Judge Edward B. Moreton, Jr, Case Number: 24SMCV03836, Date: 2025-01-10 Tentative Ruling

Superior Court of California

County of Los Angeles – West District

Beverly Hills Courthouse / Department 205

SANWA TECHNOLOGIES, INC., et al.,

Plaintiff,

PAUL JOSEPH TITUS, et al.,

Defendants.

Case No.: 24SMCV03836

Hearing Date: January 10, 2025

order RE:

sanwa technologies, inc.’s

demurrer to cross-complaint

Cross-Complainants Paul Joseph Titus and Hayat Bi were the shareholders and owners of Copperon, a business entity headquartered in Dubai. (First Amended Cross-Complaint (“FACC”) ¶ 1.) Cross-Defendant Sanwa Technologies, Inc. employed Titus and sponsored his H-1B visa. (Id.)

Sanwa expressed interest in purchasing Copperon and had previously made offers for its purchase. (Id. ¶ 7.) The parties entered into a stock purchase agreement (“SPA”). (Id. ¶ 10.) Cross-Complainants now seek to rescind the SPA. They claim Sanwa allegedly procured their signatures “through duress, coercion, misrepresentation and undue influence.” (Id. ¶ 5.) In particular, Cross-Complainants claim Sanwa “on a number of occasions coerced Titus by reminding him that he could lose his job and would be deported if he you [sic] did not do certain things the way Sanwa wanted, such [sic] signing the stock purchase agreement without the ability to review it.” (Id. ¶10.)

The FACC also claims Cross-Defendants made three misrepresentations: “Cross-Defendant represented that Mr. Titus would remain in its employ until Cross-Defendants purchased Copperon from him and his wife, and that they would provide capital contributions to Copperon until it became profitable through the closing of the purchase; and that they would pay Mr. Titus his salary and sponsor his visa so that he could continue residing in the United States.” (Id. ¶20.)

In addition, Cross-Complainants claim the contract is ambiguous and uncertain to such a degree that the contract is unenforceable and could only lead to unjust enrichment for Sanwa.” (Id. ¶5.) Specifically, Cross-Complainants allege “[a]lmost every page contains blank or unreadable text rendering the contract incomplete. Cross-Complainants have never been provided with a clean copy of the agreement.” (Id. ¶14.)

The Cross-Complaint further alleges the contract “lacks consideration” and was “illusory.” (Id. ¶ 12.) In particular, Cross-Complainants allege “Sanwa was attempting to get Cooperon for free. The agreement shows that Sanwa was never really given anything of value to the Cross-Complainants. The financing it had set up was illusory.” (Id. ¶ 12.) “Sanwa is not obligated does [sic] to purchase Copperon upon closing. When and if Sanwa makes [any] type of payment is up to Sanwa. It has no real obligations.” (Id. ¶ 13.)

On these facts, the FACC alleges two claims for recission and declaratory relief. The claim for rescission is made on the grounds the SPA is “uncertain and ambiguous” (id. ¶5), there were misrepresentations and omissions by Sanwa (id. ¶¶10, 20), and Sanwa applied duress and coercion. (Id. ¶10.) The claim for declaratory relief seeks a declaration on whether Cross-Complainants owe any sort of consideration to Cross-Defendant. (Id. ¶27.)

This hearing is on Sanwa’s demurrer to the FACC. Sanwa argues that (1) Cross-Complainants’ cause of action for recission fails to plead facts establishing one or more of the grounds for rescission required by Civ. Code § 1689, and (2) these defects doom the declaratory relief claim since that claim asks the Court to declare “the effect of rescission.” There was no opposition filed as of the posting of this tentative ruling.

Code Civ. Proc. § 430.41 requires that before the filing of a demurrer the moving party “shall meet and confer in person or by telephone” with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., § 430.41(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).) Thereafter, the moving party shall file and serve a declaration detailing their meet and confer efforts. (Code Civ. Proc., § 430.41(a)(3).) Sanwa submits the Declaration of Roy Silva, which shows defense counsel spoke with Plaintiffs’ counsel on November 18, 2024, more than five days before the demurrer was filed on December 2, 2024. (Silva Decl. ¶ 2.) This satisfies the meet and confer requirements of §430.41.

