No. H040227.

MORDECHAY BECK, Plaintiff and Appellant, v. MOSHE SHALEV, Defendant and Appellant.

Court of Appeals of California, Sixth District.


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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 this appeal, defendant Moshe Shalev (Shalev) seeks review of an order granting a new trial to plaintiff Mordechay Beck on two causes of action, promissory fraud and accounting, in Beck's third amended complaint. Shalev contends that a new trial was not justified, because in its prior order the court had correctly sustained Shalev's demurrer to these claims.

Beck also appeals, asserting error in the court's refusal to grant a new trial on his other claims. He also challenges a prior order granting summary adjudication of his claim of breach of oral contract and the subsequent award of attorney fees in the judgment. We agree with Shalev that a new trial was unnecessary as to any of Beck's claims, because his underlying demurrer to those causes of action was properly sustained. We therefore reverse the order only as to the grant of a new trial on the fraud and accounting claims.


Defendant Shalev founded a private consulting business in 1995, and in 1999 he incorporated it as NoBug Consulting, Inc. (hereafter, NoBug). Later that year plaintiff Luca Bovio Ferassa1 worked for NoBug as an independent contractor and later as an employee. In November 1999, shortly before becoming involved with Beck, Shalev established NoBug Consulting SRL (NBR) in Romania, in order to use Romanian engineers in NoBug's business.

Shalev and his wife, defendant Irit Shalev, initially were NoBug's sole owners. Shalev was the sole owner of NBR. Shalev, however, was an engineer who lacked business experience. He asked Beck, a "casual acquaintance," to help him obtain money to hire three Romanian engineers. Beck was unable to raise the money, but he offered to use his experience in corporate governance, management, and finance to advise Shalev and help him develop the business. In 2000 Shalev agreed to make Beck chairman of NoBug's board of directors while Shalev served as president and chief executive officer. Shalev also agreed that Beck could purchase 500,000 shares of NoBug stock, amounting to 10 percent of the company's 5 million outstanding shares.

In late 2000, Beck and Shalev retained an attorney, Einat Meisel, to formalize the arrangement, including documents related to the sale of corporate stock. Among those documents was a resolution by Shalev in his capacity as NoBug's sole director, entitled "Action by Unanimous Written Consent of the Sole Director of NoBug Consulting Incorporated" (Action). Pertinent to this appeal is the provision in the Action for NoBug to "enter into a Common Stock Purchase Agreement," by authorizing the board of directors to issue five million shares to "the Purchasers listed in Exhibit A." The "purchasers" listed in Exhibit A were Shalev (1 million shares, to be purchased for $3,000), Irit Shalev (2.75 million shares, to be purchased for $8,250), Beck (500,000 shares, to be purchased for $1,500), and Ferassa (750,000 shares, to be purchased for $2,250). Shalev signed the Action in mid-December 2000.

Meisel also prepared the accompanying Stock Purchase Agreement (SPA). By April 2001, Shalev, Irit Shalev, and Ferassa had all signed the SPA and paid for their shares. Beck knew he needed to pay for his shares and sign the agreement. In his deposition he expressed the belief that he had sent a check for his purchase "toward the end of 2000, beginning of 2001," but he could not find a record of that check in his files. Beck also could not recall signing the SPA until 2007. It was only in late 2007, he said, when Shalev advised him that he had not purchased any stock, that Beck obtained a copy of the SPA from Ferassa, signed it, and sent it to Shalev along with a check for the purchase of his 500,000 shares. NoBug, however, had no record of ever having received either the check or the signed SPA from Beck.

Beck continued to hold the position of board chairman until 2008. According to Shalev, however, he "was not really involved in the company after 2005." In September 2008, Ferassa and Beck brought this action against NoBug, Shalev, and Irit Shalev, asserting claims for declaratory relief, fraud against Shalev for failing to issue the company stock as he believed Shalev had promised, fraud against Shalev for failing to structure NBR as an entity within the NoBug "corporate umbrella," breach of oral contract against both Shalev and NoBug based on the same promises as in the fraud claims, and breach of fiduciary duty against all three defendants. Plaintiffs also sought an accounting.

Shalev and NoBug cross-complained against both plaintiffs. Against Beck defendants alleged breach of oral contract and fraud for failing to provide the services he had promised—that is, to help NoBug develop new business and assist NoBug in its financial and business decisions. The cross-complaint was amended in May 2010 and July 2011.

Defendants moved for judgment on the pleadings, noting that portions of the complaint constituted shareholder derivative claims, without plaintiffs having followed the procedures necessary for a shareholder derivative suit. In May 2010, with the court's permission, plaintiffs filed their first amended complaint, alleging, among other things, that the Shalevs had "used their control of the company to deny Mr. Beck's ownership interest." The motion for judgment on the pleadings was then deemed moot.

To surmount the derivative obstacle in the amended complaint, plaintiffs alleged by way of background the following: "Plaintiffs contend that they have each completed all of the steps prerequisite under NoBug's governing corporate documents to become shareholders[.] They have paid the requisite fee and signed the Stock Purchase Agreements, and therefore are entitled to have been duly recorded shareholders of Defendant NoBug since at least 2000. In the alternative, Mr. Beck contends that all parties believed he had been issued shares, and he worked for 7 years as a director and chairman of the board, that Mr. Shalev and Irit Shalev are estopped from claiming he is not a shareholder. Plaintiffs further contend that Mr. Beck is the owner of 500,000 shares of NoBug stock, and that Mr. Bovio Ferassa is the owner of 750,000 shares."

Defendants demurred to the amended complaint. The superior court overruled it, with the exception of the third cause of action for fraud based on Shalev's alleged promise to set up a Romanian entity as part of NoBug. The court deferred trial to enable NoBug to investigate the derivative claims through a special litigation committee (SLC).

On June 21, 2010, plaintiffs filed their second amended complaint. In November, the court overruled defendants' demurrer to this pleading, and it denied defendants' motion to strike portions of the complaint, with the exception of plaintiffs' requests for an order directing defendants to make NBR a wholly owned subsidiary of NoBug.

In early January 2011, the SLC reported that it had concluded that the derivative claims of the second amended complaint lacked merit and were contrary to NoBug's interests. Later that month both NoBug and the Shalevs moved for summary judgment or, alternatively, summary adjudication. NoBug first sought summary adjudication of the derivative claims; it submitted a second motion addressed to plaintiffs' direct claims. In NoBug's second motion and in the Shalevs' motion, defendants contended that the second, third and fourth causes of action were time-barred, based on the statutes of limitations for fraud (three years under Code of Civ. Proc. § 338, subd. (d))2 and breach of oral contract (two years under § 339) The Shalevs further contended that the fraud claims (third and fourth causes of action) could not withstand summary adjudication. The third cause of action, they alleged, depended on recovery of damages for NoBug's lost profits resulting from Shalev's retention of the NBR ownership for himself. The fourth cause of action, they argued, could not survive because the undisputed facts established that Beck did not accept the alleged offer of shares within a reasonable amount of time, even if he eventually signed the SPA and sent a check in 2007.

On April 13, 2011, the court issued the first of the orders challenged in this appeal, addressing NoBug's as well as the Shalevs' summary judgment motions. The court granted summary adjudication of the fifth (breach of oral contract) and sixth (breach of fiduciary duty) causes of action pertaining to NBR, because those were "entirely derivative" as found by the SLC. The court denied summary adjudication of the first and fourth causes of action related to the issuance of stock to Beck because those claims contained both derivative and direct aspects that were insufficiently "separate and distinct." As for the Shalevs' motion, the trial court agreed that Beck could not show Shalev's breach of an oral contract in the fourth cause of action because Shalev's offer3 was in effect "revoked by a lapse of reasonable time without acceptance, as Beck submitted a signed stock purchase agreement several years after the offer was made." The third, fifth, and sixth causes of action pertaining to the promise to make NBR a NoBug subsidiary were deemed "entirely derivative"; hence, the Shalevs' motion for summary adjudication was granted to those claims as well.

Thus, the first and fourth causes of action (declaratory relief and breach of oral contract pertaining to ownership of NoBug shares) remained alive as to NoBug, and the first and second causes of action (declaratory relief and promissory fraud pertaining to ownership of NoBug shares) remained against Shalev, with the ruling on the first cause of action applicable to Irit Shalev as well. Finally, the court found that the seventh cause of action had survived because—the burden on summary adjudication having shifted to plaintiffs—they had shown a triable issue regarding whether they had made a pre-litigation demand for an accounting.4 The Shalevs' motion to "clarify" the summary adjudication ruling was denied.

