Judge Lee W. Tsao, Case Number: 23NWCV00185, Date: 2023-10-26 Tentative Ruling

Judge: Lee W. Tsao, Case: 23NWCV00185, Date: 2023-10-26 Tentative Ruling

Case Number: 23NWCV00185 Hearing Date: February 29, 2024 Dept: C

RACK LEE, INC. v. M.G. UNICORN, INC.

CASE NO.: 23NWCV00185

HEARING: 02/29/24

Cross-Defendants RACK LEE, LLC and XIANGMEI LI’s Demurrer to the Cross-Complaint is SUSTAINED with 30 days leave to amend.

Cross-Defendants RACK LEE, LLC and XIANGMEI LI’s Motion to Strike Portions of the Cross-Complaint is MOOT.

Moving Party to give Notice.

The Court finds that the meet and confer requirement has been satisfied.

This action for breach of contract was filed on January 18, 2023. On October 26, 2023, the subject Cross-Complaint (“XC”) was filed by Cross-Complainant M.G. UNICORN, INC. (“Cross-Complainant”) against Cross-Defendants RACK LEE, LLC and XIANGMEI LI (collectively “Cross-Defendants”).

The XC alleges the following relevant facts: “At no time have Plaintiff and Defendant have a written contract for the purchase and sale of goods. [¶] Due to their mutual interest in selling wire storage racks, for the last 3 or 4 years Plaintiff and Defendant have conducted business together.” (XC ¶¶9-10.) “Plaintiff was supposed to deliver exclusively to Defendant up to 30 containers per month of wire racks of specific size and quality. [¶] Plaintiff never delivered 30 containers per month. [¶] Plaintiff constantly delivered products with quality issues. [¶] Plaintiff did not exclusively deliver to Defendant.” (XC ¶¶10-14.) Beginning in May of 2022, the business relationship became strained between the parties due to alleged quality issues affecting various deliveries. “In July, Cross-Defendant made several deliveries of wire racks to Cross-Complainant. [¶] Cross-complainant received multiple complaints about the quality of the racks and requested that Cross-Defendant return the payment that had been made for these racks and pick the wire racks up from Cross-complainants warehouse. [¶] Cross-Defendant has refused to pick the wire racks up from Cross-Complainants warehouse.” (XC ¶¶ 67-69.) Cross-Complainant alleges that Cross-Defendants owe reasonable storage and warehouse fees incurred by Cross-Defendants failure to pick up rejected goods.

The XC asserts the following causes of action:

(1) Common Count – Goods and Services Rendered

(2) Conversion

Cross-Defendants specially and generally demur to each cause of action. Cross-Defendants also argue that the XC fails to state sufficient facts to support the inclusion of Xiangmei Li as a cross-defendant.

Uncertainty

Cross-Defendants argue that the XC is fatally uncertain. This argument lacks merit because “[a] special demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading but is directed at the uncertainty existing in the allegations actually made.” (Butler v. Sequeira (1950) 100 Cal.App.2d 143, 145-146.) Moreover, demurrers for uncertainty are disfavored and will only be sustained where the pleading is so bad that the defendant cannot reasonably respond, i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (Khoury v. Maly’s of Calif. Inc. (1993) 14 Cal.App.4th 612, 616.) A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Ibid.) Here, it is clear from Cross-Defendants’ other arguments that they understand what the XC at least attempts to allege, and there is no true uncertainty. The Demurrer is not sustained on the basis of uncertainty.

First Cause of Action – Common Count (Goods and Services Rendered)

The demurrer to the first cause of action for goods and services rendered is SUSTAINED with 30 days leave to amend.

A demurrer to a common count is properly sustained where there is neither an express nor implied promise between the parties. (See Farmers Ins. V. Zerin (1997) 53 Cal.App.4th 1, 20.) Here, and as argued by Cross-Defendants in the instant demurrer, Cross-Complainant has not alleged a “promise” that Cross-Defendants would reimburse Cross-Complainant for incorrect or unacceptable goods.

Second Cause of Action – Conversion

The elements of a cause of action for conversion are: (1) Plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.) “A cause of action for conversion of money can be stated only where a defendant interferes with the plaintiff’s possessory interest in a specific, identifiable sum, such as when a trustee or agent misappropriates the money entrusted to him.” (Kim v. Westmoor Partners, Inc. (2011) 201 Cal.App.4th 267, 284.) [U]nless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment,” money cannot be the subject of a cause of action for conversion. (McKell v. Wash. Mut., Inc. (2006) 142 Cal.App.4th 1457, 1491.)

The demurrer to the second cause of action is SUSTAINED with 30 days leave to amend. Cross-Complainant does not allege a claim for conversion based on a specific identifiable sum of money. Rather, Cross-Complainant alleges an entitlement to “storage fees”—which are not the proper subject of a conversion claim.

Alter Ego/The Entire XC as to Xiangmei Li

Cross-Defendants argue that Cross-Complainants fail to adequately allege facts to support naming Xiangmei Li as an individual cross-defendant.

Cross-Complainant alleges that Rack Lee and M.G. Unicorn conducted business together, and that Xiangmei Li is the owner of Rack Lee LLC. (See XC ¶¶8 and 10.)

To recover on an alter ego theory of liability, a plaintiff must allege sufficient facts to “show a unity of interest and ownership, and inequitable result from treatment of the corporation as the sole actor.” (Leek v. Cooper (2011) 194 Cal.App.4th 399, 415.) Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the entities, the holding out by one entity that is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.” (Sonora Diamond Corp. v. Sup. Ct (2000) 83 Cal.App.4th 523, 538-539.) Other factors include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. (Id. at 539.)

Cross-Complainants do not allege that Xiangmei Li and Rack Lee are alter egos of one another, and Cross-Complainants do not allege sufficient facts to support any grounds for Xiangmei Li’s direct liability under either claim.

The demurrer is also properly sustained with 30 days leave to amend on this additional ground.

The Motion to Strike portions of the XC is rendered MOOT by the Court’s ruling above.