Judge: Joel L. Lofton, Case: 23AHCV00603, Date: 2024-08-15 Tentative Ruling

Case Number: 23AHCV00603    Hearing Date: August 15, 2024    Dept: X

  Tentative Ruling

Judge Joel L. Lofton, Department X

HEARING DATE:   August 15, 2024                                    TRIAL DATE: No date set.

CASE:                         HIMALAYA NEW YORK ROCK, INC. v. XINZE CHU

CASE NO.:                 23AHCV00603

DEMURRER

MOVING PARTY:               Plaintiff/Cross-Defendant Himalaya New York Rock, Inc. (“HNYR”)

RESPONDING PARTY:      Defendant/Cross-Complainant Xinze Chu

SERVICE:                             December 12, 2023

OPPOSITION:                     None filed.

REPLY:                                 August 8, 2024

RELIEF REQUESTED

            Demurring party objects to the entirety of the first amended cross-complaint.

BACKGROUND

Plaintiff HNYR is an organization comprised of individuals who support the Chinese Whistleblower Movement. Nonparty Himalaya Exchange developed and sells a form of digital asset called Himalaya Coins (“H-Coins”). H-Coins are owned and traded by HNYR’s members, as well as members of organizations with similar ideologies, and the general public. On March 20, 2023, HNYR brought the instant action to recover damages it suffered as the result of Defendant’s allegedly fraudulent sale of H-Coins.

On August 15, 2023, Defendant Chu filed a first amended cross-complaint (“FACC”) against HYNR and Ho Wan Kwok based on fraudulent misrepresentation/inducement and negligent misrepresentation. On July 18, 2024, the court entered Chu’s request to dismiss Ho Wan Kwok without prejudice.

HYNR demurs to the FACC, arguing it fails to plead facts with sufficient particularity to support all three of its fraud-based Causes of Action.

TENTATIVE RULING

The demurrer as to all causes of action is OVERRULED.

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.)

A demurrer tests the legal sufficiency of the pleading, not the truth of the plaintiff’s allegations or accuracy of the described conduct. (Bader v. Anderson (2009) 179 Cal.App.4th 775, 787.) The allegations in the pleading are deemed to be true no matter how improbable the allegations may seem. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604.) The court, however, does not accept the truth of contentions, deductions, or conclusions of law. (Genesis Environment Services v. San Joaquin Valley Unified Air Pollution Control District (2003) 113 Cal.App.4th 597, 603.)

Additionally, a special demurrer to a complaint may be brought on the ground the pleading is uncertain, ambiguous, or unintelligible. Code Civ. Proc section 430.10(f); Beresford Neighborhood Assn. v. City of San Mateo (1989) 207 Cal.App.3d 1180, 1191.) A demurrer based on uncertainty is disfavored and will be strictly construed even when the pleading is uncertain in some respects. (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.) A demurrers based on uncertainty are “granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135.)

DISCUSSION

            HNYR demurs to Chu’s FACC on the grounds the FACC does not state facts sufficient to constitute any of the causes of action.

First Cause of Action for Intentional Misrepresentation (Fraud)

To prove fraud, the first cause of action, plaintiffs must show the following elements: (1) misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) reliance, and (5) damages. (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 990.) Additionally, the fraud cause of action must be plead with specificity that shows “how when, where, to whom, and by what means the representations were tendered.” (Hamilton v. Greenwich Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1614.)

Here, the first cause of action meets the specificity requirement. Chu pleads a variety of actions involving misrepresentations on the part of HNYR. Chu has pled with sufficient specificity the facts surrounding the alleged fraud. Chu alleges when the fraud occurred—between February 2019 and December 2021. Chu alleges HNYR convinced and induced Chu to donate $200,000.00 to entities allegedly affiliated with HNYR, and to exchange his money for cryptocurrency. The FACC alleges his money was never used as expected and instead was spent by Kwok and his associates for buying real estate, luxury cars and yachts, jewelry, and other expenses to support their lavish lifestyle. Chu alleges HNYR knew of the illegality and fraudulent scheme behind the solicitations for donations from Chu. Taking the allegations as true, the FACC has shown a misrepresentation, knowledge of falsity, intent to induce reliance, reliance, and damages. Plaintiff has pled the facts underlying his claim for fraud with the required specificity.

The demurrer to the first cause of action is OVERRULED.

Second Cause of Action for Promise Without Intent to Perform (Fraud)

“The elements of promissory fraud . . . are: (1) a promise made regarding a material fact without any intention of performing it; (2) the existence of the intent not to perform at the time the promise was made; (3) intent to deceive or induce the promise to enter into a transaction; (4) reasonable reliance by the promisee; (5) nonperformance by the party making the promise; and (6) resulting damage to the promisee.” (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1498.) Promissory fraud must be alleged with particularity. (Id.)

Chu’s second cause of action is based on the same alleged promise as his misrepresentation causes of action. That is, HNYR and Kwok made promises upon which Chu relied on and gave $200,000.00 and his “cryptocurrency” to them. These allegations, if taken as true, meet the elements of false promise. This fraud claim is pled with the required specificity.

The demurrer to the second cause of action is OVERRULED.

Third Cause of Action for Negligent Misrepresentation (Fraud)

The elements of negligent misrepresentation are “[m]isrepresentation of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce another's reliance on the fact misrepresented; ignorance of the truth and justifiable reliance on the misrepresentation by the party to whom it was directed; and resulting damage. (Hydro-Mill Co., Inc. v. Hayward, Tilton, & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154.) A negligent misrepresentation cause of action must be pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)

Moreover, “[s]tatements as to future action are do not constitute actionable fraud. (Tarmann v. State Farm Mutual Automobile Insurance Co. (1991) 2 Cal.App.4th 153, 158.) Rather, the misrepresentation must pertain to past or existing material facts. (Ibid.) The demurrer argues any misrepresentation Chu alludes to in the FACC is a prediction of the future instead of one of past or existing material fact. The Court disagrees. One example of an alleged promise in the FACC is that Chu’s money would be invested or donated but instead, his money was spent on things to support Kwok and his associates’ lavish lifestyle. This was not a statement as to future action.

The FACC’s third cause of action is based on the same alleged misrepresentations as the intentional misrepresentation cause of action. For the same reasons set forth above, the Court concludes that Chu has sufficiently alleged a misrepresentation about a past or existing material fact. (Tarmann, supra, 2 Cal.App.4th at 158.)

The demurrer to the third cause of action is OVERRULED.

CONCLUSION

The demurrer as to all causes of action is OVERRULED.

Moving party to give notice.

Dated: August 15, 2024                                              ___________________________________

                                                                                    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.  alhdeptx@lacourt.org