Judge: Michael Shultz, Case: 24STCV00296, Date: 2025-01-06 Tentative Ruling

DEPARTMENT 40 - JUDGE ANNE RICHARDSON - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call. 



Case Number: 24STCV00296    Hearing Date: January 6, 2025    Dept: 40

24STCV00296 Li H. Liu, et al v. Pacific Life Insurance, et al.

Monday, January 6,  2025

 

[TENTATIVE] ORDER OVERRULING DEMURRER TO THE SECOND AMENDED BY DEFENDANTS, BY FERNANDO GONZALEZ AND JOHN SHIN

 

[TENTATIVE] ORDER OVERRULING DEMURRER TO THE SECOND AMENDED COMPLAINT BY DEFENDANT, MARC J. SCHWARTZ,  AND GRANTING IN PART THE MOTION TO STRIKE

 

I.       BACKGROUND

      This action arises from an allegedly fraudulent scheme perpetrated by Defendant, Pacific Life Insurance Company, and its agents and producers, to sell indexed universal life insurance policies to Plaintiffs. Defendants allegedly abandoned the product due to rapidly and substantially increasing costs resulting in damage to Plaintiffs. The second amended complaint (“SAC”) filed on August 12, 2024, alleges 14 causes of action arising from these allegations. Plaintiff dismissed the 10th cause of action for violation of Insurance Code § 780, et seq. on August 26, 2024.

      The court has considered demurrers by all three Defendants, the motion to strike by Defendant, Marc J. Schwartz, and the Plaintiffs’ oppositions and replies thereto. The court declines all Defendants’ request to take judicial notice of Judge Richardson’s July 29, 2024, ruling on demurrer by other co-defendants in this action as they are immaterial to the Plaintiffs’ allegations against the demurring Defendants here. Prior rulings involving other allegations against other named Defendants are irrelevant.

 

II.     LEGAL STANDARDS

The bases for demurrer are limited by statute and may be sustained for reasons including failure to state facts to state a cause of action and uncertainty. (Code Civ. Proc., § 430.10.) A demurrer “tests the sufficiency of a complaint as a matter of law and raises only questions of law.” (Schmidt v. Foundation Health (1995) 35 Cal.App.4th 1702, 1706.) The court must assume the truth of (1) the properly pleaded factual allegations; (2) facts that can be reasonably inferred from those expressly pleaded; and (3) judicially noticed matters. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The court may not consider contentions, deductions, or conclusions of fact or law. (Moore v. Conliffe (1994) 7 Cal.4th 634, 638.)

A motion to strike is limited to matters that appear on the face of the pleading or on any matter of which the court can take judicial notice. (Code Civ. Proc., § 437.) The court may strike out any irrelevant, false, or improper matter inserted in any pleading; or strike all or any part of the pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc. §436 subd. (a)-(b).)

III.    DISCUSSION

A.     Demurrer by Shin and Gonzalez defendants.

1)     Demurrer to the fourth cause of action for intentional infliction of emotional distress is OVERRULED

      The Shin defendants argue that Plaintiffs did not allege facts that constitute extreme and outrageous conduct. Plaintiffs contend the claims are well stated.

      The Shin defendants are alleged to be licensed life insurance agents who sold the Pacific Discovery Xelerator IUL 2 indexed life insurance policies (“Policies”) to Plaintiffs and who acted as agents for the other Defendants. (SAC, ¶¶ 11-12, 19, 86.) The fourth cause of action is based on Defendants’ alleged misrepresentations in selling the Policies to Plaintiffs and concealment of material facts. Specifically, Plaintiffs allege that the Shin defendants falsely represented and or concealed material facts that the Policies would procure sufficient value to offset any loan interest and premium requirement; that taking out a loan did not present a risk to Plaintiffs; that Plaintiff Li H. Liu (“Liu”) qualified for the program; that Liu would receive a positive cash flow from the program and would not have to borrow additional funds after the first year; and that Plaintiff Liu would have to pledge collateral for the program. (SAC, ¶ 62.)

