Judge Christian R. Gullon, Case Number: 22STCV31621, Date: 2024-07-25 Tentative Ruling

Judge: Christian R. Gullon, Case: 22STCV31621, Date: 2024-07-25 Tentative Ruling

DEFENDANT BO SUN’S MOTION FOR LEAVE TO FILE CROSS-COMPLAINT is GRANTED, namely has Wendy has set forth no evidence of bad faith.

This is a contracts case. Plaintiff Wendy Lin (“Wendy” or “Plaintiff”) alleges that she and Defendant Bo Sun (“Bo” or “Defendant”) formed TOPTREE INVESTMENT LLC (“Toptree”) with the purpose of jointly purchasing a property in Chino Hills (the “property”). Plaintiff paid the entire purchase price, but Bo has failed to pay his $50,000 capital contribution such that by the terms of the Operating Agreement, Bo has lost his entire membership interest in the company. (See generally First Amended Complaint (FAC).)

On September 27, 2022, Plaintiff filed suit against Defendant Bo Sun and Toptree for:

On March 10, 2023, Wendy filed a FAC against Bo, Toptree, and ALL PERSONS UNKNOWN, CLAIMING ANY LEGAL OR EQUITABLE RIGHT, ESTATE, LIEN, OR INTEREST IN THE PROPERTY DESCRIBED IN THIS COMPLAINT ADVERSE TO PLAINTIFF'S TITLE, OR ANY CLOUD UPON PLAINTIFF'S TITLE 18 THERETO wherein she pleaded the following COAs:

This case involves the interpretation and application of Code of Civil Procedure section 426.60.

A party who fails to plead a cause of action subject to the requirements of this article, whether through oversight, inadvertence, mistake, neglect, or other cause, may apply to the court for leave to amend his pleading, or to file a cross-complaint, to assert such cause at any time during the course of the action. The court, after notice to the adverse party, SHALL GRANT, upon such terms as may be just to the parties, leave to amend the pleading, or to file the cross-complaint, to assert such cause if the party who failed to plead the cause acted in GOOD FAITH. This subdivision shall be liberally construed to avoid forfeiture of causes of action. ([CCP § 426.50, emphasis and capitalization added.)

As explained by the court in Silver Orgs. V. Frank (1990) 217 Cal.App.3d 94 (Silver), which is a seminal case on the issue:

It is [] necessary to examine the amorphous concept of bad faith. Bad faith is defined as ‘[t]he opposite of “good faith,” generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake ..., but by some interested or sinister motive[,] ... not simply bad judgment or negligence, but rather ... the conscious doing of a wrong because of dishonest purpose or moral obliquity; ... it contemplates a state of mind affirmatively operating with furtive design or ill will.’ (Id, at p. 100 (emphasis added), citing Pugh v. See’s Candies, Inc. (1988) 203 Cal.App.3d 743, 764.)[2]

Courts at best have only a “modicum of discretion” in denying leave to file a compulsory cross-complaint. (Gherman v. Colburn (1977) 72 Cal.App.3d 544, 559.) Should the court deny the motion to file a cross-complaint, it must be supported by “substantial evidence” (Silver, supra, 217 Cal.App.3d at p. 99), evidence which is “of ponderable legal significance, …reasonable in nature, credible, and of solid value.” (Ibid, quoting Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873.) The legislative mandate is clear: “[t]he objective, of course, is to encourage trial on the merits whenever possible.” (Foot’s Transfer & Storage Co. v. Superior Court (1980) 114 Cal.App.3d 897, 901.)

Defendant Bo seeks leave to file a cross-complaint against Wendy in addition to Nature Land, Inc. and Vua Kho Bo, Inc. which are other third-party entities which are owned by Wendy. (Motion p. 3:2-5.) In opposition, Wendy argues that Bo has set forth no explanation as to why he waited two years after the onset of litigation to file a compulsory cross-complaint against her. (Opp. p. 2:7-9.) But that is irrelevant. “[T]he late filing of the motion to file a compulsory cross-complaint absent some evidence of bad faith is insufficient evidence to support denial of the motion.” (Silvers, supra, 217 Cal.App.3d at p. 101.)

Though not argued in opposition, to the extent that Plaintiff may argue that the late filing is being done in bad faith, such a showing rest upon Wendy. If the cross-complaint is compulsory, which as Defendant notes is the case here (Reply p. 2:10-100), it is the defendant, not the plaintiff, who must allege that its failure to timely plead the claim was in good faith. (Silvers, supra, 217 Cal.App.3d at pp. 98-100.) “Good faith” is established by proving a negative—namely, there is no substantial evidence that the defendant acted in bad faith. (Id. at p. 100.) A finding of bad faith requires evidence of “dishonest purpose, moral obliquity, sinister motive, furtive design or ill will.” (Ibid.) Evidence of oversight, inadvertence, neglect, or mistake is, by itself, insufficient to establish bad faith. (Id. at p. 99.) Thus, implied in this rule is that the plaintiff must provide some showing of bad faith for Bo to then negative. Here, however, Wendy has failed to offer any evidence of bad faith in seeking leave to file the cross-complaint.

To the extent that Wendy argues she will be prejudiced, not necessarily. To the contrary, the failure to permit the filing of the cross-complaint would be prejudicial. (Foot’s Transfer, supra, 114 Cal.App.3d at p. 901.) What is more, no trial date has not yet been set, and even if it was, absent a showing of bad faith, filing a compulsory cross-complaint is permissible on the eve of trial. (See generally Silver, supra.) Plus, discovery is ongoing (Reply p. 2), and even if more discovery is required, it should not take Wendy by surprise as she concedes these facts have been known from the outset. (Opp. p. 3:1-2.)

As for the third-party defendants, the opposition does not seem to take issue with filing a cross-complaint against them. (See Opp. p. 3:19-20 [“For the foregoing reasons, Plaintiff respectfully requests that Defendant's motion be denied as to Plaintiff Wendy Lin.”], emphasis added.)

Based on the foregoing, as there is no evidence (let alone substantial evidence) of bad faith, the trial court must grant this motion.[3]

[1] The court did so because Plaintiff alleged that Bo was to pay for one-half of the Property’s purchase, but the Operating Agreement does not require that Bo pay 50% of the purchase price but merely $50,000. (See 2/28/24 Ruling.)

[2] The appellate court in Gherman affirmed a trial court’s denial of a motion to file a compulsory cross-complaint based on the following observation: “Where the defendant fails to act for a period of over 30 days and waits until the first day of trial, such conduct may be interpreted as evidence of a lack of good faith especially when coupled with the long history of litigation between the parties, which demonstrates that both sides were jockeying for position over the right to a jury trial ..., we conclude that the trial court impliedly found and concluded that by attempting to file a cross-complaint on the first day of trial, defendants were not acting in ‘good faith’ but that the motion for leave to file a cross-complaint was merely a tactical, strategic maneuver to deprive plaintiffs of a right to a jury trial.”], emphasis added.).

[3] Wendy cites to cases involving motions for leave to file an amended pleading, but those cases are inapposite. On motions to file compulsory counter-claims, the court is left with even less discretion than on motions to file an amended pleading.