Judge Alison Mackenzie, Case Number: 22STCV32211, Date: 2024-02-06 Tentative Ruling

Judge: Alison Mackenzie, Case: 22STCV32211, Date: 2024-02-06 Tentative Ruling

Case Number: 22STCV32211 Hearing Date: February 6, 2024 Dept: 55

NATURE OF PROCEEDINGS:

The demurrer is sustained in part and overruled in part.

The motion to strike is denied.

Thirty days leave to file an amended complaint.

BACKGROUND

Plaintiffs HWY LOGISTIC, INC. and EVERRANK EXPRESS INC. (“Plaintiffs”) bring this action against Defendants SAMUEL CHIH (“Chih”) and CHARLENE Y. LI (“Li”) (Chih and Li collectively referred to as “Defendants”) based on Chih’s alleged embezzlement of funds from Plaintiffs when he served as CEO of Hwy Logistic, Inc. The Second Amended Complaint (“SAC”) also alleges that Li, Chih’s wife, engaged in fraud by receiving Chih’s salary in her name and that she and Chih engaged in a fraudulent scheme to steal and dissipate Plaintiffs’ assets and embezzle Plaintiffs’ funds.

The SAC alleges the following causes of action against Defendants: Second Cause of Action for Fraud – Count One; Fourth Cause of Action for Conversion – Count One; Ninth Cause of Action for Conversion – Count Two; Eleventh Cause of Action for Conversion – Count Three; Fourteenth Cause of Action for Negligence Per Se; Fifteenth Cause of Action for Civil Conspiracy; Seventeenth Cause of Action for Injunctive Relief; Eighteenth Cause of Action for Declaratory Relief; and Twentieth Cause of Action for Unjust Enrichment.

Defendants now bring a demurrer to the Second, Third, Sixth, Eighth, Tenth, Twelfth, Thirteenth, Fourteenth, Fifteenth, Seventeenth, Eighteenth, and Nineteenth Causes of Action, arguing that each fails to state facts sufficient to constitute a cause of action, and that the causes of action are uncertain, ambiguous, and unintelligible. Li demurs to the entire SAC, arguing that the SAC fails to allege facts against her sufficient to constitute any cause of action. Plaintiffs oppose the demurrer.

While Defendants’ Notice of Demurrer also lists the Seventh Cause of Action, the memorandum of points and authorities and reply brief contain no argument against that Cause of Action. Similarly, while Plaintiffs’ opposition contains argument regarding the Sixteenth Cause of Action and an “aiding and abetting” cause of action that is not in the SAC, the demurrer makes no arguments about these claims. The Court does not consider the Demurrer to include the Seventh and Sixteenth Causes of Action and does not consider the arguments regarding an unnamed “aiding and abetting” claim.

Defendants also move to strike the Third, Fourth, Fifth, Sixth, Seventh, Ninth, and Tenth Prayers for Relief in the SAC, which Plaintiffs oppose.

DEMURRER ANALYSIS

1. Second, Sixth, Eighth, Tenth, Twelfth, and Thirteenth Causes of Action

Claims 2, 8, 10, 12, and 13 allege that Chih engaged in fraud and constructive fraud by stealing and embezzling money from each of the Plaintiffs. (Compl., ¶¶ 215-19.) Defendants contend these claims do not contain the specificity required for a fraud claim.

Plaintiffs need not allege the elements of active deceit where the claim includes concealment or acts regarding contracting. See, e.g., Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal. App. 4th 1356, 1384 (rule of specifically pleading how, when, where, to whom, and by what means, misrepresentations were communicated, is intended to apply to affirmative misrepresentations, and not to concealment); CC §1572(5); Vogelsang v. Wolpert (1964) 227 Cal. App. 2d 102, 109; Masters v. San Bernardino County Employees Retirement Assn. (1995) 32 Cal.App.4th 30, 41; Brady v. Carman (1960) 179 Cal.App.2d 63, 67 (“Fraud is any act fitted to deceive.”). See also Monastra v. Konica Business Machines, U.S.A., Inc. (1996) 43 Cal.App.4th 1628, 1645 (constructive trust is one remedy for fraud claims).

Here, Plaintiffs’ fraud claims allege that Chih stole money from Plaintiffs during his employment with Hwy, and Plaintiffs allege the specific amounts stolen by Chih and where he transferred the funds. (E.g., SAC, ¶¶ 121-139.) The claims alleges that Chih “concealed” the facts of his embezzlement against Plaintiffs. (Id., ¶¶ 141-42, 219-20, 258, 281-83, 308-09, 326.) Importantly, all such allegations are incorporated by reference into the causes of action. (E.g., ¶ 108.) Such allegations are sufficient for a fraud claim based on concealment.

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.4th97, 119 (“A demurrer must dispose of an entire cause of action to be sustained.”) Thus, while the affirmative representations alleged in the fraud claims could be more specific, they are only portions of the claims and thus are not subject to attack in isolation, in the demurrer procedure.

Additionally, the Court rejects Defendants’ contention that the claims are uncertain because they are pleaded in separate causes of action. The ground of uncertainty relates to alleged facts, and does not lie as to the label, legal theory, or effect of a cause of action. County of Santa Clara v. Hayes Co. (1954) 43 Cal.2d 615, 619-20. Regarding uncertainty, "[t]here is no need to require specificity in the pleadings because 'modern discovery procedures necessarily affect the amount of detail that should be required in a pleading.'” Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 608. Thus, the Court does not find that the format of the SAC gives rise to a demurrer based on uncertainty.

Therefore, the demurrer is overruled as to all of the fraud claims.

2. Third Cause of Action for Violation of California Penal Code §§ 484, 487, 496, 502, and 503

The third cause of action in the SAC alleges that Chih violated Penal Code §§ 484, 487, 496, 502, and 503. Defendants contend that there is no civil right of action under Penal Code §§ 484, 487, and 503, and that Plaintiffs do not adequately plead claims for violation of Penal Code §§ 496 and 502.

Penal Code §§ 496 and 502 expressly provide for both criminal and civil liability. Penal Code § 496 proscribes receiving or concealing stolen property and Penal Code § 502(c)(1)-(14) proscribes fourteen different types of conduct related to knowingly and without permission accessing computers and/or computer systems. Both statutes provide that a person who violates the statute is subject to a civil action by an injured party. Penal Code §§ 496(c); 502(e); Siry Inv., L.P. v. Farkhondehpour (2022) 13 Cal. 5th 333, 361 (party may recover damages under Section 496(c) “when property has been obtained in any manner constituting theft”).

Penal Code § 484 is the criminal charge for theft and it does not expressly provide for civil liability. But, arguably, Penal Code §§ 484 and 496 are read together to support a private right of action for violation of Section 484. “Penal Code section 484, subdivision (a) describes the acts constituting theft to include theft by false pretense, which is the consensual but fraudulent acquisition of property from its owner.” Bell v. Feibush (2013) 212 Cal. App. 4th 1041, 1049 (upholding civil liability under Penal Code Section 496).

Penal Code § 503 is the criminal charge for embezzlement, and Penal Code § 487 is for grand theft. These charges contain criminal penalties but do not expressly provide a private civil right of action. Nor is there any case law cited by Plaintiffs holding that violations of these statutes lead to civil liability.

In the SAC, Plaintiffs allege that, from April 2022 to September 13, 2022 (when he was fired), Chih gained access to Plaintiffs’ bank accounts and stole and embezzled funds without Plaintiffs’ knowledge and consent. (Compl., ¶¶ 74-84, 154-158.) Plaintiffs allege that after Chih’s termination in September 2022, he maintained access to plaintiffs’ computer system and maintained corporate documents and electronic data. (Id., ¶¶ 85-86, 161-163.) Plaintiffs also allege that Chih withheld possession of titles to cargo container chassis and a cell phone after his termination. (Id., ¶¶ 88, 166-169.) Plaintiffs allege that these actions constitute violations of Penal Code §§ 484, 496, and 502. (Id., ¶¶ 164, 170-171.) The Court agrees that Plaintiffs’ pleading does adequately specify which subsection of Penal Code § 502 Defendants allegedly violated, nor does the pleading contain facts sufficient to plead a violation of one of those sections. Nor does the pleading adequately plead the import of the chassis-related allegations to this cause of action. And the Court agrees that no legal basis appears to exist to plead violations of Penal Code §§ 487 and 503.

The Court therefore sustains the demurrer to this cause of action with leave to amend.

3. Fourteenth Cause of Action for Negligence Per Se

Plaintiffs allege that Defendants’ violation of Penal Code §§ 484 and 503 constitutes negligence per se. The Court agrees with Defendants that negligence per se is a doctrine but not a separate cause of action. Johnson v. Honeywell Internat. Inc. (2009) 179 Cal. App. 4th 549, 555. “The negligence per se doctrine, as codified in Evidence Code section 669, creates a presumption of negligence if four elements are established: “(1) the defendant violated a statute, ordinance, or regulation of a public entity; (2) the violation proximately caused death or injury to person or property; (3) the death or injury resulted from an occurrence of the nature of which the statute, ordinance, or regulation was designed to prevent; and (4) the person suffering the death or the injury to his person or property was one of the class of persons for whose protection the statute, ordinance, or regulation was adopted.” Spates v. Dameron Hosp. Assn. (2003) 114 Cal. App. 4th 208, 218.

Thus, while Plaintiffs’ Fourteenth Cause of Action is titled “Negligence Per Se,” it is in fact simply a cause of action for negligence as negligence per se is not a distinct cause of action. Defendants contend this claim fails because Plaintiffs only allege intentional conduct. The Court concludes that this claim is contingent on Plaintiffs adequately pleading a claim for violation of §§ 484 and 503. The Court therefore sustains the demurrer with leave to amend.

4. Fifteenth Cause of Action for Civil Conspiracy

Defendants contend that conspiracy is not a stand-alone cause of action. Conspiracy is a cognizable cause of action, according to some opinions. E.g., Douglas v. Sup. Ct. (1989) 215 Cal. App. 3d 155,159 (“second cause of action for conspiracy to defraud incorporates the allegations of the first cause of action, the demurrer to that cause of action should also have been overruled.”); Berg & Berg Ent., LLC v. Sherwood Partners, Inc. (2005) 131 Cal. App. 4th 802, 823; State of Cal. ex rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal. App. 4th 402, 419. Given that authority exists recognizing a cause of action for civil conspiracy, the Court will not dismiss the claim at the pleading stage.

Also, conspiracy allegations need not be more detailed. E.g., Quelimane Co., Inc. v. Stewart Title Guar. Co. (1998) 19 Cal.4^th 26, 47 (general allegations are permitted as to the pleading of conspiracy). Under Douglas, supra, the Court here considers the pleading allegations incorporated by reference, in ascertaining whether a stand-alone claim is viable. Here, the SAC contains supportive allegations to the effect that Defendants agreed to conspire and acted on the conspiracy. (E.g., SAC ¶¶ 73, 77, 84 and 86).

So, the demurrer is overruled as to this claim.

5. Seventeenth Cause of Action for Injunctive Relief

Defendants contend that injunctive relief is not a cognizable claim, and only a remedy. There is a split in California authority on this question. Compare Brownfield v. Daniel Freeman Marina Hosp. (2d Dist. 1989) 208 Cal. App. 3d 405, 410 (holding that elements of injunctive relief are a tort or other wrongful act and irreparable injury) with Marlin v. Aimco Venezia, LLC (2007) 154 Cal. App. 4th 154, 162 (“An injunction is a remedy, not a cause of action.”). Because there is authority recognizing a cause of action for injunctive relief, the Court declines to dismiss the cause of action at the pleading stage.

The SAC adequately pleads facts for injunctive relief. Specifically, Plaintiffs allege that Chih did not convey all corporate assets in his possession to Plaintiffs when he was terminated and still had access to Plaintiffs’ computer system, which has “intrinsic” value to Plaintiffs. (SAC, ¶¶ 59-61, 382-383.) The conduct complained of thus did not cease at the time of employment termination. The SAC further alleges that the injunctive relief is the remedy for the Sixteenth Cause of Action for Trespass to Chattel. Alternatively, injunctive relief simply could be attached to that claim such that there would be no material change in the pleading on this issue. See, e.g., McAllister v. County of Monterey (2007) 147 Cal. App. 4th 253 (court is bound to ignore any ‘defect … in the pleadings or proceedings which, in the opinion of said court, does not affect the substantial rights of the parties.’”).

As a result, the Court overrules the demurrer to the Seventeenth Cause of Action.

6. Eighteenth Cause of Action for Declaratory Relief

Declaratory relief is a cognizable cause of action under some authorities. See, e.g., Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal. App. 4th 592, 605-06 (a claim for declaratory relief requires a proper subject of declaratory relief and an actual controversy); Batt v. City and County of San Francisco (2007) 155 Cal. App. 4th 65, 82 (declaratory relief is an equitable remedy, not an independent cause of action), disapproved on other grounds by McWilliams v. City Of Long Beach (2013) 56 Cal.4th 613, 626. Given that authority exists recognizing a declaratory relief cause of action, the Court will not dismiss the claim at the pleading stage.

Further, contrary to Defendants’ contention, the SAC does not allege there were only past wrongs and damages, but, for example, also demands returns of assets in the future. (E.g., SAC, ¶ 82 (“refusing to return them to Plaintiff after return was demanded….”)). See generally Gafcon, Inc. v. Ponsor & Assocs. (2002) 98 Cal. App. 4th 1388, 1404 (“declaratory relief operates prospectively only, rather than to redress past wrongs….”).

Thus, the demurrer is overruled as to the declaratory relief claim.

7. Nineteenth Cause of Action for Accounting

Defendants contend this claim fails because the SAC alleges a specific amount Plaintiffs seek to recover, and they have the accounting records. (Dem., 16:17-26 (citing Sass v. Cohen (2020) 10 Cal.5th 861, 863)).