      The Shin defendants allegedly failed to explain the terms of the loan or the Policies, failed to provide any disclosures or documents or other information demonstrating how the program would operate as required by the Insurance Code, never disclosed risks of the program, failed to disclose they had little or no experience with premium financing, all of which Plaintiffs relied upon to their detriment. (SAC, ¶ 63.)

      The alleged misrepresentations proved false because the loan at issue would mature in six years, and Liu would have increased collateral obligations to support the loan. (SAC ¶ 99.) Liu ultimately borrowed $4.5 million from Defendant, Win Trust Life Finance (“Win Trust”) and was required to pay interest costs in excess of $50,000 in 2019, over $75,000 in 2020, and over $99,000 in 2021. (SAC ¶ 80.)  Plaintiff Liu was also required to wire $1.2 million in collateral. (SAC ¶ 81.) Plaintiffs allege that as a result of the misconduct, the policy lapsed, the personal collateral was foreclosed upon, and the Policies held by the Plaintiff, Li Huang Liu Irrevocable Life Insurance Trust (“Plaintiff Trust”) was forfeited. (SAC, ¶ 22.)  

      To prevail on a claim for intentional infliction of emotional distress, plaintiff must allege facts showing (1) extreme and outrageous conduct with the intention of causing, or reckless disregard of the probability of causing emotional distress, (2) that plaintiff suffered severe or extreme emotional distress, and (3) actual and proximate causation. (Christensen v. Superior Court (1991) 54 Cal.3d 868, 903.)

      Behavior is considered sufficiently “outrageous” if defendant “(1) abuses a relation or position which gives him power to damages the plaintiff’s interest; (2) knows the plaintiff is susceptible to injuries through mental distress; or (3) acts intentionally or unreasonably with the recognition that the acts are likely to result in illness through mental distress.” (Agarwal v. Johnson (1979) 25 Cal.3d 932, 946.)

      Notably, the Shin defendants are named in the causes of action for intentional misrepresentation, fraudulent concealment, violation of Business & Professions Code § 17200 (“UCL”), professional negligence, negligent misrepresentation, Insurance Code violations, conspiracy to defraud, and for receiving stolen property. The Shin defendants have not demurred to any of these claims, although the specific allegations on which those claims arose collectively form the basis for the emotional distress claim. All of these aforementioned causes of action can support a jury’s finding that such misconduct was extreme and outrageous. If reasonable minds may differ on whether a defendant’s conduct is sufficiently outrageous “it is for the jury, subject to the control for the court, to determine whether, in the particular case, the conduct has been sufficiently extreme and outrageous to result in liability.” (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 499.) Accordingly, the Shin defendants demurrer to this claim is OVERRULED.

2)     Demurrer to the 13th cause of action for violation of Penal Code §496 is OVERRULED.

      Plaintiffs allege that by perpetrating the premium finance scheme described above, Defendants received large commissions and/or other funds that they should not have received and “in fact stole” from Plaintiffs. (SAC ¶ 245.)  The Shin defendants argue that Plaintiffs did not allege that the Shin defendants received or possessed stolen property. Plaintiffs allege that other defendants issued the insurance policies, obtained the loan, and paid commissions to other Defendants. (Dem. 16:16-24.)

      Section 496 of the Penal Code is commonly referred to as receiving stolen property requires a showing "(1) that the particular property was stolen, (2) that the accused received, concealed or withheld it from the owner thereof, and (3) that the accused knew that the property was stolen." (Finton Construction, Inc. v. Bidna & Keys, APLC (2015) 238 Cal.App.4th 200, 213.) The elements required for civil liability to attach “are simply that (i) property was stolen or obtained in a manner constituting theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the defendant received or had possession of the stolen property." (Switzer v. Wood (2019) 35 Cal.App.5th 116, 126.)

       The express language of the statute permits statutory liability against every person who buys or receives any property that has been stolen "or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained … .” (Pen. Code, § 496.) Moreover, "the requisite possession of the stolen property may be either actual or constructive, and need not be exclusive. In fact, physical possession is not required, as it is sufficient if the defendant acquires a measure of control or dominion over the stolen property.” (In re Anthony J. (2004) 117 Cal.App.4th 718, 728.)  Accordingly, the Shin defendants’ actual receipt or possession of stolen funds is not required to support the claim.

