Judge: Kevin C. Brazile, Case: BC700563, Date: 2022-10-03 Tentative Ruling

Hearing Date: October 3, 2022

Case Name: Nishimura, et al. v. Yanagi, et al.

Case No.: 22STCV05405

Matter: Demurrer

Moving Party: Defendants Tatsunori Yanagi and Y’s OT Corporation 

Responding Party: Unopposed

Notice: OK

Ruling: The Demurrer is sustained as to claims of Kai Ramen Dining, Inc., 

but is overruled as to the claims of Tomoaki Nishimura.  Leave to amend is denied, except as to the claims for misappropriation, conversion, and violation of the UCL, as to which leave to amend is to be argued.

Moving parties to give notice.

If counsel do not submit on the tentative, they are strongly 

encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic. 

On February 14, 2022, Plaintiffs Tomoaki Nishimura and Kai Ramen Dining, Inc. filed the operative Complaint against Defendants Tatsunori Yanagi, Tomoyoshi, Inc., and Y’s OT Corporation for (1) violation of the UCL, (2) breach of contract, (3) fraud, (4) breach of fiduciary duty, (5) misappropriation of trademark and trade secrets, (6) accounting, and (7) conversion.  Plaintiffs allege they entered into two partnership agreements with Defendants in which two restaurants would be operated under Plaintiffs' trademarks and trade secrets, but, among other things, Defendants failed to pay Plaintiffs profits, abruptly closed one restaurant while converting its assets, and continued to use Plaintiffs’ IP despite cease and desist letters.

Defendants Tatsunori Yanagi and Y’s OT Corporation demur to the entirety of the Complaint for failure to state sufficient facts.  

Plaintiffs did not file an opposition.  

When considering demurrers, courts read the allegations liberally and in context, and “treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.)  “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. 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¿(2007) 147 Cal.App.4th 740, 747.)  It is error “to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.”  (Aubry v. Tri-City Hospital Dist.¿(1992) 2 Cal.4th 962, 967.)

1. Breach of Contract

Defendants first argue that there is no contract claim alleged because (1) the attached agreements show that only Y’s OT Corporation and Nishimura entered into any agreement and (2) there is no allegation of breach by Y’s OT, specifically.  

It is not apparent how Plaintiff Kai Ramen Dining, Inc. can pursue breach of contract claims as the attachments to the Complaint show that the two agreements at issue were executed only by Nishimura, personally, and Y’s OT.  

On the other hand, Defendant Yanagi is alleged to be an alter ego of a number of corporate entities, including Y’s OT, which he is alleged to operate in an undercapitalized fashion so as to escape legal liability.  

As to breach, it is sufficiently alleged, among other things, that Y’s OT was discovered to be operating a restaurant after it was believed to be closed and that Y’s OT apparently failed to pay Nishimura for the use of Kai’s trademarks and trade secrets during that time.  Defendants argue they were allowed to use Plaintiffs’ trademark and trade secrets; however, this is only true to the extent they were splitting profits with Plaintiffs.  

In sum, the Demurrer is sustained as to Kai’s claim for breach of contact, but is overruled as to Nishimura’s claim.  Leave to amend is denied.

2. Fraud

“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.”  (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638, internal quotation marks omitted.) 

“[F]raud must be pled specifically; general and conclusory allegations do not suffice. [Citations] 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.”  (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, internal quotation marks omitted.)  

Defendants argue that “[b]y its fraud claims here, the plaintiffs simply repeat their failed contract claims, adding nothing but bare boilerplate to the effect that unspecified representations by unidentified defendants regarding their ‘intentions to enter into a partnership with Plaintiffs’ were somehow false and, in wholly unexplained ways, were made with an intent to misappropriate the plaintiffs’ trademark and trade secrets. (Compl., §§ 14-15.)”

This lacks merit.  Plaintiffs allege false promise in relation to two agreements in that Defendants did not have any intention to perform by tendering profits—rather, they sought to misappropriate Plainitffs’ trademark and trade secrets.  Specific representations are provided within the attached agreements.  Intent is pled in that Plaintiffs allege that revenues were intentionally concealed and one restaurant was covertly operated after Plaintiffs were told it was closed.

On the other hand, it is not apparent how Kai relied on any false promise as Kai did not apparently enter into any agreement with Defendants.

Therefore, the Demurrer is sustained as to Kai’s fraud claim, but is overruled as to Nishimura’s claim.  Leave to amend is denied.

3. Remaining Claims

Defendants lastly argue that all remaining claims fail given that the breach of contract claim fails.

The breach of contract claim, however, survives to the extent asserted by Nishimura.

The Demurrer is sustained as to Kai’s remaining claims, but is overruled as to Nishimura’s remaining claims.  Leave to amend is to be argued as to whether Kai can still assert claims for misappropriation, conversion, and violation of the UCL even if it did not contractually license its trademarks and trade secrets in this case.

4. Summary

In sum, the Demurrer is sustained as to Kai’s claims, but is overruled as to Nishimura’s claims.  Leave to amend is denied, except as to the claims for misappropriation, conversion, and violation of the UCL, as to which leave to amend is to be argued.

Moving parties to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic.