Judge: Colin Leis, Case: 23STCV01637, Date: 2024-12-06 Tentative Ruling

Case Number: 23STCV01637    Hearing Date: December 6, 2024    Dept: 74

United Bridge Trucking Corp. v. Wang et al.

Defendants Tommy Wang, Pin Pin Kao, Anna Zhang’s Demurrer

BACKGROUND 

            On January 25, 2023, plaintiff United Bridge Trucking Corp. (Plaintiff) filed a complaint alleging breach of contract, breach of fiduciary duty, fraud and negligence.

            On February 13, 2024, Plaintiff filed the operative Second Amended Complaint (Complaint) against defendants Tommy Wang (Wang), Pin Pin Kao (Kuo), Anna Zhang (Zhang), WA Transportation (WAT), C Lion (C Lion) and all persons claiming a legal or equitable right to the property (collectively Defendants).

            Plaintiff alleges ten causes of action: (1) Breach of Oral Contract, (2) Conversion, (3) Breach of Fiduciary Duty, (4) Constructive Fraud under Civil Code § 1573, (5) Fraudulent Concealment, (6) Conspiracy, (7) Intentional Misrepresentation, (8) Accounting and Constructive Trust, (9) Partition and Accounting, and (10) Dissolution. 

JUDICIAL NOTICE

Granted.

LEGAL STANDARD

Demurrer

As a general matter, in a demurrer proceeding, the defects must be apparent on the face of the pleading or through proper judicial notice.  (Donabedian v. Mercury Ins. Co. (2004) 116 Cal. App.4th 968, 994.)  “A demurrer tests the pleading alone, and not the evidence or facts alleged.”  (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal. App. 4th 1308, 1315.)  As such, the court assumes the truth of the complaint’s properly pleaded or implied factual allegations.  (Id.)  The only issue a demurrer is concerned with is whether the complaint, as it stands, states a cause of action.  (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.)

Where a demurrer is sustained, leave to amend must be allowed where there is a reasonable possibility of successful amendment.  (Goodman v. Kennedy (1976) 18 Cal. 3d 335, 348.)  The burden is on the plaintiff to show the court that a pleading can be amended successfully.  (Id.; Lewis v. YouTube, LLC (2015) 244 Cal. App. 4th 118, 226.)  But “[i]f there is any reasonable possibility that the plaintiff can state a good cause of action, it is error to sustain a demurrer without leave to amend.”  (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal. 2d 240, 245).  

DISCUSSION

Economic Loss Rule                                                                                                                          

            Defendants argue that the economic loss rule precludes recovery on the Second, Third, Fourth, Fifth, and Seventh Causes of Action.  The economic loss rule prohibits recovery of tort damages in breach of contract cases where the tort depends on the breach of a contractual duty.  (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) Resting on principles of tort law, a tortious breach of contract alleges violation of a duty independent of the contract.  (Erlich v. Menezes (1999) 21 Cal.4th 543, 551.)  Examples of independently tortious breach of contract is when one party commits a fraud during the contract formation or commits conversion.  (Robinson Helicopter Co. 34 Cal.4th at pp. 990 (citing Elrich, supra, 21 Cal.4th at pp. 551-55).) 

            Plaintiff’s Second Cause of Action for Conversion alleges the independent tort of conversion.  Under Robinson Helicopter Co., Inc., because Plaintiff alleges conversion, the economic loss rule does not bar the Cause of Action.  (Robinson, supra, 34 Cal.4th at 990 (citing Elrich, supra, 21 Cal.4th at pp. 553-554).)

            Plaintiff’s Third Cause of Action for Breach of Fiduciary Duty alleges that Defendants breached their fiduciary duty to Plaintiff.  In Sheen v. Wells Fargo Bank, N.A., the Court found that a fiduciary duty, even if arising from the contract, gives rise to an extra-contractual duty.  (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 926-27.)  Given that the fiduciary duty itself creates an independent duty, the Economic Loss Rule does not bar Plaintiff’s Third Cause of Action. 

Plaintiff’s Fourth and Seventh Causes of Action allege the independent tortious breach of contract of fraud during contract formation.  (Complaint ¶¶ 69, 86.)  Under Robinson Helicopter Co., Inc., because Plaintiff alleges fraudulent inducement in the creation of the contract, the economic loss rule does not bar the Causes of Action.  

Plaintiff’s Fifth Cause of Action for Fraudulent Concealment alleges that Defendants breached their fiduciary duty by concealing material facts from Plaintiff with the intent to defraud and mislead Plaintiff.  (Complaint ¶ 74-75.) 

The Court overrules Defendants’ demurrer to the extent it relies on the economic loss rule.  

Fails to State a Cause of Action

            Defendants argue that the Fourth, Fifth, Seventh and Ninth fail as a matter of law for failure to state a claim.

            When considering demurrers, courts read the allegations liberally.  (MKB Management, Inc. v. Melikian (2010) 184 Cal.App.4th 796, 802.)

            Constructive Fraud – Fourth Cause of Action

            Defendants allege that Plaintiff failed to plead fraud with sufficient specificity. 

