Opposition

Cal. Super. - 3rd Dist.June 10, 2021

1 OPPOSITION TO MOTION TO STRIKE FIRST AMENDED COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Kurt D. Hendrickson, State Bar No. 251509 Chase A. Meister, State Bar No. 332123 KDH Law 2101 Stone Blvd., Suite 115 West Sacramento, CA 95691 916.993.5226 Kurt@KDHendrickson.com & Chase@KDHendrickson.com Attorneys for Richard E. Ryan SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF PLACER RICHARD E. RYAN, a natural person, Plaintiff, v. PALMER CAPITAL, INC., a California corporation; WILLIAM S. PALMER, a natural person; and DOES 1 through 10, inclusive, Defendants. CASE NO. S-CV-0046844 PLAINTIFF RICHARD E. RYAN’S OPPOSITION TO MOTION OF DEFENDANTS PALMER CAPITAL, INC. AND WILLIAMS. PALMER TO STRIKE PLAINTIFF’S FIRST AMENDED COMPLAINT DATE: January 13, 2022 TIME: 8:30 a.m. DEPT.: 42 Complaint Filed: June 10, 2021 Trial Date: TBD Plaintiff RICHARD E. RYAN (“RYAN”) hereby submits the following opposition to the Motion of Defendants Palmer Capital, Inc. and William S. Palmer to Strike Plaintiff’s First Amended Complaint (the “Motion”) filed by Defendants PALMER CAPITAL, INC. (“PCI”) and WILLIAM S. PALMER (“PALMER”) in an attempt to seek a line-item veto against certain portions of the First Amended Complaint (the “FAC”). I. INTRODUCTION As a matter of law, RYAN will maintain the portions of his FAC against PCI and PALMER. PCI and PALMER’s efforts to maintain a request for line-item veto by motion practice must be overruled as a matter of California law. It is well established that courts in 2 OPPOSITION TO MOTION TO STRIKE FIRST AMENDED COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 California will not permit defendants to “line-item veto” or redraft a plaintiff’s complaint. (See PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1683.) This opposition (the “Opposition”) summarily sets forth the errors in PCI and PALMER’s arguments and contentions in support of their instant Motion. In sum, PCI and PALMER are primarily seeking to gut the pleadings in an effort to delete the properly pled allegations that support RYAN’s claim of alter ego against PALMER. PALMER seeks to redact the portions of the FAC that fully set forth his alleged personal and unfettered use of corporate assets such as the Lear jet. Further, PALMER seeks to redact and have allegations and banking records that demonstrate that PALMER appears to have been the payor of RYAN’s employee compensation - and not PCI. PCI and PALMER contend that allegations within the FAC violate “the Court’s October 7, 2021 Minute Order striking” certain allegations.” (Memorandum of Points and Authorities in Support of Defendants’ Motion to Strike First Amended Complaint (“P&A’s”), p. 5.) This contention is not correct. The allegations in question concerning the Lear jet and the PPP loan have been substantially altered in a form to more expressly and demonstrably establish the alter ego theory that the Court originally stated was not pled sufficiently with facts and allegations. II. ANALYSIS OF THE PLEADINGS PCI and PALMER initially set forth a “summary” of the pleadings within the memorandum of points and authorities in support of the Motion. (P&A’s, p. 5.) PCI and PALMER’s summary of the pleadings focus on pointing to certain portions of the FAC primarily concerning the government bailout program upon application for substantial PPP loan funds and elements of PALMER’s purported wealth. The pled allegations are proper and establish the alter ego theory pled by RYAN. Of note, PCI and PALMER point to a purported contradiction within the pleadings between the pled allegation that PCI owns title to a jet aircraft and the allegations that PCI would not have substantial assets to pay a judgment. (P&A’s, p. 7.) PCI does own a Lear jet. However, it is unclear how much debt encumbrance may be placed against the asset. The Lear jet is not a 3 OPPOSITION TO MOTION TO STRIKE FIRST AMENDED COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 common business asset to be owned by a middle-market real estate brokerage firm with approximately twenty (20) employees as demonstrated by the PCI website. Also, a used Lear jet sold in distress very likely may not be able to satisfy the pled damages of $7,456,832.40 in this case. (FAC, p. 35.) Upon initial investigation, the remaining non-cash assets of PCI appear to be comprised primarily of computer and server hardware as well as office furniture and not much