PF1 v. Suba CA2/8

Filed 4/27/23 PF1 v. Suba CA2/8
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
PF1, INC., B322726
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. 18CV330021)
v.
ROLANDO M. SUBA et al.,
Defendants and
Respondents.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Peter H. Kirwan, Judge. Affirmed.
Rossi, Hamerslough, Reischl & Chuck and Samuel A.
Chuck for Plaintiff and Appellant.
Berliner Cohen, Dawn C. Sweatt, Thomas P. Murphy and
Angela Shaw for Defendants and Respondents.
_________________________
This is an appeal from a demurrer sustained without leave
to amend as to three of five causes of action in appellant PF1’s
Second Amended Complaint (SAC), insofar as they were alleged
against respondents Suba Technology Inc., Suba Energy, LLC,
and Rolando M. “Rick” Suba (the Suba defendants).1 The SAC
arises out of two agreements: 1) a 2011 agreement (2011 APA)
whereby PF1 sold all of its assets, consisting of a patent and
related intellectual property, to defendant Alterlume in exchange
for about 4 percent of Alterlume’s stock and a deferred payment
of $2 million dollars; and 2) a 2016 agreement (2016 ASA) which
PF1 alleges transferred all of Alterlume’s assets to respondents
Suba Energy and Suba Tech and made respondent Rick Suba an
officer and director and majority shareholder of Alterlume.2
Fundamentally, PF1 alleges that the 2016 ASA triggered
Alterlume’s obligation to make the deferred payment of
$2 million dollars required by the 2011 APA, but the 2016 ASA
left Alterlume unable to make that payment.
The trial court sustained the Suba defendants’ demurrer to
PF1’s causes of action for breach of contract, breach of fiduciary
duty, and constructive fraud without leave to amend. The three
causes of action all involve PF1’s attempt to hold the Suba
defendants liable for the actions and omissions of Alterlume. PF1
appeals from the judgment dismissing the Suba defendants,
contending that all three causes of action state viable claims and
1 Hereafter, we refer to these respondents individually as
Suba Energy, Suba Tech and Rick Suba, and collectively the
Suba defendants.
2 Alterlume remains as a defendant in this action but is not a
party to this appeal.
2
the trial court erred in granting the Suba defendants’ demurrer
to those three causes of action, and then doing so without leave to
amend. We affirm the judgment.
BACKGROUND
Two individual shareholders of PF1 began this action in
2018 as individuals, seeking to recover their share of the unpaid
$2 million required by the 2011 APA, which money they had
expected to be paid out in installments. They alleged they
brought the action as individuals because PF1’s corporate powers
had been suspended. They also alleged that in or about
September 2016, the Suba defendants and Alterlume entered into
multiple business relationships, Rick Suba paid Alterlume
$1.5 million, and an actual or de facto change of control of
Alterlume occurred, triggering PF1’s right to full and immediate
payment under the 2011 APA. The individual PF1 shareholders
further alleged they had been unable to obtain documentation of
these events. The Alterlume and Suba defendants demurred to
the entire complaint, and the trial court sustained the demurrer,
primarily on two grounds: the individual shareholders were not
signatories to the 2011 APA and they had failed to sufficiently
allege a fiduciary duty owed to them or PF1 by the Alterlume or
Suba defendants. The demurrer was largely sustained with leave
to amend.
The individual PF1 shareholders were ultimately able to
revive the suspended corporate powers of PF1, and in 2019 an
amended complaint (FAC) was filed removing the individuals as
plaintiffs and adding PF1. In February 2020, PF1 learned of the
existence of the 2016 ASA, apparently receiving it through
discovery in this case. PF1 then sought and obtained leave to file
its second amended complaint (SAC). The 2016 ASA plays a
3
prominent role in PF1’s theory of the case, but no copy of the
agreement was attached to the SAC and judicial notice of the
agreement was not requested by the Suba defendants.
The Suba defendants then brought the demurrer at issue in
this appeal. The trial court sustained the demurrer to the first
cause of action for breach of contract without leave to amend on
the ground that the Suba defendants were not signatories to the
2011 APA, nor were they successors to or assignees of Alterlume’s
rights and obligations under that agreement.
