Judge: Donald F. Gaffney, Case: Young v. Gunlei Corporation, Date: 2023-08-16 Tentative Ruling
TENTATIVE RULING:
For the reasons set forth below, Defendants Gunlei Corporation and Egreen Transport Corporation’s Motion for Leave to File Cross-Complaint is granted.
A. Statement of Law
A compulsory cross-complaint involves a defendant’s “related cause of action,” which is defined as “a cause of action which arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause of action which the plaintiff alleges in his complaint.” (Code Civ. Proc., § 426.10, subd. (c)[3].) “[T]he phrase ‘related cause of action’ in section 426.30 is defined as ‘a cause of action which arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause of action which the plaintiff alleges in his complaint.’ [Citation.] Because of the liberal construction given to the statute to accomplish its purpose of avoiding a multiplicity of actions, ‘transaction’ is construed broadly; it is ‘not confined to a single, isolated act or occurrence ... but may embrace a series of acts or occurrences logically interrelated [citations].’ [Citations.] [¶] In addition, section 426.30 includes a timing element. The related cause of action must be one that was in existence at the time of service of the answer [citation]” (Align Technology, Inc. v. Bao Tran (2009) 179 Cal.App.4th 949, 960.) In the context of a breach of contract action, “related cause of action” includes “any claims the defendant has against the plaintiff based on the same contract … even if the claims are unrelated to the specific breach or breaches that underlie the plaintiff’s complaint. [Citation.]” (Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515, 538.)
“A party who fails to plead a cause of action subject to the requirements of this article, whether through oversight, inadvertence, mistake, neglect, or other cause, may apply to the court for leave to amend his pleading, or to file a cross-complaint, to assert such cause at any time during the course of the action. The court, after notice to the adverse party, shall[4] grant, upon such terms as may be just to the parties, leave to amend the pleading, or to file the cross-complaint, to assert such cause if the party who failed to plead the cause acted in good faith. This subdivision shall be liberally construed to avoid forfeiture of causes of action.” (§ 426.50.)
“A party against whom a cause of action has been asserted in a complaint or cross-complaint may file a cross-complaint setting forth either or both of the following: (a) Any cause of action he has against any of the parties who filed the complaint or cross-complaint against him … (b) Any cause of action he has against a person alleged to be liable thereon, whether or not such person is already a party to the action, if the cause of action asserted in his cross-complaint (1) arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause brought against him or (2) asserts a claim, right, or interest in the property or controversy which is the subject of the cause brought against him.” (§ 428.10.) “A party shall obtain leave of court to file any cross-complaint except one filed within the time specified in subdivision (a) or (b). Leave may be granted in the interest of justice at any time during the course of the action.” (§428.50, subd. (c).)
Provisions of the Code of Civil Procedure respecting cross-complaints should be interpreted liberally, as the goal respecting cross-complaints is to enable a final and binding judgment upon all matters in dispute between the parties. (Nomellini Const. Co. v. Harris (1969) 272 Cal.App.2d 352, 356-357.) “Permission to file a permissive cross-complaint is solely within the trial court’s discretion.” (Crocker Nat. Bank v. Emerald (1990) 221 Cal.App.3d 852, 864.)
B. The Court Grants Defendants’ Motion
As noted, in the context of a breach of contract action, “related cause of action” includes “any claims the defendant has against the plaintiff based on the same contract … even if the claims are unrelated to the specific breach or breaches that underlie the plaintiff’s complaint. [Citation.]” (Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515, 538.)
Defendants’ proposed Cross-Complaint is related to the same contract that forms the basis for Plaintiffs’ Complaint, namely, Plaintiffs’ act of supplying Defendants with seven vehicles, which Defendants failed to pay off within 60 days, per the parties’ oral agreement, and which Defendants refused to return to Plaintiffs, despite Defendants’ lack of ownership in said vehicles. (First Amended Complaint, ¶¶ 10-15.)
In their proposed Cross-Complaint, Defendants paint a different picture of the parties’ transaction. Specifically, Defendants allege Plaintiffs’ assignors and Defendants entered into seven written Bill of Sale agreements, wherein Defendants agreed to make the initial downpayment for each Vehicle, with the remaining balance to be paid after they received notice the finance liens were paid by Plaintiffs’ assignors. In other words, Defendants allege Plaintiff’s assignor agreed to fully pay off each of the seven cars before Defendants were obligated to pay Plaintiff’s assignor the remaining balance. (Proposed Cross-Complaint, ¶ 9.)
Because Plaintiffs and/or their assignors were unable to immediately pay off the vehicles, Defendants allege they agreed to make the monthly payments on the vehicles. However, Plaintiffs’ assignor unexpectedly paid off the vehicles, and it demanded Defendants return possession of all vehicles, even though Defendants had made payments on the vehicles, and they had lined up buyers for the vehicles. (Proposed Cross-Complaint, ¶¶ 12-19.)