else. Accordingly, the allegations that PCI has a jet yet would have no real other assets to ultimately pay a judgment in this case are not contradictory. III. MEET AND CONFER EFFORTS PCI and PALMER’s summary of the meet and confer efforts of the counsel for all parties is accurate. (See P&A’s, p. 7.) The declaration of PCI and PALMER’s counsel is also accurate. (Id.; see also Declaration of Cassandra M. Ferrannini.) There is no dispute concerning the meet and confer efforts between RYAN and PCI/PALMER. As PCI and PALMER. IV. LEGAL STANDARD & ANALYSIS PCI and PALMER’s Motion simply fails as a matter of law. In ruling on a motion to strike, the Court reads the complaint as a whole, all parts in their context, and assumes the truth of all well-pleaded allegations. (See Turman v. Turning Point of Central California, Inc. (2010) 191 Cal.App.4th 53, 63, citing: Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.). However, Courts have absolutely “no intention of creating a procedural ‘line-item veto’ for the civil defendant.” (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1683.) In the instant Motion, PCI and PALMER seek to strike several portions of the FAC; specifically, by striking portions of certain properly pled paragraph sections. In short, PCI and PALMER’s contentions are not consistent with California law and fail to meet the burden required to file such motion to have portions of the FAC struck. PCI and PALMER’s renewed attempt at line-item vetoes of RYAN’s supplemented FAC should be overruled by the Court. PCI and PALMER set forth the rule on the sham pleading doctrine within their P&A’s. (P&A’s, p. 7.) The sham pleading doctrine is inapplicable in this case. “A pleading is a sham when ‘a party files an amended pleading and attempts to avoid defects of original complaint by 4 OPPOSITION TO MOTION TO STRIKE FIRST AMENDED COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 either omitting facts that rendered prior complaint defective or adding facts inconsistent with prior allegations.’” (P&A’s p. 7-8 citing: Lockton v. O’Rourke (2010) 184 Cal.App.4th 1051, 1061.) In the instant matter, RYAN has not omitted facts and RYAN has also not added facts that are inconsistent with his prior allegations. Rather, RYAN has supplemented his allegations by filing the FAC. RYAN’s FAC primarily bolsters the alter ego theory against PALMER and additionally RYAN has demonstrated that PALMER was his de facto employer. Ultimately, the policy of the law is to construe the pleadings “liberally … with a view to substantial justice” (Code of Civil Procedure, section 452). Accordingly, the Court should view RYAN’s FAC with a liberal view to permit and allow RYAN to fully and adequately plead his allegations against PCI and PALMER in a way that affords RYAN justice and a full opportunity to be heard on the merits of his allegations against PCI and PALMER. “In ruling on a motion to strike, the allegations in the complaint are considered in context and presumed to be true: ‘[J]udges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth.’” (The Rutter Group California Practice Guide: Civil Procedure Before Trial - Attacking the Pleadings, B. Motions to Strike CACIVP CH 7(I)- b. [7:197.5] Allegations presumed true; citing: Clauson v. Superior Court (Pedus Services, Inc.) (1998) 67 Cal.App.4th 1253, 1255.) Consistent with California law, RYAN’ allegations within his FAC are to be presumed to be true and the allegations must be read as a whole and with context. The context of RYAN’s allegations are further discussed below. A. THE ALLEGATIONS IN THE FAC CONCERNING THE PPP LOAN SHOULD NOT BE STRICKEN Allegations in the pleadings are deemed to be true no matter how improbable the allegations may possibly seem. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604.) In the instant matter, the factual allegations in the FAC are more than sufficient with respect to the applicable cause(s) of action as it concerns the alter ego theory. (FAC, p. 5.) PCI and PALMER contend that the allegations within the FAC concerning the PPP loan violate the Court’s previous order. (P&A’s, p. 8.) This contention is not correct. The 5 OPPOSITION TO MOTION TO STRIKE FIRST AMENDED COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 allegations concerning the PPP loan have been substantially altered to demonstrably express the allegations and claims relevant to the alter ego theory pled against PALMER. PCI and PALMER ultimately contend