deadline - wordpress.com · 4/29/2014 · victoria's secret catalogue, 167 f.r.d. 649 (s.d....

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TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:

PLEASE TAKE NOTICE that, on May 21, 2014, at 8:30 a.m., or as soon thereafter as the

matter may be heard, in Department 49 of the above-entitled Court, located at 111 North Hill Street,

Los Angeles, California, Red Granite Pictures Inc., Riza Shahriz Bin Abdul Aziz and Christopher

McFarland (collectively, "Defendants") will and hereby do demur to the First Amended Complaint

filed by plaintiffs Brad Krevoy and Steve Stabler (collectively, "Krevoy and Stabler" or "Plaintiffs")

pursuant to Code of Civil Procedure sections 430.10 et seq., on the following grounds, as further

described in Defendants' memorandum of points and authorities attached hereto:

(1) Krevoy and Stabler's first cause of action for "Interference With Contractual Relations"

fails to state a claim against any of the Defendants;

(2) Plaintiffs' fourth cause of action for "Breach of the Covenant of Good Faith and Fair

Dealing" fails to state a claim against any of the Defendants; and

(3) Plaintiffs' fifth cause of action for "Violation of Racketeer Influenced and Corrupt

Organizations Act" fails to state a claim against any of the Defendants.

This Demurrer will be based upon this Notice of Demurrer and Demurrer, the accompanying

~ Memorandum of Points Authorities, all matters respecting which the Court may or must take

judicial notice, all pleadings and files herein, and such other matters as may be presented to the

Court at the time of hearing.

DATED: Apri129, 2014 GLASER WEIL FINK JACOBSHOWARD AVCHEN & SHAPIRO LLP

By: ~~'PATRICIA L. GLASERPAUL B. SALVATYCAMILLA Y. CHANAttorneys for Red Granite Pictures, Inc.,Riza Shahriz Bin Abdul Aziz and ChristopherMcFarland

870498

1DEMURRER TO KREVOY AND STABLER'S FIRST AMENDED COMPLAINT

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870498

DEMURRER

Pursuant to Code of Civil Procedure section 430.10(e), Defendants Red Granite Pictures

Inc., Riza Shahriz Bin Abdul Aziz and Christopher McFarland (collectively, "Defendants") hereby

demur to the First Amended Complaint of Plaintiffs Brad Krevoy ("Krevoy") and Steve Stabler

("Stabler") as follows:

(1) Krevoy and Stabler's first cause of action for "Interference With Contractual Relations"

fails to state a cause of action against any of the Defendants;

(2) Plaintiffs' fourth cause of action for "Breach of the Covenant of Good Faith and Fair

Dealing" fails to state a cause of action against any of the Defendants; and

(3) Plaintiffs' fifth cause of action for "Violation of Racketeer Influenced and Corrupt

Organizations Act" fails to state a claim against any of the Defendants.


By: ~SPATRICIA L. GLASERPAUL B. SALVATYCAMILLA Y. CHANAttorneys for Red Granite Pictures, Inc.,Riza Shahriz Bin Abdul Aziz and ChristopherMcFarland

DEMURRER TO KREVOY AND STABLER'S FIRST AMENDED COMPLAINT

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TABLE OF CONTENTSPage

I. INTRODUCTION ...............................................................................................................1

II. BACKGROUND .................................................................................................................3

A. The Circumstances Surrounding the Parties' Contract Dispute .............................. 3

B. Procedural History Leading to This Demurrer ........................................................ 5

III. ARGUMENT ...................................................................................................................... 6

A. Legal Standard ......................................................................................................... 6

B. The First Cause of Action for Interference with Contract Fails as a Matter ofLaw.......................................................................................................................... 7

C. The Fourth Cause of Action for Breach of the Covenant Is Duplicative of theBreach of Contract C1aim ......................................................................................10

D. Plaintiffs' Fifth Claim for RICO Violations Fails to State a Claim ...................... l l

1. Plaintiffs Lack Standing to Assert a Cause of Action for RICOViolations Predicated on Money Laundering ............................................ 11

2. Plaintiffs Fail To Plead Facts Sufficient To State a Claim For RICOViolations..................................................................................................12

IV. CONCLUSION .................................................................................................................14

870498

iDEMURRER TO KREVOY AND STABLER'S FIRST AMENDED COMPLAINT

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TABLE OF AUTHORITIESPage

FEDERAL CASES

Curtis & Assocs., P.C. v. Law Offices of David M. Bushman, Esq.,758 F. Supp. 2d 153 (E.D. N.Y. 2010) ..............................................................................13

Desoto v. Condon,371 F. App'x 822 (9th Cir. 2010) ......................................................................................14

DLJ Mortgage Capital, Inc. v. Kontogiannis,594 F. Supp. 2d 308 (E.D.N.Y. 2009) ...............................................................................14

Gonzalez v. Lloyds TSB Bank, PLC,532 F. Supp. 2d 1200 (C.D. Cal. 2006) .............................................................................14

Hill v. Opus Corp.,841 F. Supp. 2d 1070 (C.D. Cal. 2011) .............................................................................12

Katzman v. Victoria's Secret Catalogue,167 F.R.D. 649 (S.D. N.Y. 1996) ......................................................................................14

Negrete v. Allianz Life Ins. Co. of N. Am.,926 F. Supp. 2d 1143 (C.D. Cal. 2013) .............................................................................12

Oki Semiconductor Co. v. Wells Fargo Bank, N.A.,298 F.3d 768 (9th Cir. 2002) .............................................................................................12

SMS Marketing & Telecomms., Inc. v. H.G. Telecom, Inc.,949 F. Supp. 134 (E.D. N.Y. 1996) ...................................................................................14

