Judge Deirdre Hill, Case 21TRCV00443 2023-03-24 Tentative Ruling

ALERT

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On June 16, 2021, Marcia Pyin-Shan Chiang filed a complaint against Joseph Yeh aka Joseph Cha-Dea Yeh, IDJ Enterprise Inc., and Grandtower Group Inc. for (1) breach of contract, and (2) declaratory relief and cancellation of instruments.

On July 7, 2021, the case was deemed related to 21TRCV00414 (Yokohama Group, Inc. v. Marcia Pyin-Shan Chiang).

On October 15, 2021, the parties stipulated and the court ordered that the default be set aside.

On October 20, 2021, defendants filed a cross-complaint against plaintiff for (1) breach of written contract, (2) breach of oral contract, (3) breach of the covenant of good faith and fair dealing (as to the oral agreement), and (4) breach of the covenant of good faith and fair dealing (as to the note).

CCP § 438 states, in relevant part: “(b)(1) A party may move for judgment on the pleadings. . . . (c)(1) The motion provided for in this section may only be made on one of the following grounds: (A) If the moving party is a plaintiff, that the complaint states facts sufficient to constitute a cause or cause of action against the defendant and the answer does not state facts sufficient to constitute a defense to the complaint. (B) If the moving party is a defendant, that either of the following conditions exist: . . . . (ii) The complaint does not states facts sufficient to constitute a cause of action against that defendant. . . . (d) The grounds for motion provided for in this section shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice. . . .”

Defendant Joseph Yeh requests judgment on the pleadings with respect to plaintiff’s alter ego claim on the ground that the complaint fails to allege sufficient facts to constitute a claim for alter ego liability.

Plaintiff alleges that defendant Yeh owns and controls the other entity defendants. He is a contractor and an owner of IDJ Enterprise Inc., which holds a contractor license number. He advertises to the general public that he and his various entities can be employed to build businesses for people, with those businesses to be located in real properties owned by Yeh. Complaint, ¶7. On January 9, 2019, plaintiff entered into a oral contract with defendants. Under the terms of the contract, defendants agreed to build plaintiff a Chinese restaurant in the real property at 1928 PCH in Lomita, in exchange for plaintiff paying them $80,000, and entering into a ten-year written lease with Grandtower Group Inc. to rent the property. Id., ¶8. A material term of plaintiff’s oral agreement with defendants was that defendants would complete the building of the Chinese restaurant by June 30, 2019. Later, defendants unilaterally decided to extend their performance date to October 2019, without plaintiff’s consent. Id., ¶9. Plaintiff paid defendants $83,350 under the two agreements—the construction contract and the lease. Id., ¶10. At the urging of defendants, plaintiff also signed a promissory note, promising to “payback” $40,000 to defendants. The promissory note states that plaintiff “has received and promises to payback Joseph Yeh/IDJ Enterprises Inc. $40,000.” In reality, defendants defrauded plaintiff because they never paid her $40,000 and there is nothing to “payback.” Id., ¶11.

As to alter ego, plaintiff alleges that Grandtower Group Inc. is a mere alter ego of Joseph Yeh. There is complete unity of interest and ownership between Mr. Yeh and Grandtower Group Inc., such that the separate personalities of the corporation and Mr. Yeh do not exist, and in reality, they are only one enterprise. Joseph Yeh is an officer and the only shareholder of Grandtower Group Inc., and manages his real properties under that name, notwithstanding that he dissolved Grandtower Group Inc. after the acts complained herein. Accordingly, the court should disregard the distinct entity of Grandtower Group Inc. Id., ¶6.

The purpose of alter ego liability is to disregard the fictional facade of the corporation and hold those individuals doing business under the corporate name liable for the corporation debts in order to prevent an injustice. See, e.g., Sonora Diamond Corp. v. Superior Court (2000) 83 Cal. App. 4th 523, 538. The doctrine of alter ego comes into play when a plaintiff claims a defendant “is using the corporate form unjustly and in derogation of the plaintiff’s interests.” Mesler v. Bragg Management Co. (1985) 39 Cal. 3d 290, 300. The alter ego doctrine “is an extreme remedy, sparingly used.” Sonora Diamond, 83 Cal. App. 4th at 538-539. The plaintiff has the burden of overcoming the presumption the corporate entity has a separate existence. Mid-Century Ins. Co. v. Gardner (1992) 9 Cal. App. 4th 1205, 1212. “In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” Sonora Diamond, 83 Cal. App. 4th at 538.

Among the factors relevant to determining an alter ego relationship are “the commingling of funds and other assets, the failure to separate the assets of separate entities, the treatment of the corporation’s assets as those of an individual or other corporation, holding out that the individual or other corporation is personally liable for the first corporation’s debts, the failure to maintain separate records or the commingling of the records of the entities, identical equitable ownership in the two entities, the equitable owners’ domination and control of the entities, the use of the same business location, an identity of employees or attorneys in separate entities, the use of the corporation as a mere shell or instrumentality for the conduct of the affairs of another entity, the failure to maintain arm’s length transactions between entities and the diversion of assets.” United Community Church v. Garcin (1991) 231 Cal. App. 3d 327, 343.

Defendant argues that the allegations are conclusory and sparse as to alter ego.

In opposition, plaintiff argues that she has alleged sufficient facts to support alter ego liability. Plaintiff also contends that a motion for judgment on the pleadings is improper because alter ego is a theory of liability dependent on other causes of action and is not a “cause of action.” See Hennessey’s Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal. App. 3d 1351, 1358-59 (“[a]n alter ego defendant has not separate primary liability to the plaintiff”; “[a] claim against a defendant, based on an alter ego theory, is not itself a claim for substantive relief”).

In reply, defendant reiterates his argument that the alter ego allegations are insufficient.

The court finds that the allegations are sufficient as to alter ego at the pleading stage. In pleading an alter ego theory, the plaintiff is required to allege only “ultimate rather than evidentiary facts.” Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal. App. 4^th 221, 236 (citation omitted). Plaintiff has alleged unity of interest and ownership. Plaintiff has also alleged that Grandtower Group Inc. was dissolved; thus, presumably, there would be an inequitable result if the acts in question are treated as those of Grandtower Group Inc. alone.