The trial court sustained the demurrer to the third cause of
action for breach of fiduciary duty without leave to amend on the
ground that PF1 was seeking recovery of a contractual debt and a
mere debt does not create a fiduciary duty.
The trial court sustained the demurrer to the fourth cause
of action for constructive fraud without leave to amend on the
ground that this cause of action requires a fiduciary relationship
and there was none.
The trial court subsequently entered a judgment of
dismissal as to the Suba defendants, and this appeal followed.
DISCUSSION
A demurrer tests the legal sufficiency of the complaint.
(Hernandez v. City of Pomona (1996) 49 Cal.App.4th 1492, 1497.)
On appeal from an order of dismissal after an order sustaining a
demurrer, our standard of review is de novo; that is, we exercise
our independent judgment about whether the complaint states a
cause of action as a matter of law. (Moore v. Regents of
University of California (1990) 51 Cal.3d 120, 125.)
“ ‘We treat the demurrer as admitting all material facts
properly pleaded, but not contentions, deductions or conclusions
of fact or law. [Citation.] We also consider matters which may be
4
judicially noticed.’ [Citation.] Further, we give the complaint a
reasonable interpretation, reading it as a whole and its parts in
their context.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
When a demurrer is sustained without leave to amend, “we
decide whether there is a reasonable possibility that the defect
can be cured by amendment: if it can be, the trial court has
abused its discretion and we reverse; if not, there has been no
abuse of discretion and we affirm. [Citations.] The burden of
proving such reasonable possibility is squarely on the plaintiff.”
(Blank v. Kirwan, supra, 39 Cal.3d at p. 318.)
A. First Cause of Action –Breach of Contract
PF1’s first cause of action alleges breach of the 2011 APA
by the Suba defendants, who were not signatories to that
agreement. It is well settled there must be a contractual
relationship between a plaintiff and a defendant for a breach of
contract cause of action to lie. (See, e.g., Levy v. Only Cremations
for Pets, Inc. (2020) 57 Cal.App.5th 203, 208.) PF1 contends it
adequately alleged an assignment of the 2011 APA to the Suba
defendants occurred by operation of law when Alterlume and the
Suba defendants agreed to the 2016 ASA, which PF1 alleges
transferred all of Alterlume’s assets, including those obtained
through the 2011 APA, to the Suba defendants.
An assignment by operation of law occurs when a party
accepts all the benefits of an executory contract; the law requires
that party to accept the obligations of that contract as well.
(Recorded Picture Company [Productions] Ltd. v. Nelson
Entertainment, Inc. (1997) 53 Cal.App.4th 350, 361–362
(Recorded Picture).) The court in Recorded Picture explained the
analytical framework used to determine whether an assignment
by operation of law has occurred. First, the court looks at the
5
original contract and the benefits which were conveyed in that
contract. (Id. at pp. 362–363.) Here, for purposes of this
demurrer, the primary benefit conveyed by the 2011 APA was
ownership of the patent and associated rights. The court then
looks at the second contract and determines what benefits were
conveyed in that contract. (Ibid.) Here, the 2016 ASA gave the
Suba defendants the right to use the patent, but did not transfer
title to the patent. For this reason alone, the Suba defendants
did not receive all the benefits of the first contract.
PF1 contends it alleged Alterlume conveyed substantially
all of its assets to the Suba defendants in the 2016 ASA and this
allegation must be taken as true on demurrer.3 “Substantially
all” is not all. Further, this is a very general allegation, arguably
a conclusion, and specific factual allegations control over such
general factual allegations when there are inconsistencies. (See,
e.g. Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th
1228, 1235–1236.) Here, the alleged specific terms of the 2016
ASA control over this general allegation. While those specific
allegations are to a degree incomplete and unclear, they do show
that Alterlume transferred less than all of the patent and
associated rights it received under the 2011 APA to the Suba
3 While an agreement to convey all the assets of a
corporation could be understood to include all of the benefits the
corporation was receiving from a specific contract, the reference
to conveying all corporate assets is more appropriate to a claim of
successor liability, which the trial court, out of an abundance of
caution, rejected on the ground that “[t]here is no allegation in
the SAC that the Suba Defendants are the successors of
Alterlume (which is still alleged to be a separate entity and
named defendant in this case).”
