Judge Colin Leis, Case 22AHCV00317 2022-09-29 Tentative Ruling

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

The court considered the moving papers, opposition, and reply papers filed in connection with these motions.

Plaintiff Stephen Lu filed this action on May 31, 2022, against Defendants Edward Lo (“Lo”), Chang Huan Hsueh (“Hsueh”), David Wan (“Wan”), Wilson Ngai (“Ngai”), and Julian Fong (“Fong”). The complaint asserts causes of action for (1) breach of fiduciary duty, (2) slander, (3) intentional infliction of emotional distress, (4) harassment, and (5) declaratory relief.

Plaintiff was one of the original founders of Mega Bank and was on the Board of Directors until he was ousted in August 2021. (Compl., ¶ 1.) Plaintiff alleges that Lo, the Chairman of the Board, spearheaded the efforts to oust Plaintiff from his position on the Board. (Compl., ¶¶ 2, 14-16.) Hsueh, Wan, Ngai, and Fong are other members of the Board. (Compl., ¶¶ 3-6.) Between March 19, 2022 and March 20, 2022, Hsueh, Wan, and Ngai contacted various shareholders of Mega Bank and informed them that a purchase of Mega Bank fell through because Plaintiff had filed a lawsuit against Mega Bank. (Compl., ¶ 23b.) The shareholders were also asked to not support Plaintiff in the event that he decided to run for re-election to the Board for the 2022-2023 term. (Compl., ¶ 23b.) The allegation pertaining to the March 2022 communications is the basis for the second cause of action for slander and the third cause of action for intentional infliction of emotional distress. (Compl., ¶¶ 31, 43.) Plaintiff alleges that the statement to the shareholders was untrue and placed Plaintiff in a negative light and incurred the anger of the shareholders, who stood to reap a profit from the sale of the bank. (Compl., ¶¶ 23b, 23c, 31, 43.) Plaintiff also alleges that Hsueh, Wan, and Ngai acted at the direction, instigation, and encouragement of Lo. (Compl., ¶¶ 32, 44.)

Lo, Wan, and Ngai move to strike all portions of the complaint relating to the March 2022 communications (paragraph 23b, 23c, the second cause of action for slander, and the third cause of action for intentional infliction of emotional distress) pursuant to Code of Civil Procedure section 425.16. The second cause of action is directed against Lo, Hsueh, Wan, and Ngai, while the third cause of action is directed against Lo alone.

The court rules on Plaintiff’s evidentiary objections to the Declaration of David Wan as follows:

Objection 2: sustained as to the first sentence; overruled as to the second sentence

The court rules on Plaintiff’s evidentiary objections to the Declaration of Wilson Ngai as follows:

Objection 2: sustained as to the first sentence; overruled as to the second sentence

The court rules on Defendants’ evidentiary objections to the Declaration of Stephen Lu as follows:

Objection 7: sustained as to “apart from the slanderous words from that March 2022 meeting with Dr. Yung by Wan, Ngai and Hsueh” and overruled as to the remainder

The court rules on Defendants’ evidentiary objections to the Declaration of Claire Espina as follows:

“[T]he only thing the defendant needs to establish to invoke the protection of the SLAPP statute is that the challenged lawsuit arose from an act on the part of the defendant in furtherance of her right of petition or free speech.” (Fox Searchlight Pictures, Inc. v. Paladino (2001) 89 Cal.App.4th 294, 307.)

An act in furtherance of a person’s right of petition or free speech includes the following:

(1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law, (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law, (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.

In determining whether a cause of action arises from protected conduct, the court focuses on “the allegedly wrongful and injury-producing conduct that provides the foundation for the claims.” (Castleman v. Sagaser (2013) 216 Cal.App.4th 481, 490-491.) “[T]he critical consideration is whether the cause of action is based on the defendant’s protected free speech or petitioning activity.” (Navellier v. Sletten (2002) 29 Cal.4th 82, 89 [emphasis in original].) In making this determination, the court considers “the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.” (Ibid.)

Defendants argue that that all of the references in the complaint to the March 2022 meeting with shareholders fall within the ambit of section 425.16, subdivision (e)(1) or (e)(2)—a statement made before a judicial proceeding or made in connection with an issue under consideration or review by a judicial body—because the statement expressly relates to the filing of a lawsuit.[2] Plaintiff counters that the lawsuit-related statement is not privileged, but Plaintiff’s discussion relating to the litigation privilege (Civil Code section 47) is not entirely on point because the litigation privilege and prong one of the anti-SLAPP analysis are not coextensive. (See Flatley v. Mauro (2006) 39 Cal.4th 299, 322-323.) In any event, a statement is “in connection with” litigation “if it relates to the substantive issues in the litigation and is directed to persons having some interest in the litigation.” (Neville v. Chudacoff (2008) 160 Cal.App.4th 1255, 1266.) The court finds that the statement at issue meets this definition. And whether or not the statement is true (i.e., whether Plaintiff had, in fact, filed a lawsuit at that point in time) is not material to the prong one analysis.[3] (Comstock v. Aber (2012) 212 Cal.App.4th 931, 942.)

