Superior Court of California 

County of Los Angeles – West District  

Beverly Hills Courthouse / Department 205 

 

 

MOVING PARTY: Defendant Apolo Ohno 

 

RESPONDING PARTY: Plaintiffs Brian Kang, Skyblock LLC, Mid-Wilshire Consulting LLC, Prasad Hurra, David Kim, Blue Block Group, Artemio Verduzco, David Kwon and Young Jae Kwon (collectively “Plaintiffs”) 

 

(FAC ¶¶ 25, 63.)  The alleged written misrepresentations were contained in so-called “White Papers”.  (FAC ¶¶  24-30.) 

In July 2018, Hybrid released a simulation of its platform at www.hybex.net (“Hybex Net”).  (FAC ¶34.)  Shortly thereafter, Hybrid released www.hybex.io in full (“Hybex IO”).  Hybex IO was virtually indistinguishable from Hybex Net.  (FAC ¶ 35.)  Contrary to Defendants’ representations that Hybrid was designing a new, novel and groundbreaking platform, Hybex IO was instead a so-called “white label exchange” purchased from software company AlphaPoint.  (FAC ¶36.) 

In August 2018, Defendants claimed that Hybrid’s electronic wallets were breached and approximately 11,000 ETH in cryptocurrency, worth $4,400,000 was stolen.  (FAC ¶38).  At one Plaintiff’s insistence, Defendants retained CipherBlade LTD, an electronic asset security firm, to investigate the breach.  (FAC ¶40).  On March 9, 2019, CipherBlade published a report which was highly critical of Defendants, noting that Hybrid had “very little to show” for the approximately $50 million in investor funds raised and criticizing Defendants for their lack of candor about the breach.  (FAC ¶¶41, 42.)  Plaintiffs claim they had no reason to believe they may have potential causes of action against Defendants prior to the publication of the CipherBlade Report.  (FAC ¶48).            

Plaintiffs filed a complaint in federal court, alleging claims under the federal securities laws, as well as 10 pendent state law claims.  On February 15, 2022, the federal court dismissed all of Plaintiffs’ federal law claims on statute of limitations grounds, and declined to exercise supplemental jurisdiction over the state law claims.  Plaintiffs sought reconsideration which was denied except to the extent the federal court made clear that its dismissal of the state law claims was without prejudice.  Plaintiffs did not appeal the federal court’s order.   

Plaintiffs then filed the instant action.  The operative complaint alleges claims for (1) intentional misrepresentation, (2) negligent misrepresentation, (3) breach of contract, (4) breach of the implied covenant of good faith and fair dealing, (5) unjust enrichment, (6) fraudulent conveyance, and (7) unfair competition.  Only the first, second, fifth and seventh causes of action are alleged against Defendant Apolo Ohno.       

This hearing is on Ohno’s demurrer of all causes of action alleged against him, on the grounds that (1) the misrepresentation claims are time-barred and fail to satisfy the heightened pleading standard, (2) the unfair competition claim fails because it does not identify any predicate statutory or regulatory violation, nor does it show any actual or threatened impact on competition, and (3) the unjust enrichment claim is not a cause of action in California.  

 

 

LEGAL STANDARD 

“[A] demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.)  A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable.  (See Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994 (in ruling on a demurrer, a court may not consider declarations, matters not subject to judicial notice, or documents not accepted for the truth of their contents).)  For purposes of ruling on a demurrer, all facts pleaded in a complaint are assumed to be true, but the reviewing court does not assume the truth of conclusions of law. (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 967.)  

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 (court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”); Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 (“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”).)  The burden is on the complainant to show the Court that a pleading can be amended successfully. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) 

REQUEST FOR JUDICIAL NOTICE 

Ohno requests judicial notice of three categories of documents: (1) documents filed with the federal court (Exs. A-C, H-I), (2) documents referenced in the FAC (Exs. D, E, G), and (3) an internet article titled “HybridBlock a white label exchange?” which was posted on Medium.com on July 14, 2018 (Ex. F).   