6
defendants.4 Specifically, PF1 alleged that under the 2016 ASA,
Alterlume gave Suba Tech manufacturing and production rights
for five years, with a right of first refusal.
At oral argument, PF1 requested, for the first time, that we
reverse the trial court’s order sustaining the demurrer as to the
first cause of action so that it could amend its complaint to allege
that Alterlume was the alter ego of Rick Suba. PF1 appears to
4 In what PF1 apparently intends to be a quote from the
2016 Agreement, PF1 alleges the agreement gave Suba Energy
“(1) the ‘. . . License to manufacture [Alterlume]’s products in the
Philippines’ [and] (2) manufacturing rights exclusive rights to
manufacture [that] will allow Suba to use Alterlume ’s
proprietary product design and manufacturing procedures in the
direct manufacture or contracting of such services.” (Italics
omitted.) At the same time, PF1 alleges, the agreement gave
Suba Tech “exclusive manufacturing and production rights for
5 years to SUBA TECH” and “granted SUBA TECH a ‘Right of
First Refusal.’ ” (Italics omitted.) PF1 contends that these
allegations show that the Suba defendants were receiving all
possible benefits of the patent which PIF conveyed to Alterlume
under the 2011 APA. We do not agree. The allegations have
clearly omitted important terms from the 2016 ASA, and do not
show the geographic scope of the rights granted to Suba Tech or
the length of the term for which rights were granted to Suba
Energy. But the allegations do show that Suba Tech received a
temporally limited grant of rights. Even if we were to assume
that Suba Tech received manufacturing rights for everywhere but
the Philippines, the five-year limited term granted to Suba Tech
shows that those rights will revert to Alterlume, and the
inclusion of a right of first refusal suggests that some rights of
value will remain at that time. Thus, as alleged, the 2016 ASA
does not grant to the Suba defendants all of the rights under the
patent remaining to Alterlume in 2016.
7
have raised this alter ego theory in response to the five-year term
and right of first refusal in the 2016 ASA. Those rights have
apparently reverted to Alterlume, and PF1 appears to believe
that if Alterlume had become an alter ego of Rick Suba before
reversion, all rights would still belong to the Suba entities.5
We have discretion to consider an argument that leave to
amend should have been granted, even when it is raised for the
first time on appeal. (Tukes v. Richard (2022) 81 Cal.App.5th
1, 19.) More generally, however, when an appellant fails to raise
an issue in the opening brief, raising it for the first time in a
reply brief or at oral argument, we generally decline to address
the issue or we address it in a summary manner. (Varjabedian v.
City of Madera (1977) 20 Cal.3d 285, 295, fn. 11; People v. Duff
(2014) 58 Cal.4th 527, 550, fn. 9; Mansur v. Ford Motor Co.
(2011) 197 Cal.App.4th 1365, 1387–1388 [appellate court will not
consider arguments raised for the first time in a reply brief
because it deprives the respondent of the opportunity to respond
to the argument].) When we do consider such a claim, the
appellant “ ‘must show in what manner he can amend his
complaint and how that amendment will change the legal effect
of his pleading.’ ” (Rakestraw v. California Physicians' Service
(2000) 81 Cal.App.4th 39, 43.) Appellant “must set forth factual
allegations that sufficiently state all required elements of that
cause of action. [Citations.] Allegations must be factual and
specific, not vague or conclusionary.” (Id. at pp. 43–44.)
5 To the extent that PF1 seeks to add these alter ego
allegations to address the Suba defendants’ claim that certain
intellectual property was not covered by the 2016 ASA and
remained with Alterlume, PF1 faces the same difficulties as in
the reversion situation.
8
We do not believe PF1’s theory that Alterlume is the alter
ego of Rick Suba would save the first cause of action. “The
essence of the alter ego doctrine is not that the individual
shareholder becomes the corporation, but that the individual
shareholder is liable for the actions of the corporation. (Mesler v.
Bragg Management Co. [(1985)] 39 Cal.3d [290,] 300.) For all
other purposes, the separate corporate existence remains.” (Leek
v. Cooper (2011) 194 Cal.App.4th 399, 415 (Leek).) Put
differently, “[i]t is not that a corporation will be held liable for the
acts of another corporation because there is really only one
corporation. Rather, it is that under certain circumstances a hole
will be drilled in the wall of limited liability erected by the
corporate form; for all purposes other than that for which the hole
was drilled, the wall still stands.” (Mesler, at p. 301.) The
corporation remains a separate entity. Thus, Alterlume would
still be a separate entity from Rick Suba and as such would hold
the reversionary rights under the 2016 ASA, demonstrating that
not all benefits of the 2011 APA were transferred to the Suba
entities by the 2016 ASA.
Further, when asked for facts which would support its alter
ego claim, counsel for PF1 stated only that as a result of the 2016
ASA, Rick Suba became the predominant shareholder of
Alterlume and the chairman of its board of directors, facts which
had already been alleged in the complaint, and which are not
sufficient to allege the alter ego doctrine, even for a closely held
corporation. “To recover on an alter ego theory, a plaintiff need
not use the words ‘alter ego,’ but must allege sufficient facts to
show a unity of interest and ownership, and an unjust result if
the corporation is treated as the sole actor.” (Leek, supra, 194
Cal.App.4th at p. 415 [complaint alleging individual defendant
9
was owner of all stock of defendant corporation and personally
made all its business decisions was not sufficient for alter ego
liability].) PF1’s alter ego allegations concerning Suba Tech and
Suba Energy show it knows the proper way to plead an alter ego
theory.
Thus, we decline PF1’s request that we reverse the trial
court’s order and remand for leave to amend to add this alter ego
claim. The request is untimely and both legally and factually
deficient.
We also note that we need not rely on the specific details of
the 2016 ASA, however, to uphold the demurrer. PF1 clearly
alleged that it transferred the patent and associated rights to
Alterlume in 2011. PF1 also clearly alleged that Alterlume
granted rights under the patent to the Suba defendants in 2016.
We take judicial notice that a patent is for a limited term.
(35 U.S.C.A. § 154 (a)(2); Evid. Code, § 451, subd. (a).) While we
do not consider the unbriefed intricacies of patent law, under the
2011 APA, Alterlume received a patent with a remaining term of
x years, but by 2016 could only convey a patent with a remaining
term of x – 5 years. Thus, even if Alterlume had transferred
ownership of the patent in 2016, and not simply rights under that
patent, it was simply not possible for Alterlume to convey all the
benefit of the 2011 APA, that is, a patent for a term of x years.
PF1’s claim that there is no requirement that all the
benefits of the contract be transferred is incorrect. As the court
in Recorded Pictures made clear, it is well established that when
the assignee is not a party to the original contract, “[Civil Code]
section 1589 ‘requires the assignee of an executory contract to
accept the burdens when all the benefits of a full performance
have inured to him.’ ” (Recorded Pictures, supra, 53 Cal.App.4th
10at p. 362; see Wilson v. Beazley (1921) 186 Cal.437, 444 [rule
applies only if “all the benefits of a full performance” have inured
to the assignee; Fruitvale Canning Co. v. Cotton (1953)
115 Cal.App.2d 622, 626 [rule applies only if “the full benefit
inured to the assignee”]; Fanning v. Yoland Productions, Inc.
(1957) 150 Cal.App.2d 444, 448–451.) The court in Recorded
Pictures rejected the plaintiff’s claim that defendant Nelson was
an assignee of the producer-Hemdale agreement because Nelson
did not “accept or receive all of the benefits of that agreement.”
