Court Opinion

ID: 2783057
Source: CourtListenerOpinion
Date Created: 2015-02-27 22:02:53.090911+00
Date Added: 2024-06-11T11:28:25.918671
License: Public Domain

Filed 2/27/15 Baeyens v. Westside Nutrition CA4/3

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     FOURTH APPELLATE DISTRICT

                                                DIVISION THREE

ROBERT BAEYENS et al.,

    Plaintiffs, Cross-Defendants and                                   G049323
    Respondents,
                                                                       (Super. Ct. No. 30-2012-00607428)
         v.
                                                                       OPINION
WESTSIDE NUTRITION, LLC, et al.,

    Defendants, Cross-Complainants, and
    Appellants.

                   Appeal from a judgment of the Superior Court of Orange County, Thierry
Patrick Colaw, Judge. Affirmed in part and reversed in part.
                   Wheatley Bingham & Baker and William G. Wheatley, Jr., for Defendants,
Cross-Complainants and Appellants.
                   Burkhalter Kessler Clement & George, Alton G. Burkhalter and Eric
Hardeman for Plaintiffs, Cross-Defendants and Respondents.
                                          *                  *                  *
              Westside Nutrition, LLC, Health Eternal, LLC, Health and Beauty Pros,
L.P., and Body Superior, L.P.,1 appeal from the judgment entered after the trial court
granted Robert Baeyens and Paul Baeyens2 judgment on the pleadings as to the Limited
Partnerships’ answer to the Baeyenses’ first amended complaint, the LLCs’ answer to the
same complaint, and the LLCs’ cross-complaint against the Baeyenses. The trial court
concluded the Businesses lacked standing to contest claims that were brought
derivatively on their behalf or that were brought against parties other than the Businesses.
Similarly, the court concluded the LLCs’ could not restate their impermissible defenses
as claims for relief in the cross-complaint.
              The trial court primarily relied on our previous decision in Patrick v. Alacer
Corp. (2008) 167 Cal. App. 4th 995 (Patrick). There, we concluded a corporation may not
defend against the merits of a derivative cause of action alleging breach of fiduciary duty
or other misconduct by its directors or majority shareholders because a derivative claim is
brought on the corporation’s behalf and benefits the corporation, even though the
corporation is named as a nominal defendant. We explained that allowing the nominal
corporate defendant to defend on the merits would allow the controlling directors or
shareholders to shift the cost of defending the derivative claims to the corporation against
which the directors or shareholders allegedly committed the tortious conduct. (Id. at
pp. 1005-1007.)

       1     We refer to Westside Nutrition, LLC, and Health Eternal, LLC, collectively
as the LLCs; Health and Beauty Pros, L.P., and Body Superior, L.P., collectively as the
Limited Partnerships; and the LLCs and the Limited Partnerships collectively as the
Businesses.
       2      We refer to Robert Baeyens as Robert and Paul Baeyens as Paul.
Collectively, we will identify them as the Baeyenses. We refer to them by their first
names to avoid confusion and intend no disrespect. (See In re Marriage of Balcof (2006)
141 Cal. App. 4th 1509, 1513, fn. 2.)

                                               2
              We affirm in part and reverse in part. We affirm the judgment on the
Limited Partnerships’ answer because the Limited Partnerships violated Patrick by
defending derivative claims brought on their own behalf, and also improperly attempted
to defend additional claims the first amended complaint alleges against other parties. We
reverse the trial court’s judgment on the LLCs’ answer because the first amended
complaint alleges two causes of action directly against the LLCs. Patrick only applies to
derivative claims, and specifically allowed a corporation to defend a direct claim alleged
against it even though the corporation could not defend derivative claims alleged on its
behalf in the same action. Finally, we affirm the judgment on the LLCs’ cross-complaint
because the LLCs failed to allege an actual controversy existed between the LLCs and the
Baeyenses, alleging only a controversy between the Baeyenses and Robert Wheatley, the
other member of the LLCs.

                                             I

                            FACTS AND PROCEDURAL HISTORY

              In 2011, Paul and his father Robert created a business plan to develop an
independent brand of health and nutritional supplements and also to sell other companies’
supplements through online retailers, such as Amazon.com. Shortly after the Baeyenses
started their business, Wheatley approached them and offered to invest. The three men
agreed Wheatley would provide capital and “‘rent free’” office space while the
Baeyenses would contribute their business plan and manage the business day to day.
Although the Baeyenses were not required to contribute any capital, they were promised
a guaranteed monthly salary.
              Under their agreement, the Baeyenses and Wheatley formed two limited
partnerships: Body Superior, L.P., to develop an independent brand of supplements, and
Health and Beauty Pros, L.P., to sell supplements manufactured by other companies. The
Baeyenses and Wheatley are the only limited partners in the Limited Partnerships, and

                                             3
Wheatley holds a 59 percent ownership interest in each partnership, while the Baeyenses
hold a 40 percent interest. The Baeyenses and Wheatley also formed two limited liability
companies: Westside Nutrition, LLC, to hold the remaining 1 percent interest in Body
Superior, L.P., and to serve as its general partner, and Health Eternal, LLC, to hold the
remaining 1 percent interest in Health and Beauty Pros, L.P., and to serve as its general
partner. The Baeyenses and Wheatley are the only members in the LLCs, and Wheatley
holds a 98 percent ownership interest in each of the LLCs, while the Baeyenses hold the
remaining 2 percent interest.
              The agreements forming the Limited Partnerships designated the general
partners—i.e., the LLCs—as the managing partners with responsibility “for managing
and conducting the ordinary and usual business and affairs of the Partnership.”
Accordingly, whoever controlled the LLCs also controlled the Limited Partnerships. The
operating agreements for the LLCs designated Wheatley and Robert as the comanagers,
although Wheatley had no role in the daily operations.
              The Baeyenses claim the Businesses were initially prosperous under their
management, but Wheatley soon derailed their success by breaching his contractual and
fiduciary duties. For example, the Baeyenses allege Wheatley failed to make all his
required capital contributions, demanded the Baeyenses make capital contributions not
required under the agreements, demanded a salary when he provided no services, and
charged the Businesses excessive rent despite his commitment to provide rent-free office
space. When the Baeyenses told Wheatley they would resign if he did not stop this
behavior, Wheatley demanded the Baeyenses execute a noncompete agreement because
the parties’ other agreements failed to include a prohibition on competing with the
Businesses. The Baeyenses refused, claiming Wheatley’s demand for a noncompete
agreement was unconscionable.
              In September 2012, Wheatley changed the locks on the offices and blocked
the Baeyenses access to the Businesses’ computers and records. As the majority member

                                             4
in each of the LLCs, Wheatley announced he was unilaterally removing Robert as
comanager of the LLCs and both of the Baeyenses from their positions in the four
Businesses. Wheatley explained he took these actions because the Baeyenses had
established a competing business. After seizing control of the Businesses, the Baeyenses
contend Wheatley mismanaged and otherwise ran the Businesses into the ground, and
also used their assets for his own gain.
              In October 2012, the Baeyenses filed this action, claiming Wheatley lacked
authority to remove Robert as comanager or take any of the actions affecting their
participation because the LLCs’ operating agreements required the unanimous vote of all
members to remove a manager. The first amended complaint alleges 15 causes of action
and names Wheatley and the four Businesses as defendants. The Baeyenses allege the
first three causes of action against Wheatley in their own name for breach of the LLCs’
operating agreements and an oral agreement concerning the formation and operation of
the Businesses. The Baeyenses also individually allege the fourth cause of action for
fraud against Wheatley. The fifth through eighth causes of action allege Wheatley
breached his fiduciary duties. The Baeyenses allege these claims individually and as
derivative claims on behalf of each of the four Businesses. The Baeyenses in their
individual capacity allege the ninth cause of action for defamation per se against
Wheatley.3 The 10th and 11th causes of action for unjust enrichment and accounting are
alleged against Wheatley by the Baeyenses individually and as derivative claims on
behalf of the four Businesses. The 12th and 13th causes of action seek to dissociate the
LLCs as the general partners of the Limited Partnerships. The Baeyenses allege these
causes of action individually and as derivative claims on behalf of the Limited
Partnerships. Finally, the 14th and 15th causes of action seek to dissociate Wheatley

       3     Lori Wheatley, Wheatley’s sister, also is named as a defendant on the
defamation cause of action, but she is not a party to this appeal.

                                             5
from the Limited Partnerships. The Baeyenses allege these causes of action individually
and as derivative claims on behalf of the Limited Partnerships.
              The Limited Partnerships and the LLCs filed separate answers generally
denying the first amended complaint’s allegations and asserting several affirmative
defenses, including a right of recoupment and set off based on the Baeyenses converting
certain of the Businesses’ funds to their own use, and reformation of the LLCs’ operating
agreements because the agreements failed to reflect the parties’ true intent. The
Businesses allege the LLCs’ operating agreements mistakenly include two definitions of
the phrase “Majority Vote,” one defining it as a vote by more than half of the outstanding
membership interests, and a second defining the phrase as a unanimous vote by all
members. According to the LLCs, the parties intended to allow a simple majority of the
membership interests to make final decisions. In addition to their answer, the LLCs
joined with Wheatley in filing a cross-complaint against the Baeyenses asserting claims
to reform the LLCs’ operating agreements and for declaratory relief regarding the parties’
rights under those agreements. The cross-complaint echoes the reformation allegations in
the Businesses’ answers.
              The Baeyenses moved for judgment on the pleadings, separately
challenging the Limited Partnerships’ answer, the LLCs’ answer, and the LLCs’
cross-complaint in their entirety. The motion did not challenge any specific defense or
cause of action. Citing our decision in Patrick, the Baeyenses argued the four Businesses
lacked standing to defend the action because the claims were derivative claims alleged on
the Businesses’ behalf, not claims directed against them. Similarly, the Baeyenses
argued the LLCs lacked standing to allege the cross-complaint’s reformation and
declaratory relief claims because those claims simply restated some of the affirmative
defenses alleged in the answers.
              The trial court agreed the claims involving the four Businesses were
“derivative in nature” and that Patrick required the Businesses to remain neutral in this

                                             6
action. The court therefore granted the motion and entered judgment for the Baeyenses
as to the Limited Partnerships’ answer, the LLCs’ answer, and the LLCs’
cross-complaint. The judgment stated, “This judgment does not adjudicate, in whole or
in part, the derivative claims asserted against Defendant Robert Wheatley on the
[Businesses’] behalf in [the Baeyenses’] First Amended Complaint.” This appeal
followed.

                                               II

                                         DISCUSSION

A.     Governing Legal Principles on Derivative Actions and the Benefitted Entity’s
       Right to Participate
              “A derivative suit is a suit brought on behalf of a corporation for injury to
the corporation, often for breach of fiduciary duty, mismanagement or other wrongdoing
by corporate officers or directors, or for wrongs against the corporation by third parties.”
(Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal. App. 4th 282, 297.) Because a
corporation has a separate legal existence from its shareholders, the shareholders have no
direct cause of action or right of recovery against anyone who has harmed the
corporation. Instead, the shareholders must bring a derivative action to enforce the
corporation’s rights and redress its injuries if the board of directors fails or refuses to do
so. (Grosset v. Wenaas (2008) 42 Cal. 4th 1100, 1108 (Grosset).) Limited partnerships
and limited liability companies similarly have legal existences separate from their
partners and members, and therefore the principles governing shareholder derivative
actions apply equally to actions brought by limited partners and members on behalf of
their limited partnerships or limited liability companies. (Everest Investors 8 v. McNeil
Partners (2003) 114 Cal. App. 4th 411, 425 [derivative action by limited partner]; PacLink
Communications Internat., Inc. v. Superior Court (2001) 90 Cal. App. 4th 958, 963-964
[derivative action by limited liability company member].)

                                               7
               “An action is deemed derivative ‘“if the gravamen of the complaint is
injury to the corporation, or to the whole body of its stock and property without any
severance or distribution among individual holders, or it seeks to recover assets for the
corporation or to prevent the dissipation of its assets.”’ [Citation.] When a derivative
action is successful, the corporation is the only party that benefits from any recovery; the
shareholders derive no benefit ‘“except the indirect benefit resulting from a realization
upon the corporation’s assets.”’ [Citation.]” (Grosset, supra, 42 Cal.4th at p. 1108,
fn. omitted.) “A personal claim, in contrast, asserts a right against the corporation which
the shareholder possesses as an individual apart from the corporate entity: ‘If the injury
is not incidental to an injury to the corporation, an individual cause of action exists.’
[Citation.]” (Denevi v. LGCC, LLC (2004) 121 Cal. App. 4th 1211, 1222.)
               “‘[T]he particular stockholder who brings [a derivative] suit is merely a
nominal party plaintiff.’ [Citation.] It is the corporation that ‘is the ultimate beneficiary
of such a derivative suit.’ [Citation.] Thus, ‘[t]he corporation [is] the real party plaintiff
in the action.’ [Citation.] [¶] Though the corporation is essentially the plaintiff in a
derivative action, ‘[w]hen a derivative suit is brought to litigate the rights of the
corporation, the corporation . . . must be joined as a nominal defendant.’ [Citation.] The
corporation must be joined because ‘its rights, not those of the nominal plaintiff, are to be
litigated’ [citation], and to offer the real defendants res judicata protection from later
suits. [Citation.] Naming the corporation a defendant, not a plaintiff, follows from the
joinder rules: ‘If the consent of any one who should have been joined as plaintiff cannot
be obtained, he may be made a defendant. . . .’ [Citation.] So ‘although the corporation
is made a defendant in a derivative suit, the corporation nevertheless is the real
plaintiff. . . .’ [Citation.] [¶] . . . The only reason the corporation is named a nominal
defendant [in a derivative action] is its refusal to join the action as a plaintiff. . . . In a
real sense, the only claim a shareholder plaintiff asserts against the nominal defendant

                                                 8
corporation in a derivative action is the claim the corporation has failed to pursue the
litigation.” (Patrick, supra, 167 Cal.App.4th at pp. 1003-1004, fn. omitted.)
              “‘[T]he general rule for corporate participation in a derivative action is that
“[u]nless the derivative action threatens rather than advances corporate interests, [the
corporation] cannot participate in the defense on the merits.”’ [Citation.] ‘Because the
claims asserted and the relief sought in [the derivative] complaint would, if proven,
advance rather than threaten the interests of the nominal defendants, the nominal
defendants must remain neutral in [the] action.’ [Citation.]” (Patrick, supra,
167 Cal.App.4th at p. 1007.) One of the practical and ethical reasons for this rule is that
“‘[a]llowing the nominal [corporate] defendants to defend on the merits in effect would
allow [the individual defendant] to shift the cost of his defense of the derivative suit to
the corporations against which he has allegedly committed tortious conduct. . . . [The
individual defendant’s] using his control of the nominal defendants to get them to defend
on the merits would shift the cost of his defense to the corporations even if [the
shareholder plaintiff’s] claims are proven.’ [Citation.]” (Ibid.)
              Despite this rule, a corporation may assert defenses that do not challenge
the merits of the derivative claims but rather the shareholder plaintiff’s right or decision
to bring those claims. For example, the corporation may challenge the plaintiff’s
standing to bring a derivative action or assert the “‘special litigation committee’” defense,
which allows the corporation to appoint a committee of independent directors to
investigate the asserted claims and dismiss the action if they decide it is not in the
corporation’s best interest and the court determines they acted reasonably and in good
faith. (Patrick, supra, 167 Cal.App.4th at p. 1005.)
              In Patrick, a shareholder sued a corporation and its directors for fraud,
breach of fiduciary duty, constructive trust, injunctive relief, unfair business practices,
and declaratory relief. The trial court sustained the corporation’s demurrer to the
shareholder’s entire complaint and the shareholder appealed. (Patrick, supra,

                                              9
167 Cal.App.4th at pp. 1000-1002.) Applying the foregoing rules, we concluded the trial
court erred in sustaining the corporation’s demurrer to the breach of fiduciary duty,
constructive trust, injunctive relief, and unfair business practices claims because they
were derivative claims the shareholder brought against the directors on the corporation’s
behalf. As such, the corporation could not defend against the merits of those claims, and
instead was required to remain neutral. (Id. at p. 1008.) But we also concluded the
corporation properly could demur to the fraud and declaratory relief causes of action
because the plaintiff brought those claims on her own behalf directly against the
corporation; they were not derivative claims she brought on the corporation’s behalf. (Id.
at pp. 1015-1017; see Sobba v. Elmen (E.D.Ark. 2006) 462 F. Supp. 2d 944, 946-947
[striking corporate defendant’s answer to derivative complaint because corporation must
remain neutral and may not defend on merits].)

B.     The Judgment is Appealable
              The Baeyenses contend the trial court’s judgment on the Businesses’
answers and the LLCs’ cross-complaint is not an appealable judgment because it did not
dispose of the entire action. According to the Baeyenses, the Businesses are still nominal
defendants on the derivative claims alleged in the first amended complaint and the one
final judgment rule therefore bars this appeal as premature. We disagree and therefore
deny the Baeyenses’ motion to dismiss because the trial court’s judgment disposed of all
causes of action between the Baeyenses and the Businesses.
              “The one final judgment rule, codified in Code of Civil Procedure
section 904.1, subdivision (a)(1), states that an appeal in a civil case ‘may be taken from
. . . [¶] . . . a judgment, except . . . an interlocutory judgment,” . . . . ‘Judgments that
leave nothing to be decided between one or more parties and their adversaries, or that can
be amended to encompass all controverted issues, have the finality required by [Code of
Civil Procedure] section 904.1, subdivision (a). A judgment that disposes of fewer than

                                              10
all of the causes of action framed by the pleadings, however, is necessarily
“interlocutory” [citation], and not yet final, as to any parties between whom another
cause of action remains pending.’ [Citation.] ‘[A]n appeal cannot be taken from a
judgment that fails to complete the disposition of all the causes of action between the
parties . . . .’ [Citation.]” (Abatti v. Imperial Irrigation Dist. (2012) 205 Cal. App. 4th
650, 662, original italics; see First Security Bank of Cal. v. Paquet (2002) 98 Cal. App. 4th
468, 473 (Paquet).)
              A judgment need not dispose of the entire action to be final and appealable.
Rather, the one final judgment rule simply requires the judgment dispose of all the claims
between the parties to the appeal. (Nguyen v. Calhoun (2003) 105 Cal. App. 4th 428, 437.)
For example, a judgment that disposes of all causes of action between a plaintiff and one
of two defendants is an appealable judgment even though the action remains pending in
the trial court on the claims between the plaintiff and the other defendant. (Millsap v.
Federal Express Corp. (1991) 227 Cal. App. 3d 425, 430.) Similarly, a judgment that
resolves all the claims alleged in a cross-complaint, but not all the claims alleged in the
complaint, is a final appealable judgment if the remaining claims are not between the
parties to the appeal on the cross-complaint. (Paquet, supra, 98 Cal.App.4th at p. 473.)
              Moreover, the one final judgment rule applies separately to each capacity in
which a party brings an action or is named as a defendant. For example, in a personal
injury and wrongful death action, a judgment disposing of the surviving spouse’s claims
in her capacity as executor of the decedent’s estate is final, even though the spouse’s
claims in her individual capacity and as guardian ad litem for the decedent’s minor
children are still pending. The surviving spouse in her capacity as executor “was a
separate party as to whom there was no issue left to be determined.” (Dominguez v. City
of Alhambra (1981) 118 Cal. App. 3d 237, 241; see Paquet, supra, 98 Cal.App.4th at
p. 474.)

