Judge: Mark C. Kim, Case: 21LBCV00277, Date: 2022-09-20 Tentative Ruling
Case Number: 21LBCV00277 Hearing Date: September 20, 2022 Dept: S27
1. Background
Facts
Plaintiffs, For Love & Thread
Apparel Corp. and Rong Lu filed this action against Defendants, Zanpei Xu, Lie
Wan, and Wisetex Apparel, LLC for breach of fiduciary duty, conversion, breach
of duty of loyalty, fraudulent concealment, negligence, and declaratory relief
arising out of the parties’ joint formation of the entity plaintiff.
Defendants answered the complaint
and also filed a cross-complaint for breach of fiduciary duty, fraudulent inducement,
intentional misrepresentation, breach of contract, and negligent misrepresentation. The cross-complaint arises out of the same
business relationship that forms the basis of the complaint.
On 5/03/22, the Court heard and
sustained a demurrer to the fraud-based causes of action. On 5/10/22, Cross-Complainant filed the operative
FACC, which includes causes of action for breach of fiduciary duty, fraudulent
inducement, fraud, intentional interference with prospective economic advantage,
breach of written contract, and breach of oral contract.
2.
Demurrer to First Amended Cross-Complaint
A demurrer is a pleading used to
test the legal sufficiency of other pleadings. It raises issues of law, not fact,
regarding the form or content of the opposing party’s pleading. It is not the function of the demurrer to
challenge the truthfulness of the complaint; and for purpose of the ruling on
the demurrer, all facts pleaded in the complaint are assumed to be true,
however improbable they may be.
A demurrer can be used only to
challenge defects that appear on the face of the pleading under attack; or from
matters outside the pleading that are judicially noticeable. Blank v. Kirwan 39
Cal.3d 311 (1985). No other extrinsic evidence can be considered (i.e., no “speaking
demurrers”). A demurrer is brought under CCP § 430.10 [grounds], § 430.30 [as
to any matter on its face or from which judicial notice may be taken], and §
430.50(a) [can be taken to the entire complaint or any cause of action
within]. Specifically, a demurrer may be
brought per CCP § 430.10(e) if insufficient facts are stated to support the cause
of action asserted. Per CCP §430.10(a) a
demurrer may be brought where the court has no jurisdiction of the subject of
the cause of action alleged in the pleading.
Furthermore, demurrer for uncertainty will be sustained only where the
complaint is so bad that the defendant cannot reasonably respond. CCP § 430.10(f).
However, in construing the allegations,
the court is to give effect to specific factual allegations that may modify or
limit inconsistent general or conclusory allegations. Financial Corporation of
America v. Wilburn, 189 Cal.App.3rd 764, 769 (1987). And, if the facts pled in
the complaint are inconsistent with facts which are incorporated by reference
from exhibits attached to the complaint, the facts in the incorporated exhibits
control. Further, irrespective of the name or label given to a cause of action
by the plaintiff, a general demurrer must be overruled if the facts as pled in
the body of the complaint state some valid claim for relief. Special demurrers
are not allowed in limited jurisdiction courts. (CCP § 92(c).)
Leave to amend must be allowed
where there is a reasonable possibility of successful amendment. Goodman v. Kennedy,
18 Cal.3d 335, 348 (1976). The burden is on the complainant to show the Court
that a pleading can be amended successfully. (Id.)
Finally, CCP section 430.41
requires that “[b]efore filing a demurrer pursuant to this chapter, the
demurring party shall meet and confer in person or by telephone with the party
who filed the pleading that is subject to demurrer for the purpose of
determining whether an agreement can be reached that would resolve the objections
to be raised in the demurrer.” (CCP § 430.41(a).) The parties are to meet and
confer at least five days before the date the responsive pleading is due. (CCP
§ 430.41(a)(2).) Thereafter, the demurring party shall file and serve a declaration
detailing their meet and confer efforts. (CCP § 430.41(a)(3).)
The Declaration of David V. Luu
adequately establishes the parties met and conferred prior to the filing of the
demurrer. The Court will therefore rule
on the demurrer on its merits.
Cross-Defendants demur to the cause
of action for intentional interference with prospective economic
advantage. They contend the FACC is
subject to demurrer because (a) it does not identify the persons whose economic
relations the conduct was intended to affect, (b) it does not allege economic
loss, (c) it does not allege Cross-Defendants had knowledge of the existence of
the relationships with which they purportedly interfered, (d) it does not
allege a wrongful act over and above the interference itself, as required, (e)
the First Amendment protects Cross-Defendants from any speech made in
connection with the relationships unless the speech is defamatory, as opposed
to true and/or a statement of opinion, and (f) to the extent the speech had a
legitimate business justification, it is permitted per the doctrine of fair
competition.
Cross-Complainants timely filed an opposition,
wherein they argue that each of the above arguments fails to defeat the FACC;
Cross-Defendants timely filed reply papers.
Notably, Cross-Defendants’ reply papers narrow the arguments made in the
demurrer, and the Court will focus, in this ruling, only on the arguments
maintained by way of the reply papers.
i.
Elements of a Claim for Intentional
Interference with Prospective Economic Advantage
“Intentional interference with
prospective economic advantage has five elements: (1) the existence, between
the plaintiff and some third party, of an economic relationship that contains
the probability of future economic benefit to the plaintiff; (2) the defendant’s
knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt
the relationship; (4) actual disruption of the relationship; and (5) economic
harm proximately caused by the defendant’s action.” (Roy Allan Slurry Seal, Inc. v. American
Asphalt South, Inc. (2017) 2 Cal.5th 505, 512.)
