Judge: Curtis A. Kin, Case: 21STCV45683, Date: 2022-08-02 Tentative Ruling

Case Number: 21STCV45683    Hearing Date: August 2, 2022    Dept: 72

DEMURRER (2) AND MOTION TO STRIKE (2)

Date:           8/2/22 (9:30 AM)                   

Case:          SDG School of Business, Inc. v. Jong Kil Ryu et al. (21STCV45683)

TENTATIVE RULING:

Demurrer filed by defendants America Evangelical University, Jongkil Ryu, and Sanghoon Lee is SUSTAINED IN PART.

Motion to Strike Portions of First Amended Complaint filed by defendants America Evangelical University, Jongkil Ryu, and Sanghoon Lee is GRANTED IN PART.

Demurrer filed by defendants Kairos University, Grace Kim, and Daniel Kim, joined by defendant Sierra States University, is SUSTAINED.

Motion to Strike Portions of First Amended Complaint filed by defendants Kairos University, Grace Kim, and Daniel Kim, joined by defendant Sierra States University, is DENIED as MOOT.

The Court GRANTS plaintiff ten (10) days leave to amend only for the causes of action and/or defendants with respect to which the demurrers are sustained and the motion to strike is granted. 

I.                   DEFENDANTS AMERICA EVANGELICAL UNIVERSITY, JONGKIL RYU, AND SANGHOON LEE’S DEMURRER TO FIRST AMENDED COMPLAINT

A.    First Cause of Action – Breach of Contract

Demurring defendants America Evangelical University (“AEU”), Jongkil Ryu, and Sanghoon Lee argue that the first cause of action is barred by the four-year statute of limitations for breach of contract causes set forth in CCP § 337.

“Under the continuous accrual doctrine each breach of a recurring obligation is independently actionable.” (Gilkyson v. Disney Enterprises, Inc. (2016) 244 Cal.App.4th 1336, 1341.) In the opposition, plaintiff SDG School of Business, Inc. (“SDG”) discusses two breaches upon which the first cause of action is based. The first alleged breach occurred “sometime during 2016 and 2017” when AEU agreed with co-defendant Sierra States University (“SSU”) to allow SSU to offer a business curriculum in violation of the exclusivity provision in the alleged contract with SDG. (FAC ¶¶ 18, 24, 27.) On the face of the First Amended Complaint (“FAC”), the first cause of action may be time-barred as to this claimed breach because SDG alleges the breach to have first occurred in 2016. SDG did not commence this action until December 15, 2021, more than four years from 2016.

While SDG alleges that it was unaware of AEU’s agreement with SSU (FAC ¶¶ 25, 37), SDG’s invocation of the discovery rule is insufficient. (Opp. at 7:11-18.) “In order to rely on the discovery rule for delayed accrual of a cause of action, ‘[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.’ [Citation.]” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808.) SDG fails to allege when and how it discovered the existence of the allegedly duplicative curriculum of SSU and why SDG could not have discovered the curriculum earlier. Accordingly, SDG’s cause of action based on AEU’s alleged agreement with SSU is time-barred.

The second breach occurred in 2020, when AEU, through defendant Sanghoon Lee, among other co-defendants, removed SDG from the California Bureau for Private Postsecondary Education’s (“BPPE”) list of approved sites and offered business programs that directly competed with SDG, which could be read as a violation of Paragraphs 5 and 9 of SDG’s alleged agreement with AEU. (FAC ¶¶ 18, 22, 33.) Because SDG commenced this action on December 15, 2021, within four years of 2020, a breach of contract cause of action based on this second breach is not time-barred on the face of the operative FAC.

“[A] demurrer based on an affirmative defense [such as the statute of limitations] will be sustained only where the face of the complaint discloses that the action is necessarily barred by the defense.”  (Stella v. Asset Management Consultants, Inc. (2017) 8 Cal.App.5th 181, 191.) Further, a demurrer only lies as to an entire cause of action. (Fremont Indemnity Co. v. Fremont Gen. Corp. (2007) 148 Cal.App.4th 97, 119.) Accordingly, even though the first breach is time-barred, the first cause of action as a whole is not time-barred due to the alleged second breach.

Separate and apart from timeliness, however, SDG does not sufficiently allege that it was a party to any contract upon which the first cause of action can be maintained. (CACI 303 [element of breach of contract is that plaintiff and defendant entered into a contract].) SDG alleges that AEU and non-party Hudson Taylor University (“HTU”) entered into an agreement on March 3, 2017. (FAC ¶¶ 15, 35.) Even though SDG alleges that AEU and HTU “contemplated” that SDG “would be assigned” the obligations and benefits of the agreement to SDG (FAC ¶ 35), the FAC contains no allegation that any such assignment to SDG ever occurred. Accordingly, SDG fails to allege that it was a party to any contract which it can enforce.

