Judge: Joel L. Lofton, Case: 22AHCV00723, Date: 2023-04-13 Tentative Ruling
Case Number: 22AHCV00723 Hearing Date: April 13, 2023 Dept: X
Tentative Ruling
Judge Joel L. Lofton,
Department X
HEARING DATE: April
13, 2023 TRIAL DATE: No date set.
CASE: MIMI LIN, an
individual, WEI ZHANG, an individual; CITEAUSA, a California corporation; CITEA
DRINKS, an California corporation; CITEA RH, a California corporation; HIITORY
CAFÉ LLC, a California limited liability company, and DOES 1 through 25,
inclusive.
CASE NO.: 22AHCV00723
DEMURRER
MOVING PARTY: Defendants Wei Zhang, CiTeaUSA,
CiTea Drinks, CiTea RH, and Hiitory Café LLC.
RESPONDING PARTY: No
response filed.
SERVICE: Filed December 28, 2022
RELIEF
REQUESTED
Defendants
demurrer to each cause of action in Plaintiff’s complaint.
BACKGROUND
This case arises out of Plaintiff Mimi Lin’s
(“Plaintiff”) claims that she was improperly excluded from the business
operations of Defendant CiTeaUSA (“CiTeaUSA”) by Defendant Wei Zhang (“Zhang”).
Plaintiff alleges CiTeaUSA was formed and registered on or about May 20, 2019.
Plaintiff alleges Zhang represented that Plaintiff would be a 50% shareholder
of CiTeaUSA. Plaintiff alleges she contributed capital totaling $68,700.
Plaintiff alleges she was initially the secretary of CiTeaUSA and a signatory
to CiTeaUSA’s checking account. Plaintiff alleges that Zhang unilaterally
removed Plaintiff as a signatory to CiTeaUSA’s checking account and removed
Plaintiff as secretary. Plaintiff alleges that Zhang subsequently incorporated
additional businesses using CiTeaUSA’s capital.
Plaintiff filed this complaint on
September 22, 2022, alleging nine causes of action for (1) accounting, (2)
declaratory relief, (3) accounting and dissolution, (4) accounting and
dissolution, (5) accounting and dissolution, (6) fraud, (7) breach of fiduciary
duty, (8) conversion, and (9) violation of Corporations Code section 1150.
TENTATIVE RULING
Defendants’
demurrer to Plaintiff’s first, second, seventh, and eighth causes of action are
OVERRULED.
Defendants’
demurrer to Plaintiff’s third, fourth, fifth, sixth, and ninth causes of action
are SUSTAINED with leave to amend.
LEGAL STANDARD
A general
demurrer may be taken to a complaint where “[t]he pleading does not state facts sufficient to constitute
a cause of action.” (Code of Civ. Proc. § 430.10(e).) A demurrer for sufficiency tests whether the
complaint states a cause of action. (Hahn
v. Mirda (2007) 147 Cal. App. 4th 740, 747.) In a demurrer proceeding, the
defects must be apparent on the face of the pleading or by proper judicial
notice. (Code Civ. Proc. section
430.30(a).) A demurrer tests the pleadings alone and not the evidence or
other extrinsic matters. (SKF Farms v. Superior Court (1984) 153
Cal. App. 3d 902, 905.) The only issue involved in a demurrer hearing is
whether the complaint, as it stands, unconnected with extraneous matters,
states a cause of action. (Hahn v.
Mirda, supra, 147 Cal.App.4th 740, 747.)
DISCUSSION
First Cause of Action for Accounting
Defendants
object to Plaintiff’s first cause of action for accounting on the grounds that
the cause of action fails to allege facts sufficient to state a claim.
“An action
for an accounting has two elements: (1) ‘that a relationship exists between the
plaintiff and defendant that requires an accounting’ and (2) ‘that some balance
is due the plaintiff that can only be ascertained by an accounting.’
[Citation.] The action carries with it an inherent limitation; an accounting
action ‘is not available where the plaintiff alleges the right to recover a sum
certain or a sum that can be made certain by calculation.’ ” (Sass v. Cohen (2020)
10 Cal.5th 861, 869.)
Defendants
argue that Plaintiff’s claims are contradictory because she claims is a 79%
shareholder (Complaint ¶ 18) but also alleges
no shares were issued (id. ¶ 21). However, Plaintiff also alleges that Zhang represented that
Plaintiff would be at least a 50% shareholder in CiTeaUSA. (Id. ¶ 17.)
Plaintiff also alleges she was the secretary of CiTeaUSA (id. ¶ 19) but
that Plaintiff breached a fiduciary duty owed to her. (Id. ¶¶ 114-120.)
