Judge Daniel M. Crowley, Case Number: 23STCV01336, Date: 2024-07-10 Tentative Ruling

All parties are urged to meet and confer with all parties concerning this tentative ruling to see if they can reach an agreed-upon resolution of their matter. If you are able to reach an agreement, please notify the courtroom staff in advance of the hearing if you wish to submit on the tentative ruling rather than argue the motion by notifying the court by e-mailing the court at: SMCDept71@LACourt.org. Include the word "SUBMITS" in all caps and the Case Number in the Subject line. In the body of the email, please provide the date and time of the hearing, your name, your contact information, the party you represent, and whether that party is a plaintiff, defendant, cross-complainant, cross-defendant, claimant, intervenor, or non-party, etc.

Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may still appear at the hearing and argue the matter, and the court could change its tentative based upon the argument. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If you submit, but still intend to appear, include the words "SUBMITS, BUT WILL APPEAR" in the Subject line.

If you elect to argue your matter, you are urged to do so remotely, via Court-Connect. If the moving party fails to appear and/or submit to the Court’s tentative ruling, the Court will take the matter off calendar.

Defendants Claydon Hill Investments Ltd.’s, Compass Cove Assets Ltd.’s, Bounty Green Assets Ltd.’s, Frank Yuan’s, Jerome Yuan’s, and Norbert Yuan’s demurrer to Plaintiffs Urban Commons Frontera, LLC’s; Urban Commons Highway 111, LLC’s; Urban Commons Anaheim, LLC’s; Urban Commons HIDH, LLC’s; Urban Commons Bayshore, LLC’s; Urban Commons Continental, LLC’s; UCQ Holding, LLC’s; and Urban Commons Riverside Blvd, LLC’s second amended complaint is overruled 1st, 2nd, 3rd, and 4th causes of action and sustained with 20 days leave to amend as to the 5th and 6th causes of action.

Defendants Claydon Hill Investments Ltd. (“Claydon Hill”), Compass Cove Assets Ltd. (“Compass Cove”), Bounty Green Assets Ltd. (“Bounty Green”), Frank Yuan (“Frank”), Jerome Yuan (“Jerome”), and Norbert Yuan (“Norbert”) (collectively, “Defendants”) demur to the to the second amended complaint (“SAC”) of Plaintiffs Urban Commons Frontera, LLC (“Frontera”); Urban Commons Highway 111, LLC (“Highway”); Urban Commons Anaheim, LLC (“Anaheim”); Urban Commons HIDH, LLC (“HIDH”); Urban Commons Bayshore, LLC (“Bayshore”); Urban Commons Continental, LLC (“Continental”); UCQ Holding, LLC (“UCQ”); and Urban Commons Riverside Blvd, LLC (“Riverside”) (collectively, “Plaintiffs”) on the grounds that Plaintiffs fail to allege facts sufficient to constitute a cause of action. (Notice of Demurrer, pg. 2; C.C.P. §430.10.)

Defendants’ 5/21/24 request for judicial notice of (1) California Secretary of State website displaying the “Entity Information” and “History” for

Plaintiff Urban Commons Bayshore, LLC (Decl. of Mohammadi, Exh. A); (2) California Secretary of State website displaying the “Entity Information” and “History” for Plaintiff Urban Commons Frontera, LLC (Decl. of Mohammadi, Exh. B); (3) California Secretary of State website displaying the “Entity Information” and “History” for Plaintiff Urban Commons Highway 111, LLC (Decl. of Mohammadi, Exh. C); (4) California Secretary of State website displaying the “Entity Information” and “History” for Plaintiff Urban Commons Riverside Blvd, LLC (Decl. of Mohammadi, Exh. D); (5) California Secretary of State website displaying the “Entity Information” and “History” for Plaintiff UCQ Holdings, LLC (Decl. of Mohammadi, Exh. E); (6) Certificate of Revival for

