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SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VoL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

COURT ORDER RE MEDLEY DEFENDANT’ S MOTION FOR SUMMARY


JUDGMENT OR SUMMARY ADJUDICATION

After taking the matter under submission, the Court


issues the following order, which is signed and
filed this date and incorporated herein as follows:

BACKGROUND

This action is brought derivatively by Modern


Videofilm Holdings, LLC (“Plaintiff” or “Holdings”)
on behalf of Modern Videofilm, Inc. (“MVF”).
Plaintiff alleges that it owns all of MVF’s shares.
Plaintiff alleges that Defendants Medley Capital
Corporation (“Medley”), Medley Opportunity Fund II
LP, MCC Advisors LLC, Richard Craybas, James Feeley,
Congruent Credit Opportunities Fund II LP, Congruent
Investment Partners, LLC, Preston Massey and Main
Street Capital Corporation (collectively, “the
Defendants”) took control of MVF and wrongfully
terminated former officers and directors, causing
MVF to suffer financial losses. Plaintiff alleges
causes of action for (1) breach of fiduciary duty;
(2) aiding and abetting breach of fiduciary duty
-Medley Capital, Medley Opportunity, Craybas,
Feeley, Massey, Congruent Credit, Congruent
Investment and Main Street; (3) aiding and abetting
breach of fiduciary duty Medley Opportunity, MCC
-

Advisors, Massey, Congruent Credit, Congruent

MINUTES ENTERED
Page 1 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

Investment and Main Street; (4) aiding and abetting


breach of fiduciary duty Woodward and ManagEase;
-

(5) unfair competition; (6) breach of the implied


covenant of good faith and fair dealing; (7)
intentional interference with prospective economic
advantage; (8) fraud; and (9) declaratory relief.

EVIDENTIARY OBJECTIONS

The Court rules on Plaintiff’s evidentiary


objections as follows:

1. Sustained.
2. Overruled.
3. Overruled.
4. Overruled.
5. Overruled.
6. Overruled.
7. Overruled.
8. Overruled.
9. Sustained.
10. Overruled.
11. Overruled.
12. Overruled.
13. Overruled.
14. Sustained.
15. Sustained.
16. Overruled.
17. Overruled.
18. Overruled.

MINUTES ENTERED
Page 2 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO ThM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm 8C583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDJNGS:

The Court rules on Defendant’s evidentiary


objections to the Declaration of Moshe Barkat as
follows:

1. Overruled.
2. Overruled.
3. Overruled.
4. Overruled.
5. Overruled.
6. Overruled.
7. Overruled.
8. Overruled.
9. Overruled.
10. Overruled.
11. Overruled.
12. Overruled.
13. Overruled.
14. Sustained.
15. Overruled.
16. Overruled.

Pursuant to CCP § 437c(q), “the court need rule only


on those objections to evidence that it deems
material to its disposition of the motion.
Objections to evidence that are not ruled on for
purposes of the motion shall be preserved for
appellate review.” The Court finds that any
remaining evidentiary objections are immaterial to
the disposition of this motion. All objections are

MINUTES ENTERED
Page 3 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm 3C583437 Plaintiff


Counsel
MOSHE BARICAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

preserved for appellate review.

Further, Defendant’s objection to and motion to


strike Plaintiff’s Opposition because it exceeds the
proper page limit, and Plaintiff’s objection to and
motion to strike Defendants’ motion for summary
judgement and reply for exceeding page limit and
being untimely is OVERRULED. Defendants and
Plaintiff were not prejudiced. Per CRC 3.1113(g) the
Court considers the extra pages filed and the late
papers.

DISCUSSION

A motion for summary judgment shall be granted if


all the papers submitted show that there is no
triable issue as to any material fact and that the
moving party is entitled to judgment as a matter of
law. (CCP § 437c(c).) There is a triable issue of
fact if, and only if, the evidence would allow a
reasonable trier of fact to find the underlying fact
in favor of the party opposing the motion. (Aguilar
v. Atlantic Richfield Co. (2001) 25 Cal. 4th 826,
850.) On its motion for summary judgment, the
plaintiff maintains the burden that each of the
elements has been proved and that there is no
defense available, while on its motion the defendant
must persuade the court that one of the elements in
question cannot be established or that there is a
complete defense. (Id.)

