Reply_iso_demurrer_and_motion_to_strikeReplyCal. Super. - 4th Dist.March 23, 2018AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ELECTRONICALLY FILED Superior Court of California, County of Orange 11/08/2018 at 03:15:00 PM SEAN P. FLYNN (SBN: 220184) Clerk of the Superior Court sfl nn @ ersm.com By Olga Lopez, Deputy Clerk GORDON REES SCULLY MANSUKHANIL LLP 2211 Michelson Drive, Suite 400 Irvine, CA 92612 Telephone: (949) 255-6958 Facsimile: (949) 474-2060 Attorneys for Defendants GARY H. HUNT, W. BRAND INLOW, EDWARD A. JOHNSON D. FLEET WALLACE, and GARY WESCOMBE SUPERIOR COURT OF CALIFORNIA COUNTY OF ORANGE RICHARD CARLSON as beneficiary of CASE NO. 30-2018-00982195-CU-MC-CXC GREIT LIQUIDATING TRUST, a Maryland trust on behalf of himself and all others Dept.: CX-105 similarly situated, Judge: Randall J. Sherman Plaintiffs, DEFENDANTS GARY H. HUNT, W. VS. BRAND INLOW, EDWARD A. JOHNSON, D. FLEET WALLACE, AND GARY H. HUNT, an individual; et al., GARY WESCOMBE’S REPLY IN Defendants. SUPPORT OF DEMURRER AND MOTION TO STRIKE PLAINTIFF’S FIRST AMENDED COMPLAINT Date: November 16, 2018 Time: 10:00 a.m. Dept.: CX-105 Reservation No.: 72893028 Complaint filed: March 23, 2018 REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 IL. III. TABLE OF CONTENTS INTRODUCTION: Lottie sects see cece ee sree see ee eens sree sane eae 1 DAYMARK’S BANKRUPTCY PILING: ccc ss suuuss aussie ss cuss svsasss os camsss awsissn ss swsassis seuss is se 1 ARGUMENT Lc sae eects sree sateen ee sree sane 2 A. Maryland Law Applies 10 this ACHON. « causes suse camsuasassnssn ss unasss avss ann ssanss swassss da 22 2 I. The Trust Has a Substantial Relationship to Maryland. ...........ccccccevneen. 3 a. There Was a Reasonable Basis to Select Maryland law. ............... 4 2, Plaintiff Utterly Failed to Refute the Applicability of Maryland TCE cmos nse SES ERS SB RR 4 a. No conflict with California public policy. .....c.cccovueeieinvinnennnncnnn 4 b. California does not have a greater interest in the matter. .............. 4 B. Plaintiff Does Not Have Standing to Pursue This Case.......c.ccceceeveerveeniecneennen. 5 1. Plaintiff Cannot Pursue a Claim on Behalf of the Trust. ..........cccccceeenneenn. 3 2. Only the Trustees Can Pursue Claims on Behalf of the Trust. .................. 5 3 Plainiitt Must Demand. ACHE. ews asm 6 C. The Fiduciary Duty Claim is Barred by the Statute of Limitations....................... 6 I. The Delayed Discovery Rule Does Not Apply. ......ccccceeeviieriiiennieennneenns 7 a. Constructive Notice vs. Inquiry NOtIiCe. ....ccceevvveeniirieineirniiennnen 8 D. Plaintiff’ 1s Nei Entitled {o a.Jury TEAL wewsmsmsmmmmmesmnmmesmmsmssmnammesss 9 E. Plaintiff Must Post An Undertaking. ........c.cccoeveeiiiiiiniinnieniececneee rece ciece n 9 FE. Leave To Aniend. Should Be Denied, qxuumesssmrssmusssnnammsssummssmnsssssmsamsmmmss 10 CONCLUSION: cc. eteris sree eects testes sees sere este e snes ssee sane ese ennee ns 10 -i- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Cases CLD Const., Inc. v. City of San Ramon (2004) 120 Cal. App.4th 1141 ...c.ccceevviiiniiiiiiiiieee 10 Frederick Rd. Ltd. Pship. V. Brown & Sturm (2000) 360 Md. 76.......c..coeeviiiieeiiieeeeeieeeeien 7 Hambrecht (1995) 38 Cal APRATH: A 1544. ; ums suman sms snsonsns naman soma osm s45555550 55555 55550557 3 Hambrecht (1995) 38 Cal. ApP.4th at 1546 ....cc.uiimiiriiiiiiiece eee eeees es 4 Ingersoll-Rand Fin. Corp v. Miller Mining Co. (9™ Cir. 1987) 817 F.2d 1424 ....c.oovvevveeeeeenn. 2 Lewis v. Russell (E.D.Cal. May 7, 2009) 2009 U.S.Dist. LEXIS 41539, at *7 .......ccccceevvuveerueennn. 2 Nedlloyd Lines B.V, 3 Cal. 4th 459; 1-800-Got Junk? LLC v. Sup. Ct. (2010) 189 Cal.App.4th 5 Nedlloyd Lines B.V. v. Super. Ct. (1992) 3 Cal. 4th 459 .......ooviiieiieeeee cere 3 Nedlloyd Lines B.V., supra, 3 Cal. 4th 459; 1-800-Got Junk? LLC, supra, 189 Cal.App.4th 5004 Webowsky v. Collomb (APD: Ct: 20001) 362 WI. IB: co smmsmm suns so sumansn cnmsn on moss 555555. 5055555 545555515 5555558 55055.50 35555508 SR555573855 6 Windesheim v. Larocca (2015) 443 Md. 312... ieee eects essere eee eee 8 Statutes Code of Civil Procedure SEBO 10) cron messmo sme ss sess see RAE EE FS ERR SSS 2 Maryland Code Courts and Judicial Proceedings SECON S-T0T eee eee eee eee sates sates sabe e es abe ee sabe ee sabe ee sbbe esate es naae es 7 Md. Code Ann; Corps, & ASS RE § 8-00: LL suussn somes so sumusss sosassn is summssn swmssan in sunssss swvasa ss saspsss sssanan san 6 Other Authorities RESEARCHING PUBLIC COMPANIES THROUGH EDGAR: A GUIDE FOR INVESTORS.......cccccccvenuneene 8 Restatement (Second) of Conflict of Laws § 187 .....cciiiiiiiiiiiiiiiiieie eects eens 3,4 -ii- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 Defendants Gary Hunt, W. Brand Inlow, Edward A. Johnson, D. Fleet Wallace and Gary Wescombe (hereinafter “Trustees”) submit this Reply in support of its Demurrer, and Motion to Strike Plaintiff’s First Amended Complaint. I. INTRODUCTION: As illustrated herein, Plaintiff has failed to sufficiently address and overcome the numerous fatal deficiencies of his First Amended Complaint (“FAC”). Plaintiff also makes the fatal mistake of relying on California law when the trust agreement clearly states that Maryland law applies. To the extent any and all of Plaintiff’s arguments rely on California law, those arguments must be disregarded by the Court. Trustees further maintain that the positions set forth in their Demurrer mandate dismissal of this action as required under Maryland law: 1. Plaintiff does not have standing to bring claims on behalf of the Trust pursuant to the terms of the Trust Agreement, and has not met the prerequisites to bring a claim individually against the Trustees; 2. Plaintiff’s claims are time-barred as they relate to the sale of properties in 2012 that are well outside the three-year statute of limitations for breach of fiduciary duty; 3. Plaintiff cannot rely on the Discovery Rule to toll the statute of limitations as the details of the sales of each property were disclosed through Form 8-Ks that were publicly filed with the SEC; 4. Plaintiff is not entitled to a Jury Trial, and (alternatively) 5. Plaintiff must post an undertaking with this Court. Accordingly, for all of the reasons set forth in detail below, as well as in Defendants’ moving papers, this Court should, respectfully, sustain the instant Demurrer without leave to amend; and/or grant the Motion to Strike the Jury Trial request; or in the alternative Order Plaintiff to post and undertaking. IL. DAYMARK’S BANKRUPTCY FILING: On November 4, 2018, co-defendant Daymark Properties Realty, Inc. (“Daymark™) filed its bankruptcy case in the United States Bankruptcy Court for the Southern District of Florida 1 REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 ~N O N wn BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 under Chapter 11 of Title 11 of the United States Code. On November 7, 2018, Daymark filed a Notice of Stay of Proceedings notifying this Court of the automatic stay. The automatic stay resulting from Daymark’s Chapter 11 case should stay the entirety of the instant litigation. Generally, the Bankruptcy Court’s automatic stay does not extend to non-debtor co- defendants, absent special circumstances.! The automatic stay may be extended to non-debtor co-defendants when it is impossible to draw distinctions between the claims made against a debtor defendant and the claims made against the non-debtor defendants.” In other words, if the litigation requires the debtor’s participation, then the entire case should be stayed.’ The allegations pled by Plaintiff in the FAC inextricably intertwine Daymark with its co-defendants. Plaintiff’s first cause of action is styled as a breach of fiduciary duty claim against all Defendants. The FAC includes many allegations in which Daymark is the central actor. Similar to the debtor in Lewis, it is impossible to untangle Daymark from the causes of actions and liability issues in the instant litigation. Allowing the case to go forward would require Daymark’s active participation in the proceedings, including discovery and trial. Such participation would frustrate the purpose of the automatic stay. The Court should stay the entire case because it is impossible to segregate Daymark from the issues and allegations involved in the instant litigation. III. ARGUMENT: A. Marvland Law Applies to this Action. As set forth in § 14.4 of the Trust Agreement: This Agreement and the trust created hereby shall be governed by and construed in accordance with the laws of the State of Maryland. The Trustees, the Company and the Beneficiaries (by and through their acceptance of any distributions made to them pursuant to this Agreement) consent and agree that this Agreement shall be governed by and construed in accordance with such laws.* Lewis v. Russell (E.D.Cal. May 7, 2009) 2009 U.S.Dist. LEXIS 41539, at *7 (citing Ingersoll-Rand Fin. Corp v. Miller Mining Co. (9 Cir. 1987) 817 F.2d 1424, 1427) 21d. at *18. 31d. 4 Request for Judicial Notice (“RIN”), Exh. A, § 14.4. 2 REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiff does not contest that this choice of law provision was validly incorporated into the trust and is applicable in this action. Plaintiff agrees that California has a very strong policy favoring enforcement of choice- of-law provisions.” Plaintiff also agrees that under the California choice-of-law framework, a court must determine if the Trustees: 1) the chosen state has a substantial relationship to the parties or their transaction; or 2) any reasonable basis exists to select the chosen law. If either prong is met, the court must determine if the chosen state’s law is contrary to California’s public policy and that California has a materially greater interest in deciding the matter. Here, the Trustees have established there is a substantial relationship with Maryland. Plaintiff, however, failed to even attempt to show that Maryland law is contrary to any California public policy. Further, Plaintiff failed to establish that California has a materially greater interest in deciding this case. 1. The Trust Has a Substantial Relationship to Maryland. Under the agreed upon choice of law framework, Courts have found that incorporation in a state creates a sufficient substantial relationship to enforce that state’s choice of law.” The Trust was created for one purpose—to liquidate the assets held by GREIT, Inc., a company incorporated in Maryland.® Indeed, as stated in Plaintiff’s FAC GREIT re-incorporated in Maryland in 2004.” The shareholders of GREIT approved the reincorporation, thereby acknowledging that Maryland law would apply. As Plaintiff was a shareholder at this time, he acquiesced, approved, rejected or abstained on this issue, but was otherwise aware of the reincorporation and is bound to the application of Maryland law. Thus, the choice of law provision is valid. Plaintiff argues that the place of incorporation is insufficient to create a substantial 5 Nedlloyd Lines B.V. v. Super. Ct. (1992) 3 Cal. 4th 459, 464-65. 6 Restatement (Second) of Conflict of Laws § 187; Nedlloyd Lines B.V, 3 Cal. 4th 459; 1-800-Got Junk? LLC v. Sup. Ct. (2010) 189 Cal.App.4th 500, 513, 515-16. 7 Hambrecht (1995) 38 Cal. App.4th at 1544-46 (“[T]he parties to a contract have a substantial relationship with the chosen state if one or more of them is incorporated there.”); Nedlloyd Lines B.V., supra, 3 Cal.4th at 467 (“A party’s incorporation in a state is a contact sufficient to allow the parties to choose a state’s law to govern their contract.”). 8 RIN, Exh. A. oDkt. 1, 9. 3. REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 relationship, as GREIT’s principal office and place of operation was California. California courts, however, have found that the party’s “domicile” —including incorporation—in the chosen law’s state provides the sufficient relationship needed to support the choice of law provision.!® This Court should therefore find that there is a substantial relationship to Maryland, and that Maryland law applies to this action. a. There Was a Reasonable Basis to Select Maryland law. Not only does the state of incorporation satisfy the “substantial relationship” test, but it also meets the alternative “reasonable basis” test.!! The Court should therefore find that the first requirement is met. 2. Plaintiff Utterly Failed to Refute the Applicability of Maryland Law. In order to refute that Maryland law applies to this case, Plaintiff had to establish both that Maryland Law is contrary to a California public policy, and that California has a materially greater interest in deciding this case. Plaintiff established neither. a. No conflict with California public policy. Plaintiff failed to make any attempt to meet his burden that Maryland law is contrary to California public policy. Plaintiff fails to provide any argument in his opposition addressing this prong of the analysis. Plaintiff’s silence on this issue is a tacit admission that there is no contrary public policy. Thus, because place of incorporation standing alone is sufficient to support a finding that Maryland law applies, the Court should find that Maryland law governs this action.'