                                             11
              The Paquet court applied these principles in the context of a shareholder
derivative action and cross-complaint. In Paquet, minority shareholders brought a
derivative action on behalf of a corporation. The minority shareholders named the
majority shareholders and directors, the corporation, and a bank involved in the
challenged transactions as defendants, but the minority shareholders did not allege
individual claims on their own behalf. The bank filed a cross-complaint against the
minority shareholders, the majority shareholders and directors, and the corporation. The
bank sought relief against the minority shareholders on the theory the corporation was
their alter ego. The trial court sustained the minority shareholders’ demurrer and entered
a judgment dismissing the bank’s cross-complaint against the minority shareholders.
(Paquet, supra, 98 Cal.App.4th at pp. 471-472.)
              On the bank’s appeal, the Paquet court concluded the judgment dismissing
the cross-complaint was a final appealable order because it disposed of all the claims
between the bank and the minority shareholders in their individual capacity. (Paquet,
supra, 98 Cal.App.4th at pp. 472-473.) Although the minority shareholders continued to
prosecute the derivative claims alleged in their complaint against the bank, the judgment
on the cross-complaint was a final appealable judgment because the minority
shareholders alleged those claims in a representative capacity on the corporation’s behalf,
not in their individual capacity. (Id. at pp. 474-475.) As explained above, a shareholder
bringing a derivative action is acting as a representative of the corporation and therefore
is a plaintiff in name only because the action enforces the corporation’s rights, not the
individual shareholder’s. The corporation is the real party plaintiff in the action.
(Patrick, supra, 167 Cal.App.4th at pp. 1003-1004; Paquet, at pp. 474-475.)
              Here, the judgment is a final appealable judgment because it disposes of all
adversarial claims between the Baeyenses in their individual capacities and the
Businesses. The only claims between the Baeyenses individually and the Businesses
were the reformation and declaratory relief causes of action alleged in the

                                             12
cross-complaint, and the judgment disposes of those claims. In the first amended
complaint, the Baeyenses alleged individual claims against Wheatley on their own behalf
and derivative claims against Wheatley on behalf of the Businesses, but the Baeyenses
did not allege any claims in their individual capacities against the Businesses. Although
the Businesses remain nominal defendants on the derivative claims, they are not
adversaries of the Baeyenses in their individual capacity. To the contrary, the Baeyenses
and the Businesses are aligned against Wheatley on the derivative claims. The continued
pendency of the derivative claims therefore does not prevent the judgment from being a
final appealable judgment. (Paquet, supra, 98 Cal.App.4th at pp. 474-475.)
             The only claims in the first amended complaint that could potentially
prevent the judgment from being a final appealable judgment are the 12th and 13th
causes of action. The Baeyenses purport to allege these two causes of action individually
and on behalf of the Limited Partnerships against Wheatley. Under Corporations Code
section 15906.03, subdivision (e), these claims seek to dissociate the LLCs as the general
partners of the Limited Partnerships based on Wheatley’s alleged misconduct. On their
face, the claims potentially qualify as claims between the Baeyenses individually and the
LLCs. Corporation Code section 15906.03, subdivision (e), however, only authorizes
expulsion of a general partner from a limited partnership “on application by the limited
partnership.” (Corp. Code, § 15906.03, subd. (e).) The statute does not allow a limited
partner to individually assert a claim to expel a general partner. The Baeyenses therefore
lack standing to pursue the 12th and 13th causes of action individually, and the claims
may only be pursued derivatively on the Limited Partnerships’ behalf. Accordingly,
these causes of action are not adversarial claims between the Baeyenses individually and
any of the Businesses, and they do not prevent the judgment from being a final
appealable judgment.

                                            13
C.     The Trial Court Properly Granted Judgment on the Pleadings on the Limited
       Partnerships’ Answer and the LLCs’ Cross-Complaint, But Not the LLCs’ Answer
              The Baeyenses’ motion sought judgment on the pleadings on three separate
pleadings—the Limited Partnerships’ answer, the LLCs’ answer, and the LLCs’
cross-complaint. After addressing the governing standard for judgment on the pleadings
motion, we separately address the Baeyenses’ challenges to each of these pleadings.