“[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.)

Sanwa argues that Cross-Complainants have failed to plead facts supporting one or more of the grounds for seeking rescission. The Court agrees.

Civ. Code § 1689 provides that a contract may be rescinded “if the consent of the party rescinding ... was given by mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or with the connivance of the party as to whom he rescinds ....” (Id., (b)(1).) Here, Cross-Complainants allege three of these statutory grounds – fraud, duress, and menace (or coercion).

California rules of pleading require that fraud be pleaded with specificity. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) This rule applies where, as here, a party seeks rescission based on fraud. A rescission claim cannot survive the pleading stage unless the underlying fraud is pleaded in accordance with the strict pleading standard applicable to any other fraud claim. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008)162 Cal.App.4th 858, 878-879 (affirming judgment on the pleadings on claims for fraud and rescission where the elements of fraud were not pleaded with specificity).)

The California Supreme Court succinctly summarized that pleading standard as follows: “In California, fraud must be pled specifically; general and conclusory allegations do not suffice. Thus, the policy of liberal construction of the pleadings will not ordinarily be invoked to sustain a pleading defective in any material respect. This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered. In addition, a plaintiff is held to a higher standard in asserting a fraud claim against a corporate defendant. In such a case, the plaintiff must allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 837-838.)

Here, the Cross-Complainants allege that they are entitled to rescind the SPA based on Sanwa’s alleged “misrepresentations.” The FACC identifies three misrepresentations supposedly made by Sanwa. (FACC ¶ 23.) The allegations contain no facts establishing the “how, when, where or to whom” of these purported misrepresentations. (Tenet Healthsystem, 245 Cal.App.4th at 838.) Nor is there any allegation identifying who made the misrepresentations on behalf of Sanwa, his or her position, or their authority to speak on behalf of Sanwa. (Id.)

The FACC also fails to plead duress or coercion as a basis for rescinding the SPA. A party seeking to rescind a contract based on duress or coercion (menace) must plead facts that satisfy the statutory definition. (Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 128.)

Duress is defined in Cal. Civ. Code § 1569 as the unlawful confinement of another’s person, or relatives, or property, which causes him to consent to a transaction through fear. Duress consists of any of the following:

Unlawful confinement of the person of the party, or of the spouse of such party, or of an ancestor, descendant, or adopted child of such party or spouse.

Unlawful detention of the property of any such person.

Confinement of such person, lawful in form, but fraudulently obtained, or fraudulently made unjustly harassing or oppressive.

Cal. Civ. Code § 1569.

To state a claim for rescission based on duress, the Cross-Complaint must set forth facts that satisfy one of these three statutory elements. Here, there is no claim of any confinement of any person or detention of property.

The FACC also alleges that Sanwa used “coercion,” or, in the language of the Civil Code, “menace,” to force Titus to sign the SPA. (FACC ¶ 5). The type of coercion or menace that will support rescission is defined by law as follows:

Menace consists in a threat:

1. Of such duress as is specified in Subdivisions 1 and 3 of the last section;

2. Of unlawful and violent injury to the person or property of any such person as is specified in the last section; or,

3. Of injury to the character of any such person.

Cal. Civ. Code § 1570 (“Section 1570”) (emphasis added). A rescission claim based on coercion or duress must allege the above statutory elements to survive demurrer.

Odorozzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123 is instructive. There, the plaintiff sought to rescind his resignation on the grounds that his employer (a school district) obtained his resignation by using duress, menace and undue influence. The trial court sustained the employer’s demurrer, and the Court of Appeal affirmed the trial court’s ruling on the ground that the plaintiff had not pleaded facts satisfying the statutory definition of either duress or menace set forth in Civil Code §§ 1569 and 1570. (Id. at 128.)