? b. California does not have a greater interest in the matter. Plaintiff argued that none of the subject transaction dealt with Maryland property'3, but there are no allegations in the FAC that any of the subject transactions dealt with California property. There are no allegations in the FAC that any Trustee Defendant is/was a resident of California at the relevant times set forth in the FAC. The contention in the Opposition that all 10 Hambrecht (1995) 38 Cal. App.4th at 1546. 11d. at 1546-47. 12 Restatement (Second) of Conflict of Laws § 187; Nedlloyd Lines B.V., supra, 3 Cal. 4th 459; 1-800-Got Junk? LLC, supra, 189 Cal.App.4th 500, at 515-16. 13 See, Opposition, 05:28. 4- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 the Trustee Defendants worked out of Orange County, California, is unsupported by the FAC, and ignores that the majority of the named Defendants are not California residents, including ARPT which is a Maryland corporation and based on the allegations relative to Mr. Mikles being its controlling member whom purportedly orchestrated the entire alleged fraud it would seem Maryland has a much greater interest in resolving Plaintiff's allegations. '* Thus, Plaintiff has failed to establish either required element to refute the Maryland law applies to this case. B. Plaintiff Does Not Have Standing to Pursue This Case. Plaintiff does not have standing to pursue this action. First, under § 6.2 of the Trust Agreement, only the Trustees can maintain an action in the name of the Trust."> Under Maryland contract law, where the language employed in a contract is unambiguous, a court shall give effect to its plain meaning and there is no need for further construction by the court. '® 1. Plaintiff Cannot Pursue a Claim on Behalf of the Trust. It is unambiguous that § 6.2(f) of the Trust Agreement affords the Trustees the sole right to pursue a cause of action on behalf of the Trust related to the Trust’s assets. Plaintiff’s First Cause of Action in the FAC is asserted against all of the named Defendants and is premised on alleged wrongdoing between the buyers and sellers (the Trust), and their respective agents, of three properties that were assets of the Trust. Plaintiff's argument that this issue is somehow moot is disingenuous. Indeed, Plaintiff is pursuing a right afforded only to the Trustees, and as such, only the Trustees can assert those rights. 2, Only the Trustees Can Pursue Claims on Behalf of the Trust. Second, the Trustees assert that pursuant to § 11.2 of the Trust Agreement, only the Trustees may pursue the claims asserted by Claimant herein. Specifically, § 11.2 states: No Beneficiary shall have any right by virtue of any provision of this Agreement to institute any action or proceeding at law or in equity against any party other than the Trustees . . . and the Beneficiaries (by their acceptance of any distribution made to 14 See, FAC, (419, 23, 24,27, 31, 33, 34, 37, & 38. RIN, Exh. A, § 6.2(f) (emphasis added). 16 1d. at 251. -5- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 them pursuant to this Agreement) waive any such right.'” Despite Plaintiff’s allegations, Trustees are not attempting to use this section of the agreement as a release and exculpatory provision for the Trustees. Again, the Trustees are simply trying to assert the right as the only entity that can bring the claims herein. Further, Plaintiff’s claim that the Trust has terminated is untrue, as set forth in Trustee’s moving papers. To that end, Plaintiff is attempting to assert claims relating to the Trust against the Trustees on behalf of the beneficiaries of the Trust in one breath, while stating that the trust has terminated in the other. 