According to Silver Organizations Ltd. v. Frank (1990) 217 Cal.App.3d 94, a trial court errs in denying a motion to file a compulsory cross-complaint unless there is substantial evidence to support a finding the moving party acted in bad faith. (Silver, supra, 217 Cal.App.3d at p. 97.) In Silver, plaintiffs filed their action on October 20, 1987, and defendants filed answers in late December 1987. (Ibid.) The defendants initially refrained from retaining counsel because they were pursuing settlement negotiations to resolve the action, although they had spoken to an attorney. (Ibid.) When defendants realized settlement discussions would not resolve the matter, and since the case was set for the trial, they immediately sought to retain an attorney; soon after the attorney’s retention, he obtained a trial continuance, and, through his investigation, he recognized defendants had grounds for filing a cross-complaint. (Silver, supra, at pp. 97-98.) Counsel sought leave to file the cross-complaint, which the trial court denied the day before the start of trial. (Id. at p. 98.) The matter proceeded to trial, and judgment against defendants was entered. (Ibid.)
The Silver court reversed the judgment, rejecting plaintiff’s argument that “‘the Trial Court acted well within its discretion in denying [defendants’] Motion for Leave to File Cross–Complaint.’ We reject the view that the trial court may ‘exercise discretion’ in the denial of a motion to file a compulsory cross-complaint under section 426.50.” (Silver, supra, 217 Cal.App.3d 94, 98.) “The legislative mandate is clear. A policy of liberal construction of section 426.50 to avoid forfeiture of causes of action is imposed on the trial court. A motion to file a cross-complaint at any time during the course of the action must be granted unless bad faith of the moving party is demonstrated where forfeiture would otherwise result. Factors such as oversight, inadvertence, neglect, mistake or other cause, are insufficient grounds to deny the motion unless accompanied by bad faith.” (Id. at pp. 98-99; see also Silver, supra, at p. 101 [“section 426.50 expressly disallows denial of a motion based on … grounds” of “neglect, inadvertence or oversight, thereby causing delay”].)
Recognizing that the trial court may have had “‘some modicum of discretion in determining whether or not a defendant has acted in good faith,’” it was the Silver court’s “view that substantial evidence must support the trial court’s decision.” (Silver, supra, 217 Cal.App.3d at p. 99.) It went on to explain that substantial evidence “‘is evidence … “of ponderable legal significance, … reasonable in nature, credible, and of solid value.” [Citations.]’ [Citation.]” (Ibid.)
Moreover, “‘“Bad faith,” is defined as “[t]he opposite of ‘good faith,’ generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake …, but by some interested or sinister motive[,] … not simply bad judgment or negligence, but rather … the conscious doing of a wrong because of dishonest purpose or moral obliquity; … it contemplates a state of mind affirmatively operating with furtive design or ill will. [Citation.]” [Citations.]’ [Citation.]” (Silver, supra, 217 Cal.App.3d at p. 100.) The Silver court concluded there was no substantial evidence of bad faith. “Looking at the entire period between the filing of the complaint and the denial of the section 426.50 motion, a time frame of less than six months, we find nothing in [defendants’] words or conduct remotely suggesting dishonest purpose, moral obliquity, sinister motive, furtive design or ill will.” (Ibid.) The Silver court also rejected the plaintiffs’ arguments as to the propriety of the causes of action contained in the proposed cross-complaint, holding, “if there were merit to these contentions they might be appropriately raised by demurrer, summary judgment, or other pretrial proceeding after the compulsory cross-complaint has been filed.” (Silver, supra, 217 Cal.App.3d at pp. 101-102.)
As noted, Defendants’ proposed Cross-Complaint involves claims regarding the very contract, and the same seven vehicles, that forms the basis of Plaintiffs’ operative First Amended Complaint. In addition, the moving parties filed their Motion May 30, 2023, 13 days after the Court set the new trial date, and approximately eight months before the present trial date of January 29, 2024. [See ROA # 452 – Court set a new trial date for January 29, 2024; see ROA # 364, 366 – Court vacated prior trial date of November 7, 2002] Thus, there is no evidence to support a finding Defendants acted in bad faith by not seeking leave to amend sooner. (Silver, supra, 217 Cal.App.3d at p. 97; see Crocker Nat. Bank v. Emerald (1990) 221 Cal.App.3d 852, 863 [under section 426.50, permission to assert unpleaded cause of action mandatory].)
In their Oppositions, Plaintiffs maintain Defendants have engaged in bad faith throughout these proceedings, particularly as to Defendant Hong Chen’s “constant perjury.” In support of their Opposition, Plaintiffs submit the declaration of Plaintiff Jennifer Young. In that declaration, Jennifer Young submits a declaration submitted by Defendant Hong Chen in support of an ex parte application for motion to compel depositions, as well as what appears to be a certified translation of WeChat messages between Jennifer Young and Hong Chen. (Exhibits 1-2 to Young Declaration.)
While Jennifer Young disputes some of the statements made in Hong Chen’s declaration, Hong Chen’s declaration was made under penalty of perjury, meaning it is given maximum evidentiary weight, even if Hong Chen did not produce any documentary evidence to support his statements. (See Pleasant Hill Bayshore Disposal, Inc. v. Chip-It Recycling, Inc. (2001) 91 Cal.App.4th 678, 696-697 [a declaration made under penalty of perjury is given maximum evidentiary weight even if it is self-serving].)
In any event, while the statements made in Hong Chen’s declaration do not match up perfectly with the WeChat messages, the gist of what Hong Chen claims in his declaration is verified by the WeChat messages, namely, that Plaintiffs attempted to have Defendants pay an additional $50,000 for the last vehicle, and her implication that, if Defendants refused to settle, “the attorney fees for discovery could be at least about $30,000.” (Exhibit 1 to Young Declaration, ¶¶ 5, 7, 10; Exhibit 2 to Young Declaration [July 21 16:35, July 21 17:52].)
Plaintiffs further argue that, “during the court proceedings, Plaintiffs sufficient presented to the Court how Defendants misreported themselves and committed the fraud.” (August 2, 2023, Opposition, 8:20-8:21.) They also argue that Defendants’ attempts to “bring[] up the settled JBY issue again” is improper because of res judicata. (August 2, 2023, Opposition, 9:24-9:26.)
First, “ ‘Res judicata’ describes the preclusive effect of a final judgment on the merits. Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896.) There is no final judgment on the merits here.
Second, while Plaintiffs contend they have sufficiently presented evidence of Defendants’ fraud, there has been no finding by the Court of such fraud.
Next, Plaintiffs also claim Defendants acted fraudulently during settlement negotiations “by quietly changing the terms of the settlement agreement without Plaintiffs’ knowledge or agreement. The settlement was not completed due to Defendants’ dishonesty.” (August 2, 2023, Opposition, 9:3-9:6.) However, in Defendants’ ex parte application to enforce the settlement agreement, Defendants’ counsel states, under penalty of perjury, that the settlement agreement was amended at least twice. [ROA # 419 & 425, ¶ 3] The parties’ WeChat transcript further shows Hong Chen and Jennifer Young continuing negotiations regarding the final vehicle, which, as noted, included Jennifer Young’s insinuation that Defendants should pay an additional $50,000 in settlement in order to avoid incurring “at least about $30,000.00” in attorneys’ fees.
The evidence does not support Plaintiffs’ claims of bad faith in the parties’ attempts to settle this lawsuit.
Plaintiffs make an argument about Defendants expressing displeasure with the Court’s May 17, 2023, ruling that denied Defendants’ motion to enter judgment/enforce the settlement agreement, and they point out it was Defendants who informed the Court of their intention to proceed to trial. While Defendants may disagree with the Court’s denial of their motion to enter judgment/enforce the settlement agreement, and while Defendants may have informed the Court of their intention to proceed to trial, neither action supports a finding of bad faith on the part of Defendants.
In sum, Defendants’ proposed Cross-Complaint is compulsory, and Plaintiffs have not presented substantial evidence of Defendants’ bad faith. Thus, the Court grants the Motion.
Even if the Court treated the proposed Cross-Complaint as a permissive one, Plaintiffs’ only argument is that the Motion was untimely, as it was not filed “before or at the same time as the answer to the complaint…,” or “at any time before the court has set a date for trial.” (§ 428.50, subds. (a) & (b); see also §§ 412.20, subd. (a)(3) & 432.10 [defendant must file responsive pleading within 30 days after service of the summons and complaint/cross-complaint].)
However, this ignores section 428.50, subdivision (c), which explicitly states, “A party shall obtain leave of court to file any cross-complaint except one filed within the time specified in subdivision (a) or (b). Leave may be granted in the interest of justice at any time during the course of the action.”
Finally, Plaintiffs contend the Motion should be denied because Defendants would not be prejudiced, as they can simply file a separate action against Plaintiffs. However, Plaintiffs maintain they will be prejudiced should the Court allow the proposed Cross-Complaint, as Plaintiffs would then have to defend against these new allegations, which may “interrupt this action or delay trial.”
Contrary to Plaintiffs’ claims, the proposed Cross-Complaint involves the same seven vehicles at issue in Plaintiffs’ First Amended Complaint. Thus, Plaintiffs would not be prejudiced by the proposed Cross-Complaint, considering the parties have been conducting discovery, and engaging in settlement discussions, regarding the subject vehicles. (See In re Stanfield’s Guardianship (1939) 32 Cal.App.2d 283, 286 [in context of a motion to set aside default, “there is no showing of any prejudice … other than being compelled to meet the defense which may be made”].)
The Court grants Defendants’ Motion. Defendants are ordered to file and serve the Cross-Complaint attached as Exhibit “A” to the Motion no later than August 23, 2023.
Defendants to give notice.