Plaintiffs Memorandum of Points And Authorities In Opposition To Demurrer

Opposition

Cal. Super. - 1st Dist.April 25, 2016

N O N N N N N N N m m m m e m e s e e e t e t ee d e e N O O N Wn BR W N = © 0 N N N R W NN = O 28 Law Offices COTCHETT, PITRE & MCCARTHY, LLP JOSEPH W. COTCHETT (SBN 36324) jeotchett@cpmlegal.com NANCY L. FINEMAN (SBN 124870) nfineman@cpmlegal.com STEPHANIE D. BIEHL (SBN 306777) sbiehl@cpmlegal.com COTCHETT, PITRE & McCARTHY, LLP San Francisco Airport Office Center 840 Malcolm Road, Suite 200 Burlingame, CA 94010 Telephone: (650) 697-6000 Facsimile: (650) 697-0577 Attorneys for Plaintiffs IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF ALAMEDA EDWARD BALLIS AS THE TRUSTEE OF THE JULIA LYNN BALLIS TRUST, JESSICA BETH BALLIS TRUST AND STEPHANIE ANN BALLIS TRUST, et al., Plaintiffs, Vs. MAGNETIC IMAGING AFFILIATES, LLC, et al., Defendants. CASE NO. RG16813064 ASSIGNED FOR ALL PURPOSES TO JUDGE JULIA SPAIN DEPARTMENT 19 PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEMURRER Date: September 22, 2016 Time: 2:30 p.m. Dept: 19 Judge: Honorable Julia Spain Complaint filed: April 25,2016 RESERVATION NO.: R-1775292 PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 OO 0 NN A N nh A W N N O N N N N N N mm e m e m e e e b e b e t ed fe d pe C O ~~ AA L n A W N = O VO 0 N N N N l W N = Oo Law Offices COTCHETT, PITRE & MCCARTHY, LLP TABLE OF CONTENTS Page L INTRODUCTION ...ccovrirrrrrererrreressessessessssesesssssasstsesesaseseresstssssssssessssssssissssssssssssnsssssassens 1 IL FACTUAL ALLEGATIONS .....u0msnmssmsssmssisonisnsseossssssosamsss masses sss ommes sons 1 A. THE PATLIES .csecsursrersummsonmsansavssnssasssssnssassnerasssssnpransapraneanserssnsassasisnbesessntibssisassisiensinsins 1 1. PIATTHIEES. oo esos onevmons nmmomsssssmsssins mises sss sas sms yo sss eS oI ER AFA ERS Seaman 1 2, DEfEndant...........ccoveveererreereeriereenrerenesserseneressesosesesssessssnessessisssssesssssssrsonseses 1 B. Relevant Facts Alleged in the Complaint ..........cccoveiiiinnieniininniiiireneninenensinnens 1 III. STANDARD OF REVIEW ......ccccvrnrrereniriniiriseseensssresssnssisissiiisisssnsiisessenissssssssssssasissens 2 IV: LEGAL ARGUMERIT iu uxs corussasssnsavsnnsssises sores sissies vss sis essa ses ass soon sen esses 3 A. Plaintiffs Sufficiently Allege Aiding and Abetting Breach of Fiduciary Duty AGAINST MIA ....oovrireircrerereeseesenereescs esses netsee seen ss se sstsbsse sassssnssismasssssessasnsasasnes 3 B. Plaintiffs Sufficiently Allege Intentional Interference with Prospective Economic Advantage Because MIA Interfered With Plaintiffs’ Inability to Vote On and Bid for the Partnership ASSets.......ccceccvcvererereniinninninininininiinn, 6 C. Plaintiffs Sufficiently Allege Negligent Interference with Prospective Economic AQVANtage .........cceeveeererimrinieisiisesmsiesisesissesiiississssessssssssssssssssssssossassens 8 D. The Damages Are Not Speculative .........cveicvneniiiinieiinennneniecennnessesesseseens 9 V. CCN CTL LTS TCI cscs 5450 5 SRB SAS REE EA SOSA 10 PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 i © 0 0 N N Wn BR W N N O N ND N N N N N N mm e m em be m e t mt em e d e k pe t 00 ~ N AA Wn BA W N = O DV N N N RR W N = O Law Offices COTCHETT, PITRE & MCCARTHY, LLP TABLE OF AUTHORITIES Page(s) Cases American Master Lease LLC v. Idanta Partners, Ltd. (2004) 225 Cal. APP Ath TAS] ........ereneemsiiiicomss smsasessssssss fos davis sss asa os s53 sR 3 5003 3,5 Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal. APPdth DAF svcssmumessavmmsssmosmmmessmemssmsmsmesssss ve ss A I ORS HEA SSSI 9 Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal App Atl 1138 mvmmsosemmessmmsmmmsmassmssmmsssamsmmsanmsispsmssssns 5,6 Certified Grocers of California, Ltd. v. San Gabriel Valley Bank (1983) 150: Cal. App.3d 281 susmmmamnemmmmmoamnammemeommmsmmunmr m ss ore u es my 5 Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197 cee ireererrerrererresrece eset senses cress sassasssessesssanssnsbesesasssstersesssnsnsssnnns 10 Diamond Multimedia Systems, Inc. v. Superior Court (1999) 19 Caldth 1036 ....ceceeeceerreinrecneserieriisisrestsresesresssesississsessssssessssnessasesssssssssasssssessasases 2 Donabedian v. Mercury Ins. Co. (2004) 116 Cal. ApP.Ath 968 ............coniovsissssn isis isvannsmvssmaseims ass soso sss sass vasa am aw 3 Everest Investors 8 v. McNeil Partners (2003) 114 Cal. ApPPAH 311 wcommsos mummies sisssssmsssmss sma sss sams omosainssmsssss 4,7,9 Garcia v. Duro Dyne Corp. (2007) 156 Cal. App Ml 92 scmswmemsecnsrmmssmummasmsmonsssosmmamsn as sy ess rns ssa ws 10 Heckmann v. Ahmanson (1985) 168 Cal. APDP.3A 119... sie ssesssssassessessessesssssaesnsanssesssnseassens 5 J'Adire Corp. v. Gregory (1979) 29 Cal, 30d 799 .urervosmmrmmssesrummsrssmmsssssnmnsasnessosmsansassnsanssnranenind Sib 665856 4 TATIITSITEVOF RIFE 9 Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal 4th. 1134.........cconeecrsencnrmsimmnasssmmsrssssmssmsussisss r sess sues ass asa coms Hesse 8 Lange v. TIG Ins. Co. (1998) 68 Cal. APP.Ath 1179 ...eeeeeeeerererecreerecceeeieecisae esac seseesessssesses ss seneneesssaesssnesesisnen 9 McDonald v. Superior Court (1986) 180 CAIADD IU 207 usurnsmrunsamnsns sos tds i 6.0 boibod oad 6453650435705 4055065 SEN 63 ATTA HAATTIES 10 McKenney v. Purepac Pharmaceutical Co. (2008) 167 Cal. APPAth TZ sn cscovemsssusvemmnsimmmessnonanmsssens mses sans son a sama vos sxua ass 3 Nasrawi v. Buck Consultants LLC (2014) 231 Cal. App:dth 328 ..oimmmmmmmmunmsmmssrmammnamnssssommgpm emo 3,4 PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 ii © 0 3 O&O wn hs W N N O N N N N O N N N em e m em e m e e e m Ee be e b ~~ O y hh Re W N = O O 0 N N R W N N = O 28 Law Offices COTCHETT, PITRE& MCCARTHY, LLP Rodas v. Spiegel (2001): 87 Cal APPA S13. oun cums summonses ness usm ss vss ses essms sss s os soi sess ans essssrases 2 Venhaus v. Shultz (2007) 155 Cal. APP.Ath 1072 ....c.voviivrererecrereirecenesceseesessseesssnssestssessorsssesnssesssssssssssensassasnes 9 Westside Ctr. Assocs. v. Safeway Stores 23, Inc. (1996) 42 Cal. APP. 4th S07 ....ceovrerrerecrriinrinricicncesceesreie tesserae sess sas sas nsbessessonas 7 Youst v. Longo (1987) 43 Cal.3A 64... essere rset esas sacs ss aas bebe sess sas esas sass sass sas en ss anaseben 7 Statutes Code Civ. Proc. 8 BBD mamas vassal RR SE RS SF NS ER EE AE ERR SS EAVES Sa EYOTA 2 Other Authorities 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, GIBB] ...eerearrmrensnrerornesmronenssnsonsanennsnne ss save som si TREES SSR SOTA ATA NE EA FERAL AAT FSV SINGER RRSTINSY 9 Judicial Council of California Jury Instructions CAGE D208 ix 050005505 5n05050 ois 0555053555853 43H A SL FAS SE SR SETS GS LUMAR FARIS 9 PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 . iii OO 0 N y n n B R A W N = N O N N R N N N N N N em e m e m p m e m pe e e = e s WW 1 AN Wn bh W N = C D V N N N RE W N = O Law Offices COTCHETT, PITRE & MCCARTHY, LLP L INTRODUCTION Magnetic Imaging Affiliates, LLC (“MIA”) purchased the assets of Magnetic Imaging Affiliates, LLP (“the Partnership”), a limited partnership in which Plaintiffs were limited partners. MIA aided and abetted the breach of fiduciary duty of the General Partners of the Partnership and intentionally or negligently interfered with Plaintiffs’ prospective economic advantage to obtain the assets. MIA used confidential information provided by the General Partners to purchase the assets of the Partnership at an undervalued price. This opportunity should have been presented to Plaintiffs, but MIA either intentionally or negligently interfered with Plaintiffs’ opportunity. Plaintiffs have sufficiently alleged causes of action for aiding and abetting breach of fiduciary duty and intentional and negligent interference with prospective economic advantage. Therefore, the Court should overrule the demurrer in its entirety or give Plaintiffs leave to amend. II. FACTUAL ALLEGATIONS A. The Parties 1. Plaintiffs Plaintiffs were limited partners in the Partnership. Complaint § 10 (hereinafter all paragraph references are to the Complaint). 2, Defendant Defendant MIA, which includes certain General Partners of the Partnership, purchased the assets of the Partnership at an undervalued price. 