Judge Christopher K. Lui, Case 21STCV40904 2022-12-14 Tentative Ruling

Defendant Kin Hui filed a Cross-Complaint against Plaintiff alleging a threat via a text.

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding demur to the Second Amended Complaint.

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding’s demurrer to the Second Amended Complaint is OVERRULED as to the fourth, fifth, sixth, seventh, eighth, tenth, fourteenth and fifteenth causes of action, and SUSTAINED without leave to amend as to the ninth cause of action.

Defendants are to file an Answer to the Second Amended Complaint within 10 days.

The Declaration of Megan A. Divine reflects that the meet and confer requirement set forth in CCP § 430.41 was satisfied. While Plaintiff argues in the Opposition that some arguments presented in the demurer were not discussed during the meet and confer, and the Court could continue the hearing for a further meet and confer, the Court will proceed to address the merits of the demurrer. While Plaintiff requests that the Court overruled the demurrer as to causes of action not raised in the meet and confer efforts, however, the Code of Civil Procedure expressly precludes the Court from overruling a demurrer on such grounds: “A determination by the court that the meet and confer process was insufficient shall not be grounds to overrule or sustain a demurrer.” (Civ. Proc. Code, § 430.41.)

Defendants American BD Investment Group LLC (“ABD”), BDK Capital, LLC (“BDK”) and Gang Ding demur to the Second Amended Complaint as follows:

1. Fourth Cause of Action (Breach of the Implied Covenant of Good Faith and Fair Dealing—Corp. Code, § 15904.08(d).)

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding argue that they are not parties to the written Subscription Agreement, the Finder’s Fee Agreement and the Partnership Interest Transfer Agreement. (2AC, ¶¶ 106-1288.) As such, Defendants argue, there is no implied covenant of good faith and fair dealing.

Alter ego allegations may be pled generally and the principal factors for piercing the corporate veil—individual dominated the affairs of the corporation, unity of interest and ownership, corporation is a mere shell, diversion of income, inadequate capitalization, failure to issue stock and observe corporate formalities, adherence to fiction of separate corporate existence would work an injustice—may be alleged in conclusory terms and plaintiff may be given an opportunity to present evidence to support these allegations. (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 914-16.)

It is sufficient that refusal to recognize unity of corporation and individual “will bring about inequitable results” (citation omitted). All that is required is a showing that it would be unjust to persist in recognition of the separate entity of the corporation (Citation omitted).

The Court finds that Plaintiff’s alter ego allegations are sufficient to impose liability upon non-parties to the agreements.(See 2AC, ¶ 20.) Ordinarily, the alter ego doctrine is utilized to hold alter ego individuals liable on the contractual obligations of the corporation where the corporate fraud is being used by individuals to escape personal liability, sanction a fraud, or promote injustice. (See Wells Fargo Bank, N.A. v. Weinberg (2014) 227 Cal.App.4th 1, 7-8.) Where alter ego liability applies, liability is joint and several. (Minn. Mining & Mfg. Co. v. Superior Court (1988) 206 Cal.App.3d 1025, 1027-1028.)

Case law has recognized that alter ego liability may be imposed even absent ownership interest, if there is control and management of the business entity, operation of a single enterprise, or if equitable considerations justify its application:

The court concluded that . . . [*137] . . . the defendant, Tub-O-Wash, Inc., was so completely controlled and managed by the defendants Hersh and Barth, that it was in reality a mere business conduit and alter ego so that the recognition of the corporation as a separate entity would aid in the consummation of a wrong and injustice on the plaintiff.

It is now well established that the conditions for disregarding the corporate entity vary according to the circumstances of each case, and that the matter is particularly within the province of the trial court (Citations omitted.)

Riddle stands for the proposition that it would be unfair to impose personal liability on an individual for corporate conduct unless he had an ownership interest in the company. At the same time, under the facts of this case, it would be as equally unfair to permit Hahn Inc. to escape liability for the unperformed guaranties simply because it earlier had transferred ownership of Devcorp to, among others, a sister corporation within the Trizec family of companies.

(Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1249.)

We find there is substantial evidence to support the conclusion that Hahn Inc. and Devcorp formed a single enterprise for the purpose of committing a continuing fraud against buyers. First, the evidence that Hahn Inc. had guarantied $ 43.2 million in loans and loan commitments to Devcorp strongly suggests Devcorp was undercapitalized for a company in the business of developing shopping centers. Likewise, in 1978 Hahn Inc. issued two guaranties to buyers to protect the $ 2 million cash downpayment they made to Devcorp. Moreover, besides the loan guaranties, Hahn Inc. temporarily guarantied the Phanny's Phudge lease, despite the fact that Hahn Inc. no longer had a stock ownership interest in Devcorp. These guaranties indicate that Devcorp's survivability as a developer was intertwined with its dependence on Hahn Inc.