Defendants essentially argue that Plaintiff’s allegations
should be read as stating a claim against her interest. The court declines to
follow Defendants’ reasoning. Plaintiff’s allegations are sufficient to allege
a cause of action for accounting. Defendants’ demurrer to Plaintiff’s first
cause of action is overruled.
Second Cause of Cause of Action for Declaratory Relief
“To qualify for declaratory relief under section
1060, plaintiffs were required to show their action (as refined on appeal)
presented two essential elements: ‘(1) a proper subject of declaratory
relief, and (2) an actual controversy involving justiciable questions relating
to the rights or obligations of a party.’ ” (Lee v. Silveira (2016) 6
Cal.App.5th 527, 546.)
Defendants
argue that Plaintiff has failed to allege an actual controversy. However,
Plaintiff alleges that she was promised to be a shareholder of CiTeaUSA and
made financial contributions but did not receive the benefits promised.
(Complaint ¶¶ 17-21.) At the pleading
stage, Plaintiff’s allegations are sufficient.
Third, Fourth, and Fifth Causes of Action for
Accounting and Dissolution
Defendants’ demurrer to Plaintiff’s third, fourth, and fifth causes of action. Plaintiff’s third cause of action seeks accounting for and dissolution of CiTea Drinks, Plaintiff’s fourth cause of action seeks accounting for and dissolution of Hiitory Café, LLC, and Plaintiff’s fifth cause of action seeks accounting for and dissolution of CiTea RH. “(a) A verified complaint for involuntary dissolution of a corporation on any one or more of the grounds specified in subdivision (b) may be filed in the superior court of the proper
county
by any of the following persons: [¶] (1) One-half or more of the directors in office. [¶] (2) A shareholder or
shareholders who hold shares representing not less than 33 1/3 percent of (i)
the total number of outstanding shares (assuming conversion of any preferred
shares convertible into common shares) or (ii) the outstanding common shares or
(iii) the equity of the corporation, exclusive in each case of shares owned by persons
who have personally participated in any of the transactions enumerated in
paragraph (4) of subdivision (b), or any shareholder or shareholders of a close
corporation.” (Corp. Code section 1800, subd. (a).)
Here, Plaintiff’s allegations are
limited to her claim that she was promised at least 50% shareholder interest.
(Complaint ¶ 17.) Corporations Code
section 1800 specifically requires a claim for dissolution to be based on
“outstanding shares” or “equity of the corporation”. Although Plaintiff claims
she was promised to be a 50% shareholder, she also alleges no shares were
issued. (Id. ¶ 21.) Further, she alleges no facts to establish that she
has any ownership or equity in Hiitory Café, LLC and CiTea RH other than her
initial capital contribution and Zhang’s representation regarding CiTeaUSA.
Plaintiff
has failed to allege facts sufficient to seek dissolution. Defendants’ demurrer
to Plaintiff’s third, fourth, and fifth causes of action is sustained.
Sixth
Cause of Action for Fraud
Defendants
object to Plaintiff’s sixth cause of action for fraud on the grounds that
Plaintiff fails to plead fraudulent conduct with specificity.
“The elements of fraud, which give
rise to the tort action for deceit, are (a) misrepresentation (false
representation, concealment, or nondisclosure); (b) knowledge of falsity (or
‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable
reliance; and (e) resulting damage.” (Beckwith v. Dahl (2012) 205
Cal.App.4th 1039, 1060, citations omitted.
“[T]he elements of an action for
fraud and deceit based on concealment are: (1) the defendant must have concealed
or suppressed a material fact, (2) the defendant must have been under a duty to
disclose the fact to the plaintiff, (3) the defendant must have intentionally
concealed or suppressed the fact with the intent to defraud the plaintiff, (4)
the plaintiff must have been unaware of the fact and would not have acted as he
did if he had known of the concealed or suppressed fact, and (5) as a result of
the concealment or suppression of the fact, the plaintiff must have sustained
damage.” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230,
248.)
“Fraud is required to be pleaded
with specificity.” (People ex rel. Harris v. Rizzo (2013) 214
Cal.App.4th 921, 947.) “Fraud allegations must be pled with more detail than
other causes of action. The facts constituting the fraud, including every
element of the cause of action, must be alleged factually and specifically. The
objectives are to give the defendant notice of definite charges which can be
intelligently met, and to permit the court to determine whether, on the facts
pleaded, there is any foundation, prima facie at least, for the charge of
fraud.” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007)
158 Cal.App.4th 226, 240, internal quotation marks omitted.)
Plaintiff’s cause of action for
fraud is partly a claim for misrepresentation and partly a claim for
concealment. Plaintiff alleges Zhang falsely represented to Plaintiff that
Plaintiff would be at least a 50% shareholder. Plaintiff also alleges Zhang
concealed the fact that she took improper actions such as excluding Plaintiff
from CiTeaUSA and transfer of assets from CiTeaUSA to other entities. (Id. ¶¶ 90-101.)
