Judge: David A. Hoffer, Case: 30-2022-1250772, Date: 2022-10-31 Tentative Ruling

A)  Demurrer

Defendants mMAX Communications, Inc., Hong Peow Ong (“Ong” individually), Christine Tan (“Tan” individually), and mMAX Communications (PTE. Ltd.’s) (“Defendants” together) Demurrer is SUSTAINED in part (with 30-days leave to amend) and OVERRULED in part.

Sustained as to causes of action (“COA”) Nos. and 2, 3, 4, 5, and 7.

Overruled as to COA No. 6.

Defendants demur to the second through seventh COA of the Complaint on the basis that they fail to state sufficient facts to constitute COA against Defendants.  (Civ. Proc. Code § 430.10(e).)

1)   COA No. 2 – Intentional Misrepresentation

“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.”  (Lazar v. Superior Court (1996) 12 Cal. 4th 631, 638.)  “In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] “Thus ' ”the policy of liberal construction of the pleadings ... will not ordinarily be invoked to sustain a pleading defective in any material respect.“ ' [Citation.] [¶] This particularity requirement necessitates pleading facts which 'show how, when, where, to whom, and by what means the representations were tendered.' ”’”  (Id., at 645.)

This COA requires there to be a “misrepresentation (false representation, concealment, or nondisclosure).”  It also requires justifiable reliance on the part of plaintiff Hot Pepper, Inc. (“Plaintiff”).  Ong and Tan are alleged to be the former CEO and manager (respectively) of Plaintiff during the relevant timeframe.  There were no other managers, executives, or board members of Plaintiff during that time period.  Ong and Tan were alleged to be in sole control and management over Plaintiff during the relevant time periods.

Plaintiff has failed to properly allege any intentional misrepresentations made by Ong/Tan or any justifiable reliance by Plaintiff on any misrepresentation Ong/Tan might have made.  Ong/Tan were in charge of Plaintiff and cannot make misrepresentations to themselves, nor does it appear the element of justifiable reliance can be proven as Ong/Tan would have been the ones to rely on their own statements in directing the corporate entity.  To the extent that misrepresentations might have been made to Plaintiff’s parent company/majority shareholder, Plaintiff has argued it is the proper party to bring this lawsuit.

Moreover, the statutes and cases cited by plaintiff’s in the supplemental briefing are inapposite as they deal with disclosures on statutorily mandated documents and false statements to the board or other directors of plaintiff.  Furthermore, the present matter is not a shareholder derivative suit and is not brought by Plaintiff’s parent company.    

As Plaintiff has failed to allege the elements of this COA, the demurrer is sustained.  The court will permit 30-days leave to amend this COA.

2)   COA No. 3 – Fraudulent Concealment

“Concealment is, “[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact”  (Civ. Code § 1710(3).)  “To state a claim for fraudulent concealment under California law, a plaintiff must allege: “ ‘(1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.’ ””  (In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, & Prod. Lab. Litig., 754 F. Supp. 2d 1145, 1189 (C.D. Cal. 2010) [Toyota].(  “A plaintiff may demonstrate a duty to disclose in four circumstances: “(1) when the defendant is [] in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material fact.”” (Id.)

The same issues apply here as in COA No. 2. 

As Plaintiff has failed to allege the elements of this COA, the demurrer is sustained with 30-days leave to amend.

3)   COA No. 4 – Promissory Fraud

““The elements of promissory fraud ... are: (1) a promise made regarding a material fact without any intention of performing it; (2) the existence of the intent not to perform at the time the promise was made; (3) intent to deceive or induce the promisee to enter into a transaction; (4) reasonable reliance by the promisee; (5) nonperformance by the party making the promise; and (6) resulting damage to the promise[e].”  (Rossberg v. Bank of Am., N.A. (2013) 219 Cal. App. 4th 1481, 1498.)  Further, “[e]very element of the cause of action for fraud must be alleged in the proper manner and the facts constituting the fraud must be alleged with sufficient specificity to allow defendant to understand fully the nature of the charge made.”  (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal. App. 3d 104, 109.) 