that the funds from the forgiven PPP loan do not demonstrate financial hardship for PCI. (P&A’s, p. 9 (“The logic cannot be that PCI is presently insolvent when it had $560,560 of debt forgiven”) and (“…a PPP loan is an infusion of cash of cash that does not need to be repaid if certain conditions are met.”) PCI and PALMER’s logic presented in these contentions are flawed. First, in order to receive a PPP loan, the business (PCI) must certify that they needed the government bailout loan due to financial uncertainties.1 Second, the ‘certain conditions’ required to be met for a PPP loan to be forgiven require that the PPP funds be expended on such things as “payroll costs.”2 Hence, it is not likely that PCI has retained all that much, if any, of the PPP funds given that the funds needed to be expended. Thus, the forgiveness of a PPP loan certainly does not demonstrate a higher level of financial solvency. Given that PCI must have certified that the PPP loan was necessary to support its operations and that for PCI’s loan to be forgiven it must have expended a substantial amount of the loan pursuant to the Small Business Administration’s guidelines a degree of financial uncertainty and possible future insolvency has been demonstrated by RYAN’s FAC. The allegations related to the PPP loan are supportive of RYAN’s alter ego claims and should not be stricken. As discussed above, at the pleadings stage all allegations are deemed to be true, even if implausible. /// /// /// 1 See https://www.sba.gov/sites/default/files/2021-03/BorrowerApplication2483ARPrevisions%20%28final%203- 18-21%29-508.pdf (Applicant must certify that the loan is “…necessary to support the ongoing operations of the Applicant”) 2 See https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program/ppp-loan- forgiveness 6 OPPOSITION TO MOTION TO STRIKE FIRST AMENDED COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 B. THE ALLEGATIONS THAT WILLIAM S. PALMER IS RYAN’S EMPLOYER SHOULD NOT BE STRICKEN PCI and PALMER contend that “the allegations that William S. Palmer is Ryan’s employer should be stricken.” (P&A’s, p. 10.) This contention is primarily based off the Court’s previous Minute Order finding that PALMER was not RYAN’s employer based off the initial employment agreement signed by and between RYAN and PCI. (P&A’s, p.10 citing: RJN ¶3, Exh. C.) However, the Court’s Minute Order did grant RYAN leave to amend to allege further facts. RYAN has now pled and alleged further facts to demonstrate that PALMER was his de facto employer. “‘Employer’” means any person as defined in Section 18 of the Labor Code, who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” (Industrial Welfare Commission (“IWC”) Order No. 4-2001 Regulating Wages, Hours and Working Conditions in the Professional, Technical, Clerical, Mechanical and Similar Occupations.) Labor Code, Section 18 reads: “‘Person’ means any person, association, organization, partnership, business trust, limited liability company, or corporation.” RYAN’s FAC now expressly alleges: “PALMER was also RYAN’s employer. PALMER paid the full amount of compensation paid to RYAN for RYAN’s employment through PALMER’s personal funds from an account titled to PALMER’s name; not an account titled to PALMER CAPITAL’s name. A copy of the direct deposits from PALMER’s bank account to RYAN’s bank account at Bank of America is attached hereto this Complaint as Exhibit B.” (FAC, p. 9.) Exhibit B to the FAC is a true and correct copy of a banking record that identifies the payor of RYAN’s employee compensation as: “WILLIAM S PALMER DES:PAYROLL.” As discussed above, at the pleadings stage all allegations are deemed to be true, even if implausible. The demonstration of “WILLIAM S. PALMER DES:PAYROLL” as the payor demonstrates that PALMER was the payor of RYAN’s employee compensation and thus PALMER was a person that ‘employs or exercises control over the wages, hours, or working 7 OPPOSITION TO MOTION TO STRIKE FIRST AMENDED COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 conditions of’ RYAN. Consistent with the applicable IWC Wage Order, PALMER is demonstrated by the FAC and Exhibit B to be RYAN’s employer. Accordingly, these allegations should not be stricken. C. THE COURT SHOULD NOT STRIKE ALLEGATIONS REGARDING PCI’s PLANE OWNERSHIP NOR LACK OF OTHER ASSETS Much like the discussion above related to the PPP loan, the reference of PCI’s plane ownership is directed squarely to establish the alter