Judge: Monica Bachner, Case: 21STCV11963, Date: 2022-09-15 Tentative Ruling

Department 71: Attorneys who elect to submit on these published tentative rulings, without making an appearance at the hearing, may so notify the Court by communicating this to the Department's staff at (213) 830-0771 before the set hearing time.  See, e.g., CRC Rule 324(b).   All parties are otherwise encouraged to appear by Court Call for all matters.

Case Number: 21STCV11963    Hearing Date: September 15, 2022    Dept: 71

 

 

 

 

 

Superior Court of California

County of Los Angeles

 

DEPARTMENT 71

 

TENTATIVE RULING

 

ERIC HOSUK YOON, et al., 

 

         vs.

 

CUCKOO HOMESYS CO. LTD., et al.

 Case No.:  21STCV11963

 

 

 

 Hearing Date:  September 19, 2022

 

Defendants Cuckoo Homesys Co Ltd., Cuckoo Rental America, Inc., Cuckoo Electronics America, Inc., and Michael Won Jun Yi’s demurrer to the second amended complaint is overruled as to the 1st and 5th causes of action, is sustained with 20 days leave to amend as to the remaining causes of action. 

 

Defendants’ motion to strike is moot.

 

  1. Demurrer


          Defendants Cuckoo Homesys Co. Ltd (“Homesys”), Cuckoo Rental America, Inc. (“CKRA”), Cuckoo Electronics America, Inc. (“CEA”), and Michael Won Jun Yi (“Yi”) (collectively, “Defendants”) demur to the 1st (breach of contract), 2nd (failure to pay wages), 3rd (violation of Business & Professions Code §17200), 4th (fraud), 5th (bad faith), 6th (intentional misrepresentation), 7th (concealment), 8th (negligent misrepresentation), 10th (conspiracy to defraud), 11th (breach of fiduciary duty), 12th (constructive fraud), and 13th (misappropriation of trade secrets) causes of action in the second amended complaint (“SAC”) of Plaintiffs Eric Hosuk Yoon (“Yoon”) and Caresys, Inc. (“Caresys”) (collectively, “Plaintiffs”).  Defendants demur on the grounds the causes of action are uncertain, and Plaintiffs failed to allege sufficient facts to support the causes of action.  (Notice of Demurrer, pgs. 1-3; C.C.P. §§430.10(e), (f).) 

         

          Background of Action and Summary of Allegations

 

          On March 29, 2021, Plaintiffs filed their initial complaint in this action against Defendants, Homesys, and Bonkak Koo (“Koo”), and on October 19, 2021, Plaintiffs filed their First Amended Complaint (“FAC”).  This Court dismissed Defendant Koo on March 7, 2022.  Defendants’ prior demurrer to the FAC was granted on March 28, 2022.  Plaintiffs filed the operative Second Amended Complaint (“SAC”) on April 26, 2022, against Defendants. The Court notes the 1st, 4th, 5th, 6th, 7th, 8th, 10th, 11th, 12th and 13th  causes of action are brought by Plaintiffs against Defendants while the 2nd, 3rd, and 9th causes of action are brought by Yoon against Defendants. 

 

On May 20, 2022, Defendants filed the instant demurrer, and on May 23, 2022, Defendants filed their motion to strike portions of the SAC.

 

This action arises from an alleged joint venture between the parties.  Plaintiffs allege Koo and Homesys are manufacturers of rice cookers, and CEA was established in 2016 by Yi, Koo, and Homesys to sell and rent home appliances. (SAC ¶¶26-28.)  Plaintiffs allege Yoon, a small business owner, established Caresys, which primarily sold, rented, and installed water filtration and home appliances, in Los Angeles.  (SAC ¶¶34-36.)  Plaintiffs allege they approached Koo and Homesys to initiate a joint venture in an effort to grow Caresys. (SAC ¶¶38-39.) Plaintiffs allege in June 2019, they reached an oral agreement with Defendants pursuant to which they agreed to the following: (1) Yoon would serve as an employee and CEO of CKRA; (2) Yoon would be paid wages in the amount of $120,000 per year paid twice per month by Defendants; (3) Caresys would no longer sell, rent, or install water filtration and coolers and instead all such future sales, rentals and installation would be through CKRA beginning in January 2020; (4) Defendants would have CEA not sell/rent or have similar products to that of CKRA and that Defendants would not provide similar products to CEA; (5) in light of Plaintiffs being the only parties with the “know-how,” Plaintiffs were to develop and maintain the operations of CKRA; (6) “in lieu of” Yoon receiving 20% of shares in CKRA and equal decision making therein, Plaintiffs would pay for operating costs, have Caresys staff devote more than 50% of work time to CKRA; (7) Plaintiffs would serve as CKRA’s guarantors when necessary; (8) Defendants would indemnify and hold Plaintiffs harmless from any liability; (9) Plaintiffs would share their business contacts and proprietary information (“Proprietary Information”) to further the growth of CKRA while remaining Plaintiffs’ sole property; (10) Koo and Homesys would timely provide the products and parts to CKRA; (11) this venture would start in or about September 2019; (12) and Yi would serve as an officer of CKRA. (SAC ¶41.)

 

Plaintiffs allege that in reliance on the promises and reassurances of Yi, Koo, and Homesys, in June 2019, Plaintiffs began putting significant time and money into preparation for the joint venture, including spending nearly $1,000,000 on operational costs on CKRA’s behalf and Yoon guaranteeing various loans, lines of credit, and leases with balances in the amount of $230,000. (SAC ¶¶44, 52-54.)  Plaintiffs allege CKRA’s September 1, 2019 Statement of Information indicated Yoon was its CEO, Koo its Secretary, and Yi its CFO.  (SAC ¶45.)  Plaintiffs allege in December 2019, they stopped their own operations relating to water, but unbeknownst to Plaintiffs, Yi, Koo, and Homesys continued selling products similar to those of CKRA through CEA.  (SAC ¶¶47-48.) Plaintiffs allege that despite their efforts to grow CKRA, beginning in September 2019, Defendants reached out to Plaintiffs in an attempt to change the terms of the Agreement by demanding Yoon and other employees of CKRA not be paid wages for their services, which Yoon refused to agree to, which resulted in Defendants’ scheme to oust Plaintiffs, steal their Proprietary Information, breach the Agreement, and take over CKRA.  (SAC ¶¶58-60.)  Plaintiffs allege in July 2020, Defendants again attempted to change the terms of the Agreement by demanding Yoon only receive 10% of all shares of CKRA, which Yoon refused.  (SAC ¶¶61-62.)  Plaintiffs allege Defendants resisted implementing changes and systems (e.g., an inventory tracking system) that would allow CKRA to run effectively and that Koo and Homesys failed to timely provide necessary parts to for CKRA to properly operate which led to customer complaints.  (SAC ¶¶64-65.) 

 

Plaintiffs allege in August 2020, Defendants informed Plaintiffs that they wanted to memorialize the Agreement in writing (“Terms”), and in November 2020, Defendants provided the Terms which completely diverted from the parties’ original Agreement and sought to squeeze Plaintiffs out.  (SAC ¶¶66-68.)  Plaintiffs allege the Terms made clear Defendants had no intention of adhering to the Agreement, that they would not pay Yoon’s salary, and that they would have complete control.  (SAC ¶69.)  Plaintiffs allege they refused to agree to the Terms.  (SAC ¶70.)  Plaintiffs allege on January 23, 2021, Defendants informed Yoon a meeting relating to CKRA would take place and on January 25, 2021, the meeting was held, and Yoon was terminated by Defendants.  (SAC ¶¶71-72.)  Plaintiffs further allege Yoon has not been paid wages by Defendants, Plaintiffs have not been paid for their contributions by Defendants, and Defendants continue to use Plaintiffs’ Proprietary Information, continue to dispute Yoon is a CKRA shareholder, and continue to mischaracterize Yoon as an independent contractor.  (SAC ¶¶73-77.)  Plaintiffs allege CKRA has since designated Koo as its CEO and Secretary, Yi as its CFO and director, and CEA continues the sell the same products as CKRA.  (SAC ¶¶79-80.)

