Judge Bruce G. Iwasaki, Case Number: 23STCV16767, Date: 2023-11-27 Tentative Ruling

This action arises from an alleged breach of an investment agreement. The Complaint pleads that Defendants Geonheung Lee and MTA Taekwondo World, Inc. breached a Consignment Operation Contract (Contract) with Geoffrey David Drew and Sangmjui Yun Drew (Plaintiffs).

On July 18, 2023, Plaintiffs filed the instant action against MTA World Inc., Geonheung Lee (Lee), and MTA Taekwondo World, Inc. (also referred to as, MTA or MTA America), alleging causes of action for breach of investment agreement, breach of implied covenant of good faith and fair dealing, fraud, conversion, breach of undivided loyalty, and unfair business practice in violation of California Business and Professions Code section 17200 et seq.

On September 19, 2023, Plaintiffs voluntarily dismissed MTA World, Inc. without prejudice.

On October 13, 2023, Defendants Geonheung Lee, and MTA Taekwondo World, Inc. (Defendants) demurred to all causes of action on the grounds that: (a) Plaintiffs’ claims are barred based on res judicata and collateral estoppel; and (b) each cause of action is factually insufficient.

The Court overruled the demurrer to the Complaint as to the first and second causes of action and sustained the demurrer as to third, fourth, fifth, and sixth causes of action. The motion to strike was granted in part.

On December 27, 2023, Plaintiffs filed a First Amended Complaint for (1.) breach of investment agreement, (2.) breach of implied covenant of good faith and fair dealing, (3.) fraud, (4.) unfair business practice in violation of California Business and Professions Code section 17200 et seq.

Defendants request judicial notice of Exhibit A – a judgment of the Republic of Korea civil court case, captioned 2020-Gahap-24123, with a certified English translation. (Lee Decl., ¶ 4, Ex. A.) The request is granted. (Evid. Code, § 452, subd. (f); Java Oil Ltd. v. Sullivan (2008) 168 Cal.App.4th 1178, 1181, fn. 1.)

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . ..” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.)

Defendants demur to the First Amended Complaint on the grounds that the pleadings are barred by the doctrine of res judicata/collateral estoppel, and Plaintiffs have failed to state a claim.

Defendants argue that this action addresses the same claims and issues raised by Plaintiffs in Case No. 2020-Gahap-24123, in which judgment was entered by the Court in the Republic of Korea in favor of Defendants and against Plaintiffs in 2022. Thus, under the doctrines of re judicata and collateral estoppel, they argue, the entire FAC is barred.

“Courts have at times used ‘res judicata’ as an umbrella term, encompassing both the primary aspect of claim preclusion and the secondary aspect of issue preclusion. We will follow the current practice to use the term ‘claim preclusion’ to describe the primary aspect of the res judicata doctrine and the term “issue preclusion” to denote collateral estoppel.” (Cal Sierra Development, Inc. v. George Reed, Inc. (2017) 14 Cal.App.5th 663, 671.)

The following are the prerequisite elements for applying the doctrine of claim preclusion to an entire cause of action: (1) A claim raised in the present action is identical to a claim litigated in a prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the party against whom the doctrine is being asserted was a party or in privity with a party to the prior proceeding. (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal. 4th 788, 797.)

The doctrine of collateral estoppel bars the party to a prior action from relitigating any issues finally decided against him or her in the earlier action. (City of Sacramento v. State of California (1990) 50 Cal.3d 51, 64.) The doctrine of collateral estoppel applies: “(1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party.” (DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 825.)

On this demurrer, however, the Court again cannot decide the merits of either theory.

Here, Defendants request judicial notice of a judgment entered by the Suwon District Court in Republic of Korea on June 10, 2022 (Korean Judgment). (Lee Decl., ¶ 4, Ex. A, [Korean Judgment].) Defendants assert that this Korean Judgment is in favor of Defendants and against Plaintiffs, and the Korean Judgment involves the same claims and issues as raised in Plaintiffs’ FAC here. Further, Defendants argue that the two cases involve the same parties and/or parties in privity with each other. Lastly, Defendants also argue that the Korean judgment is a final adjudication of the issues.

Under both doctrines, there is a finality requirement with respect to the adjudication of the claims or issues. On the previous demurrer, the Court found there was no discussion that directly addressed the issue of what constitutes a final, conclusive, and enforceable judgment under the laws of the Republic of Korea. That is, there was no evidence by an expert on Korean law, nor was the Court asked to take judicial notice of the pertinent laws. (Evid. Code, § 452, subd. (f).)