11. B. Relevant Facts Alleged in the Complaint “In 1985, a group of physicians and medical groups formed a limited partnership, Magnetic Imaging Affiliates, LLP (“the Partnership”), to operate a needed magnetic resonance imaging (MRI) outpatient center in Oakland, California. Despite the great risk taken on by the Limited Partners at the beginning of the Partnership, the business flourished over time and was to continue to operate profitably into the future.” {9 1, 46-47; see also { 16-45. By the terms of the Partnership’s agreement, the Partnership expired in April of 2015. 12, 43. PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 1 OO 0 N N N Wn BR W N N o [3 N o [3 8 N o N N N o - - - - - - - - - - N A A n s W N = O 0 0 N N A W N = Oo 28 Law Offices COTCHETT, PITRE & MCCARTHY, LLP The General Partners of the Partnership acknowledged their fiduciary duties to the Limited Partners. 4921, 37. “Although the Limited Partnership did not have the right to manage the Partnership, they had the right to vote ‘upon the sale or exchange of substantially all of the Partnerships’ property,...”” q 24 quoting Offering Memorandum at p. 90; see also § 44. During the partnership dissolution process, the Partnership’s General Partners usurped a Partnership business opportunity for themselves and formed a new entity to take over the exact same business as the Partnership. { 2, 56, 68, 69. MIA is comprised of some of the General Partners of the Partnership; thus MIA has knowledge of the breaches of duty of the General Partners. 940, 51, 74. The General Partners engaged in self-dealing. They created a new entity, Defendant MIA, sold the assets to Defendant at an undervalued price, did not offer to share this opportunity with the Limited Partners even though they had a duty to do so, did not seek the Limited Partners approval as required in the Partnership Agreement, and continued to operate the business to the exclusion of the Limited Partners. {{ 51-60, 68-69. MIA substantially assisted the breach of fiduciary duty by the General Partners by using confidential information to purchase the Partnership’s assets at an undervalued price. §{58, 64, 67, 74. MIA also intentionally or negligently interfered with Plaintiffs’ business opportunity, the sale and purchase of the Partnership assets. §{ 11, 61-69, 80, 87. MIA benefitted, and Plaintiffs were damaged, by MIA continuing the business of the Partnership at the same location, and using the same location, equipment, and employees to serve the same patients. § 69. III. STANDARD OF REVIEW In determining the merits of a demurrer, all facts pleaded in the complaint and those that arise by reasonable implication are assumed to be true. (Rodas v. Spiegel (2001) 87 Cal. App.4th 513,201 [104 Cal.Rptr.2d 439].) The “allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc. § 452.) The court must give the complaint a reasonable interpretation by reading it as a whole and all of its parts in their context. (Diamond Multimedia Systems, Inc. v. Superior Court (1999) 19 Cal.4th 1036, 1058 [80 Cal.Rptr.2d 828, 968 P.2d 539].) A demurrer is limited to issues of law, not fact, regarding the legal sufficiency of the complaint. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal. App.4th PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 2 OO 0 ~~ a wn ph W N N N N N N N N N N e m e a e k p d e m e d e m E t 0 0 ~ N A nn A W N = O O X N N N N R W N = O Law Offices COTCHETT, PITRE & MCCARTHY, LLP 968, 994 [11 Cal.Rptr.3d 45); see also McKenney v. Purepac Pharmaceutical Co. (2008) 167 Cal.App.4th 72, 77-78 [83 Cal.Rptr.3d 810] [demurrer tests legal sufficiency not truth of plaintiffs allegations or the ability of the plaintiff to prove the allegations].) IV. LEGAL ARGUMENT A. Plaintiffs Sufficiently Allege Aiding and Abetting Breach of Fiduciary Duty Against MIA The gravamen of Plaintiffs’ first cause of action is that MIA aided and abetted the breach of fiduciary duties by the General Partners of the Partnership. Defendant correctly states the elements for alleging aiding and abetting breach of fiduciary duty. Plaintiffs must allege: “MIA, LLC had actual knowledge of the breach of fiduciary duties, (2) facts to support substantial assistance or encouragement by MIA, LLC to the breach; and that (3) MIA LLC’s conduct was a substantial factor in causing harm to plaintiff.” (MIA’s Brief at 6:14-17 citing Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 343 [179 Cal.Rptr.3d 813].) There is no requirement that MIA owe a duty to Plaintiffs. (American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal. App.4th 1451, 1477-78 [171 Cal.Rptr.3d 548].) Plaintiffs have sufficiently made these allegations. The court in Nasrawi applied the same analytical framework that this Court can use to review Plaintiffs’ allegations: “[T]o analyze the sufficiency of [plaintiffs’] claim for aiding and abetting breach of fiduciary duty, we must first ‘identify precisely the breach of fiduciary duty for which [plaintiffs] seek[] to hold [Buck and Loeb] liable.” The asserted breach of fiduciary duty was the Association’s deliberate underfunding of the pension plan. . . The fifth amended complaint adequately alleged each of the requisite elements of a claim for aiding and abetting a breach of fiduciary duty. First, it alleged that the Association breached its fiduciary duties to plaintiffs by (1) using an “unrealistic and imprudent” assumed actuarial rate of return of 8.16 percent; (2) adopting a schedule of negative amortization of the system’s unfunded liability for earned benefits; (3) intentionally managing the pension fund to ensure that it was always less than 90 percent funded, thereby avoiding certain employer contributions (i.e., cost-of-living adjustments); (4) using pension fund assets to substitute for the County’s employer contributions; and (5) transferring assets from nonvaluation reserves to valuation reserves. Second, the complaint alleged that Buck and Loeb knew of that conduct and that the Association was breaching its fiduciary duties to plaintiffs. Third, plaintiffs alleged that Buck and Loeb gave “substantial encouragement and assistance” to the Association’s breach by (1) failing to disclose and warn about the consequences of the Association’s practices, (2) verifying the actuarial soundness of those practices, (3) and knowingly and falsely PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 3 NO c o ~~ aN wi + w No bt N N N N N N N N N mm e m e m e m e m e m e m 0 0 ~~ O N Wn ea W N = O O YW 0 N Y R W N N -= OO Law Offices COTCHETT, PITRE& MCCARTHY, LLP representing to trust fund beneficiaries at public meetings between 2005 and 2009 that the Association’s practices were actuarially sound. Fourth, the complaint alleges Buck and Loeb’s conduct proximately caused economic injury to the pension trust fund. (/d. at 343-344 [internal citations omitted].) First, Plaintiffs allege that the General Partners owed a fiduciary duty to Plaintiffs. { 21, 37,72. It is black letter law that a general partner owes a fiduciary duty to the limited partners. (Everest Investors 8 v. McNeil Partners (2003) 114 Cal. App 4th 411, 424 [8 Cal.Rptr.3d 31].) In proceedings connected with the conduct of a partnership, partners are bound to act in the highest good faith to their copartners and may not obtain any advantage over them in the partnership affairs by the slightest misrepresentation, concealment, threat or adverse pressure of any kind. A general partner of a limited partnership is subject to the same restrictions, and has the same liabilities to the partnership and to the other partners as in a general partnership. The fiduciary obligations of a general partner with respect to matters fundamentally related to the partnership business cannot be waived or contracted away in the partnership agreement. (/d. [internal citations omitted].) Here, Plaintiffs allege that the breach of fiduciary duty was the General Partners’ self- dealing, obtaining the Partnerships’ assets for themselves, not offering the opportunity to Plaintiffs, and using a confidential, undervalued amount for the Partnership’s assets. 