 

Plaintiffs allege “each Defendant” was the agent, affiliate, officer, director, manager, principal, partner, joint venture, alter-ego, and/or employee of the remaining Defendants.  (SAC ¶10.)  Plaintiffs allege Yi utilized CKRA, Homesys, and CEA solely for the for purpose of shielding himself from liability, and Homesys similarly utilized CKRA and CEA .  (SAC ¶12.)  Plaintiffs allege Defendants were interest-holders, promoters, and/or agents of CKRA, CEA, and Homesys, and Plaintiffs allege, “there exists, at all times herein mentioned…, a unity of interest between Defendants such that individuality and separateness between the Defendants has ceased and the corporations are the alter ego of each of the respective Defendants.”  (SAC ¶13.)  Plaintiff further alleges the Corporations were shells and shams without capital, assets, stock or shareholders, were inadequately capitalized.  (SAC ¶¶ 14-15.) Plaintiff further alleges that the Corporations were alter egos of the Defendant Interest-holders (vaguely describes as each of the Defendants) and used the assets of the Corporations for their personal use, the Corporations were shells, instrumentalities and conduits for the Defendant-interest holders, and that the fiction of a separate existence of the Corporations would permit abuse of the corporate privilege and produce an inequitable result.  (SAC ¶ ¶ 13, 16-19.)

 

Uncertainty

 

Demurrers for uncertainty are strictly construed, because discovery can be used for clarification, and apply where defendants cannot reasonably determine what issues or claims are stated.  (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616; Weil & Brown, Civ. Pro. Before Trial (The Rutter Group 2021) ¶¶7:85-7:86.) 

 

Defendants demur to all of the causes of action based on uncertainty as it is ambiguous as which defendants were direct parties and which were alter egos, and which committed the acts alleged.  (Demurrer, pg. 2.)  The Court disagrees.

 

“A demurrer for uncertainty will be sustained only where the complaint is so bad that defendant cannot reasonably respond—i.e., he or she¿cannot reasonably determine¿what issues must be admitted or denied, or what counts or claims are directed against him or her.”  (Weil & Brown,¿Civil Procedure Before Trial (The Rutter Group)¿§ 7:85¿(emphasis in original).)  “The objection of uncertainty does not go to the failure to allege sufficient facts.”  (Brea v.¿McGlashan¿(1934) 3 Cal.App.2d 454, 459.)  “It goes to the doubt as to what the pleader means by the facts alleged.” (Id.)  “Such a demurrer should not be sustained where the allegations of the complaint are sufficiently clear to apprise the defendant of the issues which he is to meet.”  (People v. Lim¿(1941) 18 Cal.2d 872, 882.)¿¿ As alleged, the causes of action are not uncertain and specifically apprise Defendants of the claims. Defendants’ Demurrer based on uncertainty is overruled.  

 

Breach of Oral Contract & Breach of Implied Covenant of Good Faith and Fair Dealing (1st & 5th COAs) [by Plaintiffs]

 

“The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.) “An oral contract may be pleaded generally as to its effect, because it is rarely possible to allege the exact words. [Citation.]” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) 

 

Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” (Hicks v. E.T. Legg & Associates (2001) 89 Cal.App.4th 496, 508.) “[T]he scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.” (Id. at 509.) “The covenant of good faith and fair dealing… exists… to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 349.) The implied covenant “is designed to effectuate the intentions and reasonable expectations of parties reflected by mutual promises within the contract.” (Nein v. HostPro, Inc. (2009) 174 Cal.App.4th 833, 852.)

 

Plaintiffs’ breach of contract cause of action is based on allegations that Plaintiffs and Defendants entered into the Agreement, Plaintiffs performed all acts required of them, and because of Defendants’ breach, Plaintiffs have been damaged. (SAC ¶¶82-86.)  Plaintiffs’ breach of implied covenant of good faith and fair dealing cause of action is based on the same allegations (compare SAC ¶¶111-114) and the additional allegation that Defendants’ ouster, failure to provide CKRA shares, retention of benefits from Plaintiffs, continuing CEA’s sales of similar products to those sold by CKRA prevented Plaintiffs from receiving the benefits under the Agreement. (SAC ¶115.)   In this case, Plaintiffs have sufficiently alleged alter ego.  Plaintiffs sufficiently facts to constitute the causes of action.

 

Based on the foregoing, Defendants’ demurrer to the 1st and 5th causes of action is overruled.

 

Failure to Pay Wages (2nd COA) [by Yoon]

 

          Labor Code §203(a) provides as follows: “If an employer willfully fails to pay, without abatement or reduction, in accordance with Sections 201, 201.3, 201.5, 201.9, 202, and 205.5, any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days.”

 

Labor Code §203(b) defines “labor” as, “labor, work, or service whether rendered or performed under contract, subcontract, partnership, station plan, or other agreement if the labor to be paid for is performed personally by the person demanding payment.”

 

“A wage is defined as ‘all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard for time, task, piece, commission basis, or other method of calculation.’” (Schachter v. Citigroup, Inc. (2009) 47 Cal.4th 610, 618 [quoting Labor Code §200(a)].)

 

Yoon’s failure to pay wages cause of action is based on the following allegations: (1) within two of filing this action, pursuant to the provisions of the Labor Code and the applicable Industrial Welfare Commission Order, Defendants and each of them willfully failed to pay Yoon wages due pursuant to Cal. Labor Code § 203, et seq.; (2) by failing to timely pay said wages, Defendants are liable Yoon pursuant to Labor Code in an amount to be determined at the time of trial, including interest thereon together with reasonable attorney’s fees and costs of suit; (3) Defendants, including Yi, acting on behalf of and as an employer, violated, or caused to be violated, a provision regulating wages pursuant to Cal. Civ. Code § 558.1, et seq.; (4) that each of the Defendants was personally involved in the purported violations, absent from such personal involvement, and/or had sufficient participation in the activities of the employer, including but not limited to being responsible for wage/labor violations, such that he/it/they may be deemed to have contributed to, and thus violated the wage/labor laws; (5) Yi was a director, officer, or managing agent of the employees and personally had significant oversight of the company’s operations or some influence on corporate policy, including its day to day operations, decision making and employment policies and therefore liable pursuant to Cal. Civ. Code § 558.1, et seq.; and (6) Yi had advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice as to failing to pay Yoon his wages. (SAC ¶¶89-93.)

 

          Yoon failed to allege sufficient facts to constitute the cause of action. Yoon’s allegations that All Defendants failed to pay him wages as his employers is conclusory and unclear as to how Yoon worked as CFO of CKRA but was an employee of Yi in his capacity as CKRA’s CFO.  (SAC ¶45.) Moreover, the SAC describes Yi as an agent of an entity employer in connection with personal liability alleged against Yi regarding the second cause of action.  (SAC ¶92.)  

 

          Based on the foregoing, Defendants’ demurrer to the 2nd cause of action is sustained with leave to amend.

 

Unlawful Business Practices in Violation of Business & Professions Code §17200 et seq. (3rd COA) [by Yoon]

 

Business & Professions Code §17200 provides, as follows: “As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.” 

 

Yoon’s 3rd cause of action is based on the following allegations: (1) All Defendants served as the employer of Yoon; (2) Defendants engaged in numerous unlawful and deceptive activities in violation of labor standards, Cal. Labor Code §203, et seq., which afforded them the ability to unfairly compete against other businesses that did comply with the law; (3) Defendants intentionally, willfully and improperly failed to pay his wages for hours worked pursuant to Cal. Labor Code §203, et seq.; (3) Defendants engaged in additional multiple Labor Code violations including but not limited to failing to properly maintain adequate records of hours and wages (Cal. Labor Code §1174, et seq.), failing to provide Yoon with an accurate accounting of his wages and additional unlawful conduct (Cal. Labor Code §226, et seq.); (4) as a result of All Defendants’ unlawful business practices, Defendants have unlawfully withheld Yoon’s wages.  (SAC ¶¶95-99.)

