Judge: Olivia Rosales, Case: 20NWCV00087, Date: 2022-12-15 Tentative Ruling

Case Number: 20NWCV00087    Hearing Date: December 15, 2022    Dept: SEC

LI v. ZHANG

CASE NO.:  20NWCV00087

HEARING:  12/15/22

#2

TENTATIVE ORDER

Defendants RAE ZHANG and XIAO F. TIE’s Demurrer to Plaintiff’s Third Amended Complaint is SUSTAINED without leave to amend in part and OVERRULED in part.  

Moving Party to Give Notice.

This action for contractual fraud was filed by Plaintiff JIA LI on February 5, 2020. On February 25, 2022, the operative Third Amended Complaint (“TAC”) was filed.

The TAC alleges, in pertinent part, “Plaintiff and Defendants were former joint owners of a business named American K & K, Inc. On or about April 20, 2014, Plaintiff and Defendants agreed to part ways and memorialized their intention in a written Stock Buyout Agreement. In exchange for the return of all of Plaintiff’s shares in American K & K, Inc., Defendants, in their individual capacities, agreed to pay the $220,000.00 to Plaintiff.” (TAC ¶11.) “Plaintiff also made additional loans to Defendant ZHANG on January 23, 2017, in the amount of $10,000.00, on February 21, 2017 for $20,000.00, on March 23, 2017 to $10,000.00, and on April 27, 2017 for $10,000.00 for a grand total of $50,000.00 in additional loans (hereinafter the ‘$50,000.00 Loan’).” (TAC ¶24.) “From 2014 to 2019, Defendants did make some small token payments in repayment of the outstanding obligations under the Stock Buyback Agreement and later, the $50,000.00 loan These payments were made in various forms including cash payments, and paying off Plaintiff’s bills and expenses. But starting in 2019 when Plaintiff demanded for all outstanding amounts to be repaid, Defendants stopped making any payments whatsoever and stopped responding entirely.” (TAC ¶31.) “To date… the balance of approximately $219,230.00 from the Stock Buyback Agreement and the $50,000.00 Loan, excluding interest, reasonable attorney’s fees and costs, remain outstanding and unpaid.” (TAC ¶32.)

The TAC asserts the following causes of action: (1) Breach of Contract – Stock Buyback Agreement; (2) Breach of Contract - $50,000.00 Loan Agreement; (3) Fraud – Stock Buyback Agreement; (4) Fraud - $50,000.00 Loan Agreement; (5) Money Had and Received; and (6) Unjust Enrichment

Defendants RAE ZHANG and XIAO F. TIE (“Defendants”) generally and specially demur to each cause of action. 

Statute of Limitations

Defendants argue that the first, second, third, fifth, and sixth causes of action are time-barred.

The statute of limitations for breach of a written contract, money had and received, and unjust enrichment is four years. (CCP §337.) The statute of limitations for fraud is three years. (CCP §338(d).) The statute of limitations for breach of an oral contract is two years (CCP §339.)

The statute of limitations is an affirmative defense. The delayed discovery rule is an exception to the affirmative defense of the statute of limitations. If it is shown that an action would otherwise be time-barred, a plaintiff wishing to avoid the statute of limitations bar may rely on the delayed discovery rule. Such a plaintiff bears the burden of proving its application. (Investors Equity Life Holding Co. v. Schmidt (2011) 195 Cal.App.4th 1519, 1533.) “In order to rely on the discovery rule for delayed accrual of a cause of action, a plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite a reasonable diligence.” (Fox Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808.) In assessing the sufficiency of the allegations of delayed discovery, the court places the burden on the plaintiff to “ ‘show diligence; ‘conclusory allegations will not withstand demurrer.’” (Id.)

First, Third, Fifth, and Sixth Causes of Action – Breach of Stock Buyback Agreement, Fraud, Money Had and Received, and Unjust Enrichment

The delayed discovery rule cannot apply to the first, fifth, and sixth causes of action. Defendants performance was to pay Plaintiff. Plaintiff has known that Defendants were in breach of this obligation. