Judge: Colin Leis, Case: 20STCV30395, Date: 2023-02-28 Tentative Ruling

Case Number: 20STCV30395    Hearing Date: February 28, 2023    Dept: 74

Superior Court of California

County of Los Angeles – CENTRAL District

Department 74

MOVING PARTY:                Defendants Stephen Wei-Liang Leng, Jennifer Leng, Kristie Do, and Janet Lao

RESPONDING PARTY:       Plaintiffs Jackson Stoops and Guiding Hands Social Club, LLC

Demurrer to Complaint

The court considered the moving papers, opposition papers, and reply papers filed in connection with this motion.

BACKGROUND

            Plaintiffs Jackson Stoops (“Stoops”) and Guiding Hands Social Club, LLC (“Guiding Hands”) filed this action on August 10, 2020, against Defendants Stephen Wei-Liang Leng (“Stephen”), Jennifer Leng (“Jennifer”), Kristie Do aka Kristie Do-San (“Do”), and Janet Lao (“Lao”) (collectively, “Defendants”). The operative Third Amended Complaint (“TAC”) was filed on September 15, 2021, alleging causes of action for, among others, unjust enrichment; fraud; negligent misrepresentation; violation of Business & Professions Code § 17200; violation of Civil Code § 1750; violation of Penal Code § 496(c); and, conversion.

            In the TAC, Plaintiffs alleges that they are purchasers of high-end luxury sneakers for the purpose of reselling them to clients and collectors. The TAC alleges Defendants owe Plaintiffs damages based on various agreements in which Plaintiffs prepaid the full price for the luxury sneakers based on invoices issued by Defendants. (TAC ¶¶ 1-2.) The prepaid invoices total close to $1 million.  (TAC ¶¶ 3-4.) Defendants failed, however, to deliver the pre-purchased luxury sneakers and failed to issue refunds. (TAC ¶ 1.) Plaintiffs allege Defendants intentionally misled Plaintiffs into believing that Defendants could not deliver the luxury shoes as initially represented.  Defendants instead trafficked the pre-purchased shoes by reselling them to other customers at a higher price. (TAC ¶¶ 5-8.)

Defendants demur to the causes of action for unjust enrichment; fraud; negligent misrepresentation; violation of Business & Professions Code § 17200; violation of Civil Code § 1750; violation of Penal Code § 496(c); and, conversion. The demurrer contends the TAC fails to state facts sufficient to support each of the those causes of action.

REQUEST FOR JUDICIAL NOTICE

            The court grants Defendants’ request for judicial notice of this court’s March 23, 2021 Minute Order pursuant to Evidence Code § 452(d).

LEGAL STANDARD

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)

A pleading is uncertain if it is ambiguous or unintelligible. (Code Civ. Proc., § 430.10, subd. (f).) A demurrer for uncertainty may lie if the failure to label the parties and claims renders the complaint so confusing defendant cannot tell what he or she is supposed to respond to.  (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.) However, “[a] demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

DISCUSSION

A.    Fourth Cause of Action: Fraud

Defendants argue that the fourth cause of action for fraud is subject to demurrer because it has not been alleged with the requisite specificity.

The elements of fraud are: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) In California, fraud must be pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.)

The TAC alleges: From November 2018 to March 2020, Stephen Leng, individually and on behalf of all other Defendants, made representations to Plaintiff: Plaintiff was required to pre-pay for the sneakers; Defendants would then use those funds to obtain the sneakers; and Defendants would deliver the sneakers to Plaintiff. (TAC., ¶¶ 20-27, 57.) Defendants knew these representations were false and made with the actual intent to defraud Plaintiff. (TAC., ¶¶ 58-98.) Plaintiffs relied on these representations without knowing their falsity, and had they known, Plaintiffs would not have prepaid for the sneakers. (TAC., ¶¶ 98-101.) Plaintiff has suffered damages independent of their contract damages based on “fraudulent misrepresentations and deceptive bait-and-switch, theft, and trafficking schemes.” (TAC., ¶ 102.)

Defendants first argue that the TAC fails to raise any fraudulent conduct perpetrated by the female defendants. (Demurrer at pg. 7.) Second, Defendants contend that the fraud claim cannot be maintained because on the face of the complaint the Defendants performed under the contract for 18 months, which was originally alleged in the initial complaint. (Demurrer at pg. 7; Compl. ¶ 13-17.) Third, Defendants argue that the TAC fails to allege that the representations were actually false because Defendants obtained sneakers and delivered them to Plaintiffs. (Ibid.) Last, Defendants argue the economic loss rule bars Plaintiffs’ claim.

Plaintiff’s fourth cause of action has been sufficiently alleged. First, in terms of the involvement of the female defendants, the TAC alleges that most of the invoices were under the name of the female defendants (TAC ¶ 24.) While most of the fraudulent conduct is alleged to have been perpetrated by Stephen Leng (TAC ¶¶ 58-98), the TAC also alleges that the Defendants were acting in concert with one another. (TAC ¶¶ 16-17.) Thus, at the pleading stage, these allegations are sufficient for Plaintiffs to maintain a cause of action of fraud against the female defendants.