Defendants next argue that the allegation that the shareholders were asked not to support Plaintiff’s bid for re-election to the Board is similarly protected conduct. (Compl., ¶ 23b.) However, the court finds that neither the cause of action for slander nor the cause of action for intentional infliction of emotional distress arises from this allegation. The only “statement” at issue in the second and third causes of action is the statement about Plaintiff suing Mega Bank. (Compl., ¶¶ 31, 43.) Nothing in paragraph 33 (cited by Defendants) suggests that Plaintiff is also suing Defendants for making any other statement to the shareholders.

Plaintiff’s remaining argument that pertains to prong one is that the third cause of action for intentional infliction of emotional distress is not solely based on the March 2022 statements to shareholders. Plaintiff also alleges that Lo used his position of power at Mega Bank to “terrorize, harass and intimidate [Plaintiff].” (Compl., ¶ 46.) The court finds that this, coupled with the allegations that Lo worked to oust Plaintiff from his position on the Board (e.g., Compl., ¶ 16) and that Lo “vilified and ridiculed” Plaintiff for exercising his judgment (e.g., Compl., ¶ 22), demonstrate that the claim is also based on conduct separate from the March 2022 statements.

The court finds that Defendants have met their burden on prong one because the statement to Mega Bank’s shareholders that Plaintiff filed a lawsuit that interfered with a potential sale of the bank is a statement in connection with litigation. The burden now shifts to Plaintiff on prong two to make a showing of probability of prevailing on his claims.

“Under the second prong of the anti-SLAPP analysis, plaintiffs have the burden of establishing a probability of prevailing on their claims.” (MMM Holdings, Inc. v. Reich (2018) 21 Cal.App.5th 167, 183.) “Put another way, the plaintiff must demonstrate that the complaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited.” (Ibid. [internal quotations omitted].) In making the prong two determination, “the court shall consider the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.” (Code Civ. Proc., § 425.16, subd. (b)(2).) “The court does not, however, weigh [defendant’s] evidence against the plaintiff’s, in terms of either credibility or persuasiveness. Rather, the defendant’s evidence is considered with a view toward whether it defeats the plaintiff’s showing as a matter of law, such as by establishing a defense or the absence of a necessary element.” (1-800 Contacts, Inc. v. Steinberg (2003) 107 Cal.App.4th 568, 585.)

First, the court notes that Plaintiff has not provided an analysis of the elements of either cause of action. Plaintiff has also failed to provide an analysis of the evidence submitted as it pertains to any specific cause of action. A plaintiff cannot meet his burden on prong two without providing this analysis. (MMM Holdings, Inc. v. Reich, supra, 21 Cal.App.5th at pp. 185-186.)

“The elements of a defamation claim are (1) a publication that is (2) false, (3) defamatory, (4) unprivileged, and (5) has a natural tendency to injure or causes special damage.” (John Doe 2 v. Superior Court (2016) 1 Cal.App.5th 1300, 1312.) Slander is “oral defamation.” (Ringler Associates Inc. v. Maryland Casualty Co. (2000) 80 Cal.App.4th 1165, 1180.) And as noted by Defendants, Plaintiff has the burden of demonstrating that “the slanderous words were spoken as alleged.” (Krause v. Bertrand (1958) 159 Cal.App.2d 318, 321.) Here, the court finds that Plaintiff has failed to shoulder that burden. Plaintiff offers no admissible evidence that any of the defendants made a statement to any Mega Bank shareholder that Plaintiff had filed a lawsuit. Plaintiff merely submits his own testimony regarding what Dr. Yung, a Mega Bank shareholder, told him about the March 2022 meeting. (Lu Decl., ¶¶ 4-5.) This is hearsay, and the court has sustained Defendants’ evidentiary objection to this evidence as such. And because the third cause of action is based, in part, on the March 2022 statements, the court also finds that Plaintiff has failed to show that the allegedly outrageous conduct actually occurred.

Because Plaintiff cannot show likelihood of prevailing on either claim if an essential element is missing, the court need not and does not consider whether the causes of action also fail for the other reasons put forth by Defendants (e.g., the litigation privilege and the common interest privilege).

