Judge: Cherol J. Nellon, Case: 24STCV01654, Date: 2024-05-30 Tentative Ruling
Case Number: 24STCV01654 Hearing Date: May 30, 2024 Dept: 14
BACKGROUND
Plaintiffs Ho Jin
Chung (“Chung”) and Gyu Dong Park (“Park”) filed suit against Defendants VOVO
USA, a California corporation; Guem Hwan Cho, aka Geum Hwan Cho (“Cho”), an
individual; and VOVO Corporation Ltd. (“VOVO Korea”), an entity under the laws
of the Republic of Korea for a breach of contract action, (Defendants herein
collectively, “VOVO”). VOVO Korea is the owner of trademarks registered with
the US Patent Trademark Office (“USPTO”) for the plumbing products pertinent to
this lawsuit. Plaintiffs believe that
VOVO USA is an affiliate or subsidiary of VOVO Korea and that VOVO Korea
licensed the rights to use VOVO Korea’s trademarks to VOVO USA without an
agreement or fee.
On January 28,
2020, Plaintiffs and VOVO entered a written “Manufacturer’s Sales
Representative Agreement” (“Agreement”) which provided Plaintiffs the exclusive
rights to sell VOVO products throughout territory wherever the “accounts”
conduct business. The Agreement provided
terms and conditions for commissions, as well as for the termination of the
agreement. The termination provision states that the Agreement could be
terminated at any time by an agreement in writing, duly signed by both parties
and also stated that representatives would be entitled to a full commission in
accordance with the Agreement prior to the effective termination date of the
Agreement.
By early March of
2020, Plaintiffs established VOVO as a Home Depot vendor and then subsequently
established VOVO as a Lowe’s vendor in May of 2020. The favorable terms of the
negotiation had fueled sales for the first three years by offering monthly
promotions and one-day special promotions. However, in October 2023, VOVO
stopped offering promotions and then in November of 2023, VOVO offered minimal
promotions for four products. Yet, the discounts were so minimal compared to
other sales channels, such as Amazon, that sales volume at both Home Depot and
Lowes significantly reduced in October of 2023.
Then, on December
11, 2023, Plaintiffs received a letter from Jacob B. Bach of ACI Law Group
purporting to represent VOVO with respect to the Agreement and informing
Plaintiffs that VOVO was terminating the agreement, effective December 13, 2023
on two bases: (i) the Agreement was terminable at will by either party because
there was not a specified term for the Agreement, and (ii) “Plaintiff’s lack of
performance.”
On January 22, 2024,
Plaintiffs filed suit for (1) breach of contract; (2) violations of Independent
Sales Representative Contractual Relations Act of 1990 (“ISRCRA Statute”) (Civil Code §1738.10 et sq.); (3)
intentional interference with prospective economic advantage; (4) negligent
interference with prospective economic advantage; and (5) intentional
interference with contractual relations.
On March 13, 2024, Cho filed his
Demurrer to Plaintiff’s Complaint, along with the Declaration of Attorney for
Defendant Cho, Jacob Bach. Defendant Cho also filed a Motion to Strike (“MTS”)
Plaintiffs’ punitive damages claims in the Complaint for good cause.
On May 20, 2024, Plaintiffs filed
their Opposition to Defendant Cho’s Demurrer, along with their Opposition to
Defendant Cho’s MTS.
Also on May 20, 2024, Defendant Cho
filed a Notice of Non-Opposition to Demurrer and MTS on the grounds Plaintiffs’
Opposition was untimely.
On May 24, 2024, Defendant Cho filed
Replies to both of Plaintiff’s Oppositions.
MOVING
Defendant Cho demurs to Plaintiffs’ first cause
of action for (1) breach of contract; second cause of action for (2) violations
of Independent Wholesale Sales Representative Contractual Relations Act of
1990; third cause of action for (3) intentional interference with prospective
economic advantage; fourth cause of action for (4) negligent interference with
prospective economic advantage; and fifth cause of action for (5) intentional
interference with contractual relations
all on the grounds that Plaintiffs (a) fail to allege facts sufficient
to constitute a cause of action; and (b) state a cause of action that is
uncertain, ambiguous, and unintelligible. (Demurrer (“Dem.”), pgs. 3-5.)
