Judge: Edward B. Moreton, Jr, Case: 24SMCV02163, Date: 2025-01-21 Tentative Ruling

Case Number: 24SMCV02163    Hearing Date: January 21, 2025    Dept: 205

Superior Court of California

County of Los Angeles – West District

Beverly Hills Courthouse / Department 205

BACKGROUND

This case arises from a dispute between business partners.  Defendant Zhibin Wang, is the founder and principal of Defendant Kings Way Catering Investment Group, Inc. (“KWC”), which operates Matcha Village Cafe in China.  (First Amended Complaint (“FAC”) ¶ 10.)  Plaintiff invested $100,000 in KWC, for a 10% ownership stake, pursuant to a Purchase Agreement.  (FAC ¶ 12.) 

Plaintiff was also promised a substantive role within the Matcha enterprise.  Prior to the execution of the Purchase Agreement, Wang assured Plaintiff of a general manager position at the upcoming Matcha L.A. cafe (“Matcha LA”), complete with a salary reflective of her contributions and stake.  (FAC ¶ 13.)  As per the terms of an oral agreement, Wang agreed to pay Plaintiff a salary of $5,000 per month together with reimbursement of expenses.  Wang later amended the agreement to $10,000 per month.  (FAC ¶20.) 

Plaintiff claims Defendants never paid her the promised salary, despite her working 6-7 days a week, 8-10 hours a day.  (FAC ¶ 32.)  Plaintiff further alleges Wang was verbally abusive and placed unreasonable demands on her, including calling her at midnight to complain and criticize her work efforts.  (FAC ¶¶ 39-40.)  Plaintiff also alleges Wang denied her shareholder status and operational involvement in KWC.  (FAC ¶ 54.) 

The FAC alleges claims for: (1) breach of contract, (2) fraud, (3) negligent misrepresentation, (4) intentional infliction of emotional distress, (5) breach of fiduciary duty, (6) breach of the implied covenant of good faith and fair dealing, (7) negligent interference with actual and prospective economic advantage, (8) harassment in violation of fundamental public policy, (9) wrongful constructive termination of employment, (10) wage and hour violations, and (11) unfair business practices.

This hearing is on Defendants’ demurrer and motion to strike.  Defendants argue that (1) the contract claims fail because the terms of the oral agreement are not clear, and the FAC lumps both defendants together so it is unclear which Defendant entered into the alleged contracts with Plaintiff; (2) the fraud and misrepresentation claims fail because they are not plead with the required specificity and the purported false statements all pertain to future promises that are not actionable; (3) the IIED claim fails because Plaintiff does not plead any intent on Defendants’ part to cause her emotional distress; (4) the breach of fiduciary duty claim fails because a fiduciary relationship cannot arise from a contractual obligation; and (5) Plaintiff’s claim for punitive damages fails because Plaintiff has not adequately alleged malice, oppression or fraud.

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.)        

Further, the court may, upon motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading.  (Code Civ. Proc., § 436, subd. (a).)  The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ. Proc. § 436, subd. (b).)  The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Code Civ. Proc., § 437.)

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.)

MEET AND CONFER

Code Civ. Proc. §§ 430.41 and 435.5 requires that before the filing of a demurrer or motion to strike, the moving party “shall meet and confer in person or by telephone” with the party who filed the pleading that is subject to demurrer or motion to strike for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer or motion to strike.  (Code Civ. Proc. §§ 430.41(a), 435.5(a).)  The parties are to meet and confer at least five days before the date the responsive pleading is due. (Code Civ. Proc. §§ 430.41(a)(2), 435.5(a)(2).)  Thereafter, the moving party shall file and serve a declaration detailing their meet and confer efforts. (Code Civ. Proc. §§ 430.41(a)(3), 435.5(a)(3).)  Defendant submits the Declaration of Heidi M. Cheng which attests the parties met and conferred by telephone on December 3, 2024, more than five days before Defendants filed their demurrer and motion to strike on December 12, 2024.  This satisfies the meet and confer requirements of Code Civ. Proc. §§430.41 and 435.5.)