Stewart v. Wachowski,CV 03-2873 MMM, 2004 WL 2980783 (C.D. Cal. Sept. 28, 2004) ................................13

U.S. v. Marbella,73 F.3d 1508 (9th Cir. 1996) .............................................................................................13

STATE CASES

Applied Equipment Corp. v. Litton Saudi Arabia Ltd.,7 Cal. 4th 503 (Cal. 1994) ................................................................................................... 8

Aubry v. Tri-City Hosp. Dist.,2 Cal. 4th 962 (1992) ........................................................................................................... 9

Barnett v. Fireman's Fund Ins. Co.,90 Cal. App. 4th 500 (2001) ................................................................................................ 7

Bernstein v. Piller,98 Cal. App. 2d 441 (1950) ................................................................................................. 7

Blank v. Kirwan,39 Cal. 3d 311 (1985) ...................................................................................................... 7, 9

Careau & Co. v. Security Pacific Business Credit, Inc.,

iiDEMURRER TO KREVOY AND STABLER'S FIRST AMENDED COMPLAINT

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222 Cal. App. 3d 1371 ................................................................................................10, 11

Dryden v. Tri-Valley Growers,65 Cal. App. 3d 990 (1977) ...............................................................................................10

Dwan v. Dixon,216 Cal. App. 2d 260 (1963) ............................................................................................... 7

Guz v. Bechtel National, Inc.,24 Cal. 4th 317 (2000) .................................................................................................10, 11

Hendy v. Losse,54 Cal. 3d 723 (1991) ..........................................................................................................7

Jenkins v. Inglewood Unified School Dist.,34 Cal. App. 4th 1388 (1995) ..............................................................................................8

Kasparian v. County of Los Angeles,38 Cal. App. 4th 242 (1995) ............................................................................................7, 8

Kelly v. General Telephone Co.,136 Cal. App. 3d 278 (1982) ...............................................................................................8

Mintz v. Blue Cross of California,172 Cal. App. 4th 1594 (2009) ............................................................................................8

Pacific Gas &Electric Co. v. Bear Stearns & Co.,50 Cal. 3d 1118 (1990) ....................................................................................................7, 9

PM Group, Inc. v. Stewart,154 Cal. App. 4th 55 (2007) ................................................................................................8

Rakestraw v. California Physicians' Service,81 Cal. App. 4th 39 (2000) ..................................................................................................7

Shoemaker v. Myers,52 Cal. 3d 1 (1990) ..............................................................................................................8

FEDERAL STATUES

18 U.S.C. § 1956(c)(7) .............................................................................................................. 6, 13

STATE STATUTES

Cal. Civ. Proc. Code § 128.7 ........................................................................................................... 2

Cal. Civ. Proc. Code § 430.10(e) .................................................................................................... 6

Cal. Civ. Proc. Code § 430.30(a) .................................................................................................... 7

OTHER AUTHORITIES

2-23 Matthew Bender Practice Guide: CA Contract Litigation 23.08 ..........................................10

870498

iiiDEMURRER TO KREVOY AND STABLER'S FIRST AMENDED COMPLAINT

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MEMORANDUM OF POINTS AND AUTHORITIES

I. INTRODUCTION

Defendants Red Granite Pictures, Inc. ("Red Granite"), Riza Shahriz Bin Abdul Aziz

("Aziz") and Christopher McFarland ("McFarland") (collectively, "Defendants") seek dismissal of

each of the three tort causes of action asserted by Plaintiffs Brad Krevoy ("Krevoy") and Steve

Stabler ("Stabler") (collectively, "Krevoy and Stabler" or "Plaintiffs") in their First Amended

Complaint. Plaintiffs' tort claims for interference with contract, breach of the implied covenant,

and, particularly, violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO") are

fatally deficient in numerous respects. Furthermore, the defects in each of these tort claims cannot

be cured through further amendments to the pleading. Therefore, the demurrers to each of these

claims should be sustained with prejudice and without leave to amend.

This is a simple contract dispute between Red Granite, on the one hand, and Krevoy and

Stabler, on the other. Red Granite recently completed production of the soon-to-be-released motion

picture "Dumb and Dumber To" ("the Sequel"), after purchasing the rights to that film from New

Line Productions, Inc. ("New Line") in June 2013. Krevoy and Stabler are movie producers who

were involved with the original "Dumb and Dumber" film ("the Original"), which was released by

New Line Cinema in 1994. After Krevoy and Stabler threatened to sue Red Granite for failing to

include them as producers in connection with the Sequel and for compensation and credits relating

thereto, Red Granite commenced this litigation to obtain a declaration that Krevoy and Stabler have

no contractual right to produce the Sequel or to receive either compensation or credit in connection

therewith. The entire dispute can be easily determined solely by the proper interpretation of a single

provision in Krevoy and Stabler's 1994 contract with New Line, which on its face refutes the

position that Krevoy and Stabler have taken in this litigation.

From the outset, Krevoy and Stabler have not been satisfied with litigating the merits of their

contractual dispute. Instead, they made the strategic decision to respond to Red Granite's

straightforward declaratory relief complaint by filing a countersuit that includes several over-the-top

870498


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tort causes of action that have no basis in fact or law.l Defendants previously demurred to

Plaintiffs' interference and breach of implied covenant claims, and the Court tentatively indicated

that it was inclined to sustain those demurrers. One day before the demurrers were set to be heard,

however, Krevoy and Stabler filed the First Amended Complaint ("FAC"). But they made no effort

in the FAC to cure the defects in their original pleading. Instead, they repleaded all of their original

defective tort claims—with all of their original deficiencies—plus a new claim for violation of

RICO. The RICO claim is not merely deficient but patently frivolous and, unless withdrawn, it will

be the subject of a forthcoming motion for sanctions under Code of Civil Procedure section 128.7.2

There are several separate and independent bases upon which Defendants' demurrers to the

FAC should be sustained without leave to amend:

First Cause of Action for Interference with Contract: This claim fails because

Plaintiffs allege that Defendants interfered with the same contract that they are

alleged to have breached. As a matter of law, one cannot interfere with a contract to

which it is a party.