However, Plaintiff does not allege any of the misrepresentations
or fraudulent acts with the required specificity. Plaintiff broadly allege that
Zhang acted fraudulently without providing any context. Plaintiff’s sixth cause
of action fails to state a claim.
Defendants’ demurrer to Plaintiff’s sixth cause of action is
sustained.
Seventh Cause of Action for Breach of Fiduciary Duty
Defendants argue that Plaintiff’s claim for
breach of fiduciary duty fails because Plaintiff fails to sufficiently allege a
fiduciary duty.
“The elements of a cause of action
for breach of fiduciary duty are: (1) the existence of a fiduciary duty; (2)
the breach of that duty; (3) damage proximately caused by that breach.” (IIG
Wireless, Inc. v. Yi (2018) 22 Cal.App.5th 630, 646.)
Defendants’ arguments are once again narrowly
focused on Plaintiff’s claim that no shares were issued. (Complaint ¶ 21.) This allegation, in context of the entire pleadings, could
be viewed as alleging that Defendants failed to follow proper corporate
procedure. The court declines to follow Defendants’ reasoning that Plaintiff’s
allegation in paragraph 21 are Plaintiff’s concession that she is not actually
a shareholder. Additionally, Plaintiff’s claim for breach of fiduciary duty
could also be read as stemming from her role as an officer of CiTeaUSA.
(Complaint ¶ 19.)
Defendants’ demurrer to Plaintiff’s seventh cause of
action is overruled.
Eighth Cause of Action for Conversion
Defendants object to Plaintiff’s eighth cause of action
for conversion.
“Conversion is the wrongful exercise
of dominion over the property of another. The elements of a conversion claim
are: (1) the plaintiff's ownership or right to possession of the property; (2)
the defendant's conversion by a wrongful act or disposition of property rights;
and (3) damages.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.) “[A]ny
act of dominion wrongfully exerted over the personal property of another
inconsistent with the owner's rights thereto constitutes conversion.” (Plummer
v. Day/Eisenberg, LLP (2010) 184 Cal.App.4th 38, 50
Plaintiff allege she owned 79% interest in CiTeaUSA.
(Complaint ¶ 122.) She also alleges Defendant interfered with her interest by
transferring that interest to other corporations. (Id. ¶ 123.) She
allege damages as a result. (Id. ¶ 126.) At the pleading stage, Plaintiff’s
claims are sufficient.
Defendants’ demurrer to Plaintiff’s eighth cause of
action is overruled.
Ninth Cause of Action for Violation of Corporation
Code section 1150.
Plaintiff’s ninth cause of
action is nominally one for violation of Corporations Code section 1150.
However, that section contains definitions. It appears that Plaintiff is
referring to Corporations Code section 1001 as alleged in her complaint.
(Complaint ¶ 129.) Corporations Code section 1001, subdivision (a), pertains to
the sale of all of a corporation’s assets. Corporations Code section 1001,
subdivision (d), provides for the requirements if the acquiring party is in
control of the disposing corporation.
“A single cause of action by a
shareholder can give rise to derivative claims, individual claims, or both.” (Goles
v. Sawhney (2016) 5 Cal.App.5th 1014, 1018, fn. 3.) “But where a cause of
action seeks to recover for harms to the corporation, the shareholders have no
direct cause of action ‘[b]ecause a corporation exists as a separate legal
entity’ [citation] and ‘is the ultimate beneficiary of such a derivative suit’
”. (Schrage v. Schrage (2021) 69 Cal.App.5th 126, 149.)
Plaintiff’s claim fails because she is alleging a
derivative suit. This cause of action is based on statutes providing for the
requirements to sell corporate assets. Plaintiff seeks to assert harm to the
corporation based on Defendants’ failure to comply with the statute. However, Plaintiff
has not established she has followed the requirements to bring a derivative
suit.
Defendants’ demurrer to Plaintiff’s ninth cause of action
is sustained.
CONCLUSION
Defendants’
demurrer to Plaintiff’s first, second, seventh, and eighth causes of action are
OVERRULED.
Defendants’
demurrer to Plaintiff’s third, fourth, fifth, sixth, and ninth causes of action
are SUSTAINED with 20 days leave to amend.
Moving
Party to give notice.
Dated: April 13, 2023 ___________________________________
Joel
L. Lofton
Judge
of the Superior Court
Parties who intend to submit on this tentative must send an
email to the court indicating their
intention to submit.
Parties intending to appear are strongly encouraged to appear remotely. alhdeptx@lacourt.org