MINUTES ENTERED
Page 4 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DAT& 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARICAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

A. Shareholder Status

Defendants contend Holdings has not been an MVF


shareholder since July 1, 2014 and as such lacks
standing to bring a shareholder derivative lawsuit.
A derivative action may not be “instituted or
maintained” unless the “Plaintiff was a shareholder,
of record or beneficially” or “in the discretion of
the court.” (Corp. Code §800(b) (1).) If legal title
to Plaintiff’s shares has not passed, then Plaintiff
remains a shareholder of record of the corporation
with all the rights appurtenant to that status,
unless the contract expressly states that a
shareholder loses his status as a shareholder upon
some event other than the actual transfer of shares
to another. (See Stephenson v. Drever (1997) 16
Cal.4th 1167, 1174.)

In support of this argument, Defendants state that


in September 2012, Holdings pledged all of its stock
in MVF to Medley Capital pursuant to the “pledge
agreement.” (FAC ¶53; SSUMF 6.) However, Medley
sent a letter to Holdings on July 1, 2014 (“Notice
Letter”) stating, “you are hereby notified that
Collateral Agent, acting at the direction and for
the benefit of the Lenders, without taking legal
title to any of the Collateral, has exercised its
proxy, power of attorney and other rights under the
Security Agreement. (Craybas Decl. Exh. E.)

MINUTES ENTERED
Page 5 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE EARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDJNGS:

Defendants contend the Pledge Agreement provides


that upon an “Event of Default,” Medley became
entitled to receive “any and all dividends, payments
or other Proceeds paid in respect” of the pledged
stock, and the pledged stock “shall be registered in
the name of the Collateral Agent or its nominee.
(Craybas Decl. Exh. B, § 6.3(a)(i), (ii), at
22). However, Plaintiff contends the exercise of
this right is not automatic due to the language
stating that Medley “shall have no duty to any
Grantor to exercise any such right, privilege or
option.” (Ibid; Barkat Decl. ¶17-18.)

Thus, while it is undisputed that Medley obtained


voting and equity rights to the MVF shares, it would
appear that Holdings was still a shareholder with
legal title. (See, Stephenson v. Drever (1997) 16
Cal.4th 1167, 1174 [if legal title has not passed,
the holder of legal title “remains shareholder of
record of the corporation with all rights
appurtenant to that status.”) As such, it would
appear that Holdings has standing to bring this
action.

Assuming for argument sake that Plaintiff did not


have legal title, plaintiff has alleged facts that
its shares were wrongfully taken by Defendants. As
such, plaintiff would have standing as a beneficial
and/or equitable shareholder. (See, Haro v. Ibarra
(2009) 180 Cal.App.4th 823.)

MINUTES ENTERED
Page 6 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

B. Demand Futility

While it is the general rule in a derivative action


that the plaintiff must plead a demand upon and
refusal by the directors to act, it is equally well
settled that such demand and refusal need not be
alleged if the facts pleaded demonstrate such a
demand would have been futile. (Reed v. Norman
(1957) 152 Cal.App.2d 892, 898; Corp. Code §800
(b) (2).) The test for proving demand futility is
whether the facts show a reasonable doubt that (1)
the directors are disinterested and independent, and
(2) the challenged transaction was otherwise the
product of a valid exercise of business judgment.
(Oakland Raiders v. National Football League (2001)
93 Cal.App.4th 572, 587.) It is not enough for a
shareholder asserting demand futility in a
derivative action to claim that directors lack
independence because they are dominated by or were
personally selected by a controlling shareholder;
rather, the plaintiff is required to present
specific facts showing that through personal or
other relationships the directors are beholden to
the controlling person. (Apple Inc. v. Superior
Court (2017) 18 Cal.App.5th 222, 254.)

Plaintiff alleges numerous facts suggesting demand


futility in paragraph 15 of the FAC, including that
Grobstein was hired and is paid by Medley; it is

MINUTES ENTERED
Page 7 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MON)TOR

N. AVAI~OS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plairdiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ST A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

Medley’s practice to write MVF’s board resolutions;


for months Medley did not bother to appoint a board
member and instead directly controlled MVF’s
litigation conduct; Medley directed the firing of
MVF’s board, owner, and CEO and appointed its own
executives; and Grobstein was retained for the
purpose of insulating Medley from potential claims,
among other allegations. Further, Grobstein
testified that he owes his fiduciary duties to the
lenders, not MVF’s shareholder. (Exh. 12, 44:5-22.)
Further, Grobstein is forensic accounting examiner,
a litigation consultant and a bankruptcy trustee,
and with no prior experience as a director. (Id. at
9:25-12:11.) Grobstein was hired after a phone
interview with Medley. (Id. at 21:4-5.) As such,
Plaintiff has raised a triable issue of material
fact as to whether or not Grobstein was
disinterested and independent and whether a demand
was futile.

C. Release of all Claims

Defendant contends that MVF released Defendants from


the causes of action set forth in the FAC through
waivers stating, “To the extent not otherwise set
forth herein, each Credit Party hereby
.releases. .the .

Agent and each Lender. from any and all manner of


. .

actions, causes of action, suit. claims and demands


. .

whatsoever, in law or in equity, which any of such

MINUTES ENTERED
Page 8 of 21 DEPT. 32 04/11/18
COUNTY CLERIC
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

parties ever had to the extent arising from or in


. . .

connection with any act, omission or state of facts


taken or existing on or prior to the date
hereof.. .arising out of the Credit Agreement or the
other Credit Documents through the date hereof. . .

(Exh. C ¶10.)

Defendants assert that under New York law, which the


parties agreed would govern the construction of the -

Credit Agreement, the Security Agreement and


Amendments, such a release is valid and enforceable.
Defendants rely on Centro Empresarial Cempresa S.A.
V. Movil (N.Y. 2013) 17 N.Y.3d 269, 276. In Centro,
the Court held that a release may encompass unknown
claims, including unknown fraud claims, if the
parties so intend and the agreement is fairly and
knowingly made. (Id. at 277.) A plaintiff cannot
bring a claim that falls squarely within the
release, unless the release was itself induced by a
separate fraud. (Id. at 278.) A sophisticated
principal is able to release its fiduciary from
claims so long as the principal understands that the
fiduciary is acting in its own interest and the
release is knowingly entered into. (Ibid.) However,
the facts at issue differ from those in Centro
because in Centro the releasing party had actual
knowledge that its fiduciary was not being entirely
forthright and the releasing party did minimal
diligence. (Id. at 280.)

MINUTES ENTERED
Page 9 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE; 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE EARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

It has long been the law in New York that “an agent
cannot bind his principal, even in matters touching
his agency, where he is known to be acting for
himself, or to have an adverse interest.” (See,
Manhattan Life Ins. Co. v Forty-Second St. & Grand
St. Ferry R.R. Co., (1893) 139 NY 146, 151; Genger
v. Genger (2014) 120 A.D.3d 1102, 1104; Bertran
Packing, Inc. v. Transworld Fabricators, Inc.,
(1975) 50 A.D.2d 542, 543.)

In the present case, Plaintiff contends that some of


these releases were never signed by Holdings or
Barkat, but were instead signed by Avila after
Medley took control of MVF and fired Barkat. (Exh.
108.) Plaintiff has presented evidence that Avila
was an agent of Medley when these releases were
signed, that Avila had a conflict of interest, and
that Avila was acting adverse to the interest of
MVF. (ANF 82, 25 & 26) As such, plaintiff has
demonstrated a triable issue of material fact as to
whether these releases are enforceable as a result
of Avila’s conflict of interest.

Further, Plaintiff in this case claims the releases


were induced by fraud because the purpose of the
amendments containing the releases were to “wrestle
control” of MVF from Earkat. (Exh 92.) Plaintiff
has presented evidence that Medley talked Barkat
into signing the Forbearance Agreement with promises
to allow him to keep control of MVF, that Defendants

MINUTES ENTERED
Page 10 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DZ½NIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVAI4OS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

did not disclose that they had already decided to


take over MVF and fire Barkat, that Defendants
represented to Barkat that they would not take over
MW if he signed the release. (AMF 70, 71 &72) As
such, Plaintiff has demonstrated a triable issue of
material fact as to whether these releases are
enforceable and whether these releases were induced
by fraud.

D. First Cause of Action - Breach of Fiduciary


Duty

“To establish a cause of action for breach of


fiduciary duty, a plaintiff must demonstrate the
existence of a fiduciary relationship, breach of
that duty and damages.” (Charnay v. Cobert (2006)
145 Cal. App. 4th 170, 182.)

Defendants move for summary judgment on the grounds


that (1) a lender-borrower relationship is not
fiduciary in nature, (2) the loan documents
expressly disclaim any fiduciary relationship, (3)
Medley did not have a fiduciary duty to preserve the
value of MVF’s assets pledged as collateral, and (4)
there are no proximate damages. The Court disagrees.

In opposition, Plaintiff cites to authority holding


that a fiduciary duty may arise where a lender
excessively controls the borrower. (Oppo. at 24
[citing Credit Managers Assn. V. Superior Court

MINUTES ENTERED
Page 11 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

(1975) 51 Cal. App. 3d 352, 359-60].) Plaintiff has


shown facts that Medley imposed conditions in a
joint venture that could lead to the inference of
excessive control and therefore a fiduciary duty.
(Exh. 31 at 102.)

Defendants rely upon the Third Amendment to the


parties’ Third Forbearance Agreement from June 2015
to explicitly waive any fiduciary duties owed,
however this agreement suffers from the same
material issues of fraud as discussed above
regarding the enforceability of the releases.

Defendants contend that Plaintiff cannot provide


proximate damages. However, Plaintiff has created a
triable issue of material fact as to whether
Defendant’s conduct caused obstruction of the
Technicolor Joint Venture (“JV”) (Exh. 6 ¶10; Exh.
9, 82:15-22.) and that the Technicolor JV could have
produced $96 million a year in revenue. (Exh. 19;
Exh. 9, 59:16-21.)

For the foregoing reasons, Defendant’s motion for


summary judgment is DENIED as to the first cause of
action.

E. Second and Third Causes of Action -

Aiding and Abetting Breaches of Fiduciary Duty

“‘Liability may ... be imposed on one who aids and

MINUTES ENTERED
Page 12 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


- Counsel
MOSHE BARKAT ST AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

abets the commission of an intentional tort if the


person (a) knows the other’s conduct constitutes a
breach of duty and gives substantial assistance or
encouragement to the other to so act or (b) gives
substantial assistance to the other in accomplishing
a tortious result and the person’s own conduct,
separately considered, constitutes a breach of duty
to the third person.” (Casey v. U.S. Bank National
Ass’n (2005) 127 Cal. App. 4th 1138, 1144.)

Plaintiff alleges that Medley directed Avila,


Crouse, and Sweet to act for Medley’s benefit and
provide affirmative assistance. (FAC ¶ 143.)
Examples of this assistance and direction include
drafting MW board resolutions for Sweet, directing
the termination of Barkat, installing Avila and
Course into key MVF positions despite their lack of
qualifications, and allowing Avila to “reign
unchecked at MVF” and creating a job for his
out-of-town mistress so she could be in Los Angeles.
(FAC ¶ 144.)

Defendants contend that the actions of Avila,


Crouse, Sweet and other Medley agents are protected
by the business judgment rule. However, Plaintiff
evidences a triable issue of material fact that the
business judgment rule may not apply because of a
conflict of interest by Avila, Crouse and Sweet as
agents of Medley. (Exh 11 at 77:1-18; Exh. 109.)
Further Plaintiff evidences that the Defendants may

MINUTES ENTERED
Page 13 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

have had actual knowledge of the breach of fiduciary


duty and been a substantial factor in the harm
caused since they knew Barkat was a key person for
MVF due to his relationships and that his
termination would decrease MVF’s value, which would
frustrate efforts to save MVF. (Exh. 5 ¶3; Exh. 7
¶4; Exh. 8, 119:13-19; Exh 9, 105:14-16; Exh. 10,
14:8-15:8; Exh. 39; Exh. 110; Sweet Decl. ¶11.)

For the foregoing reasons, Defendants motion for


summary judgment on the second and third causes of
action is DENIED.

F. Fifth Cause of Action - Unfair Competition

Cal. Bus. & Prof. Code § 17200 prohibits “unfair


competition,” which is defined to include “any
unlawful, unfair or fraudulent business act or
practice.” (Cel-Tech Communications, Inc. v. Los
Angeles Cellular Telephone Co. (1999) 20 Cal. 4th
163, 180.) Given that Defendants’ motion for
summary judgment on the breach of fiduciary duties
was denied for the above reasoning, Plaintiff has
established issues of material fact exist on whether
an “unlawful, unfair, or fraudulent business act”
upon which a Section 17200 claim can lie. For the
foregoing reasoning, Defendants’ motion for summary
judgment is DENIED as to the fifth cause of action.