Fourth Cause of Action for Breach of the Implied Covenant: This claim fails

because it is simply a restatement, and thus impermissibly duplicative, of Krevoy and

Stabler's second cause of action for breach of contract.

Fifth Cause of Action Under RICO: The RICO claim fails for numerous reasons

including: (a) Plaintiffs lack standing to assert the claim; (b) there literally are no

facts alleged to support the claim; and (c) there is no nexus whatsoever between any

alleged "predicate act" of racketeering and any harm allegedly suffered by Plaintiffs.3

1 Around the time that they filed their most recent pleading, Plaintiffs apparently decided to "leak"their pleading (in draft form) to a blogger who published their scurrilous allegations on her website,along with a link to an unsigned and unfiled copy of their draft complaint.

2 Defendants contend that Krevoy and Stabler have asserted their RICO claim solely to harassDefendants, smear their reputations, and pressure Red Granite into settling the contractual disputewith them on favorable terms. Accordingly, Defendants have served Krevoy and Stabler with aMotion for Sanctions Pursuant to C.C.P. § 128.7. Unless the RICO claim is withdrawn during thetwenty-one day safe harbor period, Defendants plan to file their sanctions motion before the hearingon this demurrer.

3 Plaintiffs' other new cause of action for "specific performance" also is defective because specificperformance is a remedy, not a cause of action. Defendants will seek dismissal of Plaintiffs'


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The defects in Krevoy and Stabler's tort claims are fatal to the assertions of the claims and

cannot be cured through further amendments to the pleading. Accordingly, the Court should sustain

Defendants' demurrers to the first, fourth and fifth causes of action with prejudice and without leave

to amend.

II. BACKGROUND

A. The Circumstances Surrounding the Parties' Contract Dispute

This lawsuit arises from Krevoy and Stabler's unfounded claim that, under an agreement

with New Line dated March 1, 1994 ("the 1994 Agreement"), they obtained "rights of first

negotiation" with respect to the Sequel.

In 1994, New Line Cinema released the highly successful motion picture, "Dumb and

Dumber." FAC ¶ 1. Krevoy and Stabler were named as producers of the Original pursuant to the

1994 Agreement. In the 1994 Agreement, New Line contracted with Peter Farrelly, Bob Farrelly

and Bennett Yellin, as "Writers," Peter Farrelly, as "Director," and Charles Wessler, Krevoy and

Stabler, as "Producers" in connection with the Original. FAC ¶ 15, Exh. A. The 1994 Agreement is

straightforward and provides that Krevoy and Stabler's "rights of first negotiation for sequels" are

subject to the provisions of, among other things, "New Line's standard form agreements." FAC

Exh. A, ¶ 7. In June 2013, Red Granite acquired from New Line the rights to produce the Sequel.

FAC ¶¶ 33-34.

Ignoring the actual language of the contract—which makes clear that Plaintiffs' first

negotiation rights depend upon the terms and conditions of New Line's "standard form agreements"

in existence at that time—Plaintiffs falsely allege that the 1994 Agreement "specifically provided

for Plaintiffs to have ̀ aright of first negotiation' to produce sequels and/or remakes on terms at least

as favorable as the Original." See, e.g., FAC ¶ 1. They contend that Red Granite, as successor to

New Line with regard to the Sequel, was obligated to grant them first negotiation rights and to

provide them with compensation and producer credits for the Sequel, regardless of whether they

contract claim (including but not limited to the request for specific performance) at a later stage ofthe proceedings.

870498


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actually performed any work in connection therewith. See, e.g., FAC ¶ 1 (claiming rights to be paid

"so long as Plaintiffs were willing and able to produce the sequel").4

Shortly after the parties' contractual dispute arose, on July 15, 2013, Red Granite filed a

declaratory relief action, seeking a judicial declaration that Krevoy and Stabler have no rights in and

to the, Sequel. See Red Granite's Compl. for Decl. Relief, LASC Case No. BC515126. Rather than

simply respond to this pleading, on July 22, 2013, Krevoy and Stabler filed a separate lawsuit—not

only against Red Granite, but also personally suing its executives, Aziz and McFarland. Krevoy and

Stabler's original Complaint, as well as their FAC, contain relatively few allegations about the

parties' contract dispute. Instead, Plaintiffs spend most of their time making baseless and irrelevant

attacks on Defendants' character. For example, Plaintiffs allege that "Red Granite has established a

pattern of using [Aziz's] family money to buy motion picture franchises...but then reneging on

contractual obligations to the key talent" (FAC ¶ 1); that Defendants' "unlawful and unethical

conduct follows a pattern that they established when Red Granite purchased the rights to the motion

picture ̀ The Wolf of Wall Street' from Warner Bros and then reneged on Alexandra Michan's

producer deal" (FAC ¶ 4); and that "McFarland and [Aziz] lack the experience necessary to

successfully produce motion pictures themselves" (FAC ¶ 4). None of these allegations have any

basis in fact or any bearing on the issues being litigated; they were included solely to generate

negative publicity for Defendants. For extra color, Plaintiffs adopt a sanctimonious tone, moralizing

about the potential consequences to Defendants if they refuse to give Krevoy and Stabler what they

claim is their right. See, e.g., FAC ¶ 4 (alleging Defendants' "misconduct and hubris will cause Red

Granite to crash and burn" and that, "[a] lthough Red Granite apparently has family money from

[Aziz], Red Granite will not succeed with money alone.").