Based on the foregoing, the court grants Defendants’ special motion to strike from the complaint paragraph 23b (except for the portion “and, asking these shareholders not to support Stephen for re-election to the Board in the event he runs for the 2022-2023 term”), 23c; the second cause of action for slander; and paragraphs 43-45. Defendants’ special motion to strike is otherwise denied.

Defendants demur to all causes of action of the complaint on the basis that each fails to state facts sufficient to constitute a cause of action and that each is uncertain. Defendants also move to strike the prayer for attorney’s fees.

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.)

A court may strike any “irrelevant, false or improper matter inserted in any pleading” or any part of a 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.) “The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.” (Code Civ. Proc., § 437.)

As an initial matter, the court notes that Plaintiff agrees to strike his request for attorney’s fees (paragraph 56) from the complaint. Because item 6 of the prayer for relief also seeks attorney’s fees, the court grants the motion to strike as to item 6 as well. In addition, the demurrer as to the cause of action for slander is moot in light of the court’s ruling on the anti-SLAPP motion.

Defendants argue that the complaint is uncertain because it is unclear who the plaintiffs and defendants are in this lawsuit. Although Stephen Lu is the only named plaintiff in the complaint, he alleges that he is filing the instant lawsuit for himself “and on behalf of his wife Lisa Lu.” (Compl., ¶ 13.) To the extent that Lisa Lu is also a plaintiff, she is not properly named, and so the demurrer is sustained, with leave to amend. As far as the defendants, the court does not find that there is any ambiguity as to who the defendants are—each cause of action specifically identifies the defendants against whom the cause of action is brought.

Defendants next argue that Plaintiff lacks standing to bring “most of” his claims. But Defendants do not clarify to which causes of action the standing argument applies. To the extent that the standing argument is applicable to the first cause of action for breach of fiduciary duty, the argument appears to only relate to a portion of that cause of action. But a demurrer cannot be sustained as to a portion of a cause of action. (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682.) In any event, Defendants also argue that the breach of fiduciary duty claim is barred by the business judgment rule.[4] The business judgment rule “establishes a presumption that directors’ decisions are based on sound business judgment, and it prohibits courts from interfering in business decisions made by the directors in good faith and in the absence of a conflict of interest.” (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1045; Corp. Code, § 309, subd. (c) [“A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director.”].) “An exception to the presumption afforded by the business judgment rule accordingly exists in ‘circumstances which inherently raise an inference of conflict of interest’ and the rule ‘does not shield actions taken without reasonable inquiry, with improper motives, or as a result of a conflict of interest.’” (Ibid.)

In this case, Plaintiff alleges that Defendants (as directors) breached their fiduciary duty to him (as a shareholder) by targeting him with punitive actions, by preventing him from obtaining the benefits of his position, by ousting him unfairly from the board, by not providing information and obtaining consent for Lo’s retirement bonus, and by refusing his right to review corporate records. (Compl., ¶ 26.) This conduct falls within the parameters of the “broad discretion” that corporate directors have in making corporate decisions. (Berg & Berg Enterprises, LLC v. Boyle, supra, 178 Cal.App.4th at p. 1045.) Plaintiff’s only response is to argue generally that evidentiary inquiry is necessary in order to determine whether the business judgment rule applies. But “the failure to sufficiently plead facts to rebut the business judgment rule or establish its exceptions may be raised on demurrer, as whether sufficient facts have been so pleaded is a question of law.” (Id. at p. 1046.) The court notes that Plaintiff does allege one instance of a conflict of interest—that the board appointed themselves as inspectors for the 2021 board election. (Compl., ¶ 17(d)(v).) Nevertheless, Plaintiff does not explain how this appointment actually resulted in decisions that were the result of a conflict of interest. (See Lee v. Interinsurance Exchange (1996) 50 Cal.App.4th 694, 715 [“More is needed to establish an exception to the rule than conclusory allegations of improper motives and conflict of interest.”].) This also ties in with Defendants’ argument that Plaintiff has failed to allege the breach element with respect to the allegation that he was “ousted” as a board member during the 2021 board election. Plaintiff alleges that, although his name was not on the ballot, he intended to nominate himself and cast a vote for himself (along with his supporters). (Compl., ¶ 17(d)(vi).) Plaintiff then alleges that he declined a ballot and thus did not vote, which resulted in a finding that Plaintiff had failed to follow the proper procedure and his votes would not be counted. (Compl., ¶ 17(d)(vii).) Plaintiff does not allege that he was prevented from nominating himself or that he was prevented from attempting to cast a vote for himself. Thus, it is not clear from the allegations in the complaint that anything Defendants did caused Plaintiff to lose the election, and Plaintiff offers no further explanation in his opposition to the demurrer. Therefore, the demurrer to the breach of fiduciary duty cause of action is sustained.