Plaintiff Urban Commons Continental, LLC, filed with the Delaware Secretary of State on August 8, 2023 (Decl. of Mohammadi, Exh. F); (7) Certificate of Revival for Plaintiff Urban Commons HIDH, LLC, filed with the Delaware Secretary of State, on August 8, 2023 (Decl. of Mohammadi, Exh. G); (8) Delaware Secretary of State website, taken on May 16, 2024, displaying the “Entity Details” and

status for Plaintiff Urban Commons Anaheim, LLC (Decl. of Mohammadi, Exh. H); (9) redacted version of the Membership Interest Sale and Purchase Agreement between Urban Commons Bayshore, LLC and U.S. Hospitality Investments LLC, dated April 13, 2018 (Decl. of Mohammadi, Exh. I); (10) Notification Form for

Director/Chief Executive Officer in Respect of Interests in Securities (“Form 1”) for Howard Wu filed with the Singapore Exchange on May 27, 2019 (Decl. of Mohammadi, Exh. J); (11) Form 1 for Taylor Woods filed with the Singapore Exchange on May 27, 2019 (Decl. of Mohammadi, Exh. K); (12) Notification Form for Substantial Shareholder in Respect of Interests In Securities (“Form 3”) for Claydon Hill Investments Ltd. (“Claydon Hill”), filed with the Singapore Exchange on May 28, 2019 (Decl. of Mohammadi, Exh. L); (13) Form 3 for Compass Cove Assets Limited, (Decl. of Mohammadi, Exh. M); (14) Form 3 for Claydon Hill, filed with the Singapore Exchange on August 19, 2019, filed with the Singapore Exchange on May 28, 2019 (Decl. of Mohammadi, Exh. N); (15) Form 3 for Compass Cove, filed with the Singapore Exchange on October 11, 2019 (Decl. of Mohammadi, Exh. O); (16) Form 3 for Claydon Hill, filed with the Singapore Exchange on October 29, 2019 (Decl. of Mohammadi, Exh. P); and (17) Singapore Exchange website of a Company Announcement for Eagle Hospitality REIT Management Pte. Ltd., dated March 24, 2020 and titled “Request for Suspension::Mandatory” (Decl. of Mohammadi, Exh. Q) is granted, but the Court does not take judicial notice of the truth of the matters asserted.

Defendants’ 5/21/24 request for judicial notice of (1) a screenshot, taken on May 19, 2024, of the webpage: https://www.urban-commons.com/our-team/; and (2) a screenshot, taken on May 19, 2024, of the webpage: https://eagleht.com/about-the-sponsor/ is denied.

Plaintiffs’ 6/26/24 request for judicial notice of (1) Defendant Frank Yuan’s Responses and Objections to Plaintiff Urban Commons Frontera, LLC’s Special Interrogatories (Set One) (P-RJN, Exh. A); (2) Defendant Jerome Yuan’s Responses and Objections to Plaintiff Urban Commons Frontera, LLC’s Special Interrogatories (Set One) (P-RJN, Exh. B); and (3) Defendant Norbert Yuan’s Responses and Objections to Plaintiff Urban Commons Frontera, LLC’s Special Interrogatories (Set One) (P-RJN, Exh. C), is granted.

Before filing a demurrer, the demurring party must meet and confer in person, by telephone, or by video conference with the party who filed the pleading to attempt to reach an agreement that would resolve the objections to the pleading and obviate the need for filing the demurrer. (C.C.P. §430.41(a).)

(3) The demurring party shall file and serve with the demurrer a declaration stating either of the following: (A) The means by which the demurring party met and conferred with the party who filed the pleading subject to demurrer, and that the parties did not reach an agreement resolving the objections raised in the demurrer. (B) That the party who filed the pleading subject to demurrer failed to respond to the meet and confer request of the demurring party or otherwise failed to meet and confer in good faith. (C.C.P. §430.41(a)(3).)

Defendants’ counsel declares that on May 15, 2024, he met and conferred with Plaintiffs’ counsel telephonically to discuss the instant demurrer, and the parties were unable to reach an agreement resolving the issues raised by the demurrer. (Decl. of Mohammadi ¶2.) Defendants’ counsel’s declaration is sufficient under C.C.P. §430.41(a). Therefore, the Court will consider Defendants’ demurrer.