(Recorded Pictures, at p. 362.)6
The reason for this requirement is clear. The obligations
set forth in the original contract are agreed to in exchange for the
benefits of the original agreement. If the subsequent recipient
does not receive the full benefits of the original agreement, he
cannot be expected to satisfy the full obligations of that
agreement.
At oral argument, PF1 contended that two cases found an
assignment by operation of law occurred even though a party did
not receive the full benefit of the original contract. PF1 cited
6 As the court explained, the producers transferred to
Hemdale “all domestic distribution rights in The Last Emperor—
theatrical, television, and home video—in perpetuity. The
producers also assigned the copyright in the picture to Hemdale.
In contrast, the Hemdale-Nelson contract authorized Nelson to
distribute the picture in the home video market only; Nelson did
not receive the distribution rights for theatrical or television
release. Further, Nelson's distribution rights terminated after
seven years (and reverted to Hemdale), while Hemdale received
the distribution rights in perpetuity. Moreover, Hemdale
retained the copyright in the picture.” (Recorded Pictures, supra,
53 Cal.App.4th at p. 363,)
11
these two cases in its opening appellate brief, but not for that
proposition. We do not understand the cases as being
inconsistent with the rule requiring the party to receive the full
benefit of the contract for an assignment by operation of law to
occur. In both cases, an agreement was assigned part way
through the initial term of the agreement, but no assignment by
operation of law was required. (Brady v. Fowler (1920)
45 Cal.App. 592, 593 (Brady); Bergin v. Van Der Steen (1951)
107 Cal.App.2d 8, 10–11 (Bergin).) The agreement in Brady
involved a lease and option agreement, and that original
agreement expressly stated that its obligations were binding on
successors and assignees. (Brady, at p. 595.) As discussed below,
there are unique rules for assignments of leases and other real
property interests. (See Recorded Pictures, supra, 53 Cal.App.4th
at p. 367.) Bergin involved a concession agreement with an
option for a contract for a second full term; the concession
agreement was assigned pursuant to an express assignment
agreement which contained terms requiring the assignees to
make payments to the assignor. (Bergin, at pp. 10–11.) Thus,
the assignment of the partial term was not an assignment by
operation of law. The option provision was the subject of two
written agreements in addition to the assignment agreement,
and it was here that the court used Civil Code section 1589 to
harmonize the agreements and determine the controlling terms
of the option assignment. (Bergin, at pp. 11, 15–16.)
We note that PF1, in making its arguments concerning an
assignment, sometimes uses language related to two other
theories of assignment: the phrases “equitable assignment” and
“constructive knowledge.” PF1 does not develop arguments
12
showing how these theories would apply in this case, and, on the
face of it, neither does apply.
The term “equitable assignment” does not simply mean any
assignment that is imposed out of fairness to the parties. “The
doctrine of equitable assignments is typically used to enforce an
attempted assignment of rights that is technically defective or to
create a right of subrogation.” (Recorded Pictures, supra,
53 Cal.App.4th at p, 368.) For example, an equitable assignment
has been held to apply to the attempted assignment of interest by
the beneficiary of a spendthrift trust. (Kelly v. Kelly (1938)
11 Cal.2d 356, 365.) An equitable assignment to create a right of
subrogation has been held to apply where one party involuntarily
pays a debt for which another is primarily liable. (Recorded
Pictures, at p. 368.) PF1 has made no attempt to explain how
this doctrine would apply in this case and so has forfeited this
claim.
PF1 has not cited any law holding that constructive
knowledge of a contract creates an assignment outside the very
narrow area of real property law. As the court in Recorded
Pictures explained, the doctrine of constructive knowledge
assignment is intended to “further[] the important common law
principle favoring the free alienability of real property.”
(Recorded Pictures, supra, 53 Cal.App.4th at p. 367.) For
example, a subtenant is charged with knowledge of the terms of
the lease between the landlord and the tenant, and is bound by
its terms and conditions, so that the landlord may evict the
subtenant for violating the terms of the landlord-tenant lease.
PF1 makes no argument for the applicability of this doctrine
outside real property law and so has forfeited this claim.