[*1251] Furthermore, Ernest Hahn and Robert Lees sat as directors on the boards of Hahn Inc. and Devcorp. When Devcorp's board of directors fired the corporation's executives and staff, Hahn Inc. used its employees, including its corporate counsel, to continue to manage what remained of the business. In short, the trial court reasonably could have concluded that Hahn Inc. and Devcorp were combined into a single enterprise[1] to defraud buyers.

(Las Palmas Associates, supra, 235 Cal.App.3d at 1248-51 [bold emphasis added].)

Defendants also argue that Defendants did not enter into an express written agreement with Plaintiff, so there cannot be an implied covenant of good faith and fair dealing. However, there is no reason why an express oral agreement cannot support this cause of action. Defendants do not cite any case law holding that the implied covenant of good faith and fair dealing does not apply to oral agreements.

Defendants also argue that this cause of action is duplicative of the breach of contract cause of action.

The elements of a breach of the implied covenant of good faith and fair dealing sounding in contract are: (1) the existence of a contractual relationship between the parties (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031); (2) defendant was not expressly permitted by the contract to engage in the conduct which constitutes the alleged breach (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1120-1121); (3) defendant subjectively lacked a good faith belief in the validity of the act or the act was intended to frustrate the common purpose of the agreement (Wolf, supra, 162 Cal.App.4^th at 1123) or defendant’s conduct was objectively unreasonable (Carma Developers, Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 372-73); (4) the act or conduct was contrary to the contract’s express purposes or the parties' legitimate expectations as expressed in a specific contractual obligation (Carma Developers, supra, 2 Cal.4^th at 373) or otherwise frustrates the other party’s rights to express contractual benefits (Racine & Laramie, Ltd., supra, 11 Cal.App.4^th at 1031-32; Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094); and (5) resulting damages (Thompson Pacific Construction, Inc. v. City of Sunnyvale (2007) 155 Cal.App.4th 525, 541).

Here, as to each agreement, Plaintiff sufficiently pleads the foregoing elements, at least in part[2]. For example, Singpoli Capital allegedly effectively abandoned the Project in approximately 2018 without notifying investors. (2AC, ¶ 109(a), (e).) This was allegedly done to frustrate the purpose of the Subscription Agreement, which was for Plaintiff to realize a return on investment. (2AC, ¶¶ 110-112.) Newlife allegedly conditioned the payment of finder’s fees on other factors not expressly provided for in the Finder’s Fee Agreement. (2AC, ¶ 115(a).) This was allegedly done to frustrate the purpose of the Finder’s Fee Agreement, which was for Plaintiff to receive monetary compensation in exchange for recruiting qualified investors to subscribe to various Invest L.A. projects. (2AC, ¶¶ 117.) Ding allegedly conspired and acted in concert with Hui, Singpoli Capital and other Defendants to mislead Plaintiff or delay (or evade) any payments or returns owed to Plaintiff in connection with his partnership interest in Singpoli Milpitas pursuant to the Partnership Interest Transfer Agreement (2AC, ¶ 121(b).) This was allegedly done to frustrate the purpose of the Partnership Interest Transfer Agreement, which was for Ding to purchase from Plaintiff his entire 7.5% partnership interest in Singpoli Milpitas for a fixed monetary amount. (2AC, ¶ 123.)

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding argue that the elements of this cause of action are not pled with the requisite specificity for fraud-based causes of action.

“To establish a claim for deceit based on intentional misrepresentation, the plaintiff must prove seven essential elements: (1) the defendant represented to the plaintiff that an important fact was true; (2) that representation was false; (3) the defendant knew that the representation was false when the defendant made it, or the defendant made the representation recklessly and without regard for its truth; (4) the defendant intended that the plaintiff rely on the representation; (5) the plaintiff reasonably relied on the representation; (6) the plaintiff was harmed; and (7) the plaintiff's reliance on the defendant's representation was a substantial factor in causing that harm to the plaintiff. (Citations omitted.)” (Manderville v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, 1498 [italics omitted].)

Fraud must be pleaded with specificity rather than with “ ‘general and conclusory allegations.’ ” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184 [132 Cal. Rptr. 2d 490, 65 P.3d 1255].) The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made. (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.)

We enforce the specificity requirement in consideration of its two purposes. The first purpose is to give notice to the defendant with sufficiently definite charges that the defendant can meet them. (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216 [197 Cal. Rptr. 783, 673 P.2d 660].) The second is to permit a court to weed out meritless fraud claims on the basis of the pleadings; thus, “the pleading should be sufficient ‘ “to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud.” ’ ” (Id. at pp. 216–217.)

Defendants argue that the additional facts pled in the 2AC only relate to Defendants Singpoli, Milpitas and Kin Hui, but no facts are pled as to ABD, BDK or Ding. Defendants also argue that the elements of reliance on the purported statements and damages suffered are not specific.

The substance of what was represented to Plaintiff is pled at ¶ 130. Defendant Hui allegedly made these representations to Plaintiff orally on September 17, 2014 in connection with persuading him to invest in the Milpitas Project. (2AC, ¶ 131.) Defendant’s knowledge of falsity as to certain facts is plead at ¶ 134. Finally, Plaintiff adequately alleges reliance on the statements which caused him to invest in Singpoli Milpitas, which would damage Plaintiff in his out-of-pocket investment.

An alter ego theory of liability may be used to impose statutory, tort or contractual liability:

Under the alter ego doctrine, however, where a corporation is used by an individual or individuals, or by another corporation, to perpetrate fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, a court may disregard the corporate entity and treat the corporation's acts as if they were done by the persons actually controlling the corporation.

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding argue Plaintiff fails to plead any facts related to BDK, ABD or Ding, but rather, the new allegations only relate to Defendants Singpoli and Kin Hui.

The 2AC sufficiently alleges at ¶¶ 146- 150 that Singpoli Capital failed to disclose all material facts, including information that would affect Plaintiff’s decision whether to invest in the Singpoli Milpitas. As discussed above, Plaintiff’s alter ego allegations are a basis to hold demurring Defendants liable under this tort theory.

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding argue that Plaintiff’s additional allegations only relate to Defendants Singpoli Milpitas and Hui, but no alleged promises are attributed to demurring Defendants ABD, BDK or Ding.

Here, Plaintiff alleges that Defendants made promises to Plaintiff in the Subscription Agreement, but allegedly did not intend to perform these promises when made. (2AC, ¶¶ 157 – 160.) Although only Singpoli Milpitas is alleged to have been a party to the Subscription Agreement (2AC, ¶ 25), as discussed above, Plaintiff’s alter ego allegations are a basis to hold demurring Defendants liable under this tort theory.

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding argue that Plaintiff has not demonstrated the existence of a fiduciary or confidential relationship. Defendants cite the Court’s previous comment that “the breach of fiduciary duty cause of action does not impute to all other Defendants other than Singpoli Capital and Hui, even on an alter ego basis.”

The Court’s comment was not a statement of a rule of law, but rather a reading of the allegations in the 1AC. Upon further consideration, the Court finds that the alter ego allegations are, in fact, asserted against all Defendants by way of incorporation by reference of the preceding paragraphs. (2AC, ¶ 147.) Although only Singpoli Capital, as General Partner of Singpoli Milpitas, is alleged to have owed duties of care and loyalty to Plaintiff (2AC, ¶ 148), as discussed above, Plaintiff’s alter ego allegations are a basis to hold demurring Defendants liable under this tort theory.

Although this conflicts with the Court’s prior comments above, “a court has complete power to change its decision until judgment is entered.” (Coshow v. City of Escondido (2005) 132 Cal.App.4th 687, 702.) “Until entry of judgment, the court retains complete power to change its decision as the court may determine; it may change its conclusions of law or findings of fact. (Citation omitted.)” (Nave v. Taggart (1995) 34 Cal.App.4th 1173, 1177.)

6. Ninth Cause of Action (False Advertising—Bus. & Prof. Code §§ 17500 et seq.)

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding argue that Plaintiff has not alleged any false or misleading advertisements made by these Defendants.

“[S]tatutory causes of action must be pleaded with particularity.” (Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 790.) Here, although the Court gave instructions in connection with the ruling o the previous demurrer, the ninth cause of action still fails to specify the advertisements and why such were misleading to investors. (2AC, ¶¶ 157-161.)

7. Tenth Cause of Action (Unfair Business Practices—B & P Code §§ 17200 et eq. and 17500 et seq.)

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding argue that Plaintiff has not plead any unlawful, unfair or fraudulent business practices as against these Defendants.

First, because Plaintiff’s fraud-based causes of action are sufficiently pled for purposes of this demurrer, the allegations regarding fraudulent business acts are incorporated into this cause of action. (2AC, ¶ 164.) Second, as discussed above, Plaintiff’s alter ego allegations are a basis to hold demurring Defendants liable under this statutory liability theory.

Although this conflicts with the Court’s prior comments above, “a court has complete power to change its decision until judgment is entered.” (Coshow, supra, 132 Cal.App.4th at 702.) “Until entry of judgment, the court retains complete power to change its decision as the court may determine; it may change its conclusions of law or findings of fact. (Citation omitted.)” (Nave, supra, 34 Cal.App.4th at 1177.)