For example, in Korea Water Resources Corp. v. Lee (2004) 115 Cal.App.4th 389, the court cited article 471(1) of the Korea Code of Civil Procedure, which states, “A judgment shall not become final and conclusive during the period in which an appeal may be filed or when a lawful appeal has been filed within the prescribed period.” (Korea Water Resources, at p. 399.) However, the case does not state what “the prescribed period” is under the Korea Code of Civil Procedure.

Different countries have different rules about the finality and enforceability of judgments. The California Supreme Court addressed this in Manco Contracting Co. (W.L.L.) v. Bezdikian (2008) 45 Cal.4th 192, when it noted, for example, that while English law regards a judgment as final even though it is subject to appeal or “subsequent modification,” i.e., collateral attack, Japanese law provides that lodging a notice of appeal prevents a judgment from becoming final. (Id. at p. 202.) The Supreme Court also noted that although under California law a judgment is not final while an appeal is pending, “the federal rule is contrary.” (Ibid.)

Because different jurisdictions take different views of finality, the fact that Defendants have submitted a purported judgment is alone insufficient to establish that it was also final in the sense that it was not appealable or subject to modification. Accordingly, the Court concluded that, in order to establish the finality of a foreign judgment, there must be evidence establishing the law of the country that rendered the judgment. Thus, for the foregoing reason, the Court found it could not make a determination on the applicability of issue or claim preclusion on demurrer.

Now, on this demurrer to the FAC, Defendants submit the declaration of Hyung Sam Park, who purports to be a duly admitted attorney authorized to practice before the Courts of the Republic of Korea and expert on Korean law. (Park Decl., ¶¶ 1-2.)

Park asserts that, under Korean Civil Code 396(1),[1] a judgment must be appealed within 14 days of the Trial Court Judgment, otherwise the right to appeal lapses. (Park Decl., ¶ 6.) Park asserts that Plaintiff Sangmi filed an appeal against the judgment 2020-Gahap-24123 and the Korean Appellate Court, in its decision 2022-Na-21701, concluded that Sangmi's appeal lacked merit. (Park Decl., ¶ 6.) Based on the foregoing, Park claims that the judgment in 2020-Gahap-24123 is no longer appealable in the Republic of Korea and is not subject to any modification under the Korean Civil Code Section 396(1). (Park Decl., ¶¶ 5-6, Ex. D [untranslated website of the Court of the Republic of Korea purportedly showing that the final judgment for the case 2020-Gahap-24123 was entered on November 14, 2023].)

Although Defendants argue that Plaintiffs have not filed any specific evidentiary objection to the Park declaration, this fact is not determinative. In any case, Plaintiffs do challenge Defendants’ reliance on evidence on a demurrer. (Opp., 4:21-6:16.) This challenge is well taken. It is well established that “demurrer tests the pleading alone and not the evidence or other extrinsic matters which do not appear on the face of the pleading or cannot be properly inferred from the factual allegations of the complaint. This principle means that if the pleading sufficiently states a cause of action the demurrer cannot be granted on the basis of a showing of extrinsic matters by inference from attached exhibits, affidavits or otherwise except those matters which are subject to judicial notice.” (Bach v. McNelis (1989) 207 Cal.App.3d 852, 864.)

Thus, it is inappropriate for the Court consider this evidence in ruling on Defendants’ demurrer. Further, contrary to the reply, Plaintiffs on a demurrer does not have the “burden to produce a competent expert declaration to the contrary;” Plaintiffs have no evidentiary burden on a demurrer. (Reply 3:28-4:1 [citing Bushling v. Fremont Medical Center (2004) 117 Cal.App.4th 493, which pertained to a ruling on summary judgment].)

Moreover, while facially the issues in the instant litigation and Korean Judgment appear to be the same, the analysis on this preclusion factor remains insufficient.

Claim preclusion is based in part on the primary rights theory, which defines the scope of a cause of action and bars a party (or the party's privy) from bringing a second lawsuit if that suit “seek[s] to vindicate the same primary right.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 904.) Under the primary rights theory, a cause of action is defined as: “(1) a primary right possessed by the plaintiff, (2) a corresponding duty imposed upon the defendant, and (3) a wrong done by the defendant which is a breach of such primary right and duty.” (Balasubramanian v. San Diego Community College District (2000) 80 Cal.App.4th 977, 991.) The cause of action is based on the harm suffered, not on the legal theory asserted or relief sought. (Ibid.)