With respect to defendant Jongkil Ryu, president of AEU, SDG does not allege that Ryu was a party to any contract. While Ryu allegedly entered into the agreement with HTU on the behalf of AEU (FAC ¶¶ 15, 16), “[d]irectors and officers are not personally liable on contracts signed by them for and on behalf of the corporation unless they purport to bind themselves individually.” (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595.)

With respect to defendant Sanghoon Lee, president of AEU in 2020, SDG only alleges that Lee removed SDG from a BPPE list of approved sites and offered business programs in direct competition with SDG. (FAC ¶ 33.) SDG fails to allege that Lee entered into any contract.

Because SDG does not allege that it, Ryu, or Lee were parties to any contract, the demurrer to the first cause of action is SUSTAINED.

B.     Fourth Cause of Action – Conversion

With respect to defendants Ryu and Lee, SDG fails to allege that these individual defendants converted any property belonging to SDG. SDG only alleges that AEU withdrew funds from a bank account that it jointly held with SDG for non-SDG uses, when such funds were to be used for the needs and expenses of SDG. (FAC ¶¶ 31, 57, 59.) Accordingly, the demurrer to the fourth cause of action is SUSTAINED as to defendants Ryu and Lee.

With respect to AEU, defendants argue that the fourth cause of action is barred by the three-year statute of limitations set forth in CCP § 338(c). However, SDG does not allege when AEU withdrew any funds belonging to SDG. Accordingly, the fourth cause of action is not time-barred on the face of the FAC. (Stella, 8 Cal.App.5th at 191.)

“The elements of a conversion claim are: (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages. [Citation.]” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.)

With respect to the first element, SDG alleges that the funds in the bank account were to be used for its benefit. (FAC ¶¶ 33, 58.) With respect to the second element, SDG alleges that AEU withdrew funds from the account for non-SDG uses. (FAC ¶¶ 33, 59, 60.) With respect to the third element, SDG alleges that it was damaged due to AEU’s wrongful withdrawal of the funds. (FAC ¶ 60.)

SDG sufficiently states a cause of action for conversion. Even though SDG did not identify any specific withdrawals, SDG is not required to do so at the pleading stage. (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 214 [“The complaint would have to include thousands of pages setting out specifics which are largely within defendants' knowledge. The cost and difficulty of compiling, organizing, and setting down the information would seriously deter the filing of any such complaint.”].)

The demurrer to the fourth cause of action is OVERRULED as to defendant AEU.

C.     Fifth Cause of Action – Fraud

With respect to Lee, SDG does not allege any misrepresentations made by Lee upon which SDG relied. SDG only alleges misrepresentations on the part of Ryu, president of AEU. (FAC ¶¶ 18, 20, 22, 32, 70-73.) Accordingly, the demurrer to the fifth cause of action is SUSTAINED as to Lee.

With respect to Ryu and AEU, these defendants contend that the fifth cause of action is time-barred by the three-year statute of limitations set forth in CCP § 338(d). Ryu made the alleged misrepresentations in 2017, prior to the execution of the agreement between AEU and HTU. (FAC ¶¶ 15 [agreement entered into on March 3, 2017], 18, 20, 22, 32, 70-73.) SDG did not commence this action until December 15, 2021, more than three years from 2017. Accordingly, on the face of the FAC, the fifth cause of action appears to be time-barred. SDG cannot avail itself of the discovery rule because SDG fails to allege when and how it discovered that Ryu’s representations were false and why SDG could not have discovered the falsity of the representations earlier. (Fox, 35 Cal.4th at 808.) Accordingly, SDG’s cause of action based on Ryu’s misrepresentations is time barred.

Further, SDG does not sufficiently allege any reliance on Ryu’s misrepresentations. (Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519 [elements of fraud include justifiable reliance on misrepresentation].) SDG alleges that it relied on Ryu’s misrepresentations prior to the execution of the agreement. (FAC ¶¶ 18, 20, 22, 32, 70-73.) However, the agreement, which provided for the creation of SDG, was between AEU and HTU. (FAC ¶ 15.) Because SDG was not a party to the agreement, SDG fails to allege how it relied on the representations of Ryu in connection with a contracted entered into by AUE and HTU.