Plaintiffs filed their initial complaint on January 23, 2023. Plaintiffs filed their first amended complaint (“FAC”) on August 16, 2023. Plaintiffs filed the operative SAC on April 9, 2024, against Defendants alleging six causes of action: (1) promissory fraud [against all Defendants]; (2) breach of contract [against Claydon Hill, Compass Cove, and Bounty Green (collectively, “BVI Entities”)]; (3) conversion [against all Defendants]; (4) violation of Penal Code §496 [against all Defendants]; (5) breach of fiduciary duty [against all Defendants]; and (6) reformation of contract [against all Defendants].

Defendants filed the instant demurrer on May 21, 2024. Plaintiffs filed their opposition on June 26, 2024. Defendants filed their reply on July 2, 2024.

Plaintiffs allege this action arises from a failed real estate venture. (SAC ¶14.) Plaintiffs allege they were formerly the beneficial owners of hotel properties, each itself held by a subsidiary holding company. (SAC ¶14.)

Plaintiffs allege in 2018, each Plaintiff entered into separate “Membership Interest Sale and Purchase Agreements,” for the purpose of selling their beneficial ownership of the hotel properties to U.S. Hospitality Investments LLC (“USHI”), effectively transferring ownership of the underlying hotels to USHI in exchange for compensation totaling approximately $440 million. (SAC ¶15.)

Plaintiffs allege pursuant to the terms of these 2018 Membership Interest Sale and Purchase Agreements, each Plaintiff received a portion of the compensation for making the sale in cash, and a portion in the form of a Deferred Payment Obligation (“DPO”) to be paid at a later date. (SAC ¶16.) Plaintiffs allege under the terms of the 2018 sale, the DPO payable to each Plaintiff, to be paid by USHI to Plaintiffs at some future date, collectively totaled $131,813,141. (SAC ¶16.)

Plaintiffs allege on or about April 25, 2019, USHI entered into a “Securities Purchase Agreement,” by which it agreed to sell its ownership in each of the 8 hotel properties to Eagle Hospitality Real Estate Investment Trust (“Eagle Hospitality”), a “REIT” that was preparing to have an Initial Public Offering of its shares on the Singapore Exchange in May 2019. (SAC ¶17.) Plaintiffs allege this transaction valued the eight hotel properties at approximately $584 million, and in exchange for selling these hotel properties to Eagle Hospitality, along with certain other assets not at issue in this litigation, USHI was to receive $30 million in cash, with the remainder of the consideration to be paid in the form of Eagle Trust stock, which was to be issued as part of Eagle Trust’s upcoming IPO. (SAC ¶18.) Plaintiffs allege USHI’s initial plan was to use this cash and stock to pay off the DPO then owed to Plaintiffs. (SAC ¶19.)

Plaintiffs allege that around this same time, April 2019, Plaintiffs entered into discussions with the Yuans regarding a proposal they made whereby, in lieu of USHI receiving all of the newly issued Eagle Trust stock to which it was entitled under the terms of the Securities Purchase Agreement, USHI would, instead, transfer a portion of its shares (valued at $156 million) to the Yuans–acting through their wholly owned and controlled BVI Entities– Claydon Hill, Compass Cove, and Bounty Green. (SAC ¶20.)

Plaintiffs allege that in exchange for USHI transferring these shares to the Yuans, the Yuans, acting through their wholly owned and controlled BVI Entities, agreed to assume responsibility for future repayment of the DPO owed to Plaintiffs, which by May 2019, were in excess of $130 million. (SAC ¶21.)

Plaintiffs allege that to ensure that repayment to Plaintiffs of their DPO was fully secured, the Yuans offered to use the $156 million in Eagle Trust shares they were to receive from USHI as collateral. (SAC ¶22.) Plaintiffs allege that in effect, the idea was that USHI would transfer $156 million of the Eagle Trust stock it was entitled to receive to the Yuans, and, in exchange, the Yuans would agree to repay $156 million worth of the Deferred Payment Debt still owed to Plaintiffs, while simultaneously using the stock received from USHI as security for such repayment. (SAC ¶22.)