DISCUSSION

Contract Claims

Defendants demur to the breach of contract and breach of the covenant of good faith and fair dealing claims on the ground Plaintiff has not alleged the terms of the oral agreement.  The Court disagrees. 

A demurrer cannot be made to part of a claim.  (Kong, 108 Cal. App. 4th at 1047.) Defendants do not dispute that Plaintiff has adequately alleged the terms of at least one of the agreements at issue in her breach of contract claim – the written Purchase Agreement.  Thus, Defendants’ demurrer is made to only part of a claim, which is improper. 

In any event, Plaintiff does allege the terms of the oral agreement.  She was to be the general manager of Matcha LA, with a salary of $5,000 per month plus expenses, which was later amended to $10,000 per month.  (FAC ¶¶ 13, 20.)

Defendants also demur to the contract claims on the ground that Plaintiff improperly lumps Defendants together, and it is uncertain which Defendant entered into the alleged agreements with Plaintiff.  The Court disagrees. 

Demurrers for uncertainty under Code of Civil Procedure section 430.10, subdivision (e) are disfavored. (Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135.) “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.) A demurrer for uncertainty should be overruled when the facts as to which the complaint is uncertain are presumptively within the defendant’s knowledge. (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 976, p. 389.)  Here, the FAC adequately alleges that the oral employment agreement was entered into between Defendants and Plaintiff.  (FAC ¶¶ 57, 58.) 

Based on the foregoing, the Court overrules the demurrer to the breach of contract and breach of covenant of good faith and fair dealing claims.

Misrepresentation Claims

           Defendants demur to the misrepresentation claims because the purported misrepresentations were future promises.  The Court agrees as to the negligent misrepresentation claim but not as to the fraud claim. 

False promises may give rise to a claim for promissory fraud.  The very nature of promissory fraud is that it is a promise regarding a future event—e.g., a promise of future performance with no intent to perform.  A misrepresentation that constitutes promissory fraud is not a basis for a demurrer on the ground that it involves a representation regarding a future event.  (Miles v. Deutsche Bank Nat'l Trust Co. (2015) 236 Cal.App.4th 394, 402-403.)

In contrast, promises about the future cannot give rise to a negligent misrepresentation claim.  Negligent misrepresentation occurs when a party makes representations of existing facts without a reasonable basis for making such misrepresentations.  (West v. JP Morgan Chase Bank (2013) 214 Cal.App.4th 780, 792.)  A claim for negligent misrepresentation cannot be supported by allegations of promissory fraud.  “The specific intent requirement... precludes pleading a false promise claim as a negligent misrepresentation....” (Tarmann, 2 Cal.App.4th at 158.)
               Defendants also argue that the fraud claim is not pleaded with the required specificity because it lumps both Defendants together without identifying whether it was Wang who made the statements individually or on behalf of KWC.  The Court agrees.  Where a fraud claim is asserted against multiple defendants, the plaintiff must plead what conduct each defendant committed, rather than lumping all defendants together through generalized allegations as Plaintiff has done here.  (Gil v. Bank of America, N.A. (2006) 138 Cal.App.4th 1371, 1381.) 

Accordingly, the Court sustains the demurrer to the fraud and negligent misrepresentation claims with leave to amend.

IIED

Defendants argue that Plaintiff’s IIED claim is legally deficient because Plaintiff has not alleged Defendants intended to cause Plaintiff emotional distress.  The Court disagrees.

Intent may be inferred from the outrageousness of the conduct.  (Mahoney v. Corralejo (1974) 36 Cal. App. 3d 966, 974.)  Plaintiff has alleged Defendants sexually harassed her and otherwise created a hostile work environment.  It cannot be seriously disputed that sexual harassment constitutes outrageous conduct.  Indeed, the demurrer does not argue that Plaintiff failed to allege outrageous conduct.  By its nature, harassment carries with it an intent to inflict distress.

Accordingly, the Court overrules the demurrer to the IIED claim.   

Breach of Fiduciary Duty

Defendants argue that Plaintiff’s breach of fiduciary duty claim fails because a fiduciary relationship cannot be created by contract.  The Court disagrees in part.