3. Plaintiff Must Demand Action. Third, under Maryland law, Plaintiff must demand action on behalf of the Trustees before a right to sue accrues. Plaintiff wrongly argues that Maryland Code Annotated, Corporations and Associations § 2-405.1 does not apply to the Trustees.'® Maryland law specifically states that § 2-405.1 applies to REITs." While Plaintiff does not have the right to pursue this action on behalf of the Trust, or the beneficiaries of that trust, the Trust Agreement does provided him with certain rights as an individual beneficiary, including the right to bring suit against the Trustees with respect to the Trust's assets or the agreements relating to or forming part of the Trust's assets.” Under Maryland law, prior to instituting such an action related to the business judgment decisions of the Trustees, Plaintiff is required to make a demand upon the Trustees.?! There is no evidence that Plaintiff has made such a demand, and Plaintiff does not even attempt to contend in his Opposition that he did make a pre-suit demand. Accordingly, Plaintiff does not have standing to pursue this claim and the Court should dismiss this action in its entirety. C. The Fiduciary Duty Claim is Barred by the Statute of Limitations. As previously stated, the Court should ignore Plaintiffs assertions that California’s I7RIN, Exh. A, § 11.2. 18 See, Opposition, 06:10. 9 Md. Code Ann., Corps. & Ass’ns § 8-601.1 2 RIN, Exh. A, § 11.2. 2 See Webowsky v. Collomb (App. Ct. 2001) 362 Md. 581, 602) (recognizing the requirement of a demand before commencing an action). -6- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 ~N O N wn BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 statute of limitations applies. Maryland's three-year statute of limitations applies.?? Under either Maryland’s three-year statute, or California’s four-year statute, both have expired. Plaintiff alleged that the Trustees breached their fiduciary duties on May 16, 2012, October 23, 2012, December 21, 2012, and January 28, 2014.3 Plaintiff initiated the instant action on March 23, 2018, well outside the three-year (or even four-year) statute of limitations period. Plaintiff does not dispute that the breaches occurred in 2012 and 2014. Accordingly, the instant claim against the Trustees is time-barred and must be dismissed, with prejudice. 1. The Delayed Discovery Rule Does Not Apply. Plaintiff alleges that the statute of limitations was tolled under the Delayed Discovery Rule until December 2017 because “Plaintiffs were unable to discover the breaches and related fraudulent transfers earlier having relied on the Trustees performance and the Trustees concealment of the true facts from Plaintiffs.”** Plaintiff cites to one Maryland? case, and argues that based on the fiduciary relationship between the Trustees and Plaintiff, Plaintiff was entitled to rely on the Trustees to disclose all material facts and had no duty to make inquires until something occurs to make him suspicious.?® The case cited by Plaintiff is inapplicable here, however, because it only relates to the discovery of fraudulent activities, which holds a higher standard.?’ Plaintiff has not alleged any Fraud in this case. Moreover, that same case stated that “failure to discover facts constituting fraud may toll the statute of limitations if: (1) the relationship continues unrepudiated, (2) there is nothing to put the injured party on inquiry, and (3) the injured party cannot be said to have failed to use due diligence in detecting the fraud.”?® Here, while there are no allegations of Fraud in the first instance, Plaintiff was on inquiry notice—the publicly filed 8-Ks as set forth in Trustee’s moving papers. 22 Md. Code Cts. & Jud. Proc. § 5-101. ZB Dkt. 1, 464, 84, 86, 89. 2 Dkt. 101, p. 11. 2 The California case cited by Plaintiff is not addressed, as California law does not apply. % Dkt. 101, p. 11. 27 See Frederick Rd. Ltd. Pship. V. Brown & Sturm (2000) 360 Md. 76, 99. 81d. 7- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 ~N O N wn BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 a. Constructive Notice vs. Inquiry Notice. Plaintiff conflates “constructive notice” with “inquiry notice.” While Plaintiff alleges constructive notice does not trigger the running of the statue of imitations, inquiry notice does.” Inquiry Notice “is notice implied from knowledge of circumstances which ought to have put a person of ordinary prudence on inquiry (thus, charging the individual) with notice of all facts which such an investigation would in all probability have disclosed if it had been properly pursued.”