Defendants also argue that the request for damages is limited to disgorgement of the $1,000,000 Plaintiff paid to Defendant Singpoli Milpitas under the Subscription Agreement. This may be true, but a demurrer does not lie to only part of a cause of action or a particular type of damage or remedy. (See Kong v. City of Hawaiian Gardens Redevelopment Agency (2003) 108 Cal.App.4^th 1028, 1046; PH II, Inc. v. Superior Court (Ibershof) (1995) 33 Cal.App.4^th 1680, 1682.) The proper procedure is to bring a motion to strike the substantively defective allegation. (Id. at 1682-83.)

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding argue that they are not alleged to have received any money from Plaintiff.

To prevail on a common count for money had and received, the plaintiff must prove that the defendant is indebted to the plaintiff for money the defendant received for the use and benefit of the plaintiff. (Pike v. Zadig (1915) 171 Cal. 273, 276 [152 P. 923]; Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460 [61 Cal. Rptr. 2d 707].) In an action on an express contract, a claim for money had and received is permitted where there has been a total failure of consideration. (Brown v. Grimes (2011) 192 Cal.App.4th 265, 281 [120 Cal. Rptr. 3d 893].) “ ‘Failure of consideration is the failure to execute a promise, the performance of which has been exchanged for performance by the other party.’ ” (Taliaferro v. Davis (1963) 216 Cal.App.2d 398, 410 [31 Cal. Rptr. 164].) “[T]he failure of the consideration is total … [where] nothing of value has been received under the contract by the party …” seeking restitution. (Richter v. Union Land etc. Co. (1900) 129 Cal. 367, 373 [62 P. 39] (Richter).) Where the failure of the consideration is total, “the law implies a promise on the part of the other to repay what has been received by him under the contract … .” (Ibid.) Such a promise is implied because the “defendant cannot in equity and good conscience retain the benefits of the agreement and repudiate its burdens … .” (Holt v. Ravani (1963) 221 Cal.App.2d 213, 216 [34 Cal. Rptr. 417].)

As discussed above, Plaintiff’s alter ego allegations are a basis to hold demurring Defendants liable under this common count. Although this conflicts with the Court’s prior comments above, “a court has complete power to change its decision until judgment is entered.” (Coshow, supra, 132 Cal.App.4th at 702.) “Until entry of judgment, the court retains complete power to change its decision as the court may determine; it may change its conclusions of law or findings of fact. (Citation omitted.)” (Nave, supra, 34 Cal.App.4th at 1177.)

Defendants American BD Investment Group LLC, BDK Capital, LLC and Gang Ding argue that they are not parties to the Subscription Agreement as to which Plaintiff seeks a judicial determination and declaration.

"The rule that a complaint is to be liberally construed is particularly applicable to one for declaratory relief. [Citation.] It is the general rule that in an action for declaratory relief the complaint is sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the respective parties . . . and requests that the rights and duties be adjudged. If these requirements are met, the court must declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to a favorable declaration. [Citation.]" (Strozier v. Williams , 187 Cal.App.2d 528, 531-532 [9 Cal.Rptr. 683].)

Here, Plaintiff specified the actual controversy as to which a judicial declaration is sought as to the Subscription Agreement (2AC, ¶ 263), the Finder’s Fee Agreement (2AC, ¶ 264), and the Partnership Interest Transfer Agreement (2AC, ¶ 265).

As discussed above, Plaintiff’s alter ego allegations are a basis to state a cause of action against demurring Defendants. Although this conflicts with the Court’s prior comments above, “a court has complete power to change its decision until judgment is entered.” (Coshow, supra, 132 Cal.App.4th at 702.) “Until entry of judgment, the court retains complete power to change its decision as the court may determine; it may change its conclusions of law or findings of fact. (Citation omitted.)” (Nave, supra, 34 Cal.App.4th at 1177.)

A cause of action is stated whether Plaintiff is entitled to declaratory relief in her favor or not. (Columbia Pictures Corp. v. DeToth (1945) 26 Cal.2d 753, 760 [“It is not essential, to entitle a plaintiff to seek declaratory relief, that he should establish his right to a favorable declaration.”])

Defendants are to file an Answer to the Second Amended Complaint within 10 days.

[1] “In California, common principles apply regardless of whether the alleged alter ego is based on piercing the corporate veil to attach liability to a shareholder or to hold a corporation liable as part of a single enterprise.” (Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096, 1108.)

[2] “A demurrer must dispose of an entire cause of action to be sustained.” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal. App. 4th 97, 119.) A demurrer does not lie to only part of a cause of action or a particular type of damage or remedy. (See Kong v. City of Hawaiian Gardens Redevelopment Agency (2003) 108 Cal.App.4^th 1028, 1046; PH II, Inc. v. Superior Court (Ibershof) (1995) 33 Cal.App.4^th 1680, 1682.) The proper procedure is to bring a motion to strike the substantively defective allegation. (Id. at 1682-83.)