An essential element of intentional interference with prospective
economic advantage is the existence of an economic relationship with some known
third person with which the defendant knowingly interfered. (Roth v. Rhodes (1994) 25 Cal. App. 4th 530,
546.)
ii.
Identification of Person Affected by
Interference
Cross-Complainants allege
Cross-Defendants interfered with relationships with “lenders and buyers/retail
customers.” FACC, ¶¶18, 36-37. The parties disagree about whether this is
sufficient, at the pleading stage, to state a claim for intentional interference
with prospective economic advantage. The
parties discuss the holding of Ramona Manor Convalescent Hospital v. Care Enterprises
(1986) 177 Cal.App.3d 1120, 1133 in this regard. In Ramona, the defendant held over on an
expired lease. The plaintiff was the new
lessee, who was prevented from taking possession. The plaintiff sued for, among other things,
interference with its prospective business relationships with its future
clients. The case went to trial by jury,
and the jury found in the plaintiff’s favor on, among other claims, the interference
claim. Th Court of Appeals
affirmed. The Court of Appeals held that
it was not necessary, under the interference claim, for the defendant to have
known of the plaintiff’s actual identity; it was sufficient that the plaintiff
knew that the owner of the property would lease the building to a third
party.
The issue in Ramona was different than
the issue in this case. The issue in
Ramona was the defendant’s lack of knowledge of the lessee’s
identification. The lessee ultimately became
the plaintiff. There was no contention that
the lessee plaintiff needed to identify, much less at the pleading stage, the
specific person or persons with whom it had potential business relationships (its
customers).
In this case, we clearly have
identification of the party harmed (Cross-Complainants), and the party doing
the harm (Cross-Defendants). The “person
affected by” the interference is Cross-Complainants. Cross-Defendants have cited no authority for
the position that something other than customers and lenders must be alleged in
terms of the persons with whom Cross-Complainants had relationships. The demurrer on this ground is overruled.
iii.
Relations Between Cross-Complainants and
Third Parties
Cross-Defendants next argue that
they jointly owned a company with Cross-Complainants until 2021, and it is not
alleged how the customers of the parties’ joint venture became
Cross-Complainants’ customers, as opposed to Cross-Defendants’ customers, after
the break-up of the company. If the
customers did not have existing relationships with Cross-Complainants, as
opposed to the predecessor company, then Cross-Defendants contend there could
be no interference.
Cross-Complainants argue, in their
opposition, that, “as envisioned by Cross-Defendant,” they began operating a
new apparel business and began fulfilling purchase orders for their
longstanding US retail customers. See
opposition, page 1, lines 12-14.
Cross-Complainants cite ¶17 of the FACC as the charging allegation in
this regard. ¶17 of the FACC, however,
alleges nothing about what the parties envisioned for the ongoing relationships
with customers after the parties’ cessation of operations. Indeed, ¶17 alleges Cross-Complainants sold
their interests in the parties’ business to Cross-Defendants for $50. Thus, if ¶17 suggests anything, it suggests
that the customers went to Cross-Defendants, not to Cross-Complainants.
Cross-Complainants must, by way of
an SACC, state allegations showing that they had relationships, subsequent to
the break-up of the parties’ jointly owned company, with third parties, that
those relationships were rightfully between Cross-Complainants and the third
parties, and that Cross-Defendants interfered with those relationships.
The above analysis applies equally
to Cross-Defendants’ argument that there are no allegations that Cross-Defendant
knew of the relationships. Facts showing
Cross-Complainants had the relationships subsequent to the break-up and
Cross-Defendants knew Cross-Complainants had the relationships are
necessary.
iv.
Wrongful Acts Beyond Interference Itself
At ¶37, Cross-Complainants allege
Cross-Defendants interfered with the contracts by making false statements and
seeking customers to reconsider their business relationships with the customers. Cross-Defendants, in their demurrer, argue
false statements cannot form the basis of an interference claim unless the
statements are defamatory or fraudulent.
In other words, statements of opinion and/or true statements are not actionable. The FACC specifically alleges the statements were
false, so Cross-Defendants’ argument that the statements could be true is not
well-taken. The Court finds issues
relating to whether the statements were ones of opinion can be handled via
discovery. At the pleading stage, the
allegation that Cross-Defendants made false statements is sufficient.
Cross-Defendants also argue Cross-Defendant
Lu, who allegedly made the statements, is a Chinese national, so it is not
clear how he could communicate with unknown customers in the United
States. It seems Lu likely has a phone,
the internet, a fax machine, etc., and can communicate outside of his home
country; he must have communicated with Cross-Complainants, who are in this country,
to form the subject business. This argument
is not well-taken.
Cross-Defendants’ demurrer is
sustained with leave to amend on the sole ground that Cross-Complainants did not
allege how they came to have the subject relationships subsequent to the
break-up of the parties’ jointly owned business. The demurrer is overruled on all other
asserted grounds. Cross-Complainants
must file a Second Amended Cross Complaint within twenty days. Cross-Defendants must file a responsive pleading
within the statutory time thereafter.
3. Case
Management Conference
The parties are reminded that there
is a CMC on calendar concurrently with the hearing on today’s demurrer. The Court asks Counsel to make arrangements
to appear remotely at the hearing on the demurrer and CMC.