      Plaintiffs allege that by Defendants’ procurement of the loan and Policies, Defendants earned fees for themselves and other Defendants. (SAC ¶ 71.) By sharing in the commissions, Defendants conspired and acted “in concert to deprive Plaintiffs of money and causing damages.” (SAC ¶ 73.) Shin and Gonzalez allegedly formed an agency relationship with Defendant, Succession Capital, who issued the policy and received commissions for procuring the policy. (SAC ¶ 75.) Shin’s and Gonzalez’s alleged misconduct induced Plaintiffs to participate in the program so that they (defendants) could receive “excessive commissions.” (SAC ¶ 86.)

      Penal Code § 496 broadly extends to property that “extends to property ‘that has been obtained in any manner constituting theft.’ Penal Code section 484 describes acts constituting theft. The first sentence of section 484, subdivision (a) states: “Every person who shall feloniously steal, take, carry, lead, or drive away the personal property of another, or who shall fraudulently appropriate property which has been entrusted to him or her, or who shall knowingly and designedly, by any false or fraudulent representation or pretense, defraud any other person of money, labor or real or personal property, or who causes or procures others to report falsely of his or her wealth or mercantile character and by thus imposing upon any person, obtains credit and thereby fraudulently gets or obtains possession of money, or property or obtains the labor or service of another, is guilty of theft." (Bell v. Feibush (2013) 212 Cal.App.4th 1041, 1048 (italics in original).) Accordingly, demurrer is OVERRULED.

B.     Demurrer by Marc Schwartz (“Schwartz”)

1)     Demurrer to the first cause of action for intentional fraud, second cause of action for concealment, and the sixth cause of action for negligent misrepresentation is OVERRULED.

      A claim for fraud requires facts to support the following elements: (1) a misrepresentation, (2) made with knowledge of its falsity, (3) Defendant intended to defraud Plaintiff, i.e., induce Plaintiff’s reliance, (4) Plaintiff justifiably relied on the misrepresentation, (5) causing damage. (Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1268.) Fraud claims are subject to strict requirements of particularity in pleading. (Id.) The particularity requirements necessitate pleading facts showing “how, when, where, to whom, and by what means the representations were tendered." (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.) The requirement “applies not only to the alleged misrepresentation, but also to the elements of causation and damage." (Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 776.)

      A claim for negligent misrepresentation differs only as to the second element which requires proof that the defendants made the representation without reasonable ground for believing it to be true. (Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 196.)

      While fraud claims are subject to strict requirements of particularity in pleading, the specificity rule is intended to apply to affirmative misrepresentations and not to concealment.    (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 89 Cal.Rptr.3d 659).

      The elements of a fraud claim based on concealment are: “(1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 310–311.)

      There are “four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” (Id. at 311). If a fiduciary relationship does not exist, but the latter three circumstances are present, plaintiff must still show “the existence of some other relationship between the plaintiff and defendant from which a duty to disclose can arise.” (Id. at 311).

      Schwartz argues that Plaintiffs do not allege the specific misrepresentations made by him or facts to show that Plaintiffs justifiably relied on Schwartz’s purported misrepresentations. Contrary to Schwartz’s arguments, the SAC adequately alleges facts to support these elements.

      Plaintiffs allege that Schwartz is a California licensed, estate-planning attorney who attended the June 2018 meeting at Plaintiff Liu’s home along with the Shin defendants.  (SAC, ¶ 7, 49.) Schwartz allegedly held himself out as an expert in estate planning and represented that he and Shin determined it would be best if Liu purchased a life insurance policy using an irrevocable life insurance trust (“ILIT”) to avoid estate taxes on the proceeds of the life insurance policies at issue. (SAC ¶ 57.) Schwartz allegedly assured Plaintiff Liu that he would act as her trustee for the ILIT and represented that he could work with the insurance agents (Shin defendants) in their proposed program. (SAC ¶ 58.) Schwartz represented that the policy account values would grow to a cash surrender value by the third year of $3.484 million, which was false, because by the third anniversary, the Policies had a surrender value of $3.198 million. (SAC ¶ 44.)

