Judge: Martha K. Gooding, Case: 2021-01187143, Date: 2022-08-22 Tentative Ruling
1. Demurrer to Amended Complaint
2. Motion to Strike Portions of Complaint
3. Status Conference
The demurrers to the third, seventh and eighth causes of action are SUSTAINED WITH LEAVE TO AMEND.
The demurrers to the first, second, fourth, fifth, and sixth causes of action are OVERRULED.
1st COA for Aiding and Abetting Breach of Fiduciary Duty
Plaintiff has adequately alleged facts to plead aiding and abetting under the theory that Defendants made “a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act.” American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1477. Defendants argue Plaintiff’s allegations “are made only on ‘information and belief,’” as opposed to allegations that would “establish specifically how [Defendants] had knowledge of any fiduciary duty owed by Mr. Yamakawa to [Plaintiff], especially since the allegations against [Defendants] arise, at the earlier in November 2018 …” (Dem. at 7-8.)
In ruling on the demurrer, the court must construe the SAC liberally, “with a view to substantial justice between the parties,” and “draw[] inferences favorable to the plaintiff, not the defendant.” Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238, (citations omitted). Plaintiff has sufficiently alleged facts from which a reasonable factfinder could conclude that Defendants made “a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act,” including the allegations that the Defendants opened bank accounts for Mr. Yamakawa to create the companies and let him use their identities. (SAC at ¶¶ 74, 79.)
Further, under the doctrine of less particularity, “less particularity is required in pleading matters of which the defendant has superior knowledge; e.g., allegations as to D's knowledge or notice or intent. Such matters may be alleged on information and belief; and the complaint will be upheld ‘so long as it gives notice of the issues sufficient to enable preparation of a defense.’” Cal. Prac. Guide Civ. Pro. Before Trial at ¶ 6:121.5 (emphasis added) (citing Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 549-550).
2nd COA for Intentional Interference with Prospective Economic Advantage
The elements of intentional interference with prospective economic advantage are 1) an economic relationship between the plaintiff and some third party with the probability of future economic benefit to the plaintiff; 2) defendant’s knowledge of the relationship; 3) intentional acts on the part of the defendant designed to disrupt the relationship; 4) actual disruption of the relationship; and 5) economic harm to the plaintiff caused by the acts of the defendant. Youst v. Longo (1987) 43 Cal.3d 64, 71, fn. 6.
Defendants contend the SAC fails to state a claim because the allegations “which, on their face, reflect typical business transactions – fall short of establishing the existence of any existing or future relationship providing economic benefit to [Plaintiff],” Defendants’ knowledge of any such relationship, or any acts designed to disrupt such relationships. (Dem. at 9-10.) In support thereof, Defendants cite to a handful of largely federal authorities finding that the third-party relationships had only been alleged in conclusory fashion. However, even assuming this federal authority required greater specificity, no California authority requires Plaintiff to specifically identify (i.e., by name) the “third parties” with which Plaintiff had an economic relationship with, which were “disrupted.”
Moreover, Plaintiff did not make vague or conclusory allegations regarding the “relationships.” Plaintiff specifically alleged that “approximately 84 of Sorriso’s customers were ESD’s customers, and additional customers were World Lab’s customers,” and “that approximately 34 of Artidental’s customers are World Lab’s customers (and at least nine out of Artidental’s top 15 customers were World Lab’s customers).” (SAC at ¶¶ 55, 66.) Again, drawing all inferences in favor of Plaintiff, Plaintiff has sufficiently alleged facts showing Defendants had knowledge of these relationships. Further detail can be obtained through discovery.
3rd COA for Negligent Interference with Prospective Economic Advantage
“The tort of negligent interference with economic relationship arises only when the defendant owes the plaintiff a duty of care.” LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 348 (citation omitted). To state a claim for negligent interference, a plaintiff must allege that: “(1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship.” North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 786.
Defendants contend this claim is subject to demurrer because “the SAC fails to allege any independent duty owed by either Ms. Tsai or Mr. Huang to World Lab.” (Dem. at 11.) Plaintiff, on the other hand, claims it has sufficiently alleged a “duty of care” because “Defendants had a duty to act reasonably to avoid causing harm to Plaintiff, as ‘all persons are required to use ordinary care to prevent others from being injured as a result of their conduct….’” (Opp’n at 7, citing J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 803-806.) Defendants have the better argument.
The SAC alleges the entities Defendants allegedly operated—Sorriso and Artidental—were direct competitors of Plaintiff. As a matter of law, competitors do not owe each other a “duty of care.” Stolz v. Wong Communications Limited Partnership (1994) 25 Cal.App.4th 1811, 1825. Rather, the “competitor” owes the other “a general duty to refrain from committing intentionally tortious conduct.” See LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 348 (lenders’ counsel did not owe borrowers’ counsel a duty of care in loan transaction).
