Judge: Armen Tamzarian, Case: 24STCV04836, Date: 2024-12-16 Tentative Ruling

Case Number: 24STCV04836    Hearing Date: December 16, 2024    Dept: 52

Tentative Ruling:

            Defendants SurrogateFirst and Lina Li’s Demurrer and Motion to Strike Portions of Third Amended Complaint          

Demurrer

            Defendants SurrogateFirst and Lina Li demur to both causes of action alleged by plaintiff Mingxi Zhu’s third amended complaint.

Summary of Allegations

            The third amended complaint alleges that in 2021, plaintiff entered a contract with defendant SurrogateFirst to facilitate surrogacies.  (3AC, ¶¶ 11-14.)  Defendant Li founded SurrogateFirst.  (¶ 11.)  Plaintiff paid SurrogateFirst $650,000 for six surrogacies to pay for the surrogates’ “compensation fee, health insurance, medical expenses, reimbursable expenses, circumstantial medical expense, and monthly allowances,” plus money “to cover any additional potential costs.”  (¶ 14.)  From October 2021 and March 2023, “SurrogateFirst requested additional funds to cover expenses after the original $650,000.”  (¶ 15.)  “Upon request, receipts were not provided to show where these funds were transferred and why the additional funds were being requested.”  (Ibid.) 

            Plaintiff further alleges that in 2022, “Lina Li inappropriately requested Plaintiff to lend her money to renovate her house, for which Plaintiff refused.”  (¶ 19.)  Later, “Li instructed Plaintiff to wire funds to various construction companies supposedly for purposes of the surrogacies.”  (¶ 20.)  Plaintiff sent six wire transfers in specified amounts to three companies.  (Ibid.)  In 2022, plaintiff “requested an accounting of the bills and receipts regarding the funds for the surrogacies,” and Li refused.  (¶ 21.)  “Li ultimately agreed to refund $190,000,” but has not done so.  (Ibid.)

1st Cause of Action: Accounting

Plaintiff alleges sufficient facts for this cause of action.  “An action for an accounting has two elements: (1) ‘that a relationship exists between the plaintiff and defendant that requires an accounting’ and (2) ‘that some balance is due the plaintiff that can only be ascertained by an accounting.’ ”  (Sass v. Cohen (2020) 10 Cal.5th 861, 869.)  “An action for an accounting has been characterized as ‘a means of discovery.’ ”  (Ibid.)  “The plaintiff’s lack of knowledge drives the need for discovery; and the fact that the gap can be filled via discovery implies the information is within the control of the defendant.  In other words, the defendant in an accounting action possesses information unknown to the plaintiff that is relevant for the computation of money owed.”  (Ibid.)

Plaintiff alleges a sufficient relationship between the parties: defendants agreed to facilitate surrogacies, and plaintiffs sent them money for that purpose.  When liberally construed, the third amended complaint alleges defendants used money intended for the surrogates for other purposes, thus resulting in overcharging plaintiff.  As a result, defendants possess the information necessary to determine what the money was used for and how much of it (if any) plaintiff should not have been required to pay and should be entitled to recover.

2nd Cause of Action: Conversion 

Plaintiff alleges sufficient facts for conversion.  “The basic elements of [conversion] are (1) the plaintiff’s ownership or right to possession of personal property; (2) the defendant’s disposition of the property in a manner that is inconsistent with the plaintiff’s property rights; and (3) resulting damages.”  (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)  On the pleadings, a plaintiff generally may “state[] a cause of action for conversion by alleging” conversion of “an amount of cash ‘capable of identification’ ” without alleging the exact amount.  (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 397.)