      Schwartz’s contention that Plaintiffs did not allege that Schwartz marketed any material specifically to Liu or that she relied on these materials is unsupported by the allegations of the SAC. Plaintiffs allege that Schwartz and Shin allegedly handwrote a false diagram demonstrating how the program would work and how Liu would benefit. (SAC ¶ 60.) Schwartz’s contention that his name is “conspicuously omitted” is inaccurate. (Dem. 11:22.) Plaintiffs allege that “[b]oth Gonzalez and Schwartz acknowledged Shin’s representations, and participated and ratified the representations in pitching the investment. (SAC ¶ 50.) Schwartz allegedly ratified and approved “of the representations as attorney and proposed fiduciary, Liu relied upon their representations, and did so reasonably.” (SAC ¶ 55.) Plaintiffs allege that Shin, Gonzalez, and Schwartz made these false statements to Plaintiff Liu, with each affirming the others’ false statements, and failed to provide Plaintiff Liu with any required disclosures or other documents to demonstrate how the loan or the life insurance policy would operate. (SAC ¶ 63.)

      Schwartz allegedly created the Li Huang Liu Irrevocable Life Insurance Trust (the “Liu Trust”) with Schwartz acting as the trustee of said trust. He selected the type and amount of the policy, the insurer, the loan, and the lender. (SAC ¶ 69.) Schwartz caused the Liu Trust to borrow $9 million for Policies that required premium payments of $1.5 million per year for six years, contrary to Schwartz’s representation that the loan would fund the premium for the duration of the Policies so that Liu would not incur out-of-pocket expenses for the premiums. (SAC ¶ 71.)

      Schwartz allegedly worked behind Plaintiff Liu’s back to earn fees for himself and commissions for the Shin defendants among other co-defendants. (SAC ¶ 71.) Plaintiffs allege that Defendants including Schwartz, conspired and acted in concert to deprive Plaintiffs of money causing them damages. (SAC ¶ 73.) Schwartz allegedly signed the sales illustrations and concealed the risks and leverage associated with the Policies. (SAC ¶ 44.)

      The Schwartz and Shin defendants allegedly concealed documents and information from Plaintiff Liu to perpetrate the fraudulent scheme and to obtain the fraudulent loans for Policies that allowed them to receive commissions. (SAC ¶ 88.) Defendants, including Schwartz, fraudulent and electronically placed Plaintiff Liu’s signatures on the loan and policy documents without Liu’s knowledge, consent, or authorization. (SAC ¶ 89.) Schwartz and the Shin defendants falsely represented to Plaintiff Liu that she needed to sign these documents, including a personal guaranty, in order that they may protect her interest and falsely represented that they would provide the completed documents to her once they were complete as specifically described. (SAC ¶ 90.) Schwartz furthered the collective fraud by improperly signing documents for which he had no authority, including an assignment of life insurance policy as collateral, which he never showed to Plaintiff Liu. (SAC ¶ 92.)

      The foregoing allegations are replete with the specific material misrepresentations allegedly made by Schwartz and material facts that were concealed from Plaintiff Liu, who allege they relied on the Shin defendants and Schwartz as they “convincingly claimed to have special expertise in premium-financed life insurance and to have a nationwide program that gave them access to the lowest-cost available financing.” (SAC ¶ 123.)

      Plaintiff Liu also alleges facts to support her justifiable reliance on Schwartz: Plaintiff Liu alleges she agreed to work with Schwartz “since he was an attorney, and Schwarz held himself out as an expert in estate planning, and he further represented to Liu that he could work with insurance agents to obtain life insurance, such as the program proposed by Shin and Gonzalez. He assured her he would act as her trustee for the ILIT, and by his representations regarding his experience in these transactions as attorney and fiduciary, Plaintiff Liu “placed her trust in Schwartz relying on his representations and reassurances.” (SAC ¶ 58.)