Further, even in real estate law, the doctrine is limited. The
13
subtenant is not liable for unpaid rent owed under the original
lease. (Ibid.) Given that PF1 is not seeking the equivalent of
unpaid rent under the 2011 APA, this doctrine, if applicable,
would be of little use to PF1. The court in Recorded Pictures
reached a similar conclusion. (Ibid.)
Finally, there is no reasonable probability that PF1 could
amend to allege facts sufficient to state a claim. PF1 cannot
allege facts which contradict the allegations of the SAC,
specifically the allegations that the 2016 ASA contained a five-
year term with a right of first refusal. (See, e.g., Berg & Berg
Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034,) In
addition, PF1 cannot allege facts overcoming the five years of
elapsed time between Alterlume’s acquisition of the patent in
2011 and the 2016 ASA which PF1 contends transferred all
rights in that patent to the Suba defendants. Accordingly, the
trial court did not abuse its discretion in denying leave to amend.
B. Third Cause of Action – Breach of Fiduciary Duty
PF1’s breach of fiduciary cause of action is premised on two
sets of breaches: 1) Alterlume’s decision to enter into the 2016
ASA; and 2) Alterlume’s concealment of the existence of that
agreement. PF1 seeks to hold Rick Suba liable under an aiding
and abetting theory for the first breach and directly liable for the
second breach, which occurred after he became an officer, director
and controlling shareholder of Alterlume. A key element of
breach of fiduciary duty is damages proximately caused by the
breach, and it is this element which causes PF1’s claim to fail.
PF1 has two relationships with Alterlume. One is as a
minority shareholder of Alterlume; it is undisputed that
Alterlume and its officers and directors at all times, and Rick
Suba after 2016, owed a fiduciary duty to PF1 in PF1’s capacity
14
as a minority shareholder. PF1 is also a creditor of Alterlume as
a result of the 2011 APA. Generally, a corporation does not, as a
matter of law, owe a fiduciary duty to its creditors; a contract or
debt does not create a fiduciary relationship. (See, e.g., Ragland
v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 206
(Ragland).)
When a plaintiff has two different relationships with a
defendant, the capacity in which the plaintiff suffered harm is
generally dispositive of its cause of action seeking redress. (See
Speirs v. BlueFire Ethanol Fuels, Inc. (2015) 243 Cal.App.4th 969(Speirs).) In Speirs, plaintiffs were minority shareholders and
also warrant holders. The warrants, which were contracts, gave
the plaintiffs an option to purchase stock. (Id. at pp. 791, 780.)
The plaintiffs alleged that the defendants, who were corporate
officers and a majority shareholder, owed them a fiduciary duty
based on the plaintiff’s status as shareholders, and that
defendants had breached that duty by refusing to apply anti-
dilution protections in the warrants. (Id. at p. 780.) As the
Speirs court explained, “plaintiffs’ allegations of wrongdoing
pertain to the abuse of their contract rights as warrant holders,
not to alleged malfeasance against plaintiffs’ interests as common
stock shareholders. These distinct legal relationships—(1) the
fiduciary relationship of corporate insiders to minority
shareholders and (2) the contractual relationship of corporations
and warrant holders—should not be conflated, even if the same
individuals are both minority shareholders and warrant holders.”
(Id. at p. 983.)
15
The court added that the evidence and argument at trial
was about the defendants’ refusal to apply the anti-dilution
clause but not about damages to the value of the stock. (Speirs,
supra, 243 Cal.App.4th at p. 983.) The court affirmed the trial
court’s ruling in favor of the defendants “on the most
straightforward ground: [defendants] did not owe a fiduciary duty
to warrant holders, which is the role in which plaintiffs were
allegedly harmed by defendants’ actions. (See Amtower v. Photon
Dynamics, Inc. (2008) 158 Cal.App.4th 1582, 1599
[71 Cal.Rptr.3d 361] [existence of a fiduciary duty is a question of
law].)” (Speirs, at p. 982.)