Second, the court is unpersuaded by Defendants’ reliance on the sham pleading doctrine. The sham pleading doctrine can be invoked when the newly alleged facts contradict or substantively alter the prior allegations. (See Owens v. Kings Supermarket (1988) 198 Cal. App.3d 379.) The sham pleading doctrine does not prevent honest complainants from correcting erroneous allegations or ambiguous facts. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 751.) Instead, it is intended to enable courts “‘to prevent an abuse of process.’” (Amid v. Hawthorne Community Medical Group, Inc. (1989) 212 Cal.App.3d 1383, 1390-1391.) Defendants claim that Plaintiffs previously alleged that they partly performed under the contract. (See Compl. ¶¶ 13-17.) However, the TAC has not omitted these allegations. (See TAC ¶¶ 20-27.) Instead, the TAC further alleges a scheme whereby Defendants purposely withheld prepaid luxury shoes at certain times when other buyers were available who were willing to pay a higher price than Plaintiffs’ prepaid price. (TAC ¶¶ 28-35.) Thus, Plaintiffs’ allegation of part performance does not undermine the elements of intent to deceive and false representation in support of their fraud claim.

Finally, the court finds unpersuasive Defendants’ reliance on the economic loss rule. Under the economic loss rule, “[w]here a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only ‘economic’ losses.”  (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988 (Robinson Helicopter), quotation marks omitted.)  However, tort damages may be permitted when the breach of contract is accompanied by a tort such as fraud.  (Id. at pp. 989-990.) Plaintiffs have sufficiently alleged that Defendants committed fraud.   The court overrules the demurrer to the fourth cause of action.

B.    Third Cause of Action: Unjust Enrichment

Also, Defendants demurrer to the third cause of action for unjust enrichment because it is not an independent cause of action. (Demurrer at pg. 6.)

While unjust enrichment is not a cause of action, courts have stated that unjust enrichment is synonymous with restitution and allowed recovery where the plaintiff asserts a proper basis for recovering restitution. (See Durrell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370; McBride v. Boughton (2004) 123 Cal.App.4th 379, 387-88.) Such bases include quasi-contract, fraud, duress, conversion, or similar conduct. (See Durrell, supra, 183 Cal.App.4th at 1370; McBride, supra, 123 Cal.App.4th at 387-88.)
            The TAC alleges that the Defendants intentionally stole and kept the luxury shoes that Plaintiffs prepaid for their own benefit in order to sell the shoes at a higher price, which resulted in them pocketing the difference. (TAC ¶¶ 53-54.)

These allegations are sufficient. As discussed above, Plaintiffs have alleged sufficient facts to constitute a cause of action for fraud.

Accordingly, the court overrules the demurrer to the third cause of action.

C.    Fifth Cause of Action: Negligent Misrepresentation

Defendants next demur to the fifth cause of action for negligent misrepresentation based on the same reasoning used for their demurrer to Plaintiffs’ fraud claim. (Demurrer at pg. 9.) However, as noted above, Plaintiffs’ fraud claim has been found to be sufficiently alleged. Consequently, Plaintiffs’ negligent misrepresentation claim also survives the instant demurrer.

D.    Seventh Cause of Action: Violation of Civil Code § 1750, et seq.

Defendants argue that the seventh cause of action for violation of the Consumers Legal Remedies Act is subject to demurrer because Plaintiffs are not consumers as defined under Civil Code § 1761. (Demurrer at pg. 10.)

Pursuant to Civil Code § 1761(d), a consumer is “an individual who seeks or acquires … any goods or services for personal, family, or household purposes.”

As alleged in the TAC, it is only Stoops who asserts this cause of violation of the Consumers Legal Remedies Act against Defendants because a small portion of the purchases were for his personal use to be gifted to family, friends and colleagues. (TAC ¶ 121.) Defendants are alleged to have retained the pre-paid luxury shoes in violation of Civil Code § 1770(a). (TAC ¶¶ 122-123.) While Plaintiffs have alleged $1.6 million in shoe purchases, this allegation does not undermine the fact that a small portion of those purchases were tied to Stoop’s personal purposes. Thus, this cause of action has been sufficiently alleged

Accordingly, the court overrules the demurrer to the seventh cause of action.

E.    Eighth Cause of Action: Violation of Penal Code § 496(c)

Next, Defendants demurrer to the eighth cause of action on the ground that there is no allegation of an actual theft. (Demurrer at pg. 10.)

Penal Code § 496(a) provides that “[e]very person who buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, known the property to be stolen or obtained, or who conceals, sells withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained” is subject to potential criminal and civil liability.

Plaintiffs have alleged that Defendants committed theft by retaining for their own use the most expensive luxury shoes procured with Plaintiffs’ funds.  (TAC ¶¶ 132-141.)

The court overrules the demurrer to the eighth cause of action.

F.     Ninth Cause of Action: Conversion

“Conversion is any act of dominion wrongfully exerted over another’s personal property in denial of or inconsistent with his rights therein.” (Weiss v. Marcus (1975) 51 Cal. App. 3d 590, 599.) Defendants demur to the ninth cause of action on the ground that Plaintiffs did not own or possess the shoes at issue. Here, however, the TAC alleges otherwise based upon Defendants’ wrongful retention of sneakers for which Plaintiffs had prepaid. (TAC ¶¶ 1467-148.) 

The court overrules the demurrer to the ninth cause of action.

CONCLUSION

Based on the foregoing, the court overrules Defendants’ demurrer in its entirety.

The court orders Defendants to file and serve their answer within 20 days of the date of notice of this order.

Defendants are ordered to give notice of this ruling.

IT IS SO ORDERED.

DATED:  February 28, 2023

_____________________________

Colin Leis

Judge of the Superior Court