2)     Demurrer to the third cause of action for violation of Business & Professions Code § 17200 (unfair competition or “UCL”) is OVERRULED.

      Schwartz argues that Plaintiffs failed to allege that he engaged in any fraudulent, unfair, or unlawful business practice. Plaintiffs are not entitled to recover damages. Plaintiffs do not allege what benefits Schwartz received that require disgorgement.

      Contrary to Schwartz’s argument, all allegations of the SAC, including those identified above, specifically identify the misrepresentations of fact, the concealment of material facts, and Schwartz’s alleged forgery of documents on behalf of the Trust without Plaintiffs’ knowledge, among other misconduct. Plaintiffs more specifically describe the alleged unfair practices with specificity. (SAC ¶¶ 151-154). Plaintiffs specifically allege how Defendants’ business practices violate the Insurance Code and Civil Code. (SAC ¶ 157.) These allegations are adequate to support  a UCL claim.

      As defined by statute, “unfair competition” includes “any unlawful, unfair or fraudulent business act or practice.” (Bus. & Prof. Code, § 17200). Its purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.” (Gutierrez v. Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1265). A plaintiff alleging unfair business practices under the UCL must state with “reasonable particularity” the facts supporting the statutory elements of the violation. (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 619 [Where Plaintiff did not identify the statutory scheme which was allegedly violated and the particular facts supporting the violation]. However, “heightened pleading” normally required of fraud allegations is not required to state a UCL claim. (Gutierrez at 1261 ["Based on the foregoing, we conclude causes of action under the CLRA and UCL must be stated with reasonable particularity which is a more lenient pleading standard than is applied to common law fraud claims."].

      The UCL claim alleged here is predicated on the fraud and fraud-related claims and are “tethered” to the UCL claim. (Gutierrez at 1265 ["Virtually any statute or regulation (federal or state) can serve as a predicate for a UCL unlawful practice cause of action."].) The UCL is stated in the disjunctive; Plaintiff need only allege a claim that is unlawful, unfair, or fraudulent. Under Section 17200, a practice is prohibited as ‘unfair’ or ‘deceptive’ even if not ‘unlawful’ and vice versa.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.)

      Schwartz correctly argues that a claim under the UCL “is a separate equitable cause of action, and only restitution and injunctive relief are available.  (Hodge v. Superior Court (2006) 145 Cal.App.4th 278, 284; State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1110.) While Schwartz takes issue with the allegation that Plaintiffs lost money as a result of the misconduct, Plaintiffs are not alleging monetary damages; that allegation is to support Plaintiffs’ standing to sue under Section 17200, which requires that a UCL claim be prosecuted, in relevant part, " by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition." (Bus. & Prof. Code, § 17204, SAC ¶ 160.)

      Any “monetary relief” is limited to restitution and disgorgement as Schwartz argues and as  Plaintiffs have alleged. (SAC ¶ 162; Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1266 ["The only nonpunitive monetary relief available under the Unfair Business Practices Act is the disgorgement of money that has been wrongfully obtained or, in the language of the statute, an order “restor[ing] ... money ... which may have been acquired by means of ... unfair competition."].) Plaintiffs allege that Schwartz, among others would receive large commissions, believed to be in the hundreds of thousands of dollars each per policy. (SAC ¶ 142.) Schwartz was required to disclose the receipt of commissions, which he was not entitled to collect, and failed to disclose. (SAC ¶ 185.)

3)     Demurrer to the fourth cause of action for Intentional infliction of emotional distress is OVERRULED.

      To prevail on a claim for intentional infliction of emotional distress, a plaintiff must allege facts showing (1) extreme and outrageous conduct with the intention of causing, or reckless disregard of the probability of causing emotional distress, (2) that plaintiff suffered severe or extreme emotional distress, and (3) actual and proximate causation. (Christensen v. Superior Court (1991) 54 Cal.3d 868, 903.) Behavior is considered sufficiently “outrageous” if defendant “(1) abuses a relation or position which gives him power to damages the plaintiff’s interest; (2) knows the plaintiff is susceptible to injuries through mental distress; or (3) acts intentionally or unreasonably with the recognition that the acts are likely to result in illness through mental distress.” (Agarwal v. Johnson (1979) 25 Cal.3d 932, 946.)