*® Here, Plaintiff had knowledge of the public filings that contained all the facts Plaintiff needed to discover his claim. Further, the Securities and Exchange Commission (“SEC”) specifically created the online EDGAR database to provide free public access to corporate information’! The SEC “requires public companies to disclose meaningful financial and other information to the public, which provides a public source for all investors to use to judge for themselves if a company’s securities are a good investment.”*? Public filings include, among other things Form 8-Ks that provide current information about the registered company.*® Indeed, this publicly available system was created to assist investors in conducting their own diligence and is sufficient to put investors on inquiry notice. The Trust also mailed copies of many of these public filings to the beneficiaries. As stated in Plaintiff’s opposition, § 14.6 of the Trust Agreement states “Any notice or communication by Trustees to any Beneficiary shall be deemed to have been sufficiently given, for all purposes. . . ’** This supports that Plaintiff was put on not only inquiry notice, but also direct notice, which further thwarts Plaintiff’s bald allegations of delayed discovery. Plaintiff had the ability to discover the alleged violations when the form 8-Ks were filed in 2012 and 2013. Plaintiff fails to allege any facts in the FAC as to why he did not know of the 2 Windesheim v. Larocca (2015) 443 Md. 312, 327. 30 Windesheim, 443 Md. At 327. 31 See RESEARCHING PUBLIC COMPANIES THROUGH EDGAR: A GUIDE FOR INVESTORS, available at https://www.sec.gov/oiea/Article/edgarguide.html. 21d. 31d. 3 Dkt. 101, p 13. -8- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 ~N O N wn BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 alleged breach or could not have discovered the alleged breach through a reasonable investigation. The new contentions in Plaintiffs Opposition have no effect on what is actually pled in the FAC for purposes of the Trustees Demurrer. Accordingly, there is no basis for this Court to apply the Discovery Rule, and Plaintiff’s claims are time-barred. The Trustees therefore respectfully request that the Court grant their Demurrer to Plaintiff's FAC, without leave to amend. D. Plaintiff Is Not Entitled to a Jury Trial. Trustees reassert their Motion to Strike Plaintiff’s request for Jury Trial. Despite Plaintiff’s allegations, the trust has not terminated. Therefore, any claim by Plaintiff as the beneficiary is an equitable claim. Indeed, under Maryland law it is clear that, prior to 1851, there was no right to a Jury Trial in actions by a beneficiary against the trustee for breach of fiduciary duties. If the Court determines that there is sufficient evidence to proceed with this action, Plaintiff will have no right to a trial by jury. E. Plaintiff Must Post An Undertaking. Under the Trust Agreement, a Trustee may request or require a litigant to post an undertaking with the court to pay costs of the suit. Despite Plaintiff's claims in his Opposition, the posting of an undertaking is not discretionary. The only discretion comes when there is an award of costs from the previously posted undertaking. Relative to Plaintiff’s reference to § 7.5 of the Trust Agreement, that provision on its face does not apply as between Plaintiff and Trustees. § 7.5 deals with Third Parties making an Indemnity claim on the Trust. In that circumstance, § 7.5 says a Beneficiary will not be personally liable to the Third Party. That is simply not the case here. Accordingly, should any portion of the FAC survive the Trustees Demurrer, before the case can proceed in any regard Plaintiff must post an undertaking that the Court deems reasonable. 3 RIN, Exh. A, § 11.3. 9. REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 F. Leave To Amend Should Be Denied. Leave to amend is liberally granted, when the plaintiff can demonstrate the defect is reasonably capable of being cured.