“A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting…. An action for accounting is not available where the plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation.” Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.

The SAC does not allege that Plaintiffs know all the amounts they seek to recover or that sums certain can be calculated from their documents such that nothing requires an accounting. Rather, it alleges that Plaintiffs seek an accounting because Chih allegedly provided inaccurate accountings, Plaintiffs do not know the amount of damages they are entitled to, and such amounts can only be ascertained by an accounting of all the money and property embezzled by Chih. (See, e.g., SAC ¶ 106 (“The amount of future expenses and damages are not ascertainable at this time,” ¶ 396).)

As a result, the Court overrules the demurrer as to the accounting claim.

8. Co-Plaintiff Liability

Defendants contend that all claims against Li (the 2, 4, 9, 11, 14, 15, 17, 18, and 20^th Causes of Action) should be dismissed because the SAC alleges no facts that could give rise to liability against Li. The SAC alleges Li’s involvement in the alleged payroll fraud scheme (SAC, ¶¶ 68-73), and her involvement in the alleged scheme to steal Plaintiffs’ corporate assets and fund (Id., ¶¶ 77, 86).

While these allegations may be sufficient to attach liability against Li for some of the causes of action in the SAC, the SAC as currently pleaded does not clearly link these allegations against Li to the causes of action alleged against her in the SAC. The Court therefore sustains the demurrer with leave to amend so that Plaintiffs can more clearly delineate which causes of action apply to Li and why.

MOTION TO STRIKE ANALYSIS

1. Punitive Damages

Alleged fraud and concealment support punitive damages, and no more specificity is required. “In order to survive a motion to strike an allegation of punitive damages, the ultimate facts showing an entitlement to such relief must be pled by a plaintiff.” Clauson v. Sup. Ct. (1998) 67 Cal. App. 4th 1253, 1255. [Emphasis added.] Accord Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal. App. 4th 1004, 1055; Blegen v. Sup. Ct. (1981) 125 Cal.App.3d 959, 962. “In order to state a prima facie claim for punitive damages, a complaint must set forth the elements as stated in the general punitive damage statute, Civil Code section 3294….. These statutory elements include allegations that the defendant has been guilty of oppression, fraud or malice.” Turman v. Turning Point Of Central Cal., Inc. (2010) 191 Cal.App.4th 53, 63.

As analyzed regarding the demurrer, the fraud claims survive the demurrer, and the Court adds that there are sufficiently alleged, ultimate facts, supporting punitive damages.

Thus, the motion is denied as to this ground of punitive damages.

2. Attorneys’ Fees

Unsupported attorneys’ fees allegations need not be stricken pursuant to a motion to strike, because later discovery may reveal a basis for their recovery. Camenisch v. Sup. Ct. (1996) 44 Cal.App.4th 1689, 1699. “There is no requirement that a party plead that it is seeking attorney fees, and there is no requirement that the ground for a fee award be specified in the pleadings.” Yassin v. Solis (2010) 184 Cal.App.4th 524, 533. Accord Snatchko v. Westfield LLC (2010) 187 Cal.App.4th469, 497 (error to strike attorney fees sought under Code of Civil Procedure Section 1021.5, because there is no pleading requirement involved.); Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175, 194 (“We agree that the complaint need not include a prayer for attorney fees, and that due process is satisfied by notice to the opposing party of the motion for attorney fees.”), disapproved on other grounds by DeSaulles v. Cmty. Hosp. of Monterey Peninsula (2016) 62 Cal. 4th 1140, 1144. Courts may strike prayers for attorney fees if a party revealed no potential basis for their recovery. Agricultural Ins. Co. v. Sup. Ct. (1999) 70 Cal.App.4^th 385, 404.

Here, the Court finds that no basis exists to strike fees from the pleading as it has provided Plaintiffs with leave to amend their claim for violation of Penal Code § 496(c).

3. Declaratory Relief, Injunctive Relief, Constructive Trust and Accounting

Defendants attack some claims as being improper remedies. A motion to strike cannot be based upon the grounds that a complaint fails to state facts sufficient to constitute a cause of action, but instead is properly based on grounds of superfluous or abusive allegations, or improprieties in form or procedure. Ferraro v. Camarlinghi (2008) 161 Cal.App.4th 509, 528-29.

Here, as to declaratory relief, injunctive relief, constructive trust and accounting, the motion improperly addresses the causes of action already addressed above, regarding the demurrer, as being sufficient. (Mot., pp. 6-7.)

Thus, the Court denies the motion to strike.

CONCLUSION

For all reasons set forth above, the demurrer is sustained in part and overruled in part, and the motion to strike is denied. Plaintiffs have 30 days to file an amended complaint.