Furthermore,
Defendant moves to strike Plaintiffs’ requests for punitive
damages in the Complaint’s third and fifth causes of action because both fail
to state valid causes of action. (MTS, ¶
3.) Defendant argues that the Complaint fails to plead facts to support an
award of punitive damages or for exemplary damages against Defendant Cho. (Id.)
Thus, the punitive damage allegations in these causes of action and the related
prayer for punitive damages must be stricken. (Id.)
OPPOSITION
Plaintiffs provide a Statement of Facts
in their Opposition which states that their claims
against Cho for causes of action (1)-(4) is based on the grounds that Cho is
liable for the acts and obligations of VOVO pursuant to the alter ego doctrine.
(Opposition (“Opp.”), pg. 4.) However, Plaintiffs concede that although the
Complaint claims that Cho is the CEO, Secretary and CFO of VOVO Complaint ¶4),
it does not specifically state Cho’s ownership interests of VOVO, other than to
allege that, “Cho repeatedly represented that he controlled both VOVO Korea and
VOVO USA...” (Compl., ¶ 12.) Plaintiffs argue that despite this, the Complaint
triggers the alter ego doctrine by alleging that the “Defendants acted without
corporate separateness, and in bad faith” (Comp., ¶8; Opp., pg. 4.) However,
Plaintiffs again concede that the Complaint would be better served by
specifying additional facts about Cho’s ownership interests. (Opp., pg. 4.) As
such, Plaintiffs argue the Complaint is capable of amendment and now requests
the Court grant Plaintiffs leave to amend all causes of actions to cure the
deficiencies. (Id.)
Additionally,
Plaintiffs allege that the fifth cause of action for intentional interference
with contractual relations is sufficiently pled and that the Complaint
sufficiently alleges facts demonstrating the existence of a valid contract
between the parties and that Defendant Cho breached such a contract, causing
damages. Lastly, Plaintiffs reiterate that if the Court finds that the
Complaint does not sufficiently allege an element of one of the claims,
Plaintiffs request leave to amend. Plaintiffs do not address Defendant’s
arguments regarding causes of action two-four (2-4).
Plaintiffs then defend their request for
punitive damages, and thus, oppose Defendant’s MTS by arguing that the
Complaint avers malice which is sufficient for a claim for punitive damages.
Plaintiffs assert that Defendants’ malice is demonstrated by Defendants’ Notice
of Termination under the guise of Plaintiffs’ lack of performance. Plaintiffs
again argue that the Court grant Plaintiffs leave to amend if it should find
their allegations insufficient.
REPLY
Defendant argues that Plaintiff admits that their Opposition
to the demurrer is untimely and that the Court should sustain Defendant’s
demurrer on that basis alone. However, an additional basis for sustaining the
Demurrer is that Plaintiffs will not be able to amend the Complaint
to allege any facts demonstrating how Defendant Cho will be personally liable
for the breach of the agreement. (Dem. Reply, pg. 2.) Plaintiffs’ lack of opposition to Defendants’
first, second, third, and fourth causes of action should provide the Court
notice that any true amendment is not possible. (Id.) Moreover,
Plaintiffs’ Opposition to Defendant’s demurrer on the fifth cause of action is
without substance. (Id.) The opposition provides no facts, argument or
support for the fifth cause of action. (Id.) Finally, the damages which
flow from the breach of contract claim here are the same damages that would be
claimed in this fifth cause of action. (Id. at pgs. 2-3.) Moreover, this
fifth claim is not an independent tort and as such, should be sustained without
leave to amend. (Id. at pg. 3.)
In addressing Plaintiff’s opposition to
Defendant’s MTS, Defendant Cho argues that Plaintiffs make little effort to
cure the absence of “despicable and willful” conduct. (MTS Reply, pg. 2.)