       1.     Governing Judgment on the Pleading Standards
              A motion for judgment on the pleadings functions as a general demurrer,
challenging whether a complaint or cross-complaint states facts sufficient to constitute a
cause of action, or whether an answer states facts sufficient to constitute a defense.
(Code Civ. Proc., § 438, subd. (c); County of Orange v. Association of Orange County
Deputy Sheriffs (2011) 192 Cal. App. 4th 21, 32 (County of Orange).) The court must
accept the challenged pleading’s factual allegations as true and disregard the controverted
allegations of any opposing pleadings. (County of Orange, at p. 32; Sebago, Inc. v. City
of Alameda (1989) 211 Cal. App. 3d 1372, 1379-1380.) For example, on a motion for
judgment on the pleadings challenging an answer, the court must accept as true the
answer’s factual allegations and disregard the controverted allegations in the complaint.
(Sebago, at pp. 1379-1380.)
              The court, however, “do[es] not accept as true ‘any contentions, deductions
or conclusions of fact or law contained [in the challenged pleading].’ [Citation.]”
(County of Orange, supra, 192 Cal.App.4th at p. 32.) Similarly, facts appearing in
exhibits attached to or referenced in the pleading are given precedence over inconsistent
allegations in the pleading. (Sarale v. Pacific Gas & Electric Co. (2010)
189 Cal. App. 4th 225, 245.)
              A motion for judgment on the pleadings may be made as to an entire
pleading, or as to any cause of action or affirmative defense separately alleged in the
challenged pleading. (Code Civ. Proc., § 438, subd. (c)(2).) If the motion challenges an

                                             14
entire pleading without separately challenging individual causes of action or affirmative
defenses, the motion must be denied if the pleading adequately alleges any cause of
action or affirmative defense even though other causes of action or affirmative defenses
are deficient. (Warren v. Atchison, T. & S. F. Ry. Co. (1971) 19 Cal. App. 3d 24, 36
(Warren); South Shore Land Co. v. Petersen (1964) 226 Cal. App. 2d 725, 734 (South
Shore) [“if one of the defenses or counterclaims is free from the objections urged by
demurrer, then a demurrer to the entire answer must be overruled”]; see County of
Orange, supra, 192 Cal.App.4th at p. 32 [“In reviewing the trial court’s grant of the
motions for judgment on the pleadings under Code of Civil Procedure section 438,
subdivision (b)(1), we apply the same rules governing the review of an order sustaining a
general demurrer”].)
              “We review de novo, and ‘“are required to render our independent
judgment on whether a cause of action has been stated”’ [citation], without regard for the
trial court’s reasons for granting the motion. [Citation.]” (County of Orange, supra,
192 Cal.App.4th at p. 32.)

       2.     The Limited Partnerships’ Answer
              The Limited Partnerships contend the trial court erred in granting the
motion for judgment on the pleadings as to their answer because the first amended
complaint’s first, second, 12th, and 13th causes of action threatened rather than advanced
their interests. We do not agree with the Limited Partnerships’ characterization of these
four causes of action, and conclude the trial court properly granted the motion for
judgment on the pleadings on the Limited Partnerships’ answer.
              On their own behalf, the Baeyenses allege the first and second causes of
action against Wheatley for breach of the LLCs’ operating agreements. These causes of
action are not alleged as derivative claims and neither the Limited Partnerships nor the
LLCs are named as actual or nominal defendants. The Baeyenses allege that Wheatley—

                                            15
and Wheatley only—breached the LLCs’ operating agreements when he unilaterally
removed Robert as a manager, prevented the Baeyenses from participating in the
Businesses’ operation and management, and grossly mismanaged the Businesses. The
Limited Partnerships cite no authority allowing a party to defend against a claim that is
not alleged against that party. To the contrary, a party who asserts an interest in a claim
that is not alleged against that party generally must make a motion to intervene and
defend on behalf of the named party. (See Code Civ. Proc., § 387.) Without an order
granting it leave to intervene, an unnamed party has no right to defend against a claim.
              Citing Patrick, the Limited Partnerships nonetheless contend they are
entitled to defend against these breach of contract claims because they will be adversely
affected if the Baeyenses prevail. (See Patrick, supra, 167 Cal.App.4th at p. 1007 [“‘the
general rule for corporate participation in a derivative action is that “[u]nless the
derivative action threatens rather than advances corporation interests, [the corporation]
cannot participate in the defense on the merits”’”].) The Limited Partnerships contend
these two causes of action require the court to decide the central issue in this litigation,
i.e., whether the LLCs’ operating agreements required a simple majority vote of all
membership interests (as Wheatley contends) or a unanimous vote of all members (as the
Baeyenses contend) to remove Robert as one of the LLCs’ two managers. According to
the Limited Partnerships, if the Baeyenses prevail on this issue Robert essentially would
become a lifetime manager and never could be removed, gridlock would ensue on all
issues on which Robert did not agree with Wheatley, and Robert would be able to
manage the LLCs while also running a competing business he started with Paul. The
Limited Partnerships contend that result would adversely affect them because the LLCs
are the Limited Partnerships’ general partner. This contention fails for two reasons.
              First, Patrick applies only to derivative causes of action. These are not
derivative causes of action and do not even name the Limited Partnerships as a party.
Nothing in Patrick allows a party to defend against a claim that is not alleged against it.