56, 58- 60, 68-69, 72-73. Second, Plaintiffs allege that the General Partners breached that duty. 451-60, 72-73. General Partners cannot engage in self-dealing even at the end of the partnership, but instead must share any prospective business opportunity with the Limited Partners: “A partner’s fiduciary duty extends to the dissolution and liquidation of partnership affairs, as well as to the sale by one partner to another of an interest in the partnership. A partner may not dissolve a partnership to gain the benefits of the business for himself, unless he fully compensates his copartner for his share of the prospective business opportunity. Such a partnership opportunity may not be appropriated by one partner to the detriment of a copartner even after dissolution.” (Everest Investors 8, 114 Cal.App.4th at 424-425 [emphasis added].). Here, the General Partners created a new entity, the Partnership sold the assets to Defendant MIA at an undervalued price, the General Partners did not offer to share this opportunity with the Limited Partners even though they had a duty to provide the opportunity, the General Partners did not seek the Limited Partners approval as required in the Partnership Agreement, and the General Partners, through PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 4 OO 0 ~~ O N Wn hse W N nN N o N d ND N o N o N o N o - - - - - - - - - - ~ MN wn E- N Ww N o - oO \ O o o ~) aN wn $a w N o -_ oS 28 Law Offices COTCHETT, PITRE & MCCARTHY, LLP MIA, continued to operate the business to the exclusion of the Limited Partners. 9 51-60, 68- 69. Thus, the Complaint sufficiently alleges the breach of fiduciary duty. Third, Plaintiffs sufficiently allege MIA aided and abetted this breach of duty by showing knowledge and substantial assistance. The Complaint alleges that MIA actually knew of the breaches of fiduciary duty because the General Partners were part of MIA. f 64, 74. The Complaint also alleges that MIA provided substantial assistance through MIA obtaining confidential information belonging to the Partnership and then purchasing the Partnership assets for an undervalued amount. 58, 64, 67, 74. Plaintiffs also sufficiently allege causation: “As a result of the conduct of the Defendants and each of them, Plaintiffs have suffered substantial economic loss and other general and specific damages all in an amount to be determined according to proof at the time of trial.” 75. Defendants argue that: “The Complaint does not (and cannot) plead facts that show that MIA, LLC “provided assistance that was a substantial factor in causing the harm suffered.” (MIA’s Brief at 6:17-20 citing without any discussion or analysis to American Master Lease, 225 Cal.App.4th 1451 at 1476.) Yet, the court in American Master Lease, upheld the allegations of substantial assistance without discussion. (/d. at 1477-78.) Almost any type of substantial assistance with knowledge of the underlying wrong is sufficient. In Certified Grocers of California, Ltd. v. San Gabriel Valley Bank (1983) 150 Cal.App.3d 281, 285, 289 [197 Cal. Rptr. 710], for example, the Court of Appeal held that a bank’s routine service of cashing checks for the wrongdoing was sufficient to constitute substantial assistance. In Heckmann v. Ahmanson (1985) 168 Cal.App.3d 119, 127 [214 Cal.Rptr. 177], the Court of Appeal stated that if directors of a corporation had breached their fiduciary duty to the stockholders, the defendant could be held jointly liable as an aider and abettor because the defendant knew it was reselling its stock at a price considerably above market value to enable the directors to retain control of the corporation. In Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal. App.4th 1138, 1144 [26 Cal.Rptr.3d 401], plaintiff, a trustee, alleged PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 5 O O N N N n v RA W N N O N N N N N N O N = e s e m e m e a e d e m e d e e N N G h A W N = O D 0 N N R W O N = O 28 Law Offices COTCHETT, PITRE & MCCARTHY, LLP that bank defendants were liable for aiding and abetting by allowing the fiduciaries’ “skullduggery in connection with the bank accounts (e.g., opening accounts for sham business entities, transferring money from those accounts to themselves through forged checks and checks that exceeded monetary restrictions, and carrying away huge, unreported sums of cash in unmarked duffel bags” was sufficient for substantial assistance. The court held that the allegations of substantial assistance were