G. Sixth Cause of Action - Breach of

MINUTES ENTERED
Page 14 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVAIJOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAl, CORPORATION FT A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

Implied Covenant of Good Faith and Fair


Dealing (against Medley Capital)

The covenant of good faith and fair dealing can be


stated as follows: “every contract imposes upon each
party a duty of good faith and fair dealing in the
performance of the contract such that neither party
shall do anything which will have the effect of
destroying or injuring the right of the other party
to receive the fruits of the contract.” (Storek &
Storek, Inc. v. Citicorp Real Estate, Inc. (2002)
100 Cal. App. 4th 44, 55.)

Plaintiff alleges that Medley acted without proper


cause and in violation of its duties under the
implied covenant of good faith and fair dealing with
regard to the Credit Agreements. (FAC ¶178.)
Plaintiff alleges that during the negotiations
relating to the Technicolor Venture, medley
exercised powers under the Credit Agreements in bad
faith because Medley “refused to release certain
fixed assets of MVF so that the Technicolor deal
could be consummated, unless MVF produced Medley
with a 70% ownership interest” in MVF. (FAC ¶ 178.)
Medley contends that it did not have discretion to
release collateral to permit MVF to enter into a
major transaction because the loan documents
specifically prohibited Medley from releasing
collateral for any transaction prohibited by the
loan documents or until the loans are paid in full.

MINUTES ENTERED
Page 15 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAlS CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

(Credit Agmt. § 12.19, at 99-100; SeC. Agmt. § 8.14,


at 30-31.) In opposition, Plaintiff points to a
term in the credit and security agreements that
state “Collateral Agent is hereby irrevocably
authorized. to take any action requested by the
. .

[Borrower] having the effect of releasing any


Collateral. obligations Ci) to the extent
. .

necessary to permit consummation of any transaction


not prohibited by any Credit Document. (FAC, . . .“

Exh. A; Credit Agmt. § 12.18, at 99; Sec. Agmt. §


8.14 at 30.) Thus, there exists a triable issue of
material fact whether Medley was prevented from
releasing the collateral by the express terms of
agreement and in turn, whether Defendants’ actions
in the Technicolor JV negotiations constitute bad
faith.

As such, the motion for summary judgment on the


sixth causes of action is DENIED.

H. Seventh Cause of Action Intentional


-

Interference with Prospective Economic Advantage

To state a cause of action for intentional


interference with prospective economic advantage,
the plaintiff must allege (1) an economic
relationship between the plaintiff and some third
party, with the probability of future economic
benefit to the plaintiff; (2) the defendant’s
knowledge of the relationship; (3) the defendant’s

MINUTES ENTERED
Page 16 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH 3C631888

NATURE OF PROCEEDINGS:

intentional acts designed to disrupt the


relationship; (4) actual disruption of the
relationship; (5) economic harm to the plaintiff
proximately caused by the defendant’s acts; and (6)
conduct by the Defendant that was wrongful by some
legal measure other than the fact of interference.
(Youst v. Longo (1987) 43 Cal. 3d 64, 71, fn. 6.)
Defendants contend they did not engage in wrongful
acts designed to disrupt MVF’s prospective
contractual relationship with Technicolor. In
opposition, Plaintiff states that the wrongful
conduct is the breach of their fiduciary duties and
breach of the covenant of good faith and fair
dealing. Since Plaintiff’s underlying causes of
action for breach of fiduciary duties and the breach
of the covenant of good faith and fair dealing have
triable issues of material fact remaining, in turn
this causes of action does as well.
Defendants contend that Plaintiff cannot establish
that MVF suffered any direct economic harm as a
result of Medley’s alleged conduct so they cannot
establish causation and damages. However Plaintiff’s
cite to evidence that Medley’s involvement in the
Technicolor deal impacted the negotiations for the
JV. (Exh 6 ¶8, 9.) Further, Plaintiff has evidence
that the joint venture would have significant
financial impacts on MVF. (Exh. 20.)

