Judge Alison Mackenzie, Case Number: 22STCV25895, Date: 2023-11-21 Tentative Ruling

Judge: Alison Mackenzie, Case: 22STCV25895, Date: 2023-11-21 Tentative Ruling

Case Number: 22STCV25895 Hearing Date: February 2, 2024 Dept: 55

NATURE OF PROCEEDINGS: Defendants’ Motion for Judgment on the Pleadings.

The motion is denied.

BACKGROUND

In this case, Plaintiffs CHEN FANG and YU LIN (“Plaintiffs”) seek rescission and damages related to a Limited Partnership Agreement (“LPA”) they entered into with Defendant Group 48 LP. Defendant CMB Export and Defendant NK are general partners of the Group 48 limited partnership, which is controlled by Defendant Hogan. The causes of action are: 1) Rescission - Frustration of Purpose; 2) Breach of Implied Covenant of Good Faith and Fair Dealing; and 3) Unjust Enrichment.

Defendants now move for judgment on the pleadings as to all three claims of the Complaint. Plaintiffs oppose the motion.

JUDICIAL NOTICE

Defendants seek judicial notice of the LPA, the Private Placement Memorandum (“PPM”) attached to the Answer, and USCIS notices. (Mot., p. 6.)

Generally, judicial notice of contracts is improper. Freemont Indem. Co. v. Fremont General Corp. (2007) 148 Cal.App.4^th 97, 114-15. When a complainant attaches an entire contract to a complaint, however, the court may take judicial notice of it. Burnett v. Chimney Sweep (2004) 123 Cal. App. 4th 1057, 1064. The Court therefore takes judicial notice of the LPA.

Judicial notice of Internet pages of even official entities may be improper absent evidentiary foundation showing the following elements: 1) author, 2) date of creation, 3) purpose, 4) reliability, and 5) veracity. Hartwell Corp. v. Sup. Ct. (2002) 27 Cal.4^th 256, 279 n. 12. Content on official sites on the Internet is not automatically the proper subject of judicial notice. Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 889 (trial court erred in taking judicial notice of a private contract between a bank and the Federal Deposit Insurance Corporation). Given such law, Defendants’ requests for judicial notice are denied as to the PPM contract accompanying the Answer and declaration, and the USCIS records from the Internet.

LEGAL STANDARD

“The grounds for a motion for judgment on the pleadings must appear on the face of the complaint or from a matter of which the court may take judicial notice.” Richardson-Tunnell v. School Ins. Program for Employees (2007) 157 Cal.App. 4^th 1056, 1061, disapproved on other grounds by Quigley v. Garden Valley Fire Prot. Dist. (2019) 7 Cal. 5th 798, 815 n.8. In considering a motion for judgment on the pleadings, courts consider whether properly pleaded factual allegations, assumed to be true and liberally construed, are sufficient to constitute a cause of action. Stone Street Capital, LLC v. Cal. State Lottery Com'n (2008) 165 Cal.App.4th 109, 116.

“The motion for judgment on the pleadings can be granted only if the instrument incorporated by reference conclusively negates the express allegation in the pleading, and except in the extraordinary case, conclusive negation is unlikely because of the inevitable prospect that parol evidence may lead to an interpretation of the contract consistent with the pleading’s express allegation.” Columbia Casualty Co. v. Northwestern Nat. Ins. Co. (1991) 231 Cal.App.3d 457, 470.

ANALYSIS

MJOP Is Untimely Reconsideration

“A [statutory] motion for judgment on the pleadings may be brought on the same grounds as an unsuccessful demurrer only if ‘there has been a material change in applicable case law or statute since the ruling on the demurrer.’” Farber v. Bay View Terrace Homeowners Assn. (2006) 141 Cal. App. 4th 1007, 1013 (quoting CCP §438(g)). Defendants’ motion essentially raises issues the Court already considered in overruling Defendants’ demurrer and denying their subsequent motion for reconsideration.

The Court concludes Defendants’ motion is really an untimely motion for reconsideration, disguised as a motion for judgment on the pleadings. Indeed, Defendants admit that the only thing that has changed between the demurrer and this MJOP (besides the reference to USCIS notices which are not subject to judicial notice) is the judge handling the case. While the Court will consider the merits of the MJOP, it expects counsel for Defendants to follow all applicable rules and proceed in this litigation in an efficient manner.

Rescission - Frustration of Purpose

Plaintiffs’ first cause of action seeks rescission under Civil Code Section 1689(b) because the value of Plaintiffs’ consideration (obtaining resident status under the EB-5 program) is void. Defendants assert that rescission is not an independent cause of action but instead a remedy as to which Plaintiffs must allege a viable claim for breach of contract. (Mot., 9:6 et seq.).