sufficient: “[Clommon sense tells us that even ‘ordinary business transactions’ a bank performs for a customer can satisfy the substantial assistance element of an aiding and abetting claim if the bank actually knew those transactions were assisting the customer in committing a specific tort. Knowledge is the crucial element. We thus reject the banks’ challenge to the sufficiency of the substantial assistance allegations...” (Id. at 1145 [26 Cal.Rptr.3d 401].) Thus, Plaintiffs’ allegations here that MIA, with knowledge of the General Partners’ wrongful acts, substantially assisted the breach of fiduciary duty by the General Partners by using confidential information to purchase the Partnership’s assets at an undervalued price are sufficient. 158, 64, 67, 74. The Court should overrule MIA’s demurrer to the First Cause of Action because there is nothing uncertain about the allegations, and Plaintiffs have sufficiently alleged each element to establish MIA’s aiding and abetting breach of fiduciary duty. B. Plaintiffs Sufficiently Allege Intentional Interference with Prospective Economic Advantage Because MIA Interfered With Plaintiffs’ Inability to Vote On and Bid for the Partnership Assets Plaintiffs have sufficiently alleged intentional interference with prospective economic advantage. MIA correctly states the elements of intentional interference with prospective economic advantage: “‘(1) [a]n economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (MIA Brief at 7:7-13 quoting Youst PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 6 NO 0 NN NN AE W N BN NN N R N N N N e m e m em e m em pe d p t pe t p s N Y Lr A W N = O Y N S N E d w N = 28 Law Offices COTCHETT, PITRE & MCCARTHY, LLP v. Longo (1987) 43 Cal.3d 64, 71, fn. 6; see also CACI 2202.) MIA is incorrect that Plaintiff has failed to plead the cause of action. First, Plaintiffs have sufficiently pled the economic relationship with a third party. “Although varying language has been used to express this threshold requirement, the cases generally agree it must be reasonably probable that the prospective economic advantage would have been realized but for defendant’s interference.” (Youst v. Longo, 43 Cal.3d at 71; see also Westside Ctr. Assocs. v. Safeway Stores 23, Inc. (1996) 42 Cal. App. 4th 507, 524, [49 Cal. Rptr. 2d 793] [“With respect to the first element, the tort of interference with prospective economic relations applies to ‘interference with existing noncontractual relations which hold the promise of future economic advantage. In other words, it protects the expectation that the relationship eventually will yield the desired benefit, not necessarily the more speculative expectation that a potentially beneficial relationship will eventually arise.’ (Citation)”].) Plaintiffs do not, as MIA suggests, rely on the Partnership’s competitors for the existence of the economic relationship. (MIA Brief at 7:15-17.) Instead, as the Complaint alleges the relationship is between Plaintiffs and the General Partners: “At all relevant times, Plaintiffs enjoyed an economic relationship with Magnetic Imaging Affiliates, LLP and were Limited Partners in the Partnership which owned a successful MRI business.” 79. This relationship was not speculative. To the contrary, the General Partners had fiduciary duties based upon an existing partnership contract not to usurp Partnership assets. Instead, the General Partners had a duty to offer the assets to the Limited Partners or pay them a fair price for the assets, which did not occur. (Everest Investors 8, 114 Cal.App.4th at 424-425.) The General Partners also failed to seek the Limited Partners’ vote of the proposed sale as required by the Partnership Agreement. 959. Therefore, absent the interference, it is reasonably probable that the prospective economic advantage would have been realized. Second, MIA, which included some of the General Partners of the Partnership, had knowledge of the relationship. 