Needless to say, Defendants consider these scurrilous allegations to be not only false but

outrageous. The only reason Plaintiffs included these assertions in their pleading is to divert

4 At the merits stage of this case, Defendants will prove that Plaintiffs' contractual claim isinconsistent with the actual language of the 1994 Agreement and contrary to industry custom andpractice, which limit first negotiation rights to within a specific time period from the date of therelease of the original movie.


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870498

attention away from the weakness of their contract claim and to try to embarrass Defendants to gain

settlement leverage. In reality, Red Granite has never "reneged" on its contractual obligations—its

dispute with Ms. Michan in connection with "The Wolf of Wall Street" bears no resemblance to the

instant controversy (as Plaintiffs well know) and was resolved quickly and on mutually agreeable

terms. Similarly, Red Granite's ability to develop, produce, finance and distribute major motion

pictures is beyond dispute, as proven by their recent success on "The Wolf of Wall Street," a

worldwide financial success and an Academy Award-nominated film. That Krevoy and Stabler felt

the need to make these groundless attacks speaks volumes to the merits of their position with respect

to the 1994 Agreement, not to mention their own willingness to say anything to try to gain a tactical

advantage in the litigation.

At this stage of the case, Defendants are not permitted to refute the merits of many of

Plaintiffs' baseless allegations and, instead, must focus their arguments on the sufficiency of

Plaintiffs' pleading, accepting the truth of all well-pleaded facts. Because Plaintiffs' contract

allegations, while ultimately meritless, are sufficient to state a viable claim for relief, Defendants are

not seeking dismissal of the second cause of action for breach of contract at this time. However,

Plaintiffs' three tort claims—namely, their first cause of action for interference with contract, fourth

cause of action for breach of the implied covenant of good faith and fair dealing, and fifth cause of

action for violation of RICO—are deficient as a matter of law and should be adjudicated against

Plaintiffs immediately and without further delay.

B. Procedural History Leadins to This Demurrer

On July 22, 2013, Krevoy and Stabler filed their original Complaint. In addition to a claim

for breach of contract, Plaintiffs included tort claims for interference with contract and breach of the

implied covenant of good faith and fair dealing. The interference claim is based on Plaintiffs'

allegation, on information and belief, that Defendants "have discouraged New Line Cinema and

Warner Bros. from honoring the right of first negotiation so that Red Granite can disingenuously

dispute the existence of such an obligation." See FAC ¶ 27. The implied covenant claim arises

from the same facts as the breach of contract claim. Cf. FAC ¶¶ 34-37 with FAC ¶¶ 40-45.

On October 10, 2013, Defendants demurred to the first and third causes of action of the


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original Complaint, challenging Krevoy and Stabler's claims for interference with contract and

breach of the implied covenant. Defendants' demurrer to those claims was set for hearing on

March 26, 2014.

Although Plaintiffs could have amended their original pleading at any time during the six-__

plus months while Defendants' demurrer was pending, they chose to wait until the very last minute

to do so. On March 25, 2014, one day before the demurrer was set to be heard, Krevoy and Stabler

filed their FAGS Rather than using the FAC to correct the defects in their initial pleading, Krevoy

and Stabler opted instead to re-plead all of their original claims (with all of their original

deficiencies) and to add a brand new claim for violation of RICO, the federal racketeering law. In

their RICO cause of action, Krevoy and Stabler allege that "Red Granite is funded with monies that

include proceeds from unlawful activities." FAC ¶ 54. Krevoy and Stabler further allege that they

are informed and believe "based on published reports that individuals in Malaysia, Indonesia,

Russia, and other counties in Asia and the Middle East have engaged in unlawful activities as

defined by 18 U.S.C. § 1956(c)(7), and that they invested the ill-gotten gains from such activity in

Red Granite." Id.6

For the reasons discussed herein, Plaintiffs' first, fourth and fifth causes of action are legally

deficient and subject to demurrer. Each of these claims should be dismissed with prejudice and

without leave to amend.

III. ARGUMENT

A. Leal Standard

A general demurrer is proper where a pleading fails to state facts sufficient to constitute a

cause of action. Code of Civil Procedure § 430.10(e). "A demurrer tests the legal sufficiency of

5 Defendants waited so long to amend that, by the time they filed the FAC, the Court already hadissued a tentative ruling indicating the intention to sustain the demurrers.

6 At around the same time they filed their FAC, Krevoy and Stabler (or someone acting on theirbehal f also "leaked" a draft of their pleading to a blogger. On or about Apri19, 2014, the website,Sarawakreport.com, published a story entitled "Lawsuit Claims ̀ Wolf of Wall Street' FinancedWith Embezzled Money (Exclusive)." The "exclusive" story included a link to an unsigned andunfiled draft of the First Amended Complaint (improperly characterized as a "court deposition" inthe story). Defendants will address Krevoy and Stabler's improper efforts to use a blogger todisseminate their groundless "racketeering" allegations at a later stage of the case.


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factual allegations in a complaint." Rakestraw v. California Physicians' Service, 81 Cal. App. 4th

39, 42 (2000). For purposes of assessing the sufficiency of a claim, although the Court must assume

the truth of all well-pleaded facts, the Court does not assume the truth of contentions, deductions, or

conclusions of fact or law. Blank v. Kirwan, 39 Cal. 3d 311, 318 (1985) (emphasis added); see also

Barnett v. Fireman's Fund Ins. Co., 90 Cal. App. 4th 500, 505 (2001). Indeed, a complaint that

contains only conclusions or mere recitals is subject to a demurrer. Bernstein v. Piller, 98 Cal.