Plaintiffs allege that from their perspective, this transaction had the benefit of allowing Plaintiffs to continue earning interest on the outstanding DPO at the rate of 15% per year, as provided for in the original 2018 Agreements, while eliminating the risk inherent in receiving Eagle Trust shares issued on a foreign exchange, whose future value was uncertain. (SAC ¶23.) Plaintiffs allege the Yuans benefitted by receiving the potential upside that might accrue should the value of Eagle Trust shares rise in the future. (SAC ¶23.) Plaintiffs allege that ultimately, both USHI and Plaintiffs agreed to this proposal by the Yuans, which was subsequently memorialized in a series of written agreements. (SAC ¶24.)

Plaintiffs allege on or about May 15, 2019, Claydon Hill, Compass Cove, and Bounty Green, acting exclusively through the Yuans, entered into an “Assignment and Assumption of Deferred Payment Obligation” agreement, the purpose of which was to “assign and transfer to [Claydon Hill, Compass Cove, and Bounty Green] a portion of the amounts due [to Plaintiffs] in the aggregate amount of $156,000,000. . ..” (SAC ¶25, Exh. 1 at Recital D.)

Plaintiffs allege Section 2 of this agreement provides that Claydon Hill, Compass Cove, and Bounty Green: hereby accept the assignment and transfer of the [$156 M] Deferred Payment Obligation, and assume the obligation to pay the Deferred Payment Obligation in accordance with the terms of the Installment Notes, in the following percentage amount of the Deferred Payment Obligation: Claydon Hill Investments LTD–25.85%, Bounty Green Assets LTD–14.15%, and Compass Cove Assets Limited–60%. (SAC ¶26.)

[a]s consideration for “[Claydon Hill’s, Compass Cove’s, and Bounty Green’s] assumption of the [$156 M] Deferred Payment Obligation, [USHI] agrees that it shall direct the escrow agent for the initial proceeds of the IPO to pay to [the BVI Entities] from the escrow an amount equal to the [$156 M] Deferred Payment Obligation in the following percentage amounts: Claydon Hill Investments LTD – US$40,326,000.00, Bounty Green Assets LTD- US$22,074,000.00, and Compass Cove Assets Limited – 93,600,000.00.

Plaintiffs allege that to effectuate the transfer of Eagle Trust stock to the Yuans, on May 16, 2019, USHI executed Escrow Instructions, by which it instructed that the Eagle Trust shares to which it was otherwise entitled be transferred to various accounts controlled by the Yuans at UBS Bank as follows: $40,452,000 worth of shares to Claydon Hill; $22,143.000 worth of shares to Bounty Green; and $93,891,000 worth of shares to Compass Cove. (SAC ¶28, Exh. 2.)

Plaintiffs allege that to further document this transaction, on or about May 20, 2019, Claydon Hill, Compass Cove, and Bounty Green, acting exclusively through the Yuans, entered into a “Pledge Agreement.” (SAC ¶29, Exh. 3.)

Plaintiffs allege on information and belief that Claydon Hill is the alter ego of Frank, Compass Cove is the alter ego of Norbert, and Bounty Green is the alter ego of Jerome in that these entities (“BVI Entities”) have maintained such a unity of interest and ownership with these individuals such that the separate personalities of the corporate entity and the individual defendants no longer exist and that an inequitable result would follow if they were treated as separate individuals. (SAC ¶11.)

Plaintiffs allege that pursuant to this Pledge Agreement, the BVI Entities collectively agreed to pledge a total of $210 million worth of their newly-received Eagle Hospitality shares (an amount in excess of the $156 million worth of shares transferred from USHI) as collateral to ensure repayment of the DPO owed to Plaintiffs (“Pledged Shares”). (SAC ¶30.)

until all sums due under the [Deferred Payment Obligation] have been paid in full, and all of [Claydon Hill, Compass Cove, and Bounty Green]’s obligations under this Agreement have been performed, [Claydon Hill, Compass Cove, and Bounty Green] will not, without [Plaintiff’s] prior written consent (i) sell, assign or transfer, or attempt to sell, assign or transfer, any of the [Pledged Shares . . .]; or (iii) suffer or permit to continue on any of the [Pledged Shares] during the term of this Agreement, an attachment, levy, execution or statutory lien.