49 11, 64, 68, 80. Third, Plaintiffs have sufficiently alleged intentional independently wrongful conduct’ designed to disrupt the relationship and which did disrupt the relationship. The Supreme Court PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 7 OO 0 NN A N nn RAR W N e s NY N N N D N N N o d e e d e e 0 J O N Un B R A W N = O O N N R W N = Law Offices COTCHETT, PITRE & MCCARTHY, LLP has explained that “an act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1159 [131 Cal.Rptr.2d 29, 63 P.3d 937].) Here, the Complaint alleges that MIA knowingly obtained confidential information of the Partnership. 1 63, 64, 67, 80. Obtaining this information wrongfully is theft or misappropriation, both of which are unlawful acts. Defendant argues that using the valuations obtained by the Partnership to sell the Partnership cannot be wrongful, but that is a jury question. Plaintiffs allege that the General Partners retained the valuation companies, the valuations prohibited the use of the valuations for sale purposes, and the information was confidential information of the Partnership. { 61-67. Specifically, Plaintiffs allege: “Based on this confidential and diminished appraisal, Defendant Magnetic Imaging Affiliates, LLC knowingly made an undervalued ‘offer’ to the General Partners.” § 67. These facts are sufficient to establish the wrongful conduct. MIA benefitted from this opportunity by continuing the business of the Partnership under an almost identical name using the same location, lease, licenses, equipment, and employees to serve the same patients. § 69. For purposes of a demurrer, where Plaintiffs’ allegations are accepted as true, the allegations are sufficient to show wrongful conduct by MIA. Cs Plaintiffs Sufficiently Allege Negligent Interference with Prospective Economic Advantage MIA correctly cites the general elements of negligent interference with prospective economic advantage. Negligent interference with prospective economic relations requires: “(1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 8 OW 00 ~~ O N Wn h h Ww NN N O R O N N N N N N N em e m e m e m e m p m p m p d e e C 0 J O N Wn Hh W N = O O DO 0 0 N N Wn R W = OO Law Offices COTCHETT, PITRE & MCCARTHY, LLP advantage reasonably expected from the relationship.” (MIA’s Brief at 8:25-9:8 citing Venhaus v. Shultz (2007) 155 Cal.App.4th 1072, 1078 [66 Cal. Rptr.3d 432]; see also CACI 2204.) MIA also states that the defendant must owe a duty to the Plaintiff. For this cause of action, however, the duty is not the traditional tort duty. As explained by Lange v. TIG Ins. Co., relied upon by MIA: “As Professor Witkin explained, among the criteria for establishing a duty of care is the ‘blameworthiness’ of the defendant’s conduct. (Lange v. TIG Ins. Co. (1998) 68 Cal.App.4th 1179, 1187 [81 Cal.Rptr.2d 39 citing 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 661, p. 755; J'Aire Corp. v. Gregory (1979) 24 Cal. 3d 799, 805 [157 Cal. Rptr. 407, 598 P.2d 60].) As set forth above regarding intentional interference, Plaintiffs have sufficiently alleged the requisite economic relationship, MIA’s knowledge, its acts, which if they are not intentional, are negligent, and proximate cause. They are set forth in the third cause of action. | 85-89; see also §f 61, 67, 69, 78-82. MIA contends that “plaintiffs knew the partnership was going to expire; they never objected to a sale in place rather than a liquidation (because they stood to make more money in a sale), they neither sought nor secured an alternative buyer, nor did they make any attempt to purchase the business for themselves,” but MIA cites no legal authority showing that Plaintiffs had any duty to act. MIA Brief at 9:23-26. As previously explained, it is the General Partners who owe the duty not to self-deal even at dissolution, and the Partnership Agreement required them to obtain the Limited Partners’ consent. (Everest Investors 8, 114 Cal. App.4th at 424-425; 9951-60.) Therefore, Plaintiffs have every right to bring a lawsuit at this time. D. The Damages Are Not Speculative Plaintiffs will be able to prove lost profits at trial with the specificity the law requires based upon the wrongful acts of Defendant. The business of the Partnership was an established MRI business with a recent history of profits (after Plaintiffs had borne the risks when it was an unestablished business). J 