ego theory that the Court previously ruled had not been fully established. PCI and PALMER contend that the allegations concerning the Lear jet and the Hawker are contradictory as now pled in the FAC. (P&A’s, p. 11.) This contention is not correct. RYAN has amended his allegations regarding the ownership of the jet as, upon investigation, it appears that PCI now only owns the Lear jet and no longer the Hawker jet. However, it is alleged that PALMER previously personally utilized the Hawker jet in a manner similar to the Lear jet. PCI and PALMER attempt to point to other contradictions within the FAC. Such as their contention that the ownership of a jet contradicts the argument that PCI has insubstantial assets and financial solvency to ultimately pay a judgment in this case. (P&A’s, P. 11.) As discussed above, and also within RYAN’s opposition to PCI and PALMER’s demurrer on the First Amended Complaint, the ownership of a jet aircraft by a company that employs approximately twenty (20) employees and felt compelled to certify a necessity for PPP government bailout loans does not demonstrate financial solvency in light of the pled damages in this case. Rather, ownership of a jet by a company that is not in the aeronautics industry more likely points to reckless spending and mismanagement of financial resources that may better be applied towards the actual real estate services offered by the company. In any event, RYAN’s allegations pled concerning the jet aircraft and the lack of other tangible or substantial assets are squarely pointed at demonstrating the alter ego theory and the inequitable and unjust result that may occur should PALMER not be held liable on an alter ego 8 OPPOSITION TO MOTION TO STRIKE FIRST AMENDED COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 theory. (FAC p. 3-4 (“PALMER’s [sic] also treats the jet aircraft as his own by providing the jet aircraft for the personal vacation travel by his children and grandchildren.”) D. THE COURT SHOULD NOT STRIKE RYAN’S ALLEGATIONS CONCERNING UPSCALE VACATIONS PCI and PALMER last request that the Court strike certain portions of the FAC such as a reference that PALMER takes “upscale” vacations while on the company dime. PCI and PALMER contend that this “violates the spirit of the Court’s Minute Order.” (P&A’s, p. 12.) This contention is incorrect. The Minute Order struck language stating that PALMER lives in the “upscale enclave of Granite Bay within the luxury, gated neighborhood of Los Lagos.” (See October 7, 2021 Minute Order.) That reference within the initial complaint was directed towards PALMER’s personal residence. RYAN’s FAC reads: “Upon information and belief, PALMER frequently stays in upscale hotel suites with his family and for personal reasons that are paid for and provided by PALMER CAPITAL.” (FAC, p. 4.) RYAN has personal knowledge of PALMER staying in hotels such as the Four Seasons or the Ritz Carlton for personal reasons while on business travel provided by the company (PCI) or purportedly for business travel. Contrary to PCI and PALMER’s contentions, these allegations are not made to paint PCI and PALMER as wealthy defendants. Rather, these allegations are made squarely to establish the alter ego theory with respect to PALMER by demonstrating lavish spending and use of the company’s resources for PALMER’s own personal benefit in a manner that does not directly benefit the company. V. CONCLUSION For the foregoing reasons, the Court must overrule PCI and PALMER’s Motion to Strike. PCI and PALMER’s contentions to strike portions of RYAN’s FAC are not supported by fact nor law. California courts do not, as a matter of law, allow defendants to seek a ‘line-item veto’ to redraft a plaintiff’s complaint to suit the desires of a civil defendant. The allegations in dispute with respect to the instant Motion have been well-pled to establish the alter ego theory against PALMER. By their Motion, PCI and PALMER are trying to redact the very portions that 9 OPPOSITION TO MOTION TO STRIKE FIRST AMENDED COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 establish alter ego prior to any factual adjudication by the Court to even examine the allegations pled by RYAN. RYAN should be afforded the opportunity to establish and prove the veracity of his allegations prior to any allegations being dismissed by the Court. DATED: December 31, 2021 KDH LAW By: __________________________ Chase A. Meister, Esq. Attorneys for Richard E. Ryan