Thus, the Court sustains the demurrer to this claim, but will provide Plaintiff an opportunity to amend.
4th COA for Unfair Business Practices & 5th COA for Aiding and Abetting Unfair Business Practices
Business and Professions Code section 17200 (“section 17200”) defines “unfair competition” to include “any unlawful, unfair or fraudulent business act or practice....” Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 133. “The scope of section 17200 is broad, encompassing ‘anything that can properly be called a business practice and that at the same time is forbidden by law.’ ... It governs ‘anti-competitive business practices’ as well as injuries to consumers, and has as a major purpose ‘the preservation of fair business competition.’” Id. (citing Cel–Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180).
Defendants contend these claims fail because they are based on Plaintiff’s causes of action for “aiding and abetting breach of fiduciary duty and intentional and negligent interference with prospective economic advantage.” (Dem. at 11-12.) Because the Court finds the aiding and abetting and the intentional interference claims are not subject to demurrer, the demurrer to these causes of action are overruled as well.
6th COA for Unjust Enrichment
Defendants contend Plaintiff has failed to state a claim for unjust enrichment because “no specific wrongful conduct has been alleged regarding either Ms. Tsai or Mr. Huang and no detailed facts are supplied to allege how or in what amounts either was unjustly enriched.” (Dem. at 13.)
As explained in American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1483, “[d]isgorgement based on unjust enrichment is an appropriate remedy for aiding and abetting a breach of fiduciary duty.” Accordingly, because the aiding and abetting claim survives, so does Plaintiff’s claim for unjust enrichment.
7th COA for Violations of the Uniform Voidable Transactions Act (Fraudulent Transfers Based on Intentional Acts)
A “fraudulent transfer” (aka a “voidable transaction” under the Uniform Voidable Transactions Act) requires evidence that a “debtor” made at transfer or incurred an obligation with “actual intent to hinder delay, or defraud any creditor of the debtor.” Civ. Code § 3439.04(a).
Plaintiff alleges it “was the holder of certain claims for damages against Defendants, and Defendants have incurred obligations that are due and owing to Plaintiff, which give rise to filing this Second Amended Complaint, as set forth more fully above,” and that “Defendants, and each of them, engaged in numerous money transfers, as exemplified more fully above, with actual intent to hinder, delay, or defraud all of Defendants’ then and future creditors, including Plaintiff, in the collection of their claims.” (SAC at ¶¶ 159-160.)
Plaintiff fails to cite any authority showing that a UVTA claim can be based on Plaintiff potentially being a creditor of Defendants, should Plaintiff prevail on its claim in this action. Thus, the demurrer is sustained with leave to amend.
8th COA for Civil Conspiracy
“Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.” Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal. 4th 503, 510-11.
The elements of civil conspiracy are (1) the formation and operation of the conspiracy, (2) a wrongful act done in the furtherance of the conspiracy, and (3) the resulting damage to the plaintiff. Id. Civil conspiracy “allows tort recovery only against a party who already owes the duty and is not immune from liability based on applicable substantive tort law principles.” Applied Equip. Corp. v. Litton Saudi Arabia Ltd., supra, 7 Cal. 4th at 514.
In other words, “before one can be held liable for civil conspiracy, he must be capable of being individually liable for the underlying wrong as a matter of substantive tort law. And that requirement, of course, means he must have owed a legal duty of care to the plaintiff, one that was breached to the latter’s injury.” Chavers v. Gatke Corp. (2003) 107 Cal. App. 4th 606, 612. Thus, it has been held that “[a] nonfiduciary cannot conspire to breach a duty owed only by a fiduciary.” American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1474 (citations omitted) (explaining that California law treats conspiracy and aiding and abetting differently).
Although Plaintiff contends it has adequately alleged the elements of a civil conspiracy, it fails to explain how the SAC has alleged an “independent duty” owed by Defendants to Plaintiff because, unlike Mr. Yamakawa, Defendants did not owe any fiduciary duty to Plaintiff. Accordingly, the demurrer is sustained with leave to amend.
[2] The Motion by Defendants Kim Tsai and Alan Huang to Strike Claim for Punitive Damages from Plaintiff World Lab U.S.A., Inc.’s Second Amended Complaint is denied.
Defendants move to strike the request for punitive damages in connection with the first, second, seventh and eighth causes of action. In light of the ruling on the Demurrer, above, Defendants’ request to strike punitive damages requested in connection with the first and second causes of action is denied. The remainder of the motion is moot.
Plaintiff shall file and serve its Amended Complaint within 15 days.