Like the plaintiffs in Speirs, PF1 has not alleged harm to
the value of its shares. The harm alleged by PF1 was the non-
payment of monies owed it under the 2011 APA, which is an
abuse of its contractual rights as a creditor. PF1 more broadly
and vaguely alleges it “is entitled to recover lost profits and other
damages for out of pocket losses . . . and/or for the benefit of the
bargain damages, as each may apply and be proven at trial.”
These are contract damages, not damages to the value of PF1’s
shares.
In its reply brief, PF1 contends it has alleged damage from
the breach of fiduciary duty to it as a shareholder, specifically
that the 2016 ASA left Alterlume “without any assets, without
any technology and completely without any means to conduct
business.” This would be a very generous reading of the cited
paragraphs. Even so, this would be an injury to Alterlume as a
corporation. As such, it would have to be brought as a derivative
action. (See Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93,
106 [“A shareholder’s derivative suit seeks to recover for the
benefit of the corporation and its whole body of shareholders
16
when injury is caused to the corporation that may not otherwise
be redressed because of failure of the corporation to act.”].) We
find a clearer statement of PF1’s own damages in the next
sentence, where PF1 contends that as a result of these actions,
Alterlume has no “means of paying the $2M obligation” it owed to
PF1 for the purchase of its patent.7 This is an injury to PF1 as a
creditor.
PF1 also contends that Speirs must be read narrowly, to
apply only to situations where the shareholders are warrant-
holders and not to situations where they are creditors. We do not
agree. A creditor, like a warrant holder, has a contractual
relationship with the corporation, and the reasoning of Speirs
does apply. Further, although the issue was not before the Speirs
court, the general rule in California is that a corporation does not
owe a fiduciary duty to its creditors. (See, e.g., Ragland, supra,
209 Cal.App.4th at p. 206.) There are exceptions to this general
rule, but PF1 has not identified such an exception or explained
how it would apply to the facts of this case.
Finally, PF1 is simply incorrect that it “is permitted to
plead to its liking, including that its claim for breach of fiduciary
duty arises out of its status as a minority shareholder and a
creditor.” Whether a fiduciary duty exists is a question of law,
and as a matter of law a corporation generally owes no fiduciary
duty to a creditor. PF1 cannot plead this duty into existence. If
PF1 had reason to believe that Alterlume’s alleged breach of
fiduciary duty resulted in damage to PF1’s share value, then it
should have alleged such damage. It has not.
7 We note that under the 2016 ASA, all of Alterlume’s other
creditors were allegedly paid.
17
There is no reasonable probability that PF1 could amend
its complaint to state a claim because the only additional
damages PF1 has identified is damage to the corporation as a
whole. That is not sufficient. Similarly, because Alterlume did
not owe a fiduciary duty to PF1 in its capacity as a creditor, Rick
Suba could not have aided and abetted any breach of a (non-
existent) fiduciary duty, and there is no reasonable probability
that PF1 could amend its complaint to allege aiding and abetting.
The trial court did not abuse its discretion in denying PF1 leave
to amend.
C. Fourth Cause of Action - Constructive Fraud
“Constructive fraud ‘ “ ‘ “is a unique species of fraud
applicable only to a fiduciary or confidential relationship.” ’ ” ’
[Citation.] ‘Constructive fraud “arises on a breach of duty by one
in a confidential or fiduciary relationship to another which
induces justifiable reliance by the latter to his prejudice.”
[Citation.] Actual reliance and causation of injury must be
shown.’ ” (Prakashpalan v. Engstrom, Lipscomb & Lack (2014)
223 Cal.App.4th 1105, 1131.) Because there is no fiduciary
relationship between a corporation and its creditors, and PF1 has
not alleged harm to PF1 in its capacity as a minority shareholder,
the constructive fraud claim fails. As was the case with the third
cause of action, there is no reasonable probability that PF1 can
amend its claim to state a claim for constructive fraud, and so the
trial court did not abuse its discretion in denying leave to amend.
18
DISPOSITION
The judgment of dismissal is affirmed. Appellant to pay
costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
STRATTON, P. J.
We concur:
GRIMES, J.
VIRAMONTES, J.
19