Judge Mark E. Windham, Case 22STLC06086 2022-12-22 Tentative Ruling

Judge: Mark E. Windham, Case: 22STLC06086, Date: 2022-12-22 Tentative Ruling

Case Number: 22STLC06086 Hearing Date: December 22, 2022 Dept: 26

Gao, et al. v. Shao, et al.

DEMURRER

(CCP §§ 430.31, et seq.)

TENTATIVE RULING:

Defendants Yafeng Shao and Mengya Ren’s Demurrer to the Complaint is SUSTAINED WITH 20 DAYS’ LEAVE TO AMEND AS TO THE 1ST AND 3RD CAUSES OF ACTION AND OVERRULED AS TO THE 2ND AND 4TH CAUSES OF ACTION.

ANALYSIS:

Plaintiffs Yuanyuan Gao and Ye Fashion Master, Inc. (“Plaintiffs”) filed the instant action against Defendants Yafeng Shao and Mengya Ren (“Defendants”). Defendants filed the instant Demurrer to the Complaint on October 21, 2022. Plaintiffs filed an opposition on November 3, 2022 and Defendants replied on November 8, 2022.

Discussion

The Complaint alleges causes of action for (1) fraud; (2) conspiracy to defraud; (3) breach of fiduciary duty; and (4) conversion. Defendants demur to the Complaint for failure to allege facts sufficient to state a cause of action. (Citing Code Civ. Proc., § 430.10, subd. (e).) The Demurrer is accompanied by a meet and confer declaration demonstrating defense counsel emailed Plaintiff’s counsel on October 19, 2022. (Motion, Ritholz Decl., Exh. A.) Although the meet and confer did not occur in person or over the telephone, this is not fatal to the Demurrer, as Plaintiffs contend. (See Code Civ. Proc., § 430.41, subd. (a)(4.) Nor do Plaintiffs explain their failure to respond to the meet and confer letter. (Opp., p. 1:18-27.)

The allegations in the Complaint are as follows. Plaintiff Gao has at all times been the 100 percent owner of Plaintiff Ye Fashion, which is a California corporation. (Compl., ¶¶1-2.) Plaintiff Ye Fashion was founded on October 7, 2020. (Id. at ¶10.) Plaintiff Gao met Defendant Ren in 2008. (Id. at ¶11.) In November 2019, Defendant Ren asked for Plaintiff Gao’s help relocating to the United States. (Id. at ¶12.) Defendants moved to the United States on January 29, 2020 and began living at Plaintiff Gao’s house. (Id .at ¶13.) In November 2020, Defendants agreed to help Plaintiff Gao with Plaintiff Ye Fashion in exchange for staying at her house. (Id. at ¶15.) Defendant Res agreed to perform bookkeeping, accounting, packaging and making payments; Defendant Shao agreed to perform website publishing and customer data analysis. (Ibid.) Plaintiff Gao authorized Defendants’ use of Plaintiff Ye Fashion’s credit card only for business-related expenses and only with Plaintiff Gao’s pre-authorization for each charge. (Id. at ¶16.) Nor were Defendants allowed to touch the physical credit card. (Ibid.) Pursuant to Defendant Ren’s oral request in August 2021, Plaintiff Gao gave Defendants access to Plaintiff Ye Fashion’s bank account for their work obligations. (Id. at ¶17.) The access was granted strictly for business purposes. (Ibid.)

Without Plaintiff Gao’s knowledge, Defendants used the credit card for personal expenses in June and July 2022. (Id. at ¶18.) The charges on Amazon, at Costco, and for repairs to Defendants’ motor vehicle amounted to approximately $3,042.83. (Ibid.) Plaintiff Gao did not discover the charges until August 2022. (Id. at ¶20.) In September 2021 and June 2022, Defendants asked Plaintiff Gao about purchasing shares of Plaintiff Fashion Ye, which Plaintiff Gao declined in both instances. (Id. at ¶¶21-22.) After this refusal, Defendants forged Plaintiff Gao’s signature on a share transfer agreement, of which Plaintiff Gao was totally unaware. (Id. at ¶¶23-24.) Defendants then conspired to submit a forged Statement of Information to the California Secretary of State, naming Defendant Shao as the sole officer and director of Plaintiff Fashion Ye. (Id. at ¶25.) Defendants used the forged Statement of Information to have bank officials change the login and contact information for Plaintiff Fashion Ye’s bank account to Defendants’ information. (Id. at ¶26.) Plaintiff learned about Defendants’ conduct in July 2020 and upon informing the bank, the accounts and credit card were suspended. (Id. at ¶¶27-30.)