Even if SDG sufficiently alleged reliance, the FAC also lacks the requisite specificity regarding allegations of Ryu’s purported misrepresentations. The facts and circumstances constituting fraud must be set out clearly, concisely and with sufficient particularity to inform the opposing party of what must be answered. (Scafidi v. Western Loan & Bldg. Co. (1946) 72 Cal.App.2d 550, 558.) “This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’” (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73, citing Hills Trans. Co. v. Southwest (1968) 266 Cal.App.2d 702, 707.) SDG fails to allege what Ryu said that purportedly confirmed Paragraphs 5, 6, 7, and 9 of the agreement, as well as when, where, to whom, and by what means Ryu made such misrepresentations. Because SDG allegedly relied on the misrepresentations, the representations were necessarily made to SDG. Accordingly, SDG ought to possess the information required to plead the misrepresentations with specificity and must accordingly do so.

Based on the failure to plead sufficient facts for the discovery rule, as well as the failure to allege reliance and plead the misrepresentations with the required specificity, the demurrer to the fifth cause of action is SUSTAINED as to Ryu and AEU as well.

D.    Conclusion

In summary, the demurrer is: (1)SUSTAINED as to the first cause of action for Breach of Contract as to all three demurring defendants; (2) SUSTAINED as to the fourth cause of action for Conversion as to defendants Jongkil Ryu and Sanghoon Lee; (3) OVERRULED as to the fourth cause of action for Conversion as to defendant America Evangelical University; and (4) SUSTAINED as to the fifth cause of action for Fraud as to all three demurring defendants.

II.                DEFENDANTS AMERICA EVANGELICAL UNIVERSITY, JONGKIL RYU, AND SANGHOON LEE’S MOTION TO STRIKE PORTIONS OF FIRST AMENDED COMPLAINT

Defendants America Evangelical University, Jongkil Ryu, and Sanghoon Lee move to strike the prayer for attorney fees. As SDG concedes, SDG fails to allege the contract, statute, or law that would authorize the recovery of attorney fees. (CCP § 1033.5(a)(10).) Accordingly, the motion is GRANTED as to item 4 listed in the notice of motion.

Defendants also move to strike the prayer for punitive damages and the allegations supporting punitive damages.

With respect to paragraph 76 of the FAC, contained within the fifth cause of action and corresponding to item 2 listed in the notice of motion, the motion is DENIED as MOOT based on the recommended ruling on the demurrer to the fifth cause of action.

With respect to paragraph 67 of the FAC and the prayer for punitive damages, SDG sufficiently alleges malice and oppression warranting the imposition of punitive damages. SDG alleges that AEU intentionally withdrew funds from the bank account jointly held by SDG for non-SDG uses, when such funds were to be used for the benefit of SDG. (FAC ¶¶ 31, 59.) SDG’s allegation rises to the level of malice or oppression. (See Civ. Code § 3294(c)(1) [“malice” is “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others”]; § 3294(c)(2) [“oppression” is “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights”].) Accordingly, the motion is DENIED as to item 1 and 3 listed in the notice of motion.

In summary, the motion is GRANTED as to items 2 and 4 listed in the notice of motion and DENIED as to items 1 and 3 listed in the notice of motion.

III.             DEFENDANTS KAIROS UNIVERSITY, GRACE KIM, AND DANIEL KIM’S DEMURRER TO FIRST AMENDED COMPLAINT (JOINED BY DEFENDANT SIERRA STATES UNIVERSITY)

A.    Request for Judicial Notice

Demurring defendants Kairos University, Grace Kim, and Daniel Kim’s requests to take judicial notice of the Statement of Information filed by SDG School of Business, Inc. with the California Secretary of State and the printouts from the California Bureau for Private Postsecondary Education are GRANTED. (Evid. Code § 452(c); Childs v. State of California (1983) 144 Cal.App.3d 155, 162 [pursuant to Evidence Code § 452(c), “official acts of the state may be judicially noticed for the purpose of ruling upon a demurrer”].)

Demurring defendants’ supplemental request to take judicial notice of plaintiff SDG School of Business, Inc.’s response to their Request for Production of Documents, Set One is GRANTED. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604-05 [“The court will take judicial notice of records such as admissions, answers to interrogatories, affidavits, and the like, when considering a demurrer, only where they contain statements of the plaintiff or his agent which are inconsistent with the allegations of the pleading before the court”].)

B.     Standing

Demurring defendants Kairos University, Grace Kim, and Daniel Kim, joined by defendant Sierra States University (collectively, “demurring defendants”), contend that plaintiff SDG School of Business, Inc. (“SDG”) does not have standing to assert its claims against them. According to demurring defendants, SDG does not have approval from the California Department of Consumer Affairs, Bureau of Private Postsecondary Education (“BPPE”) to operate as a private postsecondary school. (Ed. Code § 94886 [“[A] person shall not open, conduct, or do business as a private postsecondary educational institution in this state without obtaining an approval to operate under this chapter”].)