App. 2d 441, 443-44 (1950). Additionally, a complaint "good on its face is nevertheless subject to

demurrer when facts judicially noticed render it defective." Dwan v. Dixon, 216 Cal. App. 2d 260,

265 (1963); see also Civ. Proc. Code § 430.30(a) ("When any ground for objection to a complaint...

appears... from any matter of which the court is required to or may take judicial notice, the objection

on that ground may be taken by a demurrer to the pleading."). If a demurrer is sustained, the burden

is on the complainant to demonstrate the manner in which the complaint may be amended. Hendy v.

Losse, 54 Cal. 3d 723, 742 (1991).

B. The First Cause of Action for Interference with Contract Fails as a Matter of

Law.

In their first cause of action for interference with contract, Plaintiffs allege that Red Granite,

McFarland and Aziz interfered with the contractual obligation allegedly owed to Krevoy and Stabler

under the 1994 Agreement to provide Plaintiffs with a right of first negotiation in connection with

the Sequel. FAC ¶¶ 21-31. This claim is deficient as a matter of law.

In order to state a claim for interference, Plaintiffs must allege: "(1) a valid contract between

plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional

acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or

disruption of the contractual relationship; and (5) resulting damage." Pacific Gas &Electric Co. v.

Bear Stearns & Co., 50 Cal. 3d 1118, 1126 (1990). Under settled law, "[t]here is an important

limitation to the use of this tort....It can only be asserted against a stranger to the relationship."

Kasparian v. County of Los Angeles, 38 Cal. App. 4th 242, 262 (1995) (citations omitted); see

Pacific Gas &Electric Co., 50 Cal. 3d at 1126 (citations omitted). Thus, the "cause of action for

interference with contract does not lie against a party to the contract." Applied Equipment Corp. v.


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Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 513-14 (Cal. 1994) (citing Shoemaker v. Myers, 52 Cal. 3d

1, 24-25 (1990) ("It is axiomatic, however, that there can be no action for inducement of breach of

contract against the other party to the contract"); Kelly v. General Telephone Co., 136 Cal. App. 3d

278, 288 (1982). As such, only "strangers—interlopers who have no legitimate interest in the

scope or course of the contract's performance"man be held liable for interfering with that contract.

Applied Equipment Corp., 7 Cal. 4th at 514. This rule also applies to employees and agents of the

party to a contract and, thus, to McFarland and Aziz, who are alleged to be agents of Red Granite

acting on its behalf. Mintz v. Blue Cross of California, 172 Cal. App. 4th 1594, 1604 (2009)

("Corporate agents and employees acting for and on behalf of a corporation cannot be held liable for

inducing a breach of the corporation's contract."); Jenkins v. Inglewood Unified School Dist., 34

Cal. App. 4th 1388, 1395 (1995) (agents or employees of the contracting party cannot be liable for

interference); Shoemaker, 52 Cal. 3d at 24-25; see also PM Group, Inc. v. Stewart, 154 Cal. App.

4th 55, 65 (2007) (refusing to find subcontractors liable for interfering with principal's contract).

Here, Plaintiffs' interference claim fails for several reasons. First, Plaintiffs' interference

claim fails because Red Granite cannot interfere with its own contract. The gravamen of Plaintiffs'

lawsuit is that Red Granite, as New Line's assignee with regard to the Sequel, is bound by the 1994

Agreement and that Red Granite breached the 1994 Agreement by refusing to honor Krevoy and

Stabler's first negotiation rights in connection with the Sequel. While alleging that Defendants

breached the 1994 Agreement by failing to honor their first negotiation rights, Krevoy and Stabler

simultaneously attempt to argue that Defendants' interfered with their contractual rights of first

negotiation under the 1994 Agreement. This is not allowed. See, e.g., Applied Equipment Corp., 7

Cal. 4th at 514. Far from being a "stranger" to the 1994 Agreement, Red Granite assumed New

As the Kasparian court explained: "It is obvious that if an action is brought for interference withcontractual relationship by one party to a contract against another who is also a party to that samecontract, the grievance of the plaintiff is, in essence, breach of contract; and, in such case, plaintiff isentitled to recover all damages flowing from the breach. In such an instance to allow the plaintiff tosue under the tort theory of wrongful interference with contractual rights would not only besuperfluous, but also would enable him to recover tort damages (e.g., punitive damages, damages,for mental suffering) to which he is not entitled under California law." See Kasparian, 38 Cal. App.4th at 262.


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Line's rights and obligations under that contract. Similarly, the alleged act ofinterference—namely,

the repudiation of Plaintiffs' purported rights of first negotiation—is the same as the alleged act of

breach. Compare FAC ¶¶ 28-29 and ¶¶ 35-36. Because Red Granite is a party, not a stranger, to

the 1994 Agreement, Plaintiffs' claim that Defendants interfered with that contract cannot proceed.

Second, Plaintiffs' interference claim fails because they have not alleged that Defendants

engaged in any acts to induce a breach. The third element of an interference claim is "defendant's

intentional acts designed to induce a breach or disruption of the contractual relationship." Pacific

Gas &Electric Co., 50 Cal. 3d at 1126. Here, the FAC includes no factual allegations (as opposed

to legal conclusions) to suggest that Red Granite, McFarland or Aziz's engaged in any acts of

interference. In fact, the only arguable act of interference identified in the FAC is that Red Granite

"discouraged New Line and Warner Bros. [which now owns New Line] from honoring the right of

first refusal...." Id. at ¶ 27. It is unclear what this means. The act of "discouraging" could

encompass the act of assuming New Line's rights under the 1994 Agreement, and, obviously, there

is nothing improper or tortious about that. Plaintiffs' failure to plead any factual allegation to

suggest that any "interference" occurred provides a separate basis for sustaining Defendants'

demurrers to this claim.