                                              16
              Second, assuming Patrick applies, the Limited Partnerships’ parade of
horribles ignores the adverse affects both the Limited Partnerships and LLCs could suffer
if Wheatley prevails on this issue—Wheatley would continue to mismanage the LLCs
and the Limited Partnership and threaten their viability. At its core, this dispute is over
what the members of the LLCs intended when they formed the LLCs. Both Wheatley
and the Baeyenses accuse each other of wrongdoing that caused and continues to cause
injury to the LLCs (and the Limited Partnerships). Although they have a separate legal
existence from their members and manager, the LLCs only may act through those
individuals. In this case, the Limited Partnerships contend the Baeyenses’ causes of
action are adverse to the Limited Partnerships’ and the LLCs’ interest only because
Wheatley controls the four Businesses. If the Baeyenses were in control, it is likely the
Limited Partnerships would claim Wheatley’s actions are contrary to the Limited
Partnerships’ interest. These contrary positions demonstrate why the Limited
Partnerships may not be permitted to take a side in this dispute. (See Patrick, supra,
167 Cal.App.4th at pp. 1007-1008.)
              The Baeyenses allege the 12th and 13th causes of action on their own
behalf and as derivative claims on the Limited Partnerships’ behalf to expel the LLCs as
the general partners. As explained above, the Baeyenses lack standing to bring these
claims in their own name because the statutory provision authorizing the expulsion of a
general partner only allows the limited partnership to seek such relief. (Corp. Code,
§ 15906.03, subd. (e).) Accordingly, these causes of action are properly viewed only as
derivative claims brought on the Limited Partnerships’ behalf and therefore Patrick
prevents the Limited Partnerships from defending against these claims. (Patrick, supra,
167 Cal.App.4th at p. 1008.)
              The Limited Partnerships contend they have a right to defend these claims
because the claims seek relief well beyond the governing statute. The Limited
Partnerships point to the first amended complaint’s prayers for relief on these causes of

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action, which request a court order that the Baeyenses “are authorized to select a new
general partner for [the Limited Partnerships].” Although we agree the first amended
complaint requests relief not authorized under Corporations Code section 15906.03,
subdivision (e), that request does not confer upon the Limited Partnerships a right to
defend claims they may not otherwise defend. The request for relief beyond what the
statute authorizes does not mean these claims threaten rather than advance the Limited
Partnerships’ interests. The claims still seek to remove a general partner who allegedly
threatens the financial viability of the Limited Partnerships through mismanagement.
              Moreover, the Limited Partnerships assume the trial court will grant relief
not authorized by the governing statute simply because the first amended complaint
requests it. We assume the trial court will follow the dictates of the Corporations Code,
which provides guidance when a general partner is dissociated or expelled. (Corp. Code,
§ 15908.01 [dissociating a general partner dissolves a limited partnership unless (1) at
least one remaining general partner continues the business, or (2) where there is no
remaining general partner, consent to continue the limited partnership and admit at least
one general partner is given within 90 days by limited partners owning a majority of the
rights to receive distributions]; see Friedman et al., Cal. Practice Guide: Corporations
(The Rutter Group 2014) ¶ 2:35, p. 2-13.)

       3.     The LLCs’ Answer
              The LLCs also contend the trial court erred in granting the motion for
judgment on the pleadings as to their answers because the first amended complaint’s first,
second, 12th, and 13th causes of action threatened rather than advanced their interests. In
addition, the LLCs contend they may defend against the 12th and 13th causes of action
because those are direct claims against the LLCs seeking to expel them as the Limited
Partnerships’ general partners. We agree with this latter contention.

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              As explained above, the Baeyenses allege the 12th and 13th causes of
action individually and derivatively on the Limited Partnerships’ behalf to expel the
LLCs as the general partners, but the Baeyenses lack standing to bring these claims in
their own name because only the limited partnership may seek to expel a general partner.
(Corp. Code, § 15906.03, subd. (e).) The Baeyenses allege these claims against
Wheatley because they seek to expel the LLCs based on Wheatley’s conduct, but it is the
LLCs, not Wheatley, that are the general partners subject to expulsion. Accordingly,
although these two causes of action are derivative claims brought on the Limited
Partnerships’ behalf, they are not derivate claims brought on the LLCs’ behalf. To the
contrary, they are direct claims against the LLCs.
              As legal entities distinct from their members, the LLCs have the legal right
to defend claims against them in their own name. (Corp. Code, § 17701.05, subd. (b).)
In Patrick, the corporation could not defend the derivative claims brought on its behalf,
but it could defend the direct fraud claim because that claim sought relief not on behalf of
the corporation, but against it. (Patrick, supra, 167 Cal.App.4th at p. 1016.) Similarly,
the 12th and 13th causes of action in this case seek direct relief against the LLCs—to
expel them as general partners—and therefore the LLCs may defend against these claims
even though this action includes other causes of action that are brought derivatively on
the LLCs’ behalf. That the 12th and 13th causes of action are derivative claims brought
on the Limited Partnerships’ behalf does not change that result. The claims must be
separately analyzed as to each party.
              The Baeyenses contend the LLCs should not be allowed to defend these
claims because they are based on the same conduct by Wheatley as the derivative breach
of fiduciary duty claims brought on the LLCs’ behalf. But that does not change that these
are direct claims against the LLCs, and Patrick only applies to derivative claims brought
on behalf of the LLCs. The Baeyenses cite no authority to justify extending Patrick to