            The elements of Constructive Fraud are (1) a fiduciary, confidential or special relationship, (2) breach (e.g. nondisclosure), (3) intent to deceive, (4) reliance, (5) causation, and (6) damage.  (Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 516, 517, fn. 14.)  Additionally, fraud must be pleaded with particularity, describing “how, when, where, to whom, and by what means that representations were tendered.”  (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.)   

            Plaintiff alleges that (1) a fiduciary duty exists between Plaintiff and Defendants (Complaint ¶ 67); (2) Defendants made purposefully misleading statements to plaintiff, including: (a) Around September 2022, defendants Wang and Kuo refused to provide access to books and records and (b) Wang, Kuo and Zhang formed C Lion as a direct competitor to WAT (Complaint ¶¶ 33, 38.); (3) Defendants intended to deceive Plaintiff (Complaint ¶ 69); (4) Plaintiff relied on Defendants (See Complaint ¶¶ 18, 67); (5) the breach caused Plaintiff’s injury (Complaint ¶ 70); and (6) Plaintiff was damaged. (Complaint ¶ 71.)  Plaintiff also includes several WeChat messages in the complaint to support the Fraud Causes of Action. 

Defendants challenge the sufficiency of the damage allegations.  Defendants do not cite authority that Plaintiff must plead damages with heightened specificity.  Plaintiff alleges its financial interests were damaged, which is sufficient to withstand demurrer.

The Court finds that Plaintiff pleaded the Fourth Cause of Action with sufficient particularity. The demurrer is overruled as to the Fourth Cause of Action.

            Fraudulent Concealment and Intentional Misrepresentation – Fifth and Seventh Causes of Action

            Defendants allege that Plaintiff fails to plead fraudulent concealment with sufficient specificity. 

            The elements of fraud are (1) misrepresentation (false representation, concealment or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud; (4) justifiable reliance; and (5) resulting damage.  (Conroy v. Regents of Univ. of Cal. (2009) 45 Cal.4th 1244, 1255.)  Additionally, fraud must be pleaded with particularity, describing “how, when, where, to whom, and by what means that representations were tendered.”  (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.)  When alleging fraudulent concealment, however, a plaintiff need not specifically plead how, when, to whom, and by what means.  (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384.) 

            As noted above, Plaintiff meets the pleading requirements for fraudulent concealment.  Plaintiff alleges (1) Defendants concealed and misrepresented business dealings (Complaint ¶¶ 28-43, 86); (2) Defendants had scienter (Complaint ¶¶ 74, 86); (3) Defendants intended to defraud plaintiff (Complaint ¶¶ 75, 87); (4) Plaintiff relied on the claims (Complaint ¶¶ 18, 67, 87, 88); and (5) Plaintiff was damaged (Complaint ¶¶ 76, 90.)

                        Misrepresentations

            Defendants challenge the sufficiency of the misrepresentations.  Defendants identify four separate representations about the following: (1) 50% shares in WAT; (2) Real Property; (3) Real Property Income; and (4) Diversion of Business to C Lion.  Defendants allege that their statements regarding the transfer of the 50% shares in WAT to Plaintiff is not an actionable misrepresentation because the statement regarded a future event.  (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.) 

Plaintiff alleges that Defendants made the promise to transfer the 50% shares in exchange for Plaintiff’s investments.  In Cansino, defendant’s representations of the future condition of the real estate market were not actionable misrepresentations because they represented opinions.  Here, Defendants statements are about concrete actions they intend to take once a condition is met.  Therefore, Defendants’ misrepresentations are not forecasts of future events, but rather a statement about existing material facts regarding their intent.  Defendants’ misrepresentations regarding the transfer of shares is sufficient to support Plaintiff’s Fraudulent Misrepresentation cause of action.

Given that Defendants’ statements regarding the shares is sufficient to withstand demurrer, the Court overrules Defendants’ demurrer to the seventh cause of action without assessing the sufficiency of Plaintiff’s other allegations of misrepresentation.  (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047 [“a demurrer cannot rightfully be sustained to [only] part of a cause of action or to a particular type of damage recovery”].)

            Partition and Accounting of Real Property   

            Defendants allege that Plaintiff cannot bring a Cause of Action to partition the Real Property because California’s Corporations Code allows for partitioning property only if the corporation is dissolved.  (Capuccio v. Caire (1932) 215 Cal. 518, 522.)  Plaintiff’s Cause of Action for both partition and dissolution follow from Plaintiff’s other Causes of Action. Because Plaintiff moves for dissolution, plaintiff may also at the pleading stage seek partition.  The Court overrules Defendant’s demurrer to Plaintiff’s Ninth Cause of Action.

Independent Cause of Action            

            Defendants allege that Plaintiff’s sixth cause of action for conspiracy fails to state an independent cause of action.  Because the Court overrules the demurrer to Plaintiff’s tort causes of action, Plaintiff’s Conspiracy Cause of Action survives. 

CONCLUSION

            The Court overrules the demurrer.

            Defendants to file their answers within 20 days.

            Defendants to give notice.