1, 46-47; see also |{ 16-45. “It is for the jury to determine the probabilities as to whether damages are reasonably certain to occur in any particular case. (4sahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945, 972 [166 Cal.Rptr.3d 134] PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 9 OO © ~~ O N nn A W N N O N N N N N N N m= em t e d mm pe t e e p m e m p m e d N S N B R A W N = C D N N N R W ND = O 28 Law Offices COTCHETT, PITRE & MCCARTHY, LLP [citing Garcia v. Duro Dyne Corp. (2007) 156 Cal.App.4th 92, 97 [67 Cal.Rptr.3d 100]].) Where, as in this case, the Defendant has caused any difficulty, the standards to prove lost profits are less stringent: Where the fact of damages is certain, the amount of damages need not be calculated with absolute certainty. The law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation. This is especially true where ... it is the wrongful acts of the defendant that have created the difficulty in proving the amount of loss of profits or where it is the wrongful acts of the defendant that have caused the other party to not realize a profit to which that party is entitled. (Id. at 972-973 [internal citations and quotations omitted].) For demurrer purposes, the facts are accepted as true, no matter how difficult proof might be at trial. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214 [197 Cal.Rptr. 783, 673 P.2d 660].) It is not an ordinary business risk that the General Partners of a partnership and a third party, in this case, MIA, would act wrongfully and damage Plaintiffs. The Complaint alleges that MIA “obtained the business at an undervalued price based upon confidential information it knowingly and improperly received from the General Partners.” 4 58, 74, 82, 89. Plaintiffs have sufficiently alleged damages that are not speculative. V. CONCLUSION For the reasons set forth above and good cause, the Court should overrule MIA’s demurrer in its entirety. Alternatively, the Court should allow Plaintiffs an opportunity to amend. McDonald v. Superior Court (1986) 180 Cal.App.3d 297, 303-304 [“Unless the complaint shows on its face that it is incapable of amendment, denial of leave to amend constitutes an abuse of discretion, irrespective of whether leave to amend is requested or not.”]. Dated: September _\ ,2016 COTCHETT, PITRE & McCARTHY, LLP " MAN ys for Plaintiffs PLAINTIFFS’ MPA IN OPPOSITION TO DEMURRER; Case No. RG16813064 10 wn B= W N Oo © 9 A 10 11 12 13 14 15 16 17 18 19 20 21 99 23 24 25 26 27 28 Law Offices COTCHETT, PITRE & MCCARTHY, LLP PROOF OF SERVICE I am employed in the County of San Mateo. I am over the age of 18 years and not a party to this action. My business address is the Law Offices of Cotchett, Pitre & McCarthy, LLP, San Francisco Airport Office Center, 840 Malcolm Road, Burlingame, California, 94010. On this day, [ served the following document(s) in the manner described below: PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEMURRER Vv BY OVERNIGHT MAIL: Iam readily familiar with this firms practice for collection and processing of correspondence for mailing. Following that practice, I placed a true copy of the aforementioned document(s) in a sealed envelope, addressed to each addressee, respectively, as specified below. The envelope was placed in the mail at my business address, with postage thereon fully prepaid, for deposit with the United States Postal Service on that same day in the ordinary course of business. v COURTESY COPY VIA E-MAIL: My e mail address is pluc@cpmlegal.com. Iam readily familiar with this firm’s practice for causing documents to be served by e-mail. Following that practice, I caused the aforementioned document(s) to be emailed to the addressee(s) specified below. Nicole S. Healy Attorneys for Defendant Todd A. Roberts MAGNETIC IMAGING AFFILIATES, Michon M. Spinelli LLC Ropers Majeski Kohn & Bentley PC 1001 Marshall Street, Suite 500 Redwood City, CA 94063-2052 I declare under penalty of perjury, under the laws of the State of California, that the foregoing is true and correct. Executed at Burlingame, California, on September 9, 2016. oe -- 7 PETER LUC PROOF OF SERVICE; CASE NO. RG16813064