Plaintiffs’ Opposition points out several paragraphs in the complaint which
allege minimal promotion to help sales and then mentions the notice of
termination shortly thereafter. (Id.) Yet, Plaintiffs fail to provide
any facts as to how this conduct is despicable. (Id.) Plaintiffs’
conclusory allegations allege what they term as “despicable” but this is
insufficient in light of the language of Civ. Code § 3294, as amended in 1987. College
Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 713, 34 Cal.Rptr.2d
898, 882 P.2d 894.) [That definition was amended in 1987. As amended, malice,
based upon a conscious disregard of the plaintiff's rights, requires proof that
the defendant's conduct is “despicable” and “willful.” (Stats.1987, ch. 1498, §
5.) The statute's reference to “despicable conduct” represents “a new substantive
limitation on punitive damage awards.” (MTS Reply, pg. 2)
DISCUSSION
Applicable Law
Demurrer
A demurrer for sufficiency tests whether the
complaint states a cause of action. (Hahn v. Mirda (2007) 147
Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations
liberally and in context. In a demurrer proceeding, the defects must be
apparent on the face of the pleading or via proper judicial notice. (Donabedian
v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) A demurrer tests the
pleadings alone and not the evidence or other extrinsic matters. Therefore, it
lies only where the defects appear on the face of the pleading or are
judicially noticed. (CCP §§ 430.30, 430.70.) At the pleading stage, a plaintiff
need only allege ultimate facts sufficient to apprise the defendant of the
factual basis for the claim against him. (Semole v. Sansoucie (1972) 28
Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions,
deductions or conclusions of fact or law alleged in the pleading, or the
construction of instruments pleaded, or facts impossible in law.” (S. Shore
Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 [internal citations
omitted].)
A demurrer based on uncertainty only applies
where the complaint is so bad that a defendant cannot reasonably respond—i.e.,
cannot reasonably determine what issues must be admitted or denied, or what
counts or claims are directed against him or her. (Khoury v. Maly’s of
Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Though California
courts take a liberal view toward in artfully drawn pleadings, it remains
essential a complaint set forth the actionable facts with sufficient precision
to inform the defendant of what the plaintiff is complaining about and what
remedies are being sought. (Signal Hill Aviation Co. v. Stroppe
(1979) 96 Cal.App.3d 627, 636.)
Motion to Strike
“In an action for
the breach of an obligation not arising from contract, where it is
proven by clear and convincing evidence that the defendant has been guilty of
oppression, fraud, or malice, the plaintiff, in addition to the actual
damages, may recover damages for the sake of example and by way of punishing
the defendant.” (Civ. Code, § 3294, subd., (a) emphasis added.) “With respect
to a corporate employer, the advance knowledge and conscious disregard,
authorization, ratification or act of oppression, fraud, or malice must be on
the part of an officer, director, or managing agent of the corporation.” (Id.,
subd., (b).) (3) ‘”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).)
“[E]ven though
certain language pleads ultimate facts or conclusions of law, such language
when read in context with the facts alleged as to defendants' conduct may
adequately plead the evil motive requisite to recovery of punitive damages.”
(Monge v. Superior Ct., (1986)176 Cal. App. 3d 503, 510.) Furthermore,
“[m]alice and oppression may be inferred from the circumstances of a
defendant's conduct.” (Id., at p. 511.)
Application to
Facts
First Cause of Action
Breach of Contract
“To prevail on a cause of action for breach of contract, the plaintiff
must prove (1) the contract, (2) the plaintiff’s performance of the contract or
excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting
damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186
[169 Cal.Rptr.3d 475].
Defendant Cho
states Plaintiffs’ first cause of action for breach of contract fails because
the Agreement clearly states that Plaintiffs and VOVO entered into the
Agreement: it does not mention Defendant Cho. (Dem., pgs. 6-7.) Thus, Defendant
argues Plaintiffs fail to demonstrate the existence of a valid contract. (Id.)
Although Plaintiffs argue that Defendant Cho is liable through the alter ego
theory of liability, the Court finds that Plaintiffs have failed to allege such
sufficient facts in their Complaint. Plaintiffs are correct that additional
facts about Defendant Cho’s ownership interests are necessary to plead the
alter ego theory of liability. Plaintiffs have presented not even minimal facts
here.
Thus, the Court
SUSTAINS the Demurrer as to the first cause of action and grants Plaintiffs LEAVE
TO AMEND.