The interference allegations are particularly weak as they pertain to the individual

defendants, Aziz and McFarland, who are executives with Red Granite. On demurrer, a court is not

required to accept non-specific allegations against individual defendants seeking to hold them liable

for the same acts as the corporate defendant. See Aubry v. Tri-City Hosp. Dist., 2 Cal. 4th 962, 966-

67 (1992). Plaintiffs must allege that the individual defendants actually engaged in some wrongful

act. Id.; see also Blank, 39 Cal. 3d at 318. Here, Plaintiffs lump Red Granite, McFarland and Aziz

together in a single mass without any attempt to distinguish among the parties. Plaintiffs' failure to

distinguish Aziz and McFarland from Red Granite provides further supports the sustaining of this

demurrer.

Third, Plaintiffs' interference claim fails because they have not alleged that New Line would

have performed by offering a right of first negotiation in connection with the Sequel if not for the

conduct of Defendants. "It has been repeatedly held that a plaintiff, seeking to hold one liable for


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unjustifiably inducing another to breach a contract, must allege that the contract would otherwise

have been performed, and that it was breached and abandoned by reason of the defendant's

wrongful act and that such act was the moving cause thereof." Dryden v. Tri-Valley Growers, 65

Cal. App. 3d 990, 997 (1977). Here, the reason Plaintiffs do not make this allegation is that they

cannot possibly do so. If Red Granite had not acquired from New Line the rights to the Sequel,

New Line had no intention of making the movie and, consequently, Krevoy and Stabler's alleged

right of first negotiation in connection therewith never would have been triggered. Plaintiffs'

inability to allege that New Line would have performed provides another basis on which

Defendants' demurrer to the interference claim should be sustained.

C. The Fourth Cause of Action for Breach of the Covenant Is Duplicative of the

Breach of Contract Claim.

Plaintiffs' fourth cause of action alleges that Red Granite breached the covenant of good

faith and fair dealing that is implied in all contracts, including the 1994 Agreement, by failing to

honor Plaintiffs' purported right of first negotiation in connection with the Sequel. Id. at ¶¶ 47-50.

This claim fails because it does not allege any acts beyond a breach of the contract. A "breach of

the implied covenant of good faith and fair dealing involves something beyond breach of the

contractual duty itself...." Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal. App. 3d

1371, 1394 (1990) (citations omitted). Thus, the Supreme Court has held that "a breach of the

contract may also constitute a breach of the implied covenant of good faith and fair dealing. But...a

claim that merely realleges that breach as a violation of the covenant is superfluous." Guz v. Bechtel

National, Inc., 24 Cal. 4th 317, 352 (2000). "If the allegations do not go beyond the statement of a

mere contract breach and, relying on the same alleged acts, simply seek the same damages or other

relief already claimed in a companion contract cause of action, they may be disregarded as

superfluous as no additional claim is actually stated." Careau & Co., 222 Cal. App. 3d at 1395; see

also 2-23 Matthew Bender Practice Guide: CA Contract Litigation 23.08.

The breaches that Plaintiffs allege in support of their fourth cause of action for breach of the

covenant of good faith are the exact same breaches they allege in support of their second cause of

action for breach of contract. Plaintiffs allege that Red Granite breached "the covenant of good faith


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and fair dealing incorporated in the [the 1994 Agreement] by failing and refusing to negotiate with

Plaintiffs regarding the retention of Plaintiffs to produce the Sequel." FAC ¶ 50.g Because the

causes of action allege the exact same breaches, the breach of the covenant of good faith and fair

dealing claim fails as a matter of law. Guz, 24 Cal. 4th at 352; Careau & Co., 222 Cal. App. 3d at

1395.

D. Plaintiffs' Fifth Claim for RICO Violations Fails to State a Claim.

Plaintiffs' new RICO claim is frivolous on its face and does not even come close to alleging

a viable claim for relief. The RICO claim is not supported by factual allegations of any kind.

Moreover, the RICO claim is defective because Plaintiffs fail to connect any of the allegedly

"unlawful activities" to the harm that they claimed to have suffered. In fact, the alleged harm about

which Krevoy and Stabler complain by reason of an alleged failure to honor a purported contractual

negotiation right is completely unrelated to the alleged racketeering activity. The RICO claim was

not asserted for any legitimate purpose but solely to try to embarrass and harass Defendants and

should be dismissed without further delay.

1. Plaintiffs Lack Standing to Assert a Cause of Action for RICO Violations

Predicated on Monet/ Laundering.

In their FAC, Plaintiffs allege a claim for RICO violation predicated on unspecified acts of

money laundering. The claim is so cursory and vague that it is difficult to discern the precise nature

of the claim. For example, it is unclear who engaged in the "money laundering" and how the

"money laundering" bears any relationship to Krevoy and Stabler's claim that they have been denied

their purported contractual right of first negotiation in connection with the Sequel under the 1994

g Plaintiffs alleged in their original Complaint that Red Granite breached the covenant of good faithand fair dealing because it "disavow[ed]" any obligations to honor the right of first negotiation.Compl., ¶ 45. This "disavowal" and failure to adhere to the right of first negotiation is the exactsame breach alleged in Plaintiffs' claim for breach of contract, in ¶ 36 of both the originalComplaint and the FAC. In a futile effort to save the breach of covenant claim, Plaintiffs deleted the"disavowal" language that appeared in ¶ 45 of the original Complaint and replaced it with a newallegation in the FAC (at ¶ 50) that McFarland and Aziz caused Red Granite to refuse to negotiatewith Plaintiffs. These minor changes do not come close to remedying the fundamental problemwith the breach of covenant claim, namely that it is based on the exact same facts as the breach ofcontract claim and is entirely duplicative.

iiDEMURRER TO KREVOY AND STABLER'S FIRST AMENDED COMPLAINT

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Agreement. This absence of any link between the unspecified activities at issue and the alleged

harm is sufficient in of itself to render Plaintiffs' RICO claim deficient and subject to dismissal.