MINUTES ENTERED
Page 17 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARIKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

For the foregoing reasons, triable issues of fact


remain and the motion for summary judgment is DENIED
as to the seventh cause of action.

I. Eighth Cause of Action - Fraud

To state a cause of action for fraud, a plaintiff


must allege: (1) misrepresentation; (2) knowledge of
falsity (or “scienter”) ; (3) intent to defraud
(induce reliance) ; (4) justifiable reliance; and (5)
resulting damage. (Charnay v. Cobert (2006) 145 Cal.
App. 4th 170, 184.) The plaintiff must plead facts
which “show how, when, where, to whom, and by what
means the representations were tendered.” (Hills
Transportation Co. v. Southwest (1968) 266 Cal. App.
2d 702, 707.) “Each element in a cause of action
for fraud or negligent misrepresentation must be
factually and specifically alleged.” (Cadlo v.
Owens-Illinois, Inc. (2004) 125 Cal. App. 4th 513,
519.)

Plaintiff has presented evidence that Medley talked


Barkat into signing the Forbearance Agreement with
promises to allow him to keep control of MVF, that
Defendants did not disclose that they had already
decided to take over MVF and fire Barkat, that
Defendants represented to Barkat that they would not
take over MW if he signed the release. (AMF 70, 71
&72) Plaintiff has failed to raise a triable issues
of material fact that Medley engaged in fraud with

MINUTES ENTERED
Page 18 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C. A. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

respect to the Technicolor deal. Plaintiff has also


failed to allege a triable issue of material fact
that the forbearance agreement was fraudulently
induce or that the July 1, 2014, takeover of MVF was
fraudulent.

As such, the motion for summary judgment as to the


eighth cause of action is DENIED.

J. Ninth Cause of Action - Declaratory Relief

Given that the motion for summary judgment was


denied as to all causes of action, Plaintiff
sufficiently evidences a triable issue of material
fact to the underlying causes of action upon which
its claim for declaratory relief may lie.

The motion for summary judgment on the ninth cause


of action is DENIED.

K . Conclusion

The motion for summary judgment is DENIED.

The motion for summary adjudication, is DENIED as to


causes of action one, two, three, five, six, seven,
eight and nine to Plaintiff’s FAC.

Clerk to give notice.

MINUTES ENTERED
Page 19 of 21 DEPT. 32 04/11/18
COUNTY CLERK
• SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH BC631888

NATURE OF PROCEEDINGS:

CLERK’S CERTIFICATE OF MAILING

I, the below-named Executive Officer/Clerk of the


above-entitled court, do hereby certify that I am
not a party to the cause herein, and that on this
date I served the notice of entry of the above order
upon each party or counsel named below by placing
the document for Collection and mailing so as to
cause it to be deposited in the United States mail
at the courthouse in Los Angeles,
California, one copy of the original filed/entered
herein in a separate sealed envelope to each address
as shown below with the postage thereon fully prepaid,
in accordance with standard court practices.

Dated: April 11, 2018

Sherri R. Carter, Executive Officer/Clerk

By: ______________________________

S. Luqueno, Judicial Assistant

Christopher ID. Beatty


Miller Barondess, LLP
1999 Avenue of the Stars, Suite 1000
Los Angeles, Ca. 90067

MINUTES ENTERED
Page 20 of 21 DEPT. 32 04/11/18
COUNTY CLERK
SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 04/11/18 DEPT. 32

HONORABLE DANIEL S. MURPHY JUDGE S. LUQUENO DEPUTY CLERK

HONORABLE JUDGE PRO TEM ELECTRONIC RECORDING MONITOR

N. AVALOS, C A.
. Deputy Sheriff NONE Reporter

1:30 pm BC583437 Plaintiff


Counsel
MOSHE BARKAT ET AL NO APPEARANCES
VS Defendant
MEDLEY CAPITAL CORPORATION ET A Counsel
(VOL. 16)
CONSOLIDATED WITH 3C631888

NATURE OF PROCEEDINGS:

Michael J. Eetz
Allen, Matkins, Leck, Gamble, Mallory & Natsis LLP
Three Embarcadero Center, 12th Floor
San Francisco, Ca. 94111

MINUTES ENTERED
Page 21 of 21 DEPT. 32 04/11/18
COUNTY CLERK