Second Cause of Action
Independent Wholesale Sales Representative
Contractual Relations Act of 1990
The Independent Wholesale
Sales Representatives
Contractual Relations
Act of 1990
(the “Act”) was created to protect sales representatives
who receive commissions from, but are not employed by, a manufacturer.
(Civ.Code, § 1738.10 et seq.) The Act
requires manufacturers to enter into written contracts
with their sales representatives
to provide “security and clarify the contractual
relations” between the parties. Reilly v. Inquest Tech., Inc., 218 Cal. App. 4th
536, 540, 160 Cal. Rptr. 3d 236, 239 (2013).
Defendants argue
that Plaintiffs’ second cause of action fails because even if the Court were to
find the existence of such an agreement, Plaintiffs do not allege facts
demonstrating how Defendant Cho violated the Act. (Dem., pg 7.) Defendant
asserts that Plaintiffs can only allege violations of the Act by VOVO USA and
cannot just group Defendant Cho with Defendant VOVO USA. (Id.) Here, Plaintiffs merely allege that “VOVO
failed to provide accurate written information with the payment of commission
by failing to include accounting for any chargebacks.” (Compl., ¶ 47.) Given Plaintiffs have not established
Defendant Cho was either a party to the Agreement or liable pursuant to the
alter ego doctrine, the Court concludes that Plaintiffs’ language is
insufficient to allege such violations of the Act as to Defendant Cho.
Thus, the Court SUSTAINS the Demurrer as to the
second cause of action and grants Plaintiffs LEAVE TO AMEND.
Third Cause of Action
Intentional Interference with Prospective Economic Advantage
“Intentional interference with prospective economic advantage has five
elements: (1) the existence, between the plaintiff and some third party, of an
economic relationship that contains the probability of future economic benefit
to the plaintiff; (2) the defendant’s knowledge of the relationship; (3)
intentionally wrongful acts designed to disrupt the relationship; (4) actual
disruption of the relationship; and (5) economic harm proximately caused by the
defendant’s
action.” (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc.
(2017) 2 Cal.5th 505, 512 [213 Cal.Rptr.3d 568, 388 P.3d 800]].)
While Plaintiffs argue that VOVO failed to
support Plaintiffs through wrongfully terminating the Agreement, Plaintiffs do
not assert facts specifically alleging how Defendant Cho intentionally
interfered with Plaintiffs’ prospective economic advantage from Plaintiffs’
ongoing relationships with Home Depot and Lowes. Thus, again, Plaintiffs
neither impute Defendant Cho, nor assert sufficient facts to support their
contention that Defendants intentionally interfered with Plaintiffs’
prospective economic advantage. Thus, Plaintiffs fail to state a sufficient
cause of action.
The Court SUSTAINS Defendant’s demurrer as to
the third cause of action and grants Plaintiffs LEAVE TO AMEND.
Fourth Cause of Action
Negligent Interference with Prospective Economic Advantage
“The elements of negligent interference with prospective economic
advantage are (1) the existence of an economic relationship between the
plaintiff and a third party containing the probability of future economic
benefit to the plaintiff; (2) the defendant’s knowledge of the relationship;
(3) the defendant’s knowledge (actual or construed) that the relationship would
be disrupted if the defendant failed to act with reasonable care; (4) the
defendant’s failure to act with reasonable care; (5) actual disruption of the
relationship; (6) and economic harm
proximately caused by the defendant’s negligence.” (Redfearn v. Trader
Joe’s Co. (2018) 20 Cal.App.5th 989, 1005 [230 Cal.Rptr.3d 98].
Plaintiffs plead that by failing to properly perform their obligations
under the Agreement and breaching the Agreement, Defendants negligently
interfered with Plaintiffs’ existing business relationships with the Home Depot
and Lowe’s Company. (Compl., ¶ 54.)
Defendants argue that the
Complaint fails to allege that any conduct of Defendant Cho was wrongful apart
from the termination itself. (Dem., pg.
9.) Moreover, Plaintiffs do not allege a
duty of care owed by Defendant Cho to Plaintiffs. (Id.) Here, the Court agrees that the Complaint
is clear in concluding that Defendants’ alleged duties and obligations to Plaintiffs
are derived from the Agreement. Given
that Defendant Cho was not a party to the agreement, Plaintiffs again fail to
state a sufficient cause of action against Defendant Cho.