On May 4, 2011, after extensive written and oral argument, the court granted plaintiffs leave to file a third amended complaint. That pleading was filed on July 7, 2011, followed two months later by separate demurrers and motions to strike by NoBug and by the Shalevs. On October 27, 2011, the court sustained NoBug's demurrer to the first and sixth causes of action (declaratory relief and accounting) without leave to amend for failure to state a claim. As to the Shalevs, the court overruled their demurrer to all but Beck's fourth cause of action for breach of oral contract relating to the issuance of NoBug shares. The court struck this claim on the ground that it had already been summarily adjudicated against Beck.5 The court denied the Shalevs' motion to strike the background allegations of the third amended complaint, but it did strike plaintiffs' prayer for punitive damages on the fourth cause of action, noting the unavailability of punitive damages in contract actions.

Upon receiving a letter from Shalev requesting "clarification or modification" of the October 27 order, the court invited a response from plaintiffs and then modified its ruling. In its November 28, 2011 "Further Order," the demurrer as to Irit Shalev was sustained without leave to amend, as plaintiffs had not opposed the demurrer and motion to strike as it applied to her. The court also sustained without leave to amend Beck's first, second, third, fifth and sixth causes of action because "any recovery by Beck is precluded by the Court's finding in the April 13, 2011 order . . . that Beck failed to timely submit a signed stock purchase agreement." An order granting summary adjudication and (as to the accounting cause of action) judgment on the pleadings was later granted to Shalev on Ferassa's claims.

Upon defendants' uncontested motion, Irit Shalev was dismissed as a defendant in June 2012. NoBug subsequently obtained dismissal of its cross-complaint without prejudice. The parties then began litigating costs and attorney fees. Beck sought indemnification of the attorney fees he had spent in his capacity as board chairperson in defending against NoBug's cross-complaints. The court found Beck's request for costs and fees of $224,444.54 to be excessive, but it did find a reasonable amount attributable to the cross-complaint litigation to be $41,143.25.

On July 12, 2013, the court entered judgment for defendants, directing that plaintiffs take nothing on their complaint and pay defendants' costs and fees of $1,831,223.65. After a setoff for Beck's recovery of $41,143.25 from NoBug, the net judgment in favor of the three defendants amounted to $1,790,080.40.

Beck moved for a new trial, asserting error in the prior rulings on all six claims of the third amended complaint. On September 9, 2013, the court granted Beck's motion as to the second (fraud) and sixth (accounting) causes of action and denied it as to the other challenged rulings. At Beck's request, the court thereafter issued a statement of reasons, explaining that the November 28, 2011 order "was error as to the second and sixth causes of action. The Third Amended Complaint adequately [pleaded] those causes of action which were not precluded by the April 13, 2011 order." Finally, on October 9, 2013, the court denied Beck's motion to vacate the judgment.

On October 3, 2013, Shalev filed his notice of appeal from the order partially granting a new trial. Beck filed a notice of appeal from the judgment on October 9, 2013 and on October 24, 2013, a notice of cross-appeal from the new-trial order. The issues raised in the appeal from the judgment are reviewed in the companion appeal, Beck v. NoBug Consulting, Inc., et al., H040136. The issues arising from the new-trial order are addressed in this opinion.6


1. Scope of Review

Section 657 authorizes the trial court to grant a new trial on seven statutorily specified grounds, including "[i]rregularity" in the proceedings or an order of the court that prevented the moving party from having a fair trial, a decision that is against the law, or "[e]rror in law, occurring at the trial and excepted to by the party making the application." (§ 657, subds. (1), (6), (7).) An order granting a new trial is normally reviewed for abuse of discretion, but where the basis of the order is a question of law, we examine it independently. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860 (Aguilar).) In this case, the order granting a partial new trial encompasses the underlying demurrers, which we review de novo.