The Court of Appeal held: “We agree with respondent’s contention that neither duress nor menace was involved in this case, because the action or threat in duress or menace must be unlawful, and a threat to take legal action is not unlawful unless the party making the threat knows the falsity of his claim. [citation omitted]. The amended complaint shows in substance that the school representatives announced their intention to initiate suspension and dismissal proceedings under Education Code, section 13403, 13408 et seq. at a time when the filing of such proceedings was not only their legal right but their positive duty as school officials. [citation omitted]. Although the filing of such proceedings might be extremely damaging to plaintiff’s reputation, the injury would remain incidental so long as the school officials acted in good faith in the performance of their duties. [citation omitted]. Neither duress nor menace was present as a ground for recission.” (Id.)

Here, as in Odorizzi, the FACC fails to plead any facts establishing any unlawful conduct by Sanwa. Instead, the Cross-Complaint alleges “Sanwa on a number of occasions coerced Titus by reminding him that he could lose his job and would be deported if he you did not do certain things the way Sanwa wanted, such signing the stock purchase agreement without the ability to review it.” (FACC ¶ 10). Titus was in precisely the same situation as the plaintiff in Odorizzi. Accepting Titus’ pleaded version of events, he was threatened with lawful termination of his employment. Like the employer in Odorizzi, Sanwa’s alleged “threat” of termination cannot, as a matter of law, constitute duress or menace under California law, because Section 1570 requires that the party making the threat engage in unlawful conduct. There is no such allegation in the FACC. Because Titus was an at-will employee of Sanwa, Sanwa could lawfully terminate him at any time, even though that would result in the loss of his right to work in the United States pursuant to his H-1B specialty visa. Thus, the allegations of the FACC do not allege facts constituting duress or menace/coercion under Sections 1569 and 1570.

The FACC alleges two additional grounds for rescission: ambiguity and lack of consideration. Cross-Complainants claim: The SPA is “ambiguous and uncertain to such a degree that the contract is unenforceable and could lead to unjust enrichment for Sanwa.” (FACC ¶ 5.) Cross-Complainants also allege the SPA is “illusory” and “lacks consideration.” (Id.)

There is no such thing as rescission based on ambiguity or lack of consideration under California law. Section 1689 sets forth “the exclusive grounds for rescission of contracts.” (Crocker-Anglo Nat. Bank v. Kuchman (1964) 224 Cal.App.2d 490, 495.) Ambiguity is not one of them. Neither is the lack of consideration. Courts will not rescind a contract based on a theory not authorized by Section 1689. (Keating v. Preston (1940) 42 Cal.App.2d 110, 117 (holding that rescission not available for violation of lease provision and noting that “[n]either section 1689 nor section 3406 of the Civil Code specify as grounds of rescission of a contract the use of the property for a purpose other than that which is specified in the instrument”).) This rule bars Cross-Complainants from relying on the various extra-statutory grounds for rescission they cite in the Cross-Complaint. Accordingly, the Court sustains the demurrer to the rescission claim.

Declaratory Relief Claim

Sanwa also demurs to the second cause of action for declaratory judgment in the FACC on the grounds it is based on the rescission claim which fails for the reasons set forth above. The Court agrees.

The declaratory relief claim incorporates the prior allegations of the FACC (FACC ¶ 25), including the defective cause of action for rescission. The claim depends on Cross-Complainants' assertion of a viable claim for rescission. The claim seeks a declaration “as to the effect of rescission … so that the parties may ascertain their respective rights and duties.” (FACC, ¶ 27). Because Cross-Complainants have not plead a viable claim for rescission, their claim for declaratory relief also fails. There is no basis for the Court to declare the parties’ respective rights and obligations upon rescission where rescission is not available. (FACC, ¶ 27.)

It is Plaintiff’s burden to show that a successful amendment could cure the defects identified in the demurrer. As Plaintiff has not filed an opposition, he also has not shown that he could amend his complaint to address the noted defects above. Accordingly, the Court sustains the demurrer without leave to amend.

For the foregoing reasons, the Court SUSTAINS Cross-Defendants’ demurrer to the FACC without leave to amend.

DATED: January 10, 2025 ___________________________

Edward B. Moreton, Jr.

Judge of the Superior Court