      Defendant argues that Schwartz’s alleged misconduct is not sufficiently outrageous to support the claim. However, all of the fraud and fraud-related claims, which includes allegations of forgery, survive demurrer and can support a jury’s finding that such misconduct was sufficiently extreme and outrageous. If reasonable minds may differ on whether a defendant’s conduct is sufficiently outrageous “it is for the jury, subject to the control for the court, to determine whether, in the particular case, the conduct has been sufficiently extreme and outrageous to result in liability. (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 499.)

4)     Demurrer to the seventh cause of action for breach of fiduciary duty and 12th cause of action for conspiracy to defraud is OVERRULED.

      Schwartz argues that Plaintiff cannot show causation on the seventh and 12th causes of action which requires a showing that but for Schwartz’s intentional misconduct, Plaintiffs would have obtained a better result on their investment. (Dem 16:10-13.) First, at the demurrer stage, the court is not concerned with whether Plaintiffs can prove their claims. Plaintiffs need only allege sufficient facts that are the essential facts of the case "with reasonable precision and with particularity that is sufficiently specific to acquaint the defendant with the nature, source, and extent of his cause of action.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 643-644.)  Whether the Plaintiff will be able to prove the pleaded facts is irrelevant. (Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 609–610.)

      Additionally, Schwartz mischaracterizes the allegations; Plaintiffs allege that but for the false and misleading representations, and material omissions, Plaintiffs would not have purchased the Policies had they known of the true facts. (SAC ¶ 134.)

      Schwartz acknowledges that the conspiracy to defraud depends on the fraud and fraud-related claims, and since the fraud claims fail, so does the conspiracy claim. (Dem. 17:11-17.) As explained above, Plaintiffs’ fraud claims are sufficiently alleged and are sufficient to support the conspiracy claims.

5)     Demurrer to the 13th cause of action for violation of Penal Code § 496 is OVERRULED.

      Schwartz argues that since Plaintiffs have not alleged a claim for intentional misconduct against Schwartz, there can be no claim for violation of Penal Code § 496. Plaintiffs allege that by perpetrating the premium finance scheme, Defendants (including Schwartz) received large commissions and/or other funds that they should not have received and “in fact stole” from Plaintiffs. (SAC ¶ 245.)

      Section 496 of the Penal Code is commonly referred to as receiving stolen property and requires a showing that "(1) that the particular property was stolen, (2) that the accused received, concealed or withheld it from the owner thereof, and (3) that the accused knew that the property was stolen." (Finton Construction, Inc. v. Bidna & Keys, APLC (2015) 238 Cal.App.4th 200, 213.” The elements required for civil liability to attach “are simply that (i) property was stolen or obtained in a manner constituting theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the defendant received or had possession of the stolen property." (Switzer v. Wood (2019) 35 Cal.App.5th 116, 126.)

       The express language of the statute permits statutory liability against every person who buys or receives any property that has been stolen "or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained … .” (Pen. Code, § 496.) Moreover, "the requisite possession of the stolen property may be either actual or constructive, and need not be exclusive. In fact, physical possession is not required, as it is sufficient if the defendant acquires a measure of control or dominion over the stolen property.” (In re Anthony J. (2004) 117 Cal.App.4th 718, 728.) 

      Based on the allegations previously identified above, this cause of action is well stated.

C.     Schwartz’s motion to strike is GRANTED in part and DENIED IN PART.

      Defendant moves to strike the Plaintiffs’ allegations that she suffered damages as a result of intentional fraud, fraudulent concealment, unfair business practices, intentional infliction of emotional distress, professional negligence, breach of fiduciary duty, negligent misrepresentation, conspiracy to defraud, and for violation of Penal Code § 496.

