Judge Monica Bachner, Case 22STCV33091 2023-01-06 Tentative Ruling

Defendants Korean Gardens Restaurant’s and Kenneth Kim’s demurrer to the 3rd cause of action in the complaint of Plaintiff No Soo Kim is overruled.

Defendants Korean Gardens Restaurant (“KGM”) and Kenneth Kim (“Kenneth”) (collectively, “Defendants”) demur to the 3rd causes of action for declaratory relief in the complaint (“Complaint”) of Plaintiff No Soo Kim (“No Soo”) (“Plaintiff”). Defendants demur on the grounds that the 3rd cause of action is barred by the four-year statute of limitations set forth in C.C.P. §337. (Notice of Demurrer, pg. 2; C.C.P. §430.10(e).)

This action arises out of an alleged dissolution of a general partnership between Plaintiff and Defendant KGR, pursuant to an agreement (“Agreement”). (Complaint ¶4, Exh. A.) Plaintiff alleges Defendant Kenneth is the alter ego of Defendant KGR, KGR is an instrumentality by which Defendant Kenneth conducts his personal business, funds and assets of Defendants Kenneth and KGR are commingled together, that KGR is and always has been grossly undercapitalized for the business it operates and the obligations it incurred, Defendants Kenneth and KGR have failed to keep separate books and records or observe corporate formalities, and it would be inequitable to permit the fiction of Defendant KGR’s separate existence to continue to be observed. (Complaint ¶5.) Plaintiff alleges pursuant to ¶2.1(1) of the Agreement, Defendant KGR’s initial capital contribution to the partnership was the real property at 950 S. Vermont Ave., Los Angeles, California (“Real Property”) and Defendant “has” “contributed” the Real Property that has an agreed value of $2,170,000.00 with a mortgage of $1,170,000.00, and title to the Real Property is currently held in the name of Defendant Kenneth, which Defendant Kenneth holds in trust of the Partnership. (Complaint ¶6.)

On October 7, 2022, Plaintiff filed his complaint alleging three causes of action: (1) dissolution of partnership, (2) accounting, and (3) declaratory relief. On November 30, 2022, Defendants filed the instant demurrer and accompanying motion to strike. Plaintiff filed his oppositions to the demurrer and motion to strike on December 20, 2022. Defendants filed their replies on December 29, 2022.

In support of its demurrer to Plaintiffs’ third cause of action, Defendants argues Plaintiff’s Complaint is barred by the four-year statute of limitations in C.C.P. §337 based on the underlying theory of relief for breach of contract. (Demurrer, pgs. 4-5.)

“[A] demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (See Donabedian v. Mercury Insurance Co. (2004) 116 Cal.App.4th 968, 994 [in ruling on a demurrer, a court may not consider declarations, matters not subject to judicial notice, or documents not accepted for the truth of their contents].) For purposes of ruling on a demurrer, all facts pleaded in a complaint are assumed to be true, but the reviewing court does not assume the truth of conclusions of law. (Aubry v. Tri-City Hospital District (1992) 2 Cal.4th 962, 967.)

“To qualify for declaratory relief, a party would have to demonstrate its action presented two essential elements: (1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to the party’s rights or obligations.” (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909, quotation marks and brackets omitted.)

The statute of limitations that governs a request for declaratory relief is determined by the nature of the underlying obligation sought to be adjudicated. (Maguire v. Hibernia Savings & Loan Society (1944) 23 Cal.2d 719, 734.) Thus, in determining which statute of limitation applies in a given case, the court should look beyond the relief sought and should consider instead the basic cause of action giving rise to the plaintiff's right to relief, i.e., the “gravamen” of the action. (Leeper v. Beltrami (1959) 53 Cal.2d 195, 214.) The nature of the cause of action and the primary right involved, not the form or label of the cause of action or the relief demanded, determine which statute of limitations applies. (Carter v. Prime Healthcare Paradise Valley LLC (2011) 198 Cal.App.4th 396, 412.)

Plaintiff alleges §2.1 of the Agreement, provided in pertinent part as follows with respect to the Real Property:

Initial Capital Contributions. The partnership’s initial capital shall consist of:

(1) A real property located at 950 S. Vermont Ave., Los Angeles, California, whose legal description is attached to this Agreement as Exhibit A, including any improvements thereon, and contributed by Korean Gardens at an agreed value of $2,170,000, which shall be the sum of $1,000,000 and the Korean Garden’s existing mortgage of $1,170,000 on the property with California Center Bank. The parties agree that this represents the fair market value of the above described real property.

(Complaint ¶24.) Plaintiff alleges Defendant Kenneth executed the agreement and was the sole shareholder and President of Defendant KGR and holds record title to the Real Property in his own name and in trust of the partnership. (Complaint ¶25.) Plaintiff alleges an actual controversy has arisen and exists between Plaintiff and Defendants in that Plaintiff contends that Defendant Kenneth, from the inception of the partnership established by the Agreement, and during the entire time thereafter that he has held title to the Real Property in trust of the partnership, that the Real Property has been an asset of the partnership established by the Agreement, and that he has held and holds record title to the Real Property as trustee for the partnership, and Defendants have refused to recognize that the Real Property is a partnership asset. (Complaint ¶26.) Plaintiff requests that the court determine the rights of the partnership in the Real Property and determine that the Real Property is an asset of the partnership established pursuant to the Agreement and that Defendant K. Kim holds record title to said property in trust for said partnership. (Complaint ¶27.) Plaintiff alleges in the absence of a determination by the court the rights to the property will remain unresolved and Plaintiff has no adequate remedy at law. (Complaint ¶28.)