Plaintiffs allege the Eagle Trust IPO took place on May 24, 2019, and Plaintiffs are informed and believe that on or about that date, Claydon Hill, Compass Cove, and Bounty Green collectively received more than $210,000,000 worth of Eagle Trust shares, including the $156 million worth of shares that would have otherwise gone to USHI for the benefit of Plaintiffs, but which USHI transferred to the Yuans, acting through Claydon Hill, Compass Cove, and Bounty Green. (SAC ¶32.)

Plaintiffs allege on or about November 5, 2019, Claydon Hill, Compass Cove, and Bounty Green, acting exclusively through the Yuans, entered into a “First Amendment Pledge Agreement,” whereby the Yuans, acting through the BVI Entities, reaffirmed their obligations to Plaintiffs under the original Pledge Agreement and further identified and pledged to Plaintiffs the UBS Accounts purportedly holding the Pledged Shares. (SAC ¶33, Exh. 4.) Plaintiffs allege this agreement provided, inter alia, that until all of the Yuan’s obligations to repay the DPO owed to Plaintiffs had been completed, “all Collateral will continue to be held in Pledge Under this Agreement.” (SAC ¶33, Exh. 4.)

Plaintiffs allege that notwithstanding that the Yuans repeatedly represented to Plaintiffs that they would hold the Pledged Shares to secure repayment of the DPO owed to Plaintiffs, and that the Pledged Shares would not be sold without Plaintiffs’ knowledge or consent (or without using the proceeds from such sales to pay the DPO owed to Plaintiffs), Plaintiffs are informed and believe that soon after entering into the original Pledge Agreement in May 2019, Defendants began selling the Pledged Shares, and using the proceeds from such sales for their own personal benefit, and not to pay the DPO owed to Plaintiffs. (SAC ¶34.)

Plaintiffs allege on information and belief that between the time they received the Pledged Shares and March 2020, the Yuans (acting through the BVI Entities), without the authorization or consent of Plaintiffs, sold the majority of the Pledged Shares through the Singapore Exchange. (SAC ¶35.) Plaintiffs allege on information and belief that the proceeds from such sales were used for the Yuans’ personal benefit and not to pay the DPO owed to Plaintiffs. (SAC ¶35.)

Plaintiffs allege on information and belief that Frank, Jerome, and Norbert (collectively, “Yuans”) were engaged in the following activities vis-à-vis the BVI Entities that they owned and controlled, rendering the alter ego doctrine applicable: (1) Failure to adequately capitalize the BVI Entities; (2) Treatment of the BVI Entities assets as their own; (3) Commingling of funds and other assets and the unauthorized diversion of the BVI Entities’ funds or assets for other than the BVI Entities’ Defendant uses to the detriment of creditors; (4) Failure to maintain minutes or adequate records; (5) Disregard of legal formalities; (6) Representations that the Yuans are personally liable for the BVI Entities debts; and (7) Use of the BVI Entities as a mere shell, instrumentality, or conduit for a single venture. (SAC ¶12.)

Defendants demur to the 1st, 2nd, 3rd, 4th, 5th, and 6th causes of action in the SAC on the basis the causes of action fail to state facts sufficient to constitute causes of action against Defendants. (Demurrer, pg. 3.)

“The elements of fraud, which give rise to the tort action for deceit, 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.” (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1060.) “Promissory fraud” is a subspecies of fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.” (Id.)

Plaintiffs allege that “[b]eginning in or about April 2019 and continuing thereafter, the Yuans made a series of promises to Plaintiffs regarding how the Pledged Shares would be handled, including that the Pledged Shares would be held as security for repayment of the DPO, as defined herein, that the Pledged Shares would not be sold without Plaintiffs’ knowledge or consent, and that any proceeds from the sale of the Pledged Shares would be used exclusively to repay the DPO owed to Plaintiffs that the Yuans, acting through the BVI Entities, had agreed to assume.” (SAC ¶37.) These representations are also borne out in the relevant agreements themselves, which prohibited defendants from selling, assigning or transferring any of the Pledged Shares, without Plaintiffs’ prior written consent, until the DPOs had been fully repaid. (SAC ¶50.) Plaintiffs allege that Defendants “did not intend to perform these promises when they were made,” and subsequently “sold off the majority of the Pledged Shares without Plaintiff’s knowledge or consent and used the proceeds for their own personal purposes rather than to pay off the DPO.” (SAC ¶¶38, 41.) Plaintiffs have adequately pled their claim of promissory fraud.