*® Here: there is no cure for the application of Maryland law; there is no cure for the Statute of Limitations issue; and there is no cure for the lack of standing. Thus, leave to amend would be futile. IV. CONCLUSION: The Trustees reassert that Plaintiff does not have standing to pursue this suit that Plaintiff’s claim is barred by the applicable three-year statute of limitations. Trustees therefore respectfully request that the Court dismiss Plaintiff’s FAC, with prejudice. Alternatively, Trustees request that the right to jury trial be stricken, and that Plaintiff be required to place an undertaking with the Court. Dated: November 8, 2018 GORDON REES SCULLY MANSUKHANI, LLP ttorneys for Defendants GARY H. HUNT, W. BRAND INLOW, EDWARD A. JOHNSON D. FLEET WALLACE, and GARY WESCOMBE 3% CLD Const., Inc. v. City of San Ramon (2004) 120 Cal. App.4th 1141, 1146. -10- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e Su it e 40 0 Ir vi ne , C A 92 61 2 AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 PROOF OF SERVICE I am a resident of the State of California, over the age of eighteen years, and not a party to the within action. My business address is: Gordon Rees Scully Mansukhani, LLP 2211 Michelson Drive Suite 400, Irvine, CA 92612. On November 8, 2018, I served the within documents: DEFENDANTS GARY H. HUNT, W. BRAND INLOW, EDWARD A. JOHNSON, D. FLEET WALLACE, AND GARY WESCOMBE’S REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE PLAINTIFF’S FIRST AMENDED COMPLAINT O by transmitting via facsimile the document(s) listed above to the fax number(s) set forth below on this date before 5:00 p.m. by causing the document(s) to be electronically served on the interested parties identified in the service list by submitting an electronic version of the document(s) through the user interface at www.onelegal.com. by placing a true copy thereof enclosed in a sealed envelope, at a station designated for collection and processing of envelopes and packages for overnight delivery by FEDERAL EXPRESS/GSO as part of the ordinary business practices of Gordon & Rees LLP described below, addressed as follows: Kenneth J. Catanzarite, Esq. Tim J. O’Keefe, Esq. Catanzarite Law Corporation 2331 West Lincoln Avenue Anaheim, CA 92801 (714) 520-5544 Direct Dial: (714) 678-2100 Direct Fax: (714) 399-0577 Office Fax: (714) 520-0680 kcatanzarite @ catanzarite.com tokeefe @catanzarite.com Attorneys for Plaintiff David N. Ferri, Esq. West Legal Group, P.C. 9107 Wilshire Boulevard, Suite 450 Beverly Hills, CA 90210 (424) 302-6715 Fax (407) 650-2879 westlegalcounsel @ gmail.com Attorneys for Plaintiff Adam T. Kent, Esq. Professional Partners Group, LLC 895 Dove Street, Suite 300 Newport Beach, California 92663 818-298-5614 adam @ propartnersgroup.com Attorneys for Daymark Properties Realty, Todd Mikles & Etienne Locoh Steven McAndrew, Esq. Kaufman McAndrew 16633 Ventura Blvd., Suite 500 Encino, CA 91436 Telephone: (818) 646-6283 steve @kmcllp.com Attorney for Defendants Steven Kries; Tom Rini; The American Recovery Property Trust, Inc.; American Recovery Property OP, LP; American Recovery Property Advisors, LLC; Sovereign Capital Management Group, Inc., GCL, LLC; and GCL Manager, LLC -11- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE Su it e 40 0 Ir vi ne , C A 92 61 2 G o r d o n Re es Sc ul ly M a n s u k h a n i , L L P 22 11 Mi ch el so n Dr iv e 1156970/41120355v.1 AN Un BA W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 Michael D. Kibler, Esq. Tyler Z. Bernstein, Esq. Simpson Thacher & Bartlett, LLP 1999 Avenue of the Stars, 29" Floor Los Angeles, CA 90067 (310) 407-7500 mkibler @stblaw.com Attorneys for Specially Appearing Defendant NW Congress Center Owner LLC7 I am readily familiar with the firm’s practice of collection and processing correspondence for mailing. Under that practice it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after the date of deposit for mailing in affidavit. I declare under penalty of perjury under the laws of the State of California that the above is true and correct. Executed on November 8, 2018 at Irvine, California. Txti/) 5 rect g~ Leslie M. Handy of vs -12- REPLY IN SUPPORT OF DEMURRER AND MOTION TO STRIKE