The same issues apply here as in COA No. 2. 

As Plaintiff has failed to allege the elements of this COA, the demurrer is sustained with 30-days leave to amend.

4)   COA No. 5 – Constructive Fraud

Constructive fraud is, “1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or, 2. In any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.”  (Civ. Code § 1573.)

Although this COA is akin to the breach of fiduciary duty COA (which Defendants appear to concede was properly pled as it is not subject to this demurrer), this COA still requires a defendant to have failed to share information with a plaintiff or to have mislead a plaintiff.  The same issues apply here as in COA No. 2. 

As Plaintiff has failed to allege the elements of this COA, the demurrer is sustained with 30-days leave to amend.

5)   COA No. 6 – Intentional Interference With Contract

“The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) 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.”  (Quelimane Co. v. Stewart Title Guar. Co. (1998) 19 Cal. 4th 26, 55.)

Defendants’ only argument as to why this COA was improperly pled is that Plaintiff alleged Defendants’ acts were done “without [Plaintiff’s] knowledge and consent.”  (Complaint ¶ 82; Demurrer 8:20-22.)  A plaintiff’s lack of knowledge or consent are not required elements of this COA. 

Plaintiff has pled a valid contract between Plaintiff and Bullitt, and the terms of the contract.  (Complaint ¶¶ 20, 22-23, 78.)  Plaintiff has pled Defendants knew of the existence of the contract between Plaintiff and Bullitt.  (Complaint ¶ 79.)  Plaintiff has pled Defendants intentionally interfered with the relationship by persuading Bullitt to discontinue its relationship with Plaintiff and instead enter the same agreement with mMax.  (Complaint ¶¶ 24, 79, 82.)  Bullitt did end its contract with Plaintiff and entered into the same one with mMax.  (Complaint ¶¶ 25, 82.)  Plaintiff was damaged in a minimum amount of $1,900,000.  (Complaint ¶ 83.)

Plaintiff has properly pled this COA. Thus, the demurrer is overruled as to this COA.

6)   COA No. 7 – Conversion

“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....[Citation omitted.]”  (Lee v. Hanley (2015) 61 Cal. 4th 1225, 1240 (“Lee”).)  “But where the money or fund is not identified as a specific thing the action is to be considered as one upon contract or for debt and not for conversion.”  (Baxter v. King (1927) 81 Cal. App. 192, 194.)  Finally, “[w]hile it is true that money cannot be the subject of an action for conversion unless a specific sum capable of identification is [Citation], it is not necessary that each coin or bill be earmarked. When an agent is required to turn over to his principal a definite sum received by him on his principal's account, the remedy of conversion is proper.”  (Haigler v. Donnelly (1941) 18 Cal. 2d 674, 681.)

Plaintiff appears to have a mixed COA under the conversion action.  Plaintiff starts with what appears to be the intentional interference with contract issues in claiming Defendants convinced Bullitt to transfer the contract to mMax.  (Complaint ¶¶ 86-87.)  Plaintiff then states Defendants entered into the Management Agreement and Aftersales Agreement, which authorized monthly payments of between $10,000 and $30,000 to mMax from Plaintiff.  (Complaint ¶¶ 88-89.)  Plaintiff alleged there was no consent from Plaintiff to enter into this agreement, again despite Ong/Tan being CEO and a manger of Plaintiff.  (Complaint ¶ 14.)  Plaintiff also only identifies “at least” $10,000 and $30,000, without providing more of a concrete number (i.e. $360,000 over the 36-months of the Management Agreement, or $630,000 under the 21-months of the Aftersales Agreement).  The amounts have not been properly identified to support money conversion. 

The demurrer is sustained as to this COA with 30-days leave to amend.

B)  Motion to Strike

Defendants’ Motion to Strike portions of Plaintiff’s complaint is MOOT in part and DENIED in part.

Moot as to Complaint ¶¶ 54, 63, 70, 76, and 94.