With regard to Defendants’ argument that Plaintiffs’ cause of action is barred by the statute of limitations, Plaintiffs’ claims are not clearly and affirmatively time barred on the face of the pleading. Here, Plaintiffs allege on information and belief that the “soon after entering into the original Pledge Agreement in May 2019, Defendants began selling the Pledged Shares, and using the proceeds from such sales for their own personal benefit” (SAC ¶34); and that “between the time they received the Pledges Shares and March 2020, [they] . . . sold the majority of the Pledged Shares through the Singapore Exchange.” (SAC ¶35.) A complaint alleging that the offenses at issue began at a date unknown to Plaintiffs is not subject to demurrer on statute of limitations grounds since such a complaint does not reveal on its face that it is barred by the statute of limitations. (Union Carbide Corp. v. Superior Court (1984) 36 Cal.3d 15, 25.)

Accordingly, Defendants’ demurrer to Plaintiffs’ 1st cause of action is overruled.

Accordingly, Defendants’ demurrer to Plaintiffs’ 2nd cause of action is overruled.

“Conversion is the wrongful exercise of dominion over the property of another. 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.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.) To maintain a claim for conversion, “[i]t is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.” (Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1507.)

It is “well settled in California that shares of corporate stock are subject to an action in conversion” and “it is not necessary that possession of the certificate evidencing title be disturbed.” (Mears v. Crocker First National Bank (1948) 84 Cal.App.2d 637, 644.) Instead, it is sufficient that there is interference with the owner’s “free and unhampered right to dispose of property without limitations imposed by strangers to the title.” (Id.)

Plaintiffs sufficiently allege that Defendants were required to pledge $210 million worth of Eagle Trust stock to secure their repayment of the DPOs owed to Plaintiffs. (SAC ¶30.) This Pledged Share amount is reflected in both the original May 20, 2019 “Pledge Agreement,” and the November 5, 2019 “First Amendment Pledge Agreement,” both of which are attached as exhibits to the SAC. (See SAC at Exhs. 3, 4 at fourth Recital.)

Accordingly, Defendants’ demurrer to Plaintiffs’ 3rd cause of action is overruled.

A violation of Penal Code §496(a) requires that “(i) property was stolen or obtained in a manner constituting theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the defendant received or had possession of the stolen property.” (Switzer v. Wood (2019) 35 Cal.App.5th 116, 126.)

Penal Code § 484(a) defines the crime of theft: “Every person who shall feloniously steal, take, carry, lead, or drive away the personal property of another, or who shall fraudulently appropriate property which has been entrusted to him or her, or who shall knowingly and designedly, by any false or fraudulent representation or pretense, defraud any other person of money, labor or real or personal property, or who causes or procures others to report falsely of his or her wealth or mercantile character and by thus imposing upon any person, obtains credit and thereby fraudulently gets or obtains possession of money, or property or obtains the labor or service of another, is guilty of theft.”

Plaintiffs sufficiently identify the Pledged Shares at issue: Plaintiffs sufficiently allege that Defendants were required to pledge $210 million worth of Eagle Trust stock to secure their repayment of the DPOs owed to Plaintiffs. (SAC ¶30.) This Pledged Share amount is reflected in both the original May 20, 2019 “Pledge Agreement,” and the November 5, 2019 “First Amendment Pledge Agreement,” both of which are attached as exhibits to the SAC. (See SAC at Exhs. 3, 4 at fourth Recital.)

Plaintiffs sufficiently allege Defendants caused Plaintiffs to transfer to Defendants assets worth more than $131.8 million belonging to Plaintiffs. (SAC ¶64.) Plaintiffs allege Defendants have retained most or all of the funds belonging to Plaintiffs. (SAC ¶65.) Plaintiffs allege in so doing, Defendants have knowingly received and are deliberately withholding the funds belonging to Plaintiffs, knowing that Defendants have no right, title, or interest in those funds and that said funds have been stolen from Plaintiffs and/or obtained in a manner constituting theft as defined in Penal Code §496(a). (SAC ¶66.) Plaintiffs allege Defendants did so knowing the funds had been so obtained, and with the requisite intent. (SAC ¶68.)