In ruling upon demurrers, courts consider whether any cause of action has been alleged sufficiently, notwithstanding that a cause of action is labeled otherwise. Arce ex rel. Arce v. Kaiser Found. Health Plan, Inc. (2010) 181 Cal.App.4^th471, 482. “[T]he allegations in the body of the complaint, not the caption, constitute the cause of action against the defendant.” Davaloo v. State Farm Ins. Co. (2005) 135 Cal.App.4th 409, 418.

Statutory elements of a claim for rescission are set forth in Civil Code Section 1689. Wong v. Stoler (2015) 237 Cal. App. 4th 1375, 1385 (“Both the grounds for rescission and the means by which parties may rescind their contract are governed by statute.”) A claim for rescission based on lack of consideration under Section 1689 can be an independent cause of action without including a breach of contract claim. Crocker-Anglo Nat. Bank v. Kuchman (1964) 224 Cal.App.2d 490, 496 (“they have a cause of action for rescission under subsection (b)(1) of section 1689 of the Civil Code.”).

The LPA’s terms addressing the specific circumstances under which a limited partner’s capital contribution may be returned, and breach, are not determinative issues, because rescission can still apply based on the alleged failure of consideration (e.g., Plaintiffs’ gaining permanent residency through the EB-5 program). See, e.g., Wildlife, Inc. v. City of Rancho Cucamonga (2009) 175 Cal.App.4th 1306, 1332 (“‘[i]f the consideration for the obligation of the rescinding party, before it is rendered to him, fails in a material respect from any cause’ a party may rescind a contract.”). “‘[F]ailure of consideration is the failure to execute a promise, the performance of which has been exchanged for performance by the other party.’" FPI Development, Inc. v. Nakashima (1991) 231 Cal. App. 3d 367, 398.

Hence, the issue of whether the LPA guaranteed Plaintiffs’ return of consideration is immaterial to the analysis that instead rests on failure of consideration. Defendants’ own citations indicate that only contract provisions are evaluated in ascertaining whether an investment return was guaranteed in violation of immigration law. (See Mot., 2:16-3:7). Even if resulting, extrinsic factors apply, USCIS’ approval of Fang’s I-526 Petition was not a guaranteed result, in light of the agency’s discretion, and so Plaintiffs’ application did not directly cause any failure of consideration, but instead an intervening agency determination did. It was possible that Plaintiffs’ application would be denied, thereby leaving intact the alleged consideration. Similarly, Plaintiffs’ seeking rescission still leaves open uncertainty about the investment, because there is no guarantee that this litigation will be resolved via a judgment of rescission. Hence, even the extrinsic factors have not negated the existence of alleged consideration.

Thus, Plaintiff failure of consideration is sufficiently alleged in the body of the cause of action, and the Court need not also address the additional theory of frustration of purpose. Demurrers do not lie as to only parts of causes of action, where some valid claim is alleged. Poizner v. Fremont General Corp. (2007) 148 Cal.App.4^th 97, 119 (“A demurrer must dispose of an entire cause of action to be sustained.”).

Breach of Implied Covenant of Good Faith and Fair Dealing

Defendants contend that the implied covenant cannot be used “to override an express provision of the contract,” quoting Gerdlund v. Elec. Dispensers Int’l (1987) 190 Cal.App.3d 263, 277. (Mot., 10:14-11:15.)

The elements of the claim for Breach of Implied Covenant of Good Faith and Fair Dealing are:

Existence of contractual relationship;
implied duty
breach; and
causation of damages.

Smith v. San Francisco (1990) 225 Cal.App.3d 38, 49.

The Complaint does not reveal that refusal to return Plaintiffs’ funds is expressly allowed by the LPA, because it is actually silent as to the type of basis for investment return alleged here. (Complaint, ¶ 23 (“The purpose of the LPA is frustrated, because of a supervening, fortuitous event that, the United States Citizenship and Immigration Services has granted Plaintiffs their current status….”)). See generally Brehm v. 21st Century Ins. Co. (2008) 166 Cal.App.4th 1225, 1241 (“The implied covenant of good faith and fair dealing cannot prohibit a contracting party from doing that which is expressly permitted by the agreement.”); Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002) 100 Cal.App.4th 44, 55 (“[E]very 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.”);

Judicial notice of immigration records would fail to address alleged failures of conditional permanent residency, as distinguished from granted EB-5 applications for visas. (Complaint, ¶ 15 (Defendants denied Plaintiffs’ request in June and July 2022, that Defendants want to see a “denial of [Plaintiffs’] conditional residency….”)). EB-5 Visas can also involve residency. “[P]laintiffs, as conditional permanent residents, had been lawfully admitted as permanent residents for the purposes of qualifying for naturalization….” 2 Immigration Law Service 2d § 8:94.