As for the harassment claim, Defendants correctly note that there is no cognizable cause of action for harassment under the common law. And to the extent that the cause of action is brought pursuant to the California Fair Employment and Housing Act (“FEHA”), Plaintiff has failed to allege a necessary prerequisite for such a cause of action—exhaustion of administrative remedies. (Gov. Code, §§ 12960, 12965, subd. (b).)

Next, Defendants argue that the cause of action for intentional infliction of emotional distress must fail because Plaintiff has not alleged extreme and outrageous conduct. (Christensen v. Superior Court (1991) 54 Cal.3d 969, 903.) In light of the fact that the court has granted the special motion to strike as to paragraphs 43, 44, and 45 of the complaint, the IIED claim is now based solely on the allegation that Lo used his position of power to “terrorize, harass and intimidate [Plaintiff] to his detriment.” (Compl., ¶ 46.) To the extent that the IIED claim is based on Plaintiff’s “ouster” from the board, the business judgment rule applies. And to the extent that the IIED claim is based on the September 2020 email from Lo to Plaintiff (referring to Plaintiff as “crazy or “not in the right frame of mind” and accusing Plaintiff of “catering to the White Man,” being a “kiss ass,” and being “obsequious to the White Man” and a “traitor to the Chinese”), the court does not find that this constitutes extreme and outrageous conduct. (Compl., ¶ 22(b), Ex. 2.) The demurrer is sustained.

Lastly, Defendants contend that the cause of action for declaratory relief must fail because Plaintiff’s grievances lie with Mega Bank, and not the individual directors, because the claim is duplicative of the breach of fiduciary duty claim, and because there is no cognizable controversy to adjudicate. Here, the court finds that the declaratory relief claim is wholly derivative of the breach of fiduciary duty claim, and so the demurrer to the declaratory relief claim is likewise sustained.

Based on the foregoing, the court sustains Defendants’ demurrer to the first, third, fourth, and fifth causes of action, with leave to amend. The court grants Defendants’ motion to strike.

The court orders Plaintiff to file and serve an amended complaint, if any, within 20 days of the date of this order. If no amended complaint is filed within 20 days, the court orders Defendants to file and serve a proposed judgment of dismissal within 30 days of the date of this order.

[1] Although Defendants are correct that counsel cannot authenticate the emails contained in Exhibits 4 and 5, there is sufficient information contained in Plaintiff’s declaration to authenticate both. In paragraph 7 of the Declaration of Stephen Lu, Plaintiff attests to the fact that he sent an email in June 2022 about his intent to run for election to the Board. The court finds that this is sufficient to authenticate Exhibit 4. In paragraph 13 of the Declaration of Stephen Lu, Plaintiff attests to the fact that he was contacted in June 27, 2022 by Fong about a meeting to discuss resolution of the instant case. The court finds that this is sufficient to authenticate Exhibit 5.

[2] Specifically, Plaintiff alleges as follows: “Between March 19-20, 2022, Hsueh, Wan and Ngai contacted shareholder Dr. Yung and other shareholders and informed them that a purchase of Mega fell through and terminated the opportunity of shareholders to earn profit on their investment because Stephen had filed a lawsuit against Mega - which is untrue; and, asking these shareholders not to support Stephen for re-election to the Board in the event he runs for the 2022-2023 term.” (Compl., ¶ 23b [emphasis added].)

[3] For the same reason, the court does not find the parties’ discussion concerning the applicability of anti-SLAPP protection to pre-litigation statements to be apposite. As alleged in the complaint, the statement does not concern pre-litigation activities or conduct.

[4] Although Defendants contend that “all” of Plaintiff’s claims are barred by the business judgment rule, it is not clear to the court (and unexplained by Defendants) that the business judgment rule would bar a claim for intentional infliction of emotional distress.

STEPHEN LU ; Plaintiff, vs. EDWARD LO , et al., Defendants.	Case No.:	22AHCV00317

	Hearing Date:	September 29, 2022

	Time:	8:30 a.m.

	[TENTATIVE] ORDER RE: SPECIAL MOTION TO STRIKE PORTIONS OF PLAINTIFF’S COMPLAINT; DEFENDANTS’ DEMURRER TO PLAINTIFF’S COMPLAINT; DEFENDANTS’ MOTION TO STRIKE PORTIONS OF PLAINTIFF’S COMPLAINT