Judge: Joseph Lipner, Case: 23STCV10395, Date: 2024-12-03 Tentative Ruling

Case Number: 23STCV10395    Hearing Date: December 3, 2024    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Defendants Com2us USA, Inc. and Kyu Chang Lee move to strike portions of Plaintiffs’ third amended complaint.

The Court grants the motion in its entirety, except as to paragraph 22 of the TAC, which introduces no new facts or theories of relief.

Plaintiffs are ordered to file within ten (10) days of this order an operative fourth amended complaint that conforms to the terms of the Court’s August 16, 2024 order and this order. Subsequent to that filing, Plaintiffs may seek leave to amend via properly noticed motion.

Background

            This is a securities fraud action. Plaintiffs Sunwoo Lee and Myunga Cho (“Plaintiffs”) sued defendants Com2us Holdings, Com2us Corp., Com2us USA, Inc., and Kyu Chang Lee on May 9, 2023. Plaintiffs filed a first amended complaint on July 11, 2023 and a second amended complaint on October 17, 2023. On April 2, 2024, defendants Com2us USA, Inc. and Kyu Chang Lee (“Defendants”) demurred to Plaintiffs’ second amended complaint. On August 16, 2024, the Court sustained Defendants’ demurrer in part and granted leave to amend.

            On September 5, 2024, Plaintiffs filed their operative third amended complaint (“TAC”). On October 8, 2024, Defendants moved to strike portions of the TAC. Defendants argue Plaintiffs amended their complaint in a manner that falls outside the scope of the leave the Court allowed them on August 16, 2024.

            On November 18, 2024, Plaintiffs filed their opposition.

            On November 22, 2024, Defendants replied.

Legal Standard

“The court may, upon a motion made pursuant to Section 435 [notice of motion to strike whole or part of complaint], or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading.” (Id. § 436 (a).) Irrelevant matters include immaterial allegations that are not essential to the claim or those not pertinent to or supported by an otherwise sufficient claim. (Id., § 431.10.) The court may also “[s]trike out 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.” (Id. § 436 (b).)

Motions to strike are used to reach defects or objections to pleadings that are not challengeable by demurrer, such as words, phrases, and prayers for damages. (See Code Civ. Proc. §§ 435, 436, and 437.) The proper procedure to attack false allegations in a pleading is a motion to strike. (Id. § 436 (a).)

Meeting and Conference

Code of Civil Procedure section 435.5 requires a party moving to strike to meet and confer with its opponent prior to filing. Defendants’ counsel filed a declaration that satisfies section 435.5. (See Huggins Decl., ¶ 3.)

Discussion

Plaintiffs’ TAC is not drawn in conformity with the Court’s August 16, 2024 Order.

Defendants argue Plaintiffs’ TAC exceeds the leave to amend that the Court granted in its order sustaining Defendants’ demurrer on August 16, 2024. The Court agrees.

On August 16, 2024, the Court heard Defendants’ demurrer to all of the causes of action in Plaintiffs’ then-operative second amended complaint. Those causes of action included (1-3) violations of federal securities laws, (4-7) violations of California’s Corporations Code, (8-9) intentional and negligent misrepresentation, and (10) conversion.

The Court overruled Defendants’ demurrer to all claims except the federal securities claims, to which the Court sustained the demurrer with leave to amend (while expressing doubt that those claims could be successfully cured).

“Following an order sustaining a demurrer . . . with leave to amend, the plaintiff may amend his or her complaint only as authorized by the court’s order.” (Harris v. Wachovia Mortg., FSB (2010) 185 Cal.App.4th 1018, 1023.) “[S]uch granting of leave to amend must be construed as permission to the pleader to amend the cause of action which he pleaded in the pleading to which the demurrer has been sustained.” (People By and Through Dept. of Public Works v. Clausen (1967) 248 Cal.App.2d 770, 785.)

Plaintiffs filed their TAC on September 5, 2024. The TAC omits Plaintiffs’ claims under federal law. However, it adds eleven new paragraphs of facts (TAC, ¶¶ 77-87) under the subheading “COM2US HOLDINGS’ 2022 and 2023 Annual Report,” then introduces a new third cause of action for violation of sections 25402 and 25502.5 of the Corporations Code. This claim did not appear in prior iterations of the pleadings.

Plaintiffs concede they added material outside the scope of the Court’s leave, but argue the expansion of their pleading is proper because “the action is still in the early pleading stages.” (Opp., 1:9.)

Plaintiffs’ argument lacks merit.  Plaintiffs have already amended their complaint twice. The law does not permit them to amend their complaint freely upon each demurrer. They must seek leave to amend via properly noticed motion and meet the relevant standard.