The Court therefore denies the motion for judgment on the pleadings as to the breach of implied covenant of good faith and fair dealing claim.

Unjust Enrichment

Defendants contend that all three claims fail because Plaintiffs received the full consideration bargained for pursuant to the LPA’s provisions. (Mot., 6:22 et seq.). Additionally, Defendants argue that common counts cannot be a substitute for express contracts. (Mot., 7:4 et seq.).

Even partial failures of consideration may be cognizable. See Bonadelle Const. Co. v. Hernandez (1959) 169 Cal. App. 2d 396, 399 (“A partial failure of consideration ….”). “‘Consideration consists of either a benefit to the promisor or a detriment to the promisee. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him.’” Speirs v. BlueFire Ethanol Fuels, Inc. (2015) 243 Cal. App. 4th 969, 987.

As a matter of procedure, “a common count, by long continued practice is not subject to attack by general demurrer or by a special demurrer for uncertainty.” Auckland v. Conlin (1928) 203 Cal. 776, 778. “When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable." Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1560.

A common count is proper notwithstanding that it relates to an original transaction involving an express or implied contract. Utility Audit Co. v. City of L. A. (2003) 112 Cal.App.4th 950, 958.

Moreover, contractual relationships are not required for unjust enrichment, which has the elements:

Receipt of a benefit;
unjust or wrongful retention of the benefit; and
at the expense of another.

Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1593; Lectrodryer v. SeoulBank (2000) 77 Cal. App. 4th 723, 726.

Restitution is a synonym for unjust enrichment, which is not a cognizable theory, but instead a general principal related to other claims and remedies. Melchior v. New Line Productions, Inc. (2003) 106 Cal. App. 4th 779, 794. “‘[T]here is no particular form of pleading necessary to invoke the doctrine’ of restitution.” Dinosaur Dev. v. White (1989) 216 Cal. App. 3d 1310, 1315. “The person receiving the benefit is required to make restitution only if the circumstances are such that, as between the two individuals, it is unjust for the person to retain it.” First Nationwide Savings v. Perry (1992) 11 Cal. App. 4th 1657, 1663.

Assuming, arguendo, that residence were not guaranteed, even a partial failure of consideration can be actionable, which here would be performing some efforts towards residency, even if the efforts ultimately fail. Further, the instant contracts reasonably can be interpreted to include some amount of consideration regarding residency. Courts defer to plaintiffs’ reasonable interpretations of contracts, in ruling upon demurrers. Performance Plastering v. Richmond American Homes of Cal., Inc. (2007) 153 Cal.App.4th 659, 672 (lack of essential terms in agreement not properly resolved on demurrer where related to complainants’ reasonable interpretations); Aragon-Haas v. Family Security Services, Inc. (1991) 231 Cal.App.3d 232, 239; Davies v. Sallie Mae, Inc. (2008) 168 Cal. App. 4th 1086, 1091.

Further, Plaintiffs’ allegations support the possibility of restitution for unjust enrichment, even given the existence of the LPA, because they allegedly should be rescinded. E.g., McBride v. Boughton (2004) 123 Cal. App. 4th 379, 388 (“restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it … is unenforceable or ineffective for some reason.”).

Unjust enrichment is a viably alleged Cause of Action, as analyzed above.

Individual Defendant’s Liability

Defendants contend that Defendant Patrick F. Hogan (“Hogan”) is not a party to the contract, and the Complaint does not allege that Hogan did anything wrong. (Mot., 2:2-4.)

Unjust Enrichment claims do not require contracting parties. See Federal Deposit Ins. Corp. v. Dintino (2008) 167 Cal.App.4th 333, 346 (“a cause of action for unjust enrichment is not based on … a written contract.”). The Complaint, via global allegations, alleges and infers that the individual Defendant did in fact do something wrong-- i.e., retain monies and was unjustly enriched. (Complaint, ¶ 41 (“Defendants benefited at the expense of Plaintiffs….”)).

While the claims do not state which defendants are being sued for Rescission and Breach of the Implied Covenant, the Court need not reach the ambiguity of the other claims, where Defendants did not raise that issue, and unjust enrichment is sufficiently alleged as to all defendants. See generally, e.g., Williams v. Beechnut Nutrition Corp. (1986) 185 Cal. App. 3d 135, 139 (The failure to identify claims and parties by labeling causes of action, may render a complaint uncertain, except where the complaint contains allegations sufficiently apprising defendants of the issues, in which case a demurrer should be overruled.)

The individual defendant is adequately alleged to be liable at least under the viable theory of unjust enrichment. As such, it would be error to dismiss that defendant as requested.