As to the first category, Evid. Code § 452(d) expressly authorizes courts to take judicial notice of records of a “court of this state” and a “court of record of the United States.”  (See Tucker v. Pac. Bell Mobile Servs (2012) 208 Cal.App.4th 201, 209, 218-19 (taking judicial notice of pleadings in other actions in support of demurrer); Britz Inc. v. Dow Chemical Co. (1999) 73 Cal.App.4th 177, 180 (in ruling on a demurrer, court could take judicial notice of orders from other courts).)  However, a court cannot take judicial notice of the truth of hearsay statements simply because the statements are part of a court record.  (Ramsden v. Western Union (1977) 71 Cal.App.3d 873, 879; People v. Thacker (1985) 175 Cal.App.3d 594, 598-599.)  As stated in Day v. Sharp (1975) 50 Cal.App.3d 904, “[a] court may take judicial notice of the existence of each document in a court file, but can only take judicial notice of the truth of facts asserted in documents such as orders, findings of fact and conclusions of law, and judgments.”  (Id. at p. 914.)  Here, Ohno is not seeking to use hearsay statements in the court records.  He seeks judicial notice of the federal complaint filed by Plaintiffs, a dismissal order, and a motion for reconsideration for the limited purpose of establishing the dates when the dismissal order and motion for reconsideration were made and of showing one material difference in the allegations made in Plaintiff’s federal complaint versus the complaint in this action.  The Court grants judicial notice for these limited purposes.   

As to the second category, it is hornbook law that a court may take judicial notice of documents referenced in the complaint, even if they are not attached.  (See Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1284 n.3 (judicial notice appropriate where complaint referenced, and excerpted quotes from, documents not attached as exhibits to the complaint); Swiss Park, Inc. v. City of Duarte (1982) 136 Cal.App.3d 755, 758 (court took judicial notice of redevelopment plan referenced in the complaint).)  Ohno seeks judicial notice of the “White Papers” and a CipherBalde Report which form the basis for Plaintiff’s misrepresentation claims and from which Plaintiffs have quoted extensively in the Complaint.  (See, e.g., FAC ¶¶25-29, 41-47.)  As the White Papers and CipherBlade report were referenced in the Complaint, it is proper for the Court to take judicial notice of them, on ruling on a demurrer.   

As to the third category, Ohno seeks judicial notice of a web site article entitled “HybridBlock a white label exchange?” which was posted on Medium.com on July 14, 2018.  Ohno seeks judicial notice only of the existence and date of the article and not the truth of its contents.  Courts have taken judicial notice of website articles and social medical posts pursuant to Evid. Code § 452(h), as “facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy”.  (See Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36 Cal.4th 495, 505 n. 6 (taking judicial notice sua sponte of Internet site under Evid. Code §452(h)); City and Cnty of S.F. v. HomeAway.com, Inc. (2018) 21 Cal.App.5th 1116, 1123 n.2 (taking judicial notice of existence of records on a website and that it provided notice to viewers); Ampex Corp. v. Cargle (2005) 128 Cal.App.4th 1569, 1574 n.2 (2009) (taking judicial notice of website, message board, and other computer records under Evid. Code §452(h)); see also Ragland v. U.S. Bank Nat’l Ass’n (2012) 209 Cal.App.4th 182, 193 (“While we may take judicial notice of the existence of … Web sites and blogs, we may not accept their contents as true.”).  The Court, therefore, grants Ohno’s request for judicial notice of the Medium.com article for the limited purpose of establishing its existence and notice to viewers. 

Plaintiffs also seek judicial notice of a tolling agreement referenced in the Complaint (Ex. 1) and orders and motions in the federal court action (Exs. 2-5).  For the same reasons set forth above, the Court grants judicial notice of these documents pursuant to Cal. Evid. Code §§  452(d) and 453.       