Furthermore, Plaintiffs have no standing to bring a RICO claim based on money laundering

.inst Aziz and McFarland because Plaintiffs cannot establish that McFarland and Aziz's alleged

misconduct (whatever that misconduct is alleged to be) proximately caused the injuries about which

they complain. In order to have standing under RICO, a plaintiff must plead and prove "`but for'

causation, proximate causation, and a concrete financial loss to a protectable business or property

interest." Negrete v. Allianz Life Ins. Co. of N. Am., 926 F. Supp. 2d 1143, 1154 (C.D. Cal. 2013).

"To prove that an injury is proximately caused by a RICO violation, a plaintiff must demonstrate

that there is ̀ a direct relationship between the injury asserted and the injurious conduct alleged."'

Hill v. Opus Corp., 841 F. Supp. 2d 1070, 1096 (C.D. Cal. 2011). "A link that is ̀ too remote,'

`purely contingent,' or ̀indirect' is insufficient." Negrete, 926 F. Supp. 2d at 1154-55.

Here, the only alleged injury to Plaintiffs is their inability to receive the benefits of their

claimed contractual right of first negotiation under the 1994 Agreement. FAC ¶ 59. There is no

relationship—direct or otherwise—between the injury that Plaintiffs allegedly suffered, namely the

loss of their right of first negotiation, on the one hand, and the underlying RICO activity (i.e.,

Defendants' unspecified connection to in an international money laundering scheme), on the other

hand. Plaintiffs' alleged harm flowed from Red Granite's unwillingness to provide Plaintiffs with

any right of first negotiation—not from the alleged money laundering. See, e.g., Oki Semiconductor

Co. v. Wells Fargo Bank, N.A., 298 F.3d 768, 774 (9th Cir. 2002).

Plaintiffs' failure to allege any connection between the allegedly unlawful "racketeering"

and their alleged injuries precludes them from asserting their RICO claim on standing grounds.

2. Plaintiffs Fail To Plead Facts Sufficient To State a Claim For RICO

Violations.

Even if Plaintiffs had standing to pursue a claim against Aziz and McFarland based upon

RICO violations, Plaintiffs have completely failed to meet the pleading standards applicable to

RICO claims. Courts in the Ninth Circuit have required litigants to meet the heightened pleading

standards applicable to claims of fraud when asserting a RICO claim predicated on money

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laundering. Stewart v. Wachowski, CV 03-2873 MMM, 2004 WL 2980783 *4 (C.D. Cal. Sept. 28,

2004) ("most courts have held that allegations of money laundering must also satisfy Rule 9(b)'s

requirements, since money laundering involves an element of fraud."). "[C]ourts are particularly

mindful of these standards in the context of a civil RICO claim, the assertion of which often has ̀ an

almost inevitable stigmatizing effect on those named as defendants."' Curtis & Assocs., P.C. v. Law

Offices of David M. Bushman, Esq., 758 F. Supp. 2d 153, 166 (E.D. N.Y. 2010). "Because of this

likely powerful effect on potentially innocent defendants who face the threat of treble damages, and

the concomitant potential for abuse of RICO's potent provisions, the court is aware of a particular

imperative in cases such as the one at bar, ̀to flush out frivolous [civil] RICO allegations at an early

stage of the litigation."' Id. at 167.

Plaintiffs' vague and conclusory allegations of money laundering by reference to 18 U.S.C.

§ 1956(c)(7) do not meet any standard of pleading, whether heightened or otherwise, for alleging a

valid RICO cause of action based on money laundering. Among other things, Plaintiffs fail to

allege any predicate acts of racketeering activity, and they fail to allege any pattern of racketeering,

both of which are necessary to state a valid claim. While Plaintiffs refer to the money laundering

statute as the underlying racketeering activity, Plaintiffs have not alleged any facts to support their

conclusory allegations. In order to state a claim for money laundering, Plaintiffs must allege that

Aziz and McFarland (1) engaged in a financial transaction which involved proceeds from specified

illegal activity, (2) knew the proceeds were from illegal activity, and (3) intended the transaction

either to promote the illegal activity or to conceal the nature, source, or ownership of the illegal

proceeds. See U.S. v. Marbella, 73 Fad 1508, 1514 (9th Cir. 1996). Here, Plaintiffs have pled no

facts regarding any of these requirements. Relying only on gossip and speculation purportedly

contained in unidentified "published reports," Plaintiffs allege that unnamed "individuals in

Malaysia, Indonesia, Russia and other countries in Asia and the Middle East" have invested illicit

funds in Red Granite. FAC ¶ 54. These are conclusions, not factual allegations. Plaintiffs fail to

allege any facts showing that: (i) the purportedly illegal activity that generated the illicit funds, (ii)

Plaintiffs knew that the funds invested in Red Granite were the product of illegal activities, and (iii)

Red Granite's financing of motion pictures was intended to conceal the nature, location, sources, or


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ownership of the illegal proceeds. These facts are not pled because they do not exist. "In the

absence of a predicate racketeering act, no ̀pattern' of racketeering activity can exist." Katzman v.

Victoria's Secret Catalogue, 167 F.R.D. 649, 656 (S.D. N.Y. 1996); see also Desoto v. Condon, 371

F. App'x 822, 824 (9th Cir. 2010) ("The money laundering allegations fail to allege whether

[Defendant] had the requisite intent to launder funds in furtherance of a RICO scheme."); DL.I

Mortgage Capital, Inc. v. Kontogiannis, 594 F. Supp. 2d 308, 326 (E.D.N.Y. 2009) ("the allegations

that the RICO defendants committed money laundering and bribery are, as to[Defendants], entirely

conclusory and without even passing support in the complaint or plaintiff s motion papers.").

Additionally, Plaintiffs have not pled a pattern of racketeering activity. In order to plead

such a pattern, Plaintiffs must allege at least two predicate acts; but the predicate acts alone are not

sufficient to establish a pattern of racketeering. Plaintiffs also must allege facts that show that "the

racketeering predicates are related and ̀ that they amount to or pose a threat of continued criminal

activity."' Gonzalez v. Lloyds TSB Bank, PLC, 532 F. Supp. 2d 1200, 1213 (C.D. Cal. 2006). "A

`pattern' is established for RICO purposes where the predicate acts ̀ themselves amount to, ... or

otherwise constitute a threat of, continuing racketeering activity.' Factors including the number and

variety of predicate acts, the length of time during which they were committed, the number of

victims and the occurrence of distinct injuries are considered in determining whether such continuity

exists." SMS Marketing & Telecomms., Inc. v. H.G. Telecom, Inc., 949 F. Supp. 134, 144 (E.D.

N.Y. 1996). Here, Plaintiffs provide no facts to show a threat of continuing racketeering activity.

Conclusory allegations, devoid of facts, stating that Defendants used illicit funds to finance two

movies do not come close to alleging a pattern of racketeering activity upon which a RICO claim

could be based.

Plaintiffs' failure sufficiently to plead any predicate acts or a pattern of racketeering activity

renders their RICO claim deficient as a matter of law.

~ IV. CONCLUSION

Plaintiffs have had two opportunities, spanning more than six months, to address the defects

in their pleading. Instead of addressing the problems with their initial Complaint, Plaintiffs elected

to file a FAC that is even worse than the original. For the reasons discussed, Plaintiffs cannot assert

870498


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an interference claim against Defendants as a matter of law, and their breach of covenant claim is

entirely duplicative of their breach of contract claim. Plaintiffs' RICO claim is patently frivolous.

It does not come close to meeting the pleading standards applicable to such claims and has been

asserted for the sole purpose of subjecting Defendants to harassment, expense and delay. The

sooner that Plaintiffs' groundless tort claims are disposed of, the sooner the parties can address the

substance of their dispute, which boils down to a simple question of contract interpretation.

Accordingly, the Court should sustain Defendants' demurrers to Plaintiffs' first cause of action for

"Interference With Contractual Relations," fourth cause of action for "Breach of the Covenant of

Good Faith and Fair Dealing," and fifth cause of action for "Violation of Racketeer Influenced and

Corrupt Organizations Act" with prejudice and without leave to amend.


By: G~~ ~C~~PATRICIA L. GLASERPAUL B. SALVATYCAMILLA Y. CHANAttorneys for Red Granite Pictures, Inc.,Riza Shahriz Bin Abdul Aziz andChristopher McFarland

870498


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PROOF OF SERVICE

STATE OF CALIFORNIA, COUNTY OF LOS ANGELES

I am employed in the County of Los Angeles, State of California; I am over the age of 18and not a party to the within action; my business address is 10250 Constellation Boulevard, 19thF14Qr, LQ~ Angeles, California 90.067.

On Apri129, 2014, I served the foregoing documents) described as DEMURRER TOKREVOY AND STABLER'S FIRST AMENDED COMPLAINT on the interested parties to thisaction by delivering thereof in a sealed envelope addressed to each of said interested parties at thefollowingaddress(es):

[SEE ATTACHED SERVICE LIST]

❑ (BY MAIL) I am readily familiar with the business practice for collection and processing ofcorrespondence for mailing with the United States Postal Service. This correspondence shallbe deposited with the United States Postal Service this same day in the ordinary course ofbusiness at our Firm's office address in Los Angeles, California. Service made pursuant tothis paragraph, upon motion of a party served, shall be presumed invalid if the postalcancellation date of postage meter date on the envelope is more than one day after the date ofdeposit for mailing contained in this affidavit.

❑ (BY E-MAIL SERVICE) I caused such document to be delivered electronically via e-mailto the e-mail address of the addressees) set forth in the attached service list.

x❑ (BY OVERNIGHT DELIVERY) I served the foregoing document by FedEx, an expressservice carrier which provides overnight delivery, as follows: I placed true copies of theforegoing document in sealed envelopes or packages designated by the express servicecarrier, addressed to each interested party as set forth above, with fees for overnight deliverypaid or provided for.

❑ (BY FACSIMILE) I caused the above-referenced document to be transmitted to theinterested parties via facsimile transmission to the fax numbers) as stated on the attachedservice list.

❑ (BY PERSONAL SERVICE) I caused such envelope to be delivered by hand to the officesof the above named addressee(s).

❑D (State) I declare under penalty of perjury under the laws of the State of California thatthe above is true and correct.

❑ (Federal) I declare that I am employed in the office of a member of the bar of this court atwhose direction the service was made. I declare under penalty of perjury that theabove is true and correct.

Executed on Apri129, 2014 at Los Angeles, California.

Amy L. Fles ert

s~o7~sPROOF OF SERVICE

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SERVICE LIST

Steven Formaker, Esq. Attorneys for Steven Steve Stabler &BradFREEDMAN & TAITELMAN, LLP Krevoy1901 Avenue of the Stars, Suite 500Los Angeles, CA 90067Tel: (310) 201-0005Fax: (310) 201-0045E-mail: sformaker~a ftllp.com

Gary E. Gans, Esq. Attorneys for Brad KrevoyQUINN EMANUEL URQUHART &SULLIVAN, LLP865 S Figueroa St., 10th FloorLos Angeles, CA 90017Tel: (213) 443-3000Fax: (213) 443-3100E-mail: ~arYgans(a~~uinnemanuel.com

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PROOF OF SERVICE

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