Plaintiff alleges defendants are liable for conversion because “funds intended for the surrogacies … were used for improper means.”  (3AC, ¶ 32.)  He alleges he sent six wire transfers (in specified amounts on specified dates) to three construction companies “for purposes of the surrogacies.”  (Ibid.)  Plaintiff alleges, “Defendants interfered with Plaintiff’s property (i.e., the wired personal funds) by knowingly or intentionally taking possession of the funds for purposes other than the aforementioned surrogacies.”  (¶ 39.)  But plaintiff “did not consent to the wiring of personal funds to anything other than to facilitate the … surrogacies.”  (¶ 40.)  Plaintiff alleges, “[H]e was harmed as he thought the funds he wired to the Construction Companies were for facilitation and related costs of the aforementioned surrogacies.”  (¶ 41.)

Plaintiff thus alleges he sent money as directed by defendants, then they misused it.  The tort of conversion can apply to “a taking that is initially authorized.”  (Duke v. Superior Court (2017) 18 Cal.App.5th 490, 506.)  “ ‘If a defendant is authorized to make a specific use of a plaintiff’s property, use in excess of that authorized may subject the defendant to liability for conversion, if such use seriously violates another’s right to control the use of the property.’ ”  (Ibid.)  Plaintiff alleges defendant was authorized to use the money only to cover the costs of surrogacies but instead used it for other purposes.  These allegations suffice for conversion.

Defendants argue plaintiff did not allege defendants possessed the funds; instead, he alleges he paid the money to third parties.  Conversion does not require that the defendant literally possessed the property.  “ ‘Conversion is the wrongful exercise of dominion over the property of another.’ ”  (Spates v. Dameron Hospital Assn. (2003) 114 Cal.App.4th 208, 221.)  A defendant may be liable for “ ‘conversion by a wrongful act or disposition of property rights.’ ”  (Ibid.)  Plaintiff alleges defendants converted the money via a wrongful act or disposition in that they caused the money to be used for purposes other than the reason plaintiff sent it.

Motion to Strike

            Defendants SurrogateFirst and Lina Li move to strike three categories of portions of plaintiff’s third amended complaint. 

First, defendants move to strike portions of the pleading regarding punitive damages.  Plaintiff alleges sufficient facts to recover punitive damages.  Punitive damages require “that the defendant has been guilty of oppression, fraud, or malice.”  (Civ. Code, § 3294, subd. (a).)  “ ‘Fraud’ means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.”  (Id., subd. (c)(3).)  Plaintiff alleges sufficient facts to constitute misrepresentation with the intention to deprive him of property rights: defendants led him to transfer funds for the purpose of facilitating surrogacies, but instead used the funds for other purposes.  The court cannot conclude that, as a matter of law, these allegations do not constitute fraud under Civil Code section 3294.   

            Second, defendants move to strike the prayer for attorney fees.  Plaintiff’s opposition expressly concedes on that issue.      

            Third, defendants move to strike various factual allegations concerning the surrogacies.  A party may move to strike portions of pleadings that are “irrelevant, false, or improper matter.”  (Code Civ. Proc., § 436, subd. (a).)  Irrelevant matter includes allegations “not essential to the statement of a claim or defense” (Code Civ. Proc., § 431.10, subd. (b)(1)) and those “neither pertinent to nor supported by an otherwise sufficient claim or defense” (id., subd. (b)(2)).  The allegations in paragraphs 12, 13, 16, 17, and 22 are not pertinent to the claims in plaintiff’s third amended complaint.  Plaintiff’s opposition did not address this category of allegations. 

Disposition

            Defendants SurrogateFirst and Lina Li’s demurrer to plaintiff Mingxi Zhu’s third amended complaint is overruled.

            Defendants SurrogateFirst and Lina Li’s motion to strike portions of plaintiff Mingxi Zhu’s third amended complaint is granted in part as to attorney fees and the challenged factual allegations.

            The court hereby strikes the following portions of the third amended complaint without leave to amend: the entirety of paragraphs 12, 13, 16, 17, and 22, and paragraph 7 of the prayer for relief.

            Defendants SurrogateFirst and Lina Li shall answer the third amended complaint within 20 days.