DISCUSSION 

Misrepresentation Claims-Statute of Limitations 

Both Plaintiffs’ intentional and negligent misrepresentation claims are governed by a three year statute of limitations.  The statute of limitations for intentional misrepresentation is three years.  (Cal. Civ. Proc. Code § 338(d).)  A negligent misrepresentation claim has either a two- or three-year statute of limitations.  Where the “essence of th[e] [negligent misrepresentation] cause of action is negligence, not fraud,” a two-year statute of limitations applies.  (Ventura County Nat'l Bank v. Macker (1996) 49 Cal.App.4th 1528, 1530-31.)  Where the essence of the negligent misrepresentation cause of action is “deceit,” however, a three-year statute of limitations applies. (Merchants Fire Assurance Corp. of N.Y. v. Retail Credit Co., Inc. (1962) 206 Cal.App.2d 55, 61-62; see also Broberg v. Guardian Life Ins. Co. of Am. (2009) 171 Cal.App.4th 912, 920 (limitations period for negligent misrepresentation is three years).  Because the essence of Plaintiffs’ negligent misrepresentation claim is fraud (see, e.g., FAC ¶¶ 71, 74, 78), the applicable statute of limitations for that claim is three years. 

Ohno argues that the three year limitations period started to run on July 14, 2018 when the Hybrid Exchange was launched, and the end date should be three years later on October 13, 2022, after accounting for tolling based on a tolling agreement, COVID-19 rules, and the pendency of the federal court action.  Plaintiffs’ action was not filed until October 18, 2022.  The Court disagrees that Plaintiff’s claim is time-barred. 

The Court first considers when the statute of limitations began to run.  Ohno argues that the statute of limitation began to run by at least July 14, 2018 when the Hybrid exchange was launched.  The Opposition does not dispute this starting date.  (Opp. at 9.) 

The Court next considers when the three year statute of limitations ended, which is subject to various tolling events.  First, there is a private tolling agreement that gave Plaintiffs an additional 245 days (from May 1, 2020 to December 31, 2020) to file their complaint.  (Ex. 1 to Plaintiff’s RFJN.)  The tolling agreement provides that “[t]he running of any Time-Based Defenses which are or may be applicable to any Claims shall be deemed to re-commence thirty days after [December 1, 2020].”  Second, California’s COVID-19 Emergency Rule 9 (which began on April 6, 2020 and lasted until October 1, 2020) gave Plaintiffs an additional 25 days to file.  Third, after October 1, 2020, the clock started to run until Plaintiffs filed their federal complaint on August 13, 2021.  The parties disagree on how long the statute of limitations was tolled during the pendency of the federal court action.  Ohno argues that, pursuant to 28 U.S.C. 1367(d), the tolling ended 30 days after the case was dismissed on February 15, 2022 which means tolling should have ended on March 17, 2022.  That gave Plaintiffs an additional 217 days to file.  Plaintiff argues that the tolling ended on June 27, 2022, because the federal action remained pending until the time for filing an appeal under 28 U.S.C. 1291, because the filing of a motion for reconsideration tolls the time for filing a notice of appeal, and because the 30 day tolling period of 28 U.S.C. 1367(d) only starts after the federal court action was no longer pending.  The Court concludes it does not need to resolve this dispute because even accepting Ohno’s argument, there is no time bar.        

In total, measured from July 14, 2018 to March 17, 2022, tolling provided Plaintiffs with at least an additional 487 days in which to file their misrepresentation claims beyond the three year statute of limitations.  That gave Plaintiffs a total of 1,582 days to file their misrepresentation claims which time period expired on November 12, 2022.  Plaintiffs filed their Complaint on October 18, 2022.  Accordingly, Plaintiff’s misrepresentation claims are not time-barred.    

Misrepresentation Claims - Particularity  

Ohno argues that the FAC fails to adequately allege an intentional or negligent misrepresentation claim.  The Court agrees. 

Intentional and negligent misrepresentation both require pleading with particularity “facts which show how, when, where, to whom, and by what means the representations were tendered.”  (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)  Every “element in a cause of action for fraud or negligent misrepresentation must be factually and specifically alleged.”  (Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) 

Plaintiffs first plead oral misrepresentations that were made by Ohno during a dinner with potential U.S.-based investors.  (FAC ¶¶ 19-20.)  But Plaintiffs do not describe the substance and content of any of these alleged oral misrepresentations.  (Id.) 