Thus, the Court SUSTAINS Defendant’s demurrer
with LEAVE TO AMEND.
Fifth Cause of Action
Intentional Interference with Contractual Relations
“The elements which a plaintiff must plead to state the cause of action
for intentional interference with contractual relations are (1) a valid
contract between plaintiff and a third party; (2) defendant’s knowledge of this
contract; (3) defendant’s intentional acts designed to induce a breach or
disruption of the contractual relationship; (4) actual breach or disruption of
the contractual relationship; and (5) resulting damage.” (Pacific Gas &
Electric Co. v. Bear
Stearns & Co. (1990) 50 Cal.3d
1118, 1126 [270 Cal.Rptr. 1, 791 P.2d 587], internal citations omitted.)
Defendants argue that Plaintiffs’ Complaint has
once again failed to allege or plead what Defendant CHO’s intentional act or
wrongdoing was. (Dem., pg. 10.)
Specifically, in this case, Plaintiffs fail to allege what wrongful act
Defendant Cho undertook that was designed to induce VOVO USA to breach the
Agreement with Plaintiffs. (Id.) Here, the Court agrees with Defendant
that Plaintiffs’ conclusory allegation that “...Cho intentionally interfered
with the Agreement by causing the termination of the Agreement with
Plaintiff...” provides no facts as Defendant Cho’s conduct. (Compl., ¶ 57; Dem.,
pg. 10.) Again, the Court finds that Plaintiffs’ allegations fail to allege
facts sufficient to attribute liability to Defendant Cho.
Thus, the Court SUSTAINS Defendant’s demurrer
as to Plaintiffs’ fifth cause of action and grants Plaintiffs LEAVE TO AMEND.
Motion to Strike
Defendants move the Court to strike three paragraphs from the three
sections of the Complaint pertaining to punitive damages. Plaintiffs assert
that in cases of intentional torts, malice is properly plead by alleging the
wrongful motive, intent, or purpose and a general allegation of intent is
sufficient to support a claim for exemplary damages (Unruh v. Truck Ins.
Exch. (1972) 7 Cal. 3d 616, 632, 102 Cal. Rptr. 815, 498 P.2d 1063; see
also Civ. Code § 3294(c)(1)). Plaintiffs argue that Defendants’ malice is
evidenced by their Notice of Termination.
(Opp.to MTS, pg. 3.) Further, when Plaintiffs requested Defendants
identify facts for “lack of performance”, Defendants refused to respond and
proceeded to terminate. (Comp.. ¶32-34; Opp to MTS, pg. 3.) Defendant, however,
maintains that Plaintiffs fail to allege “despicable conduct.”
Defendant asserts that
to allege despicable conduct, Plaintiffs must allege conduct which elicits the
same type of outrage as the commission of crimes. (Scott v. Phoenix Schools,
Inc. (2009) 175 Cal.App.4th 702, 715.) Even before the amendment of Civil
Code § 3294, courts have elucidated that “(t)he central spirit of the exemplary
damage statute, the demand for evil motive, is violated by an award founded
upon recklessness alone.” (G. D. Searle & Co. v. Superior Court (1975)
49 Cal.App.3d 22, 32.) The Court agrees that firstly, Plaintiffs have failed to
allege despicable conduct. However, what
is more critical to Plaintiffs’ claims is that once again, Plaintiffs fail to
allege facts to demonstrate Defendant Cho’s liability. Plaintiffs do not assert any action
undertaken by Defendant Cho and certainly do not allege any despicable conduct
undertaken by Defendant Cho.
Thus, the Court GRANTS Defendant’s Motion to
Strike as to the specified language, requesting Punitive Damages:
1. Page
12, paragraph 52, lines 4-7.
2. Page
13, paragraph 59, lines 9-12.
3. Page
13, prayer for relief, line 19.
CONCLUSION
The Motion for Demurrer is SUSTAINED
as to all causes of action with the Court hereby granting Plaintiff 15 Days LEAVE TO
AMEND.
The Motion for Strike is GRANTED in
its entirety.
Defendant to give notice.