Denied as to Complaint ¶¶ 44, 84, and Prayer B and D.

Under Civ. Code § 3294:

“(a) In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.

. . .

(c) As used in this section, the following definitions shall apply:

(1) “Malice” means 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. . .” (Civ. Code § 3294.)

It is not sufficient to allege merely that a defendant “acted with oppression, fraud or malice.”  A plaintiff must allege specific facts showing that defendant’s conduct was oppressive.  (Smith v. Sup.Ct. (Bucher) (1992) 10 Cal.App.4th 1033, 1041-1042; Anschutz Entertainment Group, Inc. v. Snepp (2009) 171 Cal.App.4th 598, 643.)  “Despicable conduct” is conduct that is so “vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people.”  (Scott v. Phoenix Schools, Inc. (2009) 175 Cal.App.4th 702, 715.) 

“Not only must there be circumstances of oppression, fraud or malice, but facts must be alleged in the pleading to support such a claim.” (Grieves v. Superior Court, 157 Cal. App. 3d 159, 166 (Ct. App. 1984).)

The MTS is moot as to ¶¶ 54, 63, 70, 76, and 94 as the demurrer was sustained as to the COA those paragraphs fall under.  This leaves Complaint ¶¶ 44, 84, and Prayer ¶¶ B and D to be determined.  For Complaint ¶¶ 44 and 84, Plaintiff has pled solely malice as the basis for the request for punitive damages. 

Complaint ¶ 44 falls under COA No. 1 (Breach of Fiduciary Duty) wherein Plaintiff alleges 1) Defendants paid themselves out of Plaintiff’s funds and executed self-serving agreements in Plaintiff’s name for Defendants’ own benefit and Plaintiff’s detriment (Complaint ¶¶ 14-16, 38); 2) Defendants diverted and usurped Plaintiff’s projects, agreements, and assets away from Plaintiff to Defendants (Complaint ¶¶ 20-26, 39); 3) Defendants wrongfully used Plaintiff’s name, trademarks, software, products, and resources to obtained FCC device certifications and website domain registrations for their own benefit (Complaint ¶¶ 32-35, 40); 4) Defendants wrongfully used Plaintiff’s resources to sell their products and then transferred to themselves the sales proceeds and a settlement payment (Complaint ¶¶ 27-31, 41); and Defendants intentionally sabotaged Plaintiff’s business (Complaint ¶¶ 17-19.)

For punitive damages under the malice prong, Plaintiff must allege either that Defendants’ conduct was intended to cause injury to the plaintiff, or that Defendants’ conduct was despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.  Plaintiff has pled sufficient facts to support Defendants’ actions were done with intent to cause injury to Plaintiff. 

The MTS is denied as to Complaint ¶ 44.

Complaint ¶ 84 falls under COA No. 6 (Intentional Interference with Contract).  Plaintiff realleged and incorporated all of the prior allegations.  (Complaint ¶ 77.)  Plaintiff alleged Defendants were aware of a contract between Plaintiff and Bullitt and that Defendants intentionally interfered with the contract by persuading Bullitt to discontinue the relationship with Plaintiff and enter into one with Defendants.  (Complaint ¶¶ 78-79.)  Defendants represented that they had Plaintiff’s authorization to do so and that Defendants knew the cancellation of the agreement would substantially injure Plaintiff.  (Complaint ¶¶ 79-81.)  Defendants allegedly withdrew $400,000 in payments already earned and paid to Plaintiff and diverted the funds to Defendants.  (Complaint ¶ 82.)  Plaintiff has pled sufficient facts to support Defendants’ conduct was intended to cause Plaintiff injury.

The MTS is denied as to Complaint ¶ 84.

Though most of the COA under Prayer B (Nos. 2, 3, 4, 5, and 7) have been properly demurred to, COA No. 1 (and Complaint ¶ 44) remain viable.  Similarly, COA No. 6 (and Complaint ¶ 84) are also still viable.

The MTS is denied as to Prayer B and D.

Defendants are ordered to give notice of these rulings.