2. Issues raised by Shalev

a. Grant of New Trial on Promissory Fraud

Shalev first challenges the court's determination that a new trial was warranted on the second cause of action for fraud and the sixth cause of action for an accounting.7 In the second cause of action Beck alleged that Shalev had "agreed and promised that he would structure NoBug in the agreed manner, and that he would arrange for issuance of 500,000 shares of stock to Plaintiff Beck (representing a 22% ownership interest), 750,000 shares of stock to plaintiff Bovio Ferassa (representing a 33% ownership interest), 1,000,000 shares of stock to Defendant Shalev (representing a 45% ownership interest), and that the remainder would be held in reserve to be issued in a manner agreeable to the shareholders. Plaintiffs are informed and believe that at the time that he made these promises, Mr. Shalev had no intent to structure the corporation in the agreed upon manner, or to issue shares of NoBug stock in the manner agreed upon by the parties." Beck alleged that he relied on "these promises and agreements" by providing services to the corporation— i.e., by serving on the board and "participating in the governance of the corporation." Instead, Beck alleged, a different disposition of the shares was created: in addition to Shalev's and Ferassa's shares, Shalev arranged for 2,750,000 shares to be issued to Irit Shalev and none to Beck.

In the court's October 27, 2011 order it overruled Shalev's demurrer to the second cause of action, stating that Beck had sufficiently alleged a promise made by Shalev without the intent to perform. In its November 28 "Further Order," however, the court determined that Beck's recovery on this cause of action (as well as the first, third, fifth, and sixth) was precluded by the prior grant of summary adjudication, in which the court had concluded (as to the fourth cause of action) in that Beck had "failed to timely submit a signed stock purchase agreement." The court again reversed itself in the order granting a new trial, overruling without explanation the second and sixth causes of action.8

It is unnecessary to weigh in on the trial court's reasoning in first invoking the prior summary adjudication ruling and then retracting it as the ground for its demurrer order. In reviewing the underlying order sustaining the demurrer, "[w]e do not review the validity of the trial court's reasoning, and [we] therefore will affirm its ruling if it was correct on any theory." (Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 337, citing Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034 (Berg & Berg); Orange Unified School Dist. v. Rancho Santiago Community College Dist. (1997) 54 Cal.App.4th 750, 757.) Significantly, we may take judicial notice of attached documents and admissions in prior sworn statements and pleadings that may conflict with the allegations of the complaint at issue. (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400.) Thus, "a complaint's allegations may be disregarded when they conflict with judicially noticed discovery responses." (Bockrath v. Aldrich Chemical Co. (1999) 21 Cal.4th 71, 83.)

"`Promissory fraud' is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud." (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638 (Lazar).) Fraud generally requires "`(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or "scienter"); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.'" (Ibid.)

"In California, fraud must be [pleaded] specifically; general and conclusory allegations do not suffice. [Citations.] `Thus "`the policy of liberal construction of the pleadings. . . will not ordinarily be invoked to sustain a pleading defective in any material respect.'" [Citation.] [¶] This particularity requirement necessitates pleading facts which "show how, when, where, to whom, and by what means the representations were tendered."' [Citation.]" (Lazar, supra, 12 Cal.4th at p. 645.) In addition, in order to establish liability for fraud, the plaintiff must plead and prove "`detriment proximately caused" by the defendant's tortious conduct. (Civ. Code, § 3333.) Deception without resulting loss is not actionable fraud. [Citation.] `Whatever form it takes, the injury or damage must not only be distinctly alleged but its causal connection with the reliance on the representations must be shown.' [Citation.]" (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1818.) And the specificity required in pleading applies to each element, including causation and damage. (See Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 776.)

Beck's allegation of fraud in the second cause of action does not comport with these principles. Nothing in the complaint suggested that Shalev's promise was made with "the intent not to perform at the time the promise was made." (Behnke v. State Farm General Ins. Co. (2011) 196 Cal.App.4th 1443, 1453, italics added.) To the contrary, the discovery materials attached to the moving and opposing papers demonstrate that Shalev did, as he allegedly promised, "arrange for" the issuance of stock to the prospective purchasers—Beck, Ferassa, and Irit Shalev—by adopting the resolution (the Action) and—through Einat Meisel—composing the SPA that every purchaser was obligated to sign. We will not disregard Beck's concession—in both the third amended complaint and his discovery responses—that the alleged promise by Shalev was not simply to issue shares to Beck, but to arrange for the sale of them to Beck. The documents provided to the court included the Action, which expressly authorized the "sale and issuance" of five million shares to Shalev, Irit Shalev, Ferassa, and Beck in the amounts designated for each purchaser. Also authorized in the Action was the execution of the SPA with each of the purchasers.

Beck readily admitted that he was aware of these conditions. He stated in his deposition that in order to acquire the shares "the most important that [sic] I need [sic] to pay and to get the agreement to sign it," the same steps he had taken in a previous professional role. Although he testified that he paid for his stock twice—once at the end of 2000 and again in 2007—he was unable to document his purchase with any evidence. The court had before it a sufficient basis to sustain Shalev's demurrer on the ground that (a) Shalev intended to fulfill his promise to "arrange for" issuance of NoBug stock and indeed did so, through the Action and the offering of the SPA or (b) any damage Beck suffered cannot be said to have resulted from Shalev's failure to issue stock to Beck, because Beck failed to complete the prerequisite—the purchase of the stock and execution of the SPA.

We therefore conclude that the court should have left intact its order sustaining Shalev's demurrer to the second and sixth causes of action. Neither intent not to perform nor proximate causation could be established based on the pleadings when examined together with the judicially noticeable documents.

b. Grant of New Trial on Accounting Claim

In the sixth cause of action for an accounting Beck asserted that Shalev and Irit Shalev, "as the majority and controlling shareholders" of NoBug, owed a fiduciary duty to Beck and Ferassa, "as minority shareholders," which obligated the Shalevs "to provide information that would allow . . . shareholders to evaluate the actions of Defendants and the value of Plaintiff's [sic] interests." An accounting was necessary, he stated, because he and Ferassa were otherwise unable to determine the amounts owed them "as a result of the wrongful acts committed by the Defendants."

This claim calls upon the fiduciary duty owed to minority shareholders; but only Ferassa met that qualification. Because he was not a shareholder, Beck cannot allege breach by those who owed him no fiduciary duty.9 An accounting for the purpose of determining how much was owed minority shareholders can have no application to Beck. Accordingly, the trial court properly sustained the demurrers to this cause of action without leave to amend, and retrial was not warranted.

3. Issues Raised by Beck

Beck asserts error in the court's denial of a new trial on the first, third, fourth, and fifth causes of action. He contends that (1) the court erred in granting summary adjudication on the fourth cause of action for breach of oral contract relating to the issuance of NoBug shares and (2) the court erred in sustaining without leave to amend Shalev's demurrer to the first, third, and fifth causes of action relating to the ownership of NoBug and NBR. Beck also seeks to overturn the court's award of attorney fees awarded to defendants.

These arguments have been raised and addressed in Beck v. NoBug Consulting, Inc., et al., H040136, Beck's appeal from the July 2013 judgment. There we upheld the orders granting summary adjudication of the fourth cause of action for breach of oral contract and the orders sustaining the demurrers to the first, third, and fifth causes of action, and we found error in the grant of attorney fees. No purpose would be advanced by repeating the conclusions we reached in that appeal.


The September 9, 2013 order is reversed. On remand, the superior court shall reinstate the judgment to the extent that it is consistent with this court's opinion in Beck v. NoBug Consulting, Inc., et al., H040136. Shalev is entitled to his costs in this appeal.

PREMO, Acting P. J. and MIHARA, J., concurs.


1. Ferassa, a plaintiff in the underlying litigation, is not a party on appeal.
2. All further statutory references are to the Code of Civil Procedure unless otherwise stated.
3. The court actually used the word "agreement" rather than offer; but a different judge later explained that the intended word, viewed in context, had to have been "offer."
4. The court further determined that the Shalevs had not established the lack of a triable issue of fact on the second and fourth causes of action as to Ferassa. As noted earlier, however, Ferassa is not a party in this appeal.
5. The court also overruled the demurrer to and denied the motion to strike Ferassa's allegations in the fourth cause of action.
6. This court ordered these two appeals to be considered together for the purposes of briefing, oral argument, and disposition.
7. In prior pleadings Beck alleged breach of fiduciary duty as the sixth cause of action, with a seventh seeking an accounting.
8. When asked to specify its reasons, the court issued this statement: "The November 28, 2011 order was error as to the second and sixth causes of action. The Third Amended Complaint adequately [pleaded] those causes of action which were not precluded by the April 13, 2011 order."
9. Although Beck named NoBug in this cause of action, it was obviously directed at only the Shalevs, the majority shareholders.


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