      Schwartz argues that Plaintiff Liu can only suffer emotional distress if the defendant has assumed a duty to plaintiff in which the emotional condition of the plaintiff is an object, and the emotional distress arises out of and is proximately caused by the defendant's breach of some other legal duty, citing Potter v. Firestone Tire & Rubber Co, (1993) 6 Cal.4th 965, 985') for the proposition that even then, with rare exceptions, a breach of the duty must threaten physical injury, not simply damage to property or financial interests. " (Mot.  to Strike, 14:5-10.) Schwartz argues that Plaintiffs cannot recover emotional distress damages in legal malpractice claims which asserts economic damage only.

      Schwartz contends that Plaintiffs bring suit for their lost investment, which is purely economic, and emotional distress damages are not recoverable against an attorney. (Mot.  to Strike 15:11-14.) Plaintiffs do not address this contention. (Ovando v. County of Los Angeles (2008) 159 Cal.App.4th 42, 73 [“Emotional distress damages ordinarily are not recoverable in a legal malpractice action if the representation concerned primarily the client's economic interests and the emotional injury derived from an economic loss.”.) Plaintiffs allege only economic damage arising out of the alleged legal malpractice. (SAC ¶ 187.) Therefore, the court GRANTS and STRIKES paragraph 188, which alleges emotional distress damage. (Code Civ. Proc., § 436.)

D.     Schwartz’s motion to strike the claim for punitive damages is DENIED.

      Schwartz argues that Plaintiffs have not alleged sufficient facts to support a finding of malice, fraud, or oppression. Exemplary damages may be recovered if a plaintiff establishes “by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” (Civ. Code, § 3294 subd. (a).). The predicate acts to support a claim for punitive damages must be intended to cause injury or must constitute fraud, or “malicious” or “oppressive” conduct as defined by statute. (Civ. Code, § 3294 subd. (c)(1); College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 725.

      All of Plaintiffs’ fraud and fraud-related claims survive demurrer and may serve as predicate acts to support recovery of punitive damages. The motion to strike the claim for punitive damages is DENIED.

E.     Motion to strike the prayer for attorney’s fees is DENIED.

      Defendant contends that Plaintiffs seek recovery of attorney’s fees under Code Civ. Proc., § 1021.5, however, Plaintiffs have no right to recover fees under that section.  Fees are recoverable if a party prevails in any action which has resulted in the enforcement of an important right affecting the public interest " (Code Civ. Proc., § 1021.5.)

      Defendant’s contention here is not supported by any facts or legal argument and is therefore, unpersuasive. (Mot.  to Strike 18:17-20.) Regardless, it is not an abuse of discretion to refuse to strike a claim for attorney fees where a plaintiff has not had a full opportunity to determine the basis for such fees. (Camenisch v. Superior Court (1996) 44 Cal.App.4th 1689, 1699. Yassin v. Solis (2010) 184 Cal.App.4th 524, 533) ["There is no requirement that a party plead that it is seeking attorney fees, and there is no requirement that the ground for a fee award be specified in the pleadings."].

IV.   CONCLUSION

Based on the foregoing, demurrer to the second amended complaint by Fernando Gonzalez and John Shin is OVERRULED in its entirety.

The demurrer by Defendant, Marc J. Schwartz, is OVERRULED in its entirety. The motion to strike portions of the second amended complaint by Defendant, Mark J. Schwartz, is GRANTED in part only as to paragraph 188 seeking emotional distress damages for the claim for legal malpractice. In all other respects, the motion to strike is DENIED.

Leave to amend is ordinarily given if there is a reasonable possibility that the defect can be cured. However, Plaintiffs did not address their ability to recover emotional distress damages specifically for the legal malpractice claim, and therefore, leave to amend is DENIED. (Association of Community Organizations for Reform Now v. Department of Industrial Relations (1995) 41 Cal.App.4th 298, 302.

Defendants, Fernando Gonzalez, John Shin, and Marc J. Schwartz, are ordered to file their respective answers to the second amended complaint within 10 days.