Plaintiff alleges she was a minority shareholder in KWC.  Wang was a majority shareholder in KWC.  As a majority shareholder, he owed a fiduciary duty to Plaintiff.  California law holds that a majority shareholder owes fiduciary duties to a minority shareholder.  (Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108-110; Remillard Brick Co. v. Remillard-Dandini Co. (1952) 109 Cal.App.2d 405, 419-421.)

In contrast, corporations do not owe fiduciary duties to their shareholders.  (Aslanian v. Frainier, 2018 Cal. Super. LEXIS 78994 at *13 (“As a matter of corporate law, the directors and officers of a corporation owe fiduciary duties to the corporation and to its stockholders, but a corporation does not owe fiduciary duties to its stockholders.”); see also Buttonwood Tree Value Partners, L.P. v. R.l Polk & Co., 2014 Del. Ch. LEXIS 141 at *12 (“[A] corporation does not owe fiduciary duties to its stockholders.”).)  As such, KWC does not owe any fiduciary duties to Plaintiff as a KWC shareholder. 

Accordingly, the Court sustains the demurrer to the breach of fiduciary duty claim against KWC but overrules the demurrer to the claim against Wang.   

Punitive Damages

Defendants argue that Plaintiff’s claim for punitive damages fails because Plaintiff has not sufficiently alleged malice, oppression or fraud, and Plaintiff also seeks punitive damages for negligence claims.  The Court agrees in part.

Plaintiff seeks punitive damages as part of her fraud claim.  (FAC ¶ 68.)  Because the Court has sustained the demurrer to the fraud claim, the motion to strike the request for punitive damages as part of that claim is denied as moot. 

Plaintiff seeks punitive damages as part of her breach of fiduciary duty claim.  (FAC ¶ 88.)  Punitive damages are appropriate for breaches of fiduciary duty.  (Stokes v. Henson (1990) 217 Cal. App. 3d 187, 197-198.)  Accordingly, the Court denies the motion to strike the request for punitive damages as to this claim. 

Plaintiff also seeks punitive damages in connection with her breach of the implied covenant of good faith and fair dealing claim.  (FAC ¶ 95.)  But with the exception of bad faith insurance cases, a breach of the covenant of good faith and fair dealing permits a recovery solely in contract.  (Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43 “The covenant of good faith and fair dealing essentially is a contract term that aims to effectuate the contractual intentions of the parties, ‘compensation for its breach has almost always been limited to contract rather than tort remedies.”).  Since a party “may not recover in tort for … breach of the implied covenant of good faith and fair dealing,” an “award of punitive damages” is not permitted on such a claim.  (Id. at 61.)  Accordingly, the Court grants the motion to strike the prayer for punitive damages as it relates to the breach of covenant claim.

Additionally, Plaintiff seeks punitive damages as part of her negligent interference with prospective economic advantage.  As this is a negligence claim, punitive damages are not available.  “Mere negligence, even gross negligence is not sufficient to justify an award of punitive damages.” (Ebaugh v. Rabkin (1972) 22 Cal.App.3d 891, 893.)

Finally, Plaintiff seeks punitive damages as part of her unlawful harassment claim.  Punitive damages are available for sexual harassment.  (Monge v. Superior Court

(1986) 176 Cal. App. 3d 503, 507 (punitive damages recoverable for sex discrimination and harassment claims).)  Accordingly, the Court denies the motion to strike Plaintiff’s prayer for punitive damages in connection with her harassment claim. 

CONCLUSION

Based on the foregoing, the Court SUSTAINS IN PART and OVERRULES IN PART the demurrer with 20 days’ leave to amend and DENIES IN PART and GRANTS IN PART the motion to strike, without leave to amend as to the prayer for punitive damages in relation to the breach of implied covenant of good faith and fair dealing and negligent interference with prospective economic advantage claims.      

IT IS SO ORDERED.

DATED:  January 21, 2025                                                  ___________________________

Edward B. Moreton, Jr.

Judge of the Superior Court