X. Derivative Claims (Eighteenth and Twentieth Causes of Action)
A. The Law
It is a “ ‘fundamental principle of corporate governance” (Kanter v. Reed
(2023) 92 Cal.App.5th 191, 203) that the “ ‘[m]anagement of a corporation,
including decisions concerning the prosecution of actions, is vested in its
board of directors’ ” not its shareholders. (Apple Inc. v. Superior Court,
supra, 18 Cal.App.5th at pp. 231-232; see Grosset v. Wenaas (2008) 42 Cal.4th
1100, 1108.) Thus, shareholders have no direct cause of action or right of
recovery against those who have harmed it. (Grosset, at p. 1108.)
“When the board refuses to enforce corporate claims, however, the
shareholder derivative suit provides a limited exception to the rule that the
corporation is the proper party plaintiff. In deference to the managerial role
of directors and in order to curb potential abuse, the shareholder asserting a
derivative claim must make a threshold showing that he or she made a
pre[-]suit demand on the board to take the desired action.” (Apple Inc. v.
Superior Court, supra, 18 Cal.App.5th at p. 232.) “ ‘[F]or a plaintiff to have
44
standing to file a derivative action, [plaintiff] must allege the corporation
knew about the claim and was urged to pursue it to no avail or, in any event,
the corporation would not have pursued the claim.’ ” (Apple Inc., at p. 248,
quoting Patrick v. Alacer (2008) 167 Cal.App.4th 995, 1004-1005.) The
plaintiff’s efforts to secure the desired board action, or the reasons for not
making such effort, must be pleaded with particularity. (Kanter v. Reed,
supra, 92 Cal.App.5th at p. 204.) The plaintiff must “ ‘ “allege[ ] further that
plaintiff has either informed the corporation or the board in writing of the
ultimate facts of each cause of action against each defendant or delivered to
the corporation or the board a true copy of the complaint which plaintiff
proposes to file.” ’ ” (Ibid.)
“[A] determination on demurrer that a plaintiff has failed to adequately
allege demand futility means the plaintiff has yet to establish standing to
pursue the derivative claims.” (Apple Inc. v. Superior Court, supra, 18
Cal.App.5th at p. 248.) In Apple Inc., the court held that “a plaintiff
reasserting derivative claims in an amended complaint, after a sustained
demurrer on demand futility grounds, remains subject to the standing
requirement and must allege demand futility with respect to the board that
would be addressing demand at that time.” (Ibid.)
B. Thanasi’s Derivative Claims are Moot or Alternatively He Lacks Standing
to Bring Them, Warranting Dismissal
Thanasi’s first amended complaint sought to allege derivative claims
for breach of fiduciary duty (eighteenth cause of action) and declaratory
relief/specific performance (twentieth cause of action).15 In support of his
15 Thanasi also included a nineteenth derivative cause of action for unjust
enrichment as to which Peter demurred, but Thanasi makes no argument
about that claim on appeal.
45
derivative claim for breach of fiduciary duty, Thanasi alleged that Peter and
Litsa purport to own shares of stock in PenChecks despite never having
personally contributed or invested in PenChecks, and despite the fact that
Alpha invested and contributed to the acquisition of PenChecks stock. He
alleges “[d]espite these investments and contributions, Alpha . . . is not
reflected as the owner of record of any of the stock of PenChecks. Rather,
Peter and Litsa purport to own all shares of PenChecks. Accordingly, Peter
and Litsa have . . . acted to put their own personal interests ahead of the
interests of Alpha . . . .” The derivative declaratory relief cause of action is
based on the same allegations, with a request for “an order . . . finding,
declaring, determining, and adjudicating that all shares of stock purportedly
owned by Peter and Litsa in PenChecks, save the shares owned by [Thanasi],
be deemed the rightful property of and owned by Alpha . . . .”
As relevant to these claims, Thanasi alleged he had not made a demand
upon the board of Alpha, which in effect consists of him, his brother Spiro,
Peter and Litsa “because any such demand would be a futile and useless act”
as “[i]t is clear that Peter and Litsa will not vote against their interests and
any vote by the board on a demand by [Thanasi] would result in a 2-2
46
stalemate.”16 On appeal, Thanasi says he can now allege he delivered a copy
of his first amended complaint to Alpha’s attorneys in an effort to secure the
desired action from the board.
We have granted Peter’s request for judicial notice of the fact that
Alpha has since sued Peter (and Litsa, in the action relating to PenChecks)
for breach of fiduciary duty and for a constructive trust as well as money had
and received, relating to the acquisition of PenChecks shares and Peter’s use
of Alpha to pay for his personal expenses.
Because Alpha has in fact taken remedial action on its own behalf by
filing suit, there is no issue remaining with respect to Thanasi’s derivative
claims. Whether he properly alleged demand futility in his first amended
complaint in support of derivative claims or should have been given leave to
amend on that issue is moot. Alternatively, in view of Alpha’s suits, we hold
the trial court properly sustained Peter’s demurrer without leave to amend
on grounds Thanasi lacks standing to bring these claims on Alpha’s behalf.
(Apple Inc. v. Superior Court, supra, 18 Cal.App.5th at p. 248 [“Viewed as a
matter of standing, a determination on demurrer that a plaintiff has failed to
16 In sustaining Peter’s demurrer without leave to amend, the trial court
characterized Thanasi’s futility allegations as “conclusory” and ruled Thanasi
failed to allege facts supporting them. It further ruled Thanasi did not allege
compliance with Corporations Code section 800, subdivision (b)(2), which
requires he “allege he ‘has either informed the corporation or the board in
writing of the ultimate facts of each cause of action against each defendant or
delivered to the corporation or the board a true copy of the complaint which
[he] proposes to file.’ ” To the extent the court found Thanasi’s allegations
conclusory, it should have permitted him leave to amend to make more
specific allegations, unless the operative complaint “ ‘on its face foreclose[d]
any reasonable possibility of amendment.’ ” (Apple Inc. v. Superior Court,
supra, 18 Cal.App.5th at p. 259.) We need not address the matter further
given that Alpha has since filed its own actions against Peter, mooting the
issue of the adequacy of Thanasi’s pleading on these derivative claims.
47
adequately alleged demand futility means that the plaintiff has yet to
establish standing to pursue the derivative claims”].) There is no basis on
which Thanasi can allege that it is futile to make a demand on the boards or
that he is a proper plaintiff in any respect on these claims, as the causes of
action belong to the corporation.
XI. Peter’s Motion to Strike Punitive Damages
Thanasi contends he adequately alleged specific facts demonstrating
malice, oppression or fraud sufficient for punitive damages, pointing to the
allegations he proffered in support of an intentional misrepresentation claim.
But having held Thanasi cannot amend his complaint to allege such a viable
claim, we likewise uphold the court’s order striking his punitive damages
allegations.
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DISPOSITION
We reverse the judgment and remand with directions that the trial
court enter a new order overruling the demurrer to Thanasi’s second cause of
action for oral breach of contract, sustaining the demurrer to Thanasi’s
thirteenth cause of action for declaratory relief with leave to amend, and
sustaining the demurrer to the remaining causes of action without leave to
amend. The parties shall bear their own costs on appeal.
O’ROURKE, Acting P. J.
WE CONCUR:
IRION, J.
DATO, J.
49