 

Yoon failed to allege sufficient facts to state a cause of action for unfair business practices against Defendants. Yoon has failed to allege the existence of an employment relationship with all Defendants for the purposes of stating the cause of action, as the pleading also states that CKRA was the only Defendant entity for which Yoon worked.  Yoon also fails to allege which defendants engaged in the alleged unlawful business practices and which Labor Code sections were violated.

 

Based on the foregoing, Defendants’ demurrer to the 3rd cause of action is sustained with leave to amend. 

 

Fraud, Intentional Misrepresentation, Concealment, & Negligent Misrepresentation (4th, 6th, 7th, & 8th COAs) [by Plaintiffs]

 

The elements of fraud are: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) 

 

“Negligent misrepresentation is a species of the tort of deceit and, like fraud, requires a misrepresentation, justifiable reliance and damage. [Citation] ‘The elements of negligent misrepresentation are similar to intentional fraud except for the requirement of scienter; in a claim for negligent misrepresentation, the plaintiff need not allege the defendant made an intentionally false statement, but simply one as to which he or she lacked any reasonable ground for believing the statement to be true.’ [Citation]” (Melican v. Regents of University of California (2007) 151 Cal.App.4th 168, 181-182.)  “To be actionable, a negligent misrepresentation must ordinarily be as to past or existing material facts. ‘[P]redictions as to future events, or statements as to future action by some third party, are deemed opinions, and not actionable fraud.’[Citation]” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 158.) 

 

In California, fraud, including negligent misrepresentation, must be pled with specificity and the plaintiff must plead facts showing “how, when, where, to whom, and by what means the representations were tendered. [Citation]”. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)  “The requirement of specificity in a fraud action against a corporation requires the plaintiff to allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.”  (Tarmann v. State Farm Mut. Auto Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

 

Plaintiffs’ fraud-based causes of action are based on the general underlying allegations discussed above. In connection with each of the causes of action, Plaintiffs allege that Defendants’ conduct in connection with entering the Agreement and failing to uphold the agreement satisfied the elements of the causes of action.  (SAC ¶¶102-109, 118-122, 124-129, 131-135.)  For instance, in connection with the fraud cause of action, Plaintiffs allege Defendants entered into the Agreement with Plaintiffs and “[t]he representations were false,” without citing to the Agreement which representations were false.  (SAC ¶¶103-104.)  The intentional misrepresentation cause of action is apparently based on Defendants’ representations that they would uphold the Agreement.  (SAC ¶118.)  In connection with the concealment cause of action, Plaintiffs allege Defendants had a fiduciary duty and joint interest with Plaintiffs in CKRA and Defendants failed to disclose they were selling similar items through CEA, scheming to take Plaintiffs’ proprietary information, and oust Plaintiffs. (SAC ¶¶124-125.)  The negligent misrepresentation claim is also based on the allegation that Defendants continuously represented that they would uphold the Agreement. (SAC ¶131.)

 

Plaintiffs failed to allege sufficient facts to support their fraud-based causes of action.  The causes of action are not alleged with sufficient factual specificity to support fraud.  The allegations are made collectively as to Defendants without identifying which individual made representations and/or omissions at issue and on which entities’ behalf, when, and by what means.  In addition, Plaintiffs failed to allege facts supporting the existence of a fiduciary duty for purposes of the concealment cause of action.  In addition, it is not clear Plaintiffs have alleged sufficient facts to support each of the elements of the various types of fraud based on Defendants’ alleged underlying breach of an Agreement. Plaintiffs do not allege facts supporting Defendants’ knowledge of the falsity of any representations made (which are likewise not sufficiently alleged) and/or facts suggesting those representations were made without any reasonable ground for believing theme to be true.

 

Based on the foregoing Defendants’ demurrer to the 4th, 6th, 7th, and 8th causes of action is sustained with leave to amend.

 

Wrongful Discharge (9th COA) [by Yoon]

 

“The elements of a claim for wrongful discharge in violation of public policy are (1) an employer-employee relationship, (2) the employer terminated the plaintiff’s employment, (3) the termination was substantially motivated by a violation of public policy, and (4) the discharge caused the plaintiff harm. [Citation]” (Yau v. Allen (2014) 229 Cal.App.4th 144, 154.) 

 

Yoon’s wrongful discharge cause of action is based on allegations that he was employed by Defendants and that Defendants, in violation of public policy, wrongfully discharged Yoon given his refusal to agree to nonpayment of wages. 

 

Yoon failed to allege sufficient facts to state a cause of action for wrongful discharge in violation of public policy.  As a preliminary matter, Yoon fails to allege which fundamental policy of the State of California was violated by the alleged termination of his employment.  Yoon fails to allege facts sufficient to support the cause of action given he alleges no facts suggesting his termination was substantially motivated by a violation of public policy, namely, discrimination, retaliation, or otherwise, and identified three applicable statutes without addressing how Defendants refused to follow the statutory obligations. 

 

Based on the foregoing, Defendants’ demurrer to the 9th cause of action is sustained with leave to amend.

 

Conspiracy to Defraud (10th COA) [by Plaintiffs]

 

Plaintiffs’ conspiracy cause of action is based on allegations Defendants collectively and knowingly entered into an agreement to defraud Plaintiffs and acted in concert with the mutual understanding to accomplish this common and unlawful plan and that “one or more of them committed an overt act to further it.” (SAC ¶¶143-149.) 

 

“Liability for civil conspiracy generally requires three elements: (1) formation of a conspiracy (an agreement to commit wrongful acts); (2) operation of a conspiracy (commission of the wrongful acts); and (3) damage resulting from operation of a conspiracy. [Citation]” (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257.) “Standing alone, a conspiracy does no harm and engenders no tort liability. It must be activated by the commission of an actual tort.” (Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 206.) 

 

Plaintiffs failed to allege sufficient facts to state a cause of action for conspiracy.  Plaintiffs do not even allege which defendant engaged in what “overt act” that furthered the conspiracy.  The allegations are conclusory and unsupported.

 

Based on the foregoing, Defendants’ demurrer to the 10th cause of action is sustained with leave to amend.

 

Breach of Fiduciary Duty & Constructive Fraud (11th & 12th COAs) [by Plaintiffs]

 

“To establish a cause of action for breach of fiduciary duty, a plaintiff must demonstrate the existence of a fiduciary relationship, breach of that duty and damages. [Citations]” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 182.)

 

“Constructive fraud ‘arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice.’ [Citation.] Actual reliance and causation of injury must be shown. [Citation.]” (Tyler v. Children’s Home Society (1994) 29 Cal.App.4th 511, 548; see also Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 516, fn. 14 [elements of constructive fraud cause of action are “(1) a fiduciary or confidential relationship; (2) nondisclosure (breach of fiduciary duty); (3) intent to deceive, and (4) reliance and resulting injury (causation)”].)

 

A fiduciary duty is founded upon a special relationship imposed by law or when “confidence is reposed by persons in the integrity of others,” who voluntarily accept the confidence.  (Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg (1989) 216 Cal.App.3d 1139, 1150; see CACI 4100, et seq.) “‘[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.’” (City of Hope Nat’l Med. Ctr. v. Genentech (2008) 43 Cal.4th 375, 386.)

 

“[B]ecause of ‘[t]he vagueness of the common law definition of the confidential relation that gives rise to a fiduciary duty, and the range of the relationships that can potentially be characterized as fiduciary,’ the ‘essential elements’ have been distilled as follows: ‘1) The vulnerability of one party to the other which 2) results in the empowerment of the stronger party by the weaker which 3) empowerment has been solicited or accepted by the stronger party and 4) prevents the weaker party from effectively protecting itself.’ (Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 272 (“Richelle”).)  In short, vulnerability ‘is the necessary predicate of a confidential relation,’ and ‘the law treats [it] as “absolutely essential”’…” (Persson v. Smart Inventions (2005) 125 Cal.App.4th 1141, 1161.)

 

          Plaintiffs’ breach of fiduciary duty cause of action is based on the following allegations: (1) Defendants were “agents, interest-holders, and officers of CKRA,” (2) Defendants and Plaintiffs were a joint venture or at the very least a partnership per the terms of the Agreement, (3) Defendants and Plaintiffs had “shared interests” in CKRA, (4) as a result Defendants owed a fiduciary duty to Plaintiffs, (5) that Defendants failed to act “a reasonably careful person” would have under the circumstances, and (4) Plaintiffs were harmed.  (SAC ¶¶152-157.) 

 

Plaintiff’s constructive fraud cause of action is based on the following similar allegations: (1) Defendants were “agents, interest-holders, and officers of CKRA”; (2) Defendants and Plaintiffs were in a joint venture or at the very least a partnership per the terms of the Agreement; (3) Defendants knew that selling the same if not similar items as CKRA would harm Plaintiffs and CKRA; (4) “Defendant” misled Plaintiffs by failing to disclose this information; and (5) Plaintiffs were harmed. (SAC ¶¶159-163.)

 

Plaintiffs failed to allege sufficient facts to support the causes of action.  First, Plaintiffs failed to allege facts suggesting Defendants owed Plaintiffs fiduciary duties based on their shared interests in CKRA.  Plaintiffs alleged Yoon was CKRA’s CEO and does not allege how as CEO Yoon was owed fiduciary duties. Plaintiffs also fail to allege facts suggesting the existence of a fiduciary relationship between Defendants and Caresys. Similarly, Plaintiffs’ constructive fraud cause of action fails to allege facts suggesting the existence of either a fiduciary or confidential relationship between Plaintiffs on the one hand and Defendants on the other.  In addition, the cause of action is not alleged with sufficient factual specificity as it fails to identify which individuals and/or entities engaged in the underlying fraudulent acts, by what means, and when. 

 

Based on the foregoing Defendants’ demurrer to the 11th and 12th causes of action is sustained with leave to amend.

 

Misappropriation of Trade Secrets (13th COA)

 

A cause of action for misappropriation of trade secrets requires the following elements: (1) plaintiff owned or was a licensee of the subject information; (2) this information was trade secret at the time of misappropriation; (3) defendant acquired, used, or disclosed the trade secret; and (4) plaintiff suffered damages or defendant was unjustly enriched resulting from such.  (CACI No. 4401.)

 

Plaintiffs’ misappropriation cause of action is based on the following allegations: (1) Plaintiffs had various proprietary and trade secrets including but not limited to business projections, forecasts, client contacts and sales information relating to the sale of home appliances including but not limited to water filtrations; (2) this information amounted to trade secrets and were trade secrets at the time of the misappropriation; (3) Defendants improperly and continue to use this information despite wrongfully terminating and ousting Plaintiffs; (4) Plaintiffs have been damaged as a result.

 

Plaintiffs have not alleged sufficient facts to support the cause of action. Namely, Plaintiffs have not alleged facts suggesting the alleged trade secrets of “business contacts” were trade secrets at the time Defendants allegedly misappropriated them given Plaintiffs also allege they “would share…to further the growth of CKRA…” (SAC ¶41.)  Plaintiffs have not alleged facts suggesting Defendants were not allowed to use the shared business contact information after the alleged termination of Plaintiffs, and as such, Plaintiffs have not alleged that any misappropriation by defendants was wrongful. Based on the foregoing, Defendants’ demurrer to the 13th cause of action is sustained with leave to amend.

 

  1. Motion to Strike

     

    In light of the Court’s ruling on the demurrer, Defendants’ motion to strike is moot.

     

     

    Dated:  September ____, 2022

                                                                                                                      

    Hon. Monica Bachner

    Judge of the Superior Court