Plaintiffs next plead written misrepresentations contained in so-called White Papers.  (FAC ¶¶ 63, 72.)  But these alleged misrepresentations (save one) all relate to predictions of future events, rather than presently existing facts.  “The law is well established that actionable misrepresentations must pertain to past or existing material facts.”  (Cansino v. Bank of Am. (2014) 224 Cal.App.4th 1462, 1469-70; see also Tarmann v. State Fram Mut. Auto Ins. Co. (1991) 2 Cal.App.4th 153, 158  (“Predictions as to future events … are deemed opinions and not actionable fraud.”); Apollo Capital Fund LLC v. Roth Capital Partners LLC (2007) 158 Cal.App.4th 226, 241 (“the statement that e-Nucleus would be cash flow positive at the end of the first quarter of 2000” is “nonactionable as opinion or prediction”)   

Indeed, the White Papers state “Hybrid Trade Limited does not make or purport to make, and hereby disclaims, any representation, warranty or undertaking in any form whatsoever to any entity or person, including any representation, warranty or undertaking in relation to the truth, accuracy and completeness of any of the information set out in this white paper.”  The White Papers also advise that “no representation or warranty is given by Hybrid Trade Limited as to the achievement or reasonableness of any plans, future projections or prospects set out in this white paper and nothing in this document is or should be relied upon as a promise or representation as to the future functionality, utility or availability of the Hybrid Exchange Platform and/or its associated services.”  (Ex. E at 36.) 

As to the sole representation that involves a presently existing fact -- that Hybrid has already met with regulators in numerous countries to begin the process of obtaining the necessary licensing for operations – the FAC alleges this statement was false only upon information and belief (FAC ¶ 26), without alleging any facts to support that belief.   

Plaintiffs argue that these misrepresentations are nonetheless actionable as false promises or promises with no intent to perform.  (Opp. at 13.)  But this theory cannot support a negligent misrepresentation claim because California law does not recognize a “negligent false promise.”  (Tarmann, 2 Cal.App.4th at 159 (“we decline to establish a new type of actionable deceit: the negligent false promise”).)  Moreover, the alleged statements in the White Papers involve general remarks about Hybrid’s anticipated future business model and projects in development, not particular acts that Ohno promised to perform.  (Compl. ¶¶ 63-72.)  In any event, Plaintiffs fail to cite to any allegations in the Complaint which plead that Ono had no intent to perform at the time the promises were made, let alone facts that are plead with particularity.  (Opp. at 13, citing ¶¶ 17, 30, 62, 65.)       

In sum, the Court concludes Plaintiffs have not alleged their misrepresentation claims with the requisite particularity.    

Unfair Competition Claim 

Business and Professions Code § 17200 establishes three varieties of unfair competition—acts or practices which are unlawful, unfair, or fraudulent. (Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632, 647.)  Plaintiffs have alleged all three types of UCL claims.  (FAC ¶106.)  

Under its “unlawful” prong, “the UCL borrows violations of other laws … and makes those unlawful practices actionable under the UCL.” (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1505.)  Thus, a violation of another law is a predicate for stating a cause of action under the UCL’s unlawful prong.  (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal. App. 4th 1105, 1133.)  A plaintiff bringing a claim based on the unlawful prong must identify the particular law that was allegedly violated and must describe “with reasonable particularity the facts supporting the statutory elements of the violation.”  (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619.)  Here, Plaintiffs have not identified any statute that was allegedly violated.  (FAC ¶¶103-109.) 

