Judge: Maurice A. Leiter, Case: 18STCV05750, Date: 2023-01-26 Tentative Ruling

Case Number: 18STCV05750    Hearing Date: January 26, 2023    Dept: 54

Hearing Date: January 26, 2023

Department 54, Judge Maurice A. Leiter

Demurrer to Complaint

Moving Party: Defendant Weichou Huang

Responding Party: Plaintiff Xiangjie Zhou

T/R:     HUANG’S DEMURRER IS SUSTAINED WITH LEAVE TO AMEND.

ZHOU TO FILE AND SERVE A FIRST AMENDED COMPLAINT WITHIN 10 DAYS OF NOTICE OF RULING. HUANG TO FILE AND SERVE A RESPONSE WITHIN 30 DAYS THEREAFTER.

HUANG TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at¿SMCdept54@lacourt.org¿with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing. 

The Court considers the moving papers, opposition, and reply.

BACKGROUND

This is a shareholder derivative action brought by Plaintiff Weichou Huang on behalf of Kasan International, Inc. against its officer and director, Defendant Xiangjie Zhou aka Johnny Zhou. Kansan imports wholesale seafood products. Huang is a 40% owner, officer and director of Kansan; Zhou is a 60% owner, officer, and director of Kansan. Zhou allegedly abused his position of control by diverting Kansan’s corporate assets and opportunities for personal gain, failing to maintain accurate accounting records and/or provide supporting documents, and failing to collect past due outstanding third party loans.

On November 9, 2021, Plaintiff Huang filed the operative second amended complaint against Zhedong Zhou, Xiangjie Zhou, and Chinese International Inc., Nautica & Co., Inc., asserting causes of action for (1) breach of fiduciary duty; (2) abuse of control; (3) conversion; (4) accounting; and (5) aiding and abetting breach of fiduciary duty.

On June 30, 2021, Xiangjie Zhou filed a complaint against Weichou Huang in an individual capacity and as a shareholder derivative suit on behalf of Kansan Kasan International, Inc., asserting nine causes of action for breach of contract, breach of fiduciary duty, corporate waste, accounting and fraud.

ANALYSIS

A demurrer to a complaint may be taken to the whole complaint or to any of the causes of action in it.  (CCP § 430.50(a).)  A demurrer challenges only the legal sufficiency of the complaint, not the truth of its factual allegations or the plaintiff's ability to prove those allegations.  (Picton v. Anderson Union High Sch. Dist. (1996) 50 Cal. App. 4th 726, 732.)  The court must treat as true the complaint's material factual allegations, but not contentions, deductions or conclusions of fact or law.  (Id. at 732-33.)  The complaint is to be construed liberally to determine whether a cause of action has been stated.  (Id. at 733.)

Huang demurs to Zhou’s June 30, 2021 complaint on the ground that Zhou has failed to identify which causes of action are brought by Zhou individually and which are brought derivatively on behalf of Kansan. Huang also asserts Zhou does not have standing to bring a derivative action because Zhou has not complied with Corp. Code § 800(b)(2).

Huang’s arguments are well taken. The complaint does not make clear which causes of action are brought individually and which are brought derivatively. Under Corp. Code § 800(b)(2), a shareholder must inform the board in writing of the facts of its claims or its proposed complaint before bringing a derivative action. Zhou does not allege the board has been informed of the claims in this action.

Huang’s demurrer is SUSTAINED with leave to amend.