SDG’s standing against demurring defendants does not depend on any government approval as an education provider. Rather, SDG may assert claims as a nonprofit corporation. (FAC ¶ 1 [allegation that SDG is a “nonprofit corporation”]; American Alternative Energy Partners II v. Windridge, Inc. (1996) 42 Cal.App.4th 551, 559 [“any person or entity [including artificial persons like corporations] has capacity to sue or defend a civil action in the California courts”].)

C.     Second Cause of Action – Intentional Interference with Contractual Relationship

“To prevail on a cause of action for intentional interference with contractual relations, a plaintiff must plead and prove (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1148.)

Demurring defendants argue that SDG fails to connect any act from the demurring defendants to the alleged damages. However, SDG sufficiently alleges that demurring defendants established the same academic business programs as SDG, in knowing violation of the exclusivity provision in an agreement. (FAC ¶¶ 45, 47.) As a result, co-defendant America Evangelical University (“AEU”) breached the exclusivity provision of the agreement by offering the competing business program from demurring defendants which resulted in prospective students not enrolling with SDG. (FAC ¶¶ 39, 40, 48.) Demurring defendants appear to concede this point by focusing their reply on the non-existence of a contract between SDG and a third party. (Reply at 3:2-11.)

SDG fails to allege the existence of a valid contract between it and a third party. SDG alleges that a valid contract between SDG and AEU existed on March 3, 2017. (FAC ¶ 43.) However, this is inconsistent with the allegation that the contract entered on March 3, 2017 was between AEU and Hudson Taylor University (“HTU”). (FAC ¶ 15.) Moreover, SDG alleges that demurring defendants had knowledge of the exclusivity provision in the “Agreement,” previously defined as the contract between AEU and HTU entered into on March 3, 2017. (FAC ¶¶ 15, 46, 47.) Further, in discovery, when SDG was asked to produce agreements between it and AEU from 2017 to the present, SDG produced a copy of an agreement between AEU and HTU. (Supp. RJN Ex. 1.) Even if the Agreement contemplates that SDG would be formed as an independent entity (see Supp. RJN Ex. 1 at ¶ 5; FAC ¶ 35), SDG fails to allege that it was ever a party to a contract with a third party.

“[A] pleader cannot blow hot and cold as to the Facts positively stated.” (Manti v. Gunari (1970) 5 Cal.App.3d 442, 449.) Because SDG’s allegation of a contract between it and AEU contradicts the its other allegations that the contract was between AEU and HTU, SDG fails to state a cause of action for intentional interference with a contractual relationship between SDG and some third party.

The demurrer to the second cause of action is SUSTAINED as to all demurring defendants.

D.                Third Cause of Action – Intentional Interference with Prospective Economic Advantage

“The five elements for intentional interference with prospective economic advantage are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Youst v. Longo (1987) 43 Cal.3d 64, 71.)

“[I]ntentionally interfering with prospective economic advantage requires pleading that the defendant committed an independently wrongful act,” which is an act “proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1142, quoting Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1158-59.)

Demurring defendants argue that SDG fails to allege the third party with which SDG had an economic relationship and the nature of the interference between SDG and the third party.  The Court disagrees.  SDG alleges that it had an economic relationship with AEU, whereby AEU agreed that SDG would be AEU’s exclusive provider of academic business programs for its curriculum. (FAC ¶ 51.) Demurring defendants allegedly interfered with this economic relationship by operating a competing business school and removing SDG from the BPPE’s list of approved sites, which negatively impacted SDG’s ability to attract students and generate income. (FAC ¶¶ 33, 53, 54.)

Demurring defendants also argue that SDG failed to allege an independently wrongful act. The Court agrees with this argument. While starting a competing business school or removing SDG from the BPPE’s list of approved sites may have interfered with the alleged economic relationship between SDG and AEU, an independently wrongful act other than the intentional interference with an existing contract is required. (Ixchel, 9 Cal.5th at 1142.) SDG does not allege, nor does SDG discuss in its opposition, how the act of setting up a competing business school or removing SDG from a BPPE list is “proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” (Id., quoting Korea Supply, 29 Cal.4th at 1159.)

The demurrer to the third cause of action is SUSTAINED as to all demurring defendants.

IV.             DEFENDANTS KAIROS UNIVERSITY, GRACE KIM, AND DANIEL KIM’S MOTION TO STRIKE PORTIONS OF FIRST AMENDED COMPLAINT (JOINED BY DEFENDANT SIERRA STATES UNIVERSITY)

Because the Court sustains the demurrer to the second and third causes of action, the only causes of action which SDG asserted against the demurring defendants, the motion to strike is DENIED as MOOT.