1st Cause of Action for Fraud

The elements of fraud are (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud (induce reliance); (4) justifiable reliance; and (5) resulting damage. (Conroy v. Regents of Univ. of Cal. (2009) 45 Cal. 4th 1244, 1255.) Defendants are correct to point out that Plaintiffs have not alleged any specific misrepresentations made by Defendants to Plaintiffs. (Compl., ¶30.) Broad allegations that Defendants also made misrepresentations to Plaintiff Gao are not sufficient to state fraud, which must be alleged with specificity. (Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 73.) The specific misrepresentations alleged in support of this cause of action are those made by Defendants to the bank regarding their purported control of Plaintiff Ye Fashion. (Ibid.) These misrepresentations could not have induced Plaintiffs’ reliance and resulting damages, which are also necessary elements of the cause of action.

The Demurrer to the first cause of action for fraud is sustained.

3rd Cause of Action for Conversion

The elements of 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.) Defendants demur to the alleged conversion on the grounds that the Complaint does not specify which of Plaintiff Ye Fashion’s assets were converted and that, in any event, they were given access to its credit card and bank account. The Complaint sufficiently alleges conversion of Plaintiff Ye Fashion’s assets, including its credit card and bank account based on Defendants’ improper use. (See Compl., ¶¶18-19 26.) Defendants’ argument ignores the scope of access Plaintiff Gao allegedly provided Defendants with respect to the credit card and bank account, which did not extend to their use for personal purposes. While the Court agrees with Defendants that the Complaint does not allege sufficient facts to allege conversion of Plaintiff Ye Fashion’s shares—there is no allegation that Defendants were successfully able to hold any ownership of the shares—the conversion of the bank account and credit card is sufficient to assert the cause of action.

The demurrer to the 3rd cause of action is overruled.

4th Cause of Action for Breach of Fiduciary Duty

Plaintiffs allege that by acting as their CPAs, Defendants owed Plaintiffs a fiduciary duty of care, which they breached by forging documents and using Plaintiffs’ assets for their personal purposes. (Compl., ¶¶57-58.) The Complaint, however, only alleged that Defendant Ren was acting as Plaintiff Ye Fashion’s CPA. (Id. at ¶15.) Defendants argue that no fiduciary relationship has been alleged. Contrary to Plaintiffs’ contention, the Court is not bound to take the allegation that Defendants owed them a fiduciary duty as true because it is a legal conclusion. (See Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1078.) Defendants point out that the Complaint fails to allege the elements of a fiduciary relationship, which must go beyond the existence of a contractual relationship due to the vulnerability of one party and the empowerment of another party. (Citing Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 272.) Without sufficient allegations of a fiduciary relationship, the Complaint does not state a cause of action for breach of fiduciary duty.

The demurrer to the fourth cause of action is sustained.

2nd Cause of Action for Conspiracy for Fraud

Although entitled “conspiracy to fraud,” this cause of action could support a claim of conspiracy with respect to other torts committed by Defendants. The elements of conspiracy are (1) Defendants’ agreement to the objective and course of action to injure; (2) wrongful act pursuant to such agreement; and (3) resulting damage. (Berg & Berg Ent., LLC v. Sherwood Partners, Inc. (2005) 131 Cal.App.4th 802, 823. As discussed above, Plaintiffs have sufficiently alleged unlawful conversion by Defendants. Conspiracy to convert Plaintiff Ye Fashion’s assets is a viable cause of action.

The demurrer to the second cause of action is overruled.

Leave to Amend

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) Here, additional facts may be alleged in support of the fraud and breach of fiduciary duty causes of action. The first and third causes of action are sustained with leave to amend.

Conclusion

Moving party to give notice.