Defendants argue the gravamen of Plaintiff’s cause of action is for breach of contract for past wrongs that occurred more than 24 years ago based on the Agreement’s showing that a specific act was required for the Subject property was to be contributed as a partnership asset “no later than June 30, 1998, [Defendant KGR] shall prepare, execute, and record any necessary documents with the Los Angeles County Recorder’s Office to transfer to Yongsusan[1] 50% interest in the [Subject Property].” (See Complaint, Exh. A §7.1.) Defendants’ argument based on the provisions of §7.1 of the Agreement is unavailing because Plaintiff is not suing under this provision or seeking relief pursuant to it. Plaintiff’s Complaint alleges the Real Property is partnership property, and the third cause of action seeks relief in the form of a declaration of such facts and the controversy concerning §2.1, not §7.1.

Pursuant Corporations Code §16203, “[p]roperty acquired by a partnership is property of the partnership and not of the partners individually.” (Corp. Code §16203.) Pursuant to California Corporations Code §16204(c), “[p]roperty is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership or of one or more partners with an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership.” (Corp. Code §16204(c).)

Plaintiff’s Complaint sufficiently alleges the real property was acquired by the partnership when it was contributed as an asset pursuant to the Agreement. (Complaint ¶26.) The declaratory action concerns a dispute as to whether the real property in question is partnership property, not a dispute over breach of contract. Here, the statute of limitations for the cause of action for declaratory judgment has not run because it concerns a future breach of contract which will only occur if the partnership’s interest in the real property is denied on dissolution. (Declaratory Relief., 3 Witkin, Cal. Proc. 6th Actions §741 [“The cause of action for declaratory relief may accrue, in the sense that an action may be maintained, before a breach occurs. This is the very purpose of the remedy.”].)

In Snyder v. California Insurance Guaranty, the reviewing court reversed the trial court’s sustaining of a demurrer to a declaratory relief action against the California Insurance Guaranty Association (“CIGA”) based upon the statute of limitations, finding that the statute did not commence to run until the insured party had submitted a claim and it was denied by CIGA. (Snyder v. California Insurance Guaranty Association (2014) 229 Cal.App.4th 1196, 1208.) Like Snyder, here, the statute of limitations has neither run, nor commenced to run, which is proper for a cause of action for declaratory relief. (Id., citing Maguire v. Hibernia Savings & Loan Society (1944) 23 Cal.2d 719, 734 [“An action for declaratory relief may be brought before a cause of action on the underlying obligation is breached, but in no event later than the applicable time period following the breach.”].)

Defendants move to strike portions of Plaintiff’s Complaint. Defendants move to strike the following paragraphs from of the Complaint on the grounds they are barred by the four-year statute of limitations set forth in C.C.P. §337: Complaint ¶16 [“Plaintiff requests that the Court determine the partnership’s rights in its assets including but not limited to the restaurant business and the Real Property, and that the court order that the partnership’s assets be sold and the proceeds distributed to the partners in proportion to their partnership interests”]; Complaint Prayer ¶3 [“That the Court determine the extent of partnership property and that its property, including but not limited to the Real Property and the restaurant business be declared to be partnership property”]; and Complaint Prayer ¶4 [“That the partnership property, including but not limited to the restaurant business and the Real Property, be sold and the partnership debts and liabilities be paid off and the surplus, if any, be divided between plaintiff and defendants in accordance with the terms of the partnership agreement”]. (Notice of MTS, pg. 1; C.C.P. §436(b).)

C.C.P. §436 provides that the Court may, upon a motion made pursuant to C.C.P. §435, or at any time within its discretion and upon terms it deems proper, “strike out any irrelevant, false, or improper matter inserted in any pleading” and/or “strike out all or part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.” A motion to strike should be applied cautiously and sparingly because it is used to strike substantive defects. (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1683.) The grounds for a motion to strike must appear on the face of the pleading under attack, or from matter which the court may judicially notice. (C.C.P. §437.) Conclusory allegations will not be stricken where they are supported by other, factual allegations in the complaint. (See Perkins v. Superior Court (1981) 117 Cal.App.3d 1, 6 [“The distinction between conclusions of law and ultimate facts is not at all clear and involves at most a matter of degree.” (Citations.)].)

A motion to strike can also be used to attack claims for damages that are not supported by the cause of action pleaded. (Motions to Strike, Rutter Guide Cal. Prac. Guide Civ. Pro. Before Trial, §7:182.) Regarding Complaint Prayer, ¶ 3 and ¶ 16, as discussed above, it is not clear from the face of the Complaint that the statute of limitations has run regarding the real property, as Plaintiff’s Complaint sufficiently alleges the real property was acquired by the partnership when it was contributed as an asset pursuant to the Agreement

Defendants argue Plaintiff’s claim for “half of the profits upon dissolution” is based on “either the alleged breach of failing to pay those profits pursuant to the agreement or the alleged breach of a fiduciary duty, each of which is governed by a four-year statute of limitations,” and “any request seeking recovery for any profits owed more than four years before the filing of the Complaint is improper.” (MTS, pg. 5.) However, Plaintiff’s prayer, ¶ 4, does not reference “profits,” and any such profits subject to a statute of limitations do not appear on the face of the pleading. (C.C.P. §436.) Defendants have not affirmatively shown from the allegations of the Complaint that an applicable statute of limitations has run.

[1] Yongsusan is the name of the restaurant Plaintiff and Defendant KGR were to open, and is an entity that was Plaintiff’s predecessor in interest. (Complaint ¶9; See Complaint, Exh. A at pg. 6.)