The FAC here alleges that Defendants breached the Consignment Operation Contract, and therefore, Plaintiffs suffered damages of $100,000. The primary right of the allegation was the harm suffered by Plaintiffs when they invested $100,000 and did not receive the promised 40% of net profits. The Korean Judgment is based on the same breach of the Consignment Operation Contract (referred to as the Second Consignment Agreement). (Lee Decl., ¶ 2, Exhibit A, p. 5 [Korean Judgment].) The Korean Judgment further resolves Plaintiffs’ claim that Defendants failed to apply the $100,000 investment pursuant to the terms of the Consignment Operation Contract or fulfill the other obligations under this Contract – including the 40% net profits provision. (Lee Decl., ¶ 2, Exhibit A, p. 8 [Korean Judgment].)

However, “for purposes of collateral estoppel, an issue was actually litigated in a prior proceeding if it was properly raised, submitted for determination, and determined in that proceeding.” (Hernandez v. City of Pomona (2009) 46 Cal.4th 501, 511.) “In considering whether these criteria have been met, courts look carefully at the entire record from the prior proceeding, including the pleadings, the evidence, the jury instructions, and any special jury findings or verdicts.” (Id.)

On this demurrer, Defendants submit evidence – the declaration of Park – to support the claim the burden of proof in the Korean action was identical to that of this action. (Park Decl., ¶ 7.) For the reasons discussed above, the Court cannot rely on this evidence on demurrer. Therefore, Defendants have again failed to establish that any factual determination would have been identical to those that would be made in the present action. (Bennett v. Rancho Cal. Water Dist. (2019) 35 Cal. App. 5th 908, 919 [“[C]ollateral estoppel does not apply where the two proceedings at issue have different burdens of proof or where the burden of proof falls on a different party in each proceeding.” [quoting People v. Esmaili (2013) 213 Cal. App. 4th 1449, 1463].)

Defendants demur again to the first cause of action. The Court previously overruled the demurrer to this cause of action.

The allegations regarding this cause of action have not been amended. Nonetheless, the Court has the discretion to consider the sufficiency of the pleadings again to this cause of action. (Carlton v. Dr. Pepper Snapple Group, Inc. (2014) 228 Cal.App.4th 1200, 1211 [“[A] party is within its rights to successively demur to a cause of action in an amended pleading notwithstanding a prior unsuccessful demurrer to that same cause of action.”].) Thus, Defendants are correct that they were not required to bring a motion for reconsideration to challenge these causes of action.

Nonetheless, the Court finds no error in its previous ruling on the demurrer to this cause of action. The demurrer to this cause of action is overruled for the reasons stated in its prior ruling to this cause of action.

Second Cause of Action for Breach of Implied Covenant of Good Faith and Fair Dealing:

Not so. Previously Defendants demurred and the Court overruled the demurrer based on a statute of limitations argument. On this demurrer, Defendants argue that the claim is entirely derivative of Plaintiffs’ alleged breach of contract.

If a plaintiff's allegations of breach of the covenant of good faith “do[es] not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek[s] 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. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.)

Here, this cause of action does nothing more than restate the breach of contract cause of action. (FAC ¶¶ 17-31.)

Defendants demur to the fraud cause of action on the grounds that it is not pled with the requisite specificity. In opposition, Plaintiffs –pointing to paragraph 36 of the FAC – argue that the allegations are sufficient.[2]

The elements of intentional misrepresentation “are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage.” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230–231.)

Generally, “[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.). “This particularity requirement necessitates pleading facts which show how, where, to whom, and by what means” the alleged fraud occurred. (Id.) The purpose of the particularity requirement is to “separate meritorious and nonmeritorious cases, if possible in advance of trial.” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)

The Complaint alleges that Plaintiffs had several meetings with Defendant Lee and Tydus Kim aka Seon-Woong Kim at the then principal office of MTA America after April 16, 2019. (FAC ¶ 7.) The FAC alleges that, during those meetings, Defendant Lee represented to Plaintiffs that: “initial franchise fee of $30,000 would be waived if Plaintiffs became the first franchise investor in MTA;” “MTA already had over 300 students who signed enrollment contracts for 3, 5, and 8 years in duration;” “Plaintiffs would receive forty percent (40%) of the monthly profit for their $100,000 investment in a MTA;” and “Plaintiffs’ $100,000 investment shall be used for the sole purposes of setting up and operating a MTA franchise in California” (collectively referred to as the “Statements”). (FAC ¶ 8.) According to the FAC, Defendants knew that the Statements were false when they made them to Plaintiffs or made them recklessly and without regard for their truth. (FAC ¶ 38.) Defendants intended Plaintiff to rely on these statements and Plaintiffs did rely on these Statements to enter into the Agreement. (FAC ¶¶ 9, 40-43.)

“Mr. Lee, acting as the sole officer and director of MTA, had the in-person meetings with Plaintiffs on April 16, May 20, June 10, and July 22 in 2019. During those meetings, Mr. Lee, acting as the sole officer and director of MTA, made the Statements to Plaintiffs to induce them into the Agreement. For instance, to convince Plaintiffs that MTA was a profitable business, Mr. Lee told them that MTA already had over 300 students who signed enrollment contracts for 3, 5, and 8 years in duration. To prompt Plaintiffs to invest in MTA, Mr. Lee told them that the initial franchise fee of $30,000 would be waived if Plaintiffs became the first franchise investor in MTA. In addition, to show its legality and financial stability, Mr. Lee told them that MTA was in the process of registering as a duly authorized franchisor in the United States and there were many prospective investors in MTA.” (FAC ¶ 36.)

The FAC adequately clarifies the how, where, to whom, and by what means the fraudulent misrepresentations were made. The allegations are sufficiently pled to state a claim for fraud.

The UCL defines unfair competition as “any unlawful, unfair, or fraudulent business act or practice.” (Bus. & Prof. Code § 17200.) A business practice need only satisfy one of the three criteria—unlawful, unfair, or fraudulent—to be considered unfair competition. (McKell v. Wash. Mut., Inc. (2006) 142 Cal.App.4th 1457, 1470-1471.)

Here, the FAC alleges a violation of Business and Professions Code section 17200 on the grounds that Defendants “ (i) fraudulently induc[ed] Plaintiffs into the Agreement, (ii) ma[d]e false statements to Plaintiffs for the purpose of them inducing them into the Agreement, (iii) using the Investment Fund for Mr. Lee’s personal benefits in breaching the Agreement, (iv) concealing the fact that the Investment Amount was never used for the purpose of the Investment Agreement . . ..” (FAC ¶ 50.)

This claim is derivative of Plaintiffs’ previous claims, including the claim for fraud. Thus, Plaintiffs have stated a claim for unfair business practices based on fraud.

“The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading. (b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.”¿(Code Civ. Proc., § 436.) “Immaterial” or “irrelevant” matters include allegations not essential to the claim, allegations neither pertinent to nor supported by an otherwise sufficient claim or a demand for judgment requesting relief not supported by the allegations of the complaint. (Code Civ. Proc., § 431.10, subds. (b)(1)-(3).)

Defendants also move to strike the request for punitive damages from the FAC. Defendants argue that Plaintiffs have improperly sought punitive damages with respect to the second cause of action and failed to allege sufficient facts to support the request for punitive damages as to the third cause of action.

Punitive damages are recoverable where the defendant has been guilty of oppression, fraud, or malice, express or implied. (Civ. Code § 3294.) “Something more than the mere commission of a tort is always required for punitive damages. There must be circumstances of aggravation our outrage, such as spite or malice, or a fraudulent or evil motive on the part of the defendant, or such a conscious and deliberate disregard of the interests of others that his conduct may be called willful or wanton.” (Taylor v. Superior Court (1979) 24 Cal.3d 890, 894.) Specific intent to injure is not necessary for a showing of malice—it is sufficient that the defendant’s conduct was so “wanton or so reckless as to evince malice or conscious disregard of others’ rights.” (McConnell v. Quinn (1925) 71 Cal. App. 671, 682.)

As the Court previously ruled, a breach of implied covenant for good faith and fair dealing cannot support a request for punitive damages in a non-insurer context. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 700.) Moreover, based on the Court’s ruling on the demurrer, Plaintiffs’ request for punitive damages is moot as to the second cause of action.

The Court will now turn to the request for punitive damages sought in the third cause of action.

A request for punitive damages that is not supported with specific allegations of oppression, fraud, or malice is subject to a motion to strike. Conclusory allegations that defendants acted “willfully,” “maliciously,” or with “oppression, fraud, or malice” are not, without more, sufficient to give rise to a claim for punitive damages, but such language is permissible where the complaint contains sufficient factual support for the conclusions. (Perkins v. Superior Court (1981) 117 Cal.App.3d 1, 6-7.)

Here, the FAC adequately alleges a claim for fraud, which is sufficient to support the request for punitive damages at the pleading stage.

Accordingly, the motion to strike is granted as to the request for punitive damages in relation to the second cause of action and is denied as to the punitive damages sought in relation to the third cause of action.

The Court is not inclined to grant leave to amend absent a specific showing by Plaintiffs of a reasonable possibility of amending. (Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 43 [“The plaintiff bears the burden of proving there is a reasonable possibility of amendment.”].) The Court will consider argument on this point at the hearing.

[1] This Korean statutory law was not provided to the Court.

[2] The Court previously addressed the claim as both a misrepresentation and concealment claim. In opposition, Plaintiffs now note that the claim is clearly alleged as only a misrepresentation claim, seemingly abandoning its concealment allegations. (Opp., 8:27.)