That Plaintiffs have not adequately plead the unlawful prong, however, is not the end of the analysis.  The Court must still look to whether Plaintiffs have alleged a fraudulent or unfair practice.  “The “fraud” prong of [the UCL] is unlike common law fraud or deception.  A violation can be shown even if no one was actually deceived, relied upon the fraudulent practice, or sustained any damage.  Instead, it is only necessary to show that members of the public are likely to be deceived.” (Schnall v. Hertz Corp. (2000) 78 Cal.App.4th 1144, 1167.)  Moreover, the heightened pleading requirement for fraud does not apply to the fraud prong of the UCL.  (Morgan v. AT & T Wireless Services, Inc. (2009) 177 Cal.App.4th 1235, 1256 (heightened pleading requirement for allegations of fraud does not apply to fraud prong of UCL); Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 212, fn. 11 (“The requirement that fraud be pleaded with specificity … does not apply to causes of action under the [UCL].”).)  For reasons set forth above, the Court concludes Plaintiffs have failed to allege misrepresentations as to existing facts, and therefore, they have not adequately plead the fraudulent prong.  (See, e.g., FAC ¶¶63, 72.)    

As to the “unfair” prong, the test to determine whether a business practice is unfair differs depending on whether the plaintiff in a UCL case is a competitor or a consumer. (See, e.g., Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 187, fn. 12 (differentiating between competitor and consumer claims); Bardin v. DaimlerChrysler Corp. (2006) 136 Cal.App.4th 1255, 1273–1274 (same).)  

In consumer cases such as this case, there is a split of authority among the Courts of Appeal, which have applied three different tests for unfairness. (See generally Davis v. Ford Motor Credit LLC (2009) 179 Cal.App.4th 581, 593–598 (tracing split in authority among Courts of Appeal in consumer cases); Bardin, 136 Cal.App.4th at 1267 (noting split of authority).)  Plaintiffs allege a claim under two of the three tests. 

The test applied in one line of cases requires “that the public policy which is a predicate to a consumer unfair competition action under the ‘unfair’ prong of the UCL must be tethered to specific constitutional, statutory, or regulatory provisions.” (Bardin, 136 Cal.App.4th at 1260–1261; see Davis, 179 Cal.App.4th at 595–596; Gregory, supra, 104 Cal.App.4th at p. 854.) Under this test, Plaintiffs’ claim fails for the reasons stated above with respect to the unlawful prong.  Plaintiffs have not identified a law that was violated.   

The test applied in a second line of cases is whether the alleged business practice “is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.” (Bardin, 136 Cal.App.4th at 1260; see Davis, 179 Cal.App.4th at pp. 594–595; see also Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 539.)  Here, the alleged misconduct was at least “substantially injurious” to Plaintiffs.  (Ticconi, 160 Cal.App.4th at 539.)    

The test applied in a third line of cases draws on the definition of “unfair” in section 5 of the Federal Trade Commission Act (15 U.S.C. § 45(n)), and requires that “(1) the consumer injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided.” (Davis, 179 Cal.App.4th at 597–598; see Camacho v. Automobile Club of Southern California (2006) 142 Cal.App.4th 1394, 1403.)  Construing the allegations in Plaintiffs’ favor, the court concludes Plaintiffs have sufficiently alleged all three requirements.   

Accordingly, the Court OVERRULES the demurrer to Plaintiffs’ UCL claim. 

Unjust Enrichment Claim  

Ohno argues Plaintiffs’ claim for unjust enrichment fails because there is no cause of action in California for unjust enrichment.  The Court agrees. 

Unjust enrichment is not a cause of action, but is merely a form of restitution which is a remedy and must be supported by some substantive claim.  (Hill v. Roll Int’l Corp. (2011) 195 Cal.App.4th 1295, 1307; see also Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793 (“there is no cause of action in California for unjust enrichment”).)  Accordingly, the Court SUSTAINS the demurrer on Plaintiffs’ unjust enrichment claim.  (Everett v. Moutains Recreation & Conservation Auth. (2015) 239 Cal.App.4th 541, 553 (affirming judgment sustaining demurrer of unjust enrichment claim because there is no such cause of action in California).) 

 

 

 

 

 

CONCLUSION 

Based on the foregoing, the Court SUSTAINS IN PART and OVERRULES IN PART Defendant Apolo Ohno’s demurrer. 

 

IT IS SO ORDERED. 

 

DATED: May 9, 2023 ___________________________ 

Edward B. Moreton, Jr. 

Judge of the Superior Court