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apply to direct claims, and therefore we conclude the trial court erred in granting the
Baeyenses judgment on the pleading as to the 12th and 13th causes of action.
              This conclusion eliminates the need to separately address whether the LLCs
may properly defend against the first and second causes of action for breach of the LLCs’
operating agreements. Although the foregoing analysis denying the Limited Partnerships
the right to defend against the first and second causes of action would apply equally to
the LLCs, the LLCs’ right to defend against the 12th and 13th causes of action required
the trial court to deny the Baeyenses’ motion as to the LLCs’ entire answer. The
Baeyenses sought judgment on the pleadings as to the LLCs’ entire answer only, and
therefore the LLCs’ right to defend the 12th and 13th causes of action requires a denial of
the entire motion. (Warren, supra, 19 Cal.App.3d at p. 36; South Shore, supra,
226 Cal.App.2d at p. 734; see County of Orange, supra, 192 Cal.App.4th at p. 32.)

       4.     The LLCs’ Cross-Complaint
              The LLCs contend the trial court erred in granting the Baeyenses judgment
on the pleadings as to the cross-complaint because the LLCs alleged sufficient facts to
state a declaratory relief cause of action by alleging an actual controversy between the
LLCs and the Baeyenses over the proper definition of the phrase “Majority Vote” in the
LLCs’ operating agreements. We disagree.
              Code of Civil Procedure section 1060 authorizes “[a]ny person interested
. . . under a contract, or who desires a declaration of his or her rights or duties with
respect to another . . . in cases of actual controversy relating to the legal rights and duties
of the respective parties, [to] bring an original action or cross-complaint . . . for a
declaration of his or her rights and duties . . . .” (Code Civ. Proc., § 1060.) The
fundamental basis for a declaratory relief claim is the existence of an actual, present
controversy relating to the legal rights and duties of the parties. (Market Lofts
Community Assn. v. 9th Street Market Lofts, LLC (2014) 222 Cal. App. 4th 924, 931;

                                              20
Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal. App. 4th 497, 513.) “In order for
a party to pursue an action for declaratory relief, the ‘“actual, present controversy must be
pleaded specifically . . . .”’ [Citation.] Thus, a claim must provide specific facts, as
opposed to conclusions of law, which show a ‘“controversy of concrete actuality.”’
[Citation.]” (Jenkins, at pp. 513-514, original italics.) The party asserting the claim must
be a party interested in the alleged controversy. (Market Lofts, at p. 931.) Declaratory
relief may be refused where the court’s declaration or determination is not necessary or
proper at the time under all the circumstances. (Code Civ. Proc., §1061; DeLaura v
Beckett (2006) 137 Cal. App. 4th 542, 545.)
              Here, the LLCs’ cross-complaint states, “[t]his is an action for declaratory
relief . . . to reform the [LLCs’] respective Operating Agreements and thereby correct a
scrivener’s error therein.” The LLCs specifically allege the Baeyenses and Wheatley
entered into the operating agreements to form the LLCs “to control, manage, and operate
all aspects of the Limited Partnerships.” The LLCs further allege the operating
agreements fail to accurately reflect the Baeyenses’ and Wheatley’s true intent when they
entered into the agreements because the agreements mistakenly include two definitions of
the phrase “‘Majority Vote,’” as described above. According to the LLCs, the parties
intended the phrase to require a majority vote of all outstanding membership interests to
remove a manager, and the operating agreements should be reformed to reflect that
intent. The cross-complaint requests a judicial declaration to that effect.
              The cross-complaint therefore specifically alleges an actual, present
controversy between the Baeyenses and Wheatley as the parties who entered into the
operating agreements. The copies of the operating agreements incorporated into the
cross-complaint by reference confirm the LLCs are not parties to those agreements. The

                                             21
LLCs do not allege how or why they are interested parties with standing to assert the
cross-complaint’s declaratory relief claim.4
              As explained above, the Baeyenses and Wheatley dispute who controls and
has the right to manage the LLCs. Both sides contend they are advancing the LLCs’
interests. Wheatley merely is the member who has seized control of the LLCs and
therefore has the ability to control their actions, such as directing the LLCs to join him in
bringing the cross-complaint and to claim his position is in the LLCs’ best interest.
Wheatley’s control over the LLCs, however, does not make the LLCs parties interested in
the dispute between the Baeyenses and Wheatley. Accordingly, we agree with the trial
court’s conclusion the LLCs failed to allege a claim against the Baeyenses.

                                               III
                                         DISPOSITION

              The judgment is affirmed in part and reversed in part. The judgment in the
Baeyenses’ favor on the Limited Partnerships’ answer and the LLCs’ cross-complaint is
affirmed. The judgment the Baeyenses’ favor on the LLCs’ answer is reversed. In the
interest of justice, the parties shall bear their own costs on appeal.

                                                     ARONSON, J.

WE CONCUR:

O’LEARY, P. J.

FYBEL, J.

       4      The LLCs do not address the cross-complaint’s separate reformation claim.

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