To plead a cause of action for breach of fiduciary duty, a plaintiff must allege facts showing the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. (Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1101.)

“A fiduciary relationship is ‘“any relation existing between parties to a transaction wherein one of the parties is . . . duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent.”’” (Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29.)

Plaintiffs fail to allege a fiduciary duty owed to them by Defendants as a matter of law. Plaintiffs merely allege, “By virtue of their past dealings with Plaintiffs, and by virtue of entering into the Assignment and Assumption of DPO agreement, Pledge Agreement and First Amendment Pledge Agreement with Plaintiffs, Defendants assumed a fiduciary duty to protect the Plaintiff’s interests in the Pledged Shares, which included the fiduciary duty to avoid taking actions that would compromise or adversely affect Plaintiffs’ security interest in the Pledged Shares.” (SAC ¶72.) However, “parties to a contract, by that fact alone, have no fiduciary duties toward one another.” (Rickel v. Schwinn Bicycle Co. (1983) 144 Cal.App.3d 648, 654; Waverly Productions, Inc. v. RKO General, Inc. (1963) 217 Cal.App.2d 721, 732 [“A mere contract or a debt does not constitute a trust or create a fiduciary relationship” on which a breach of fiduciary duty claim may be based].)

Accordingly, Defendants’ demurrer to Plaintiffs’ 5th cause of action is sustained with 20 days leave to amend.

Civil Code §3399 provides that “[w]hen through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.”

A claim for reformation of an instrument based on fraud or mistake is subject to a three-year statute of limitations, which begins to run when the plaintiff discovers, or by reasonable diligence could and should have discovered, the alleged mistake. (Civ. Code §338(d); North Star Reinsurance Corp. v. Superior Court (1992) 10 Cal.App.4th 1815, 1822.)

Plaintiffs’ reformation of contract claim is based on the fact that both the Pledge Agreement (SAC ¶77, Exh. 3) and First Amended Pledge Agreement (SAC ¶77, Exh. 4) the Plaintiffs as Delaware limited liability companies, when in fact, five of the seven plaintiffs are California entities. Plaintiffs contend that this drafting error is the result of “mutual mistake of the parties,” that the parties clearly intended that this agreement apply to the Plaintiffs and that the contract can be “reformed” as necessary by the Court to correct this drafting error.

The statute of limitations on the reformation claims accrued at the time of the execution of the agreements in May and November 2019, when Plaintiffs should have reasonably been on notice of their incorrect LLC designations. (See SAC ¶ 77.) Because Plaintiffs filed the SAC asserting the reformation claims in 2024, over two years after the limitations period had lapsed, the reformation cause of action appears on the face is barred by the statute of limitations.

Plaintiffs argue this drafting discrepancy was only recently discovered by current counsel for Plaintiffs when they entered the case in late 2023 and the SAC can be amended to clearly allege the fact that this mistake was only recently uncovered and therefore would not have accrued at a time later than the statute of limitations.

Accordingly, Defendants’ demurrer to Plaintiffs’ 6th cause of action is sustained with 20 days leave to amend.

In pleading alter ego liability, a plaintiff is required to allege only “ultimate rather than evidentiary facts.” (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.) Moreover, “less particularity [of pleading] is required where the defendant may be assumed to possess knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff.” (Burks v. Poppy Construction Co. (1962) 57 Cal.2d 463, 474.)

The SAC sufficiently alleges that the BVI Entities are the alter egos of the Yuans “in that these entities have maintained such a unity of interest and ownership with these individuals such that the separate personalities of the corporate entity and the individual defendants no longer exist and that an inequitable result would follow if they were treated as separate individuals.” (SAC ¶¶ 11-12.)

Further, an allegation of alter ego liability is not a cause of action subject to demurrer.

Accordingly, Defendants’ demurrer to Plaintiff’s allegations of alter ego liability are overruled.

Defendants’ demurrer to Plaintiffs’ SAC is overruled as to the 1st, 2nd, 3rd, and 4th causes of action and sustained with 20 days leave to amend as to the 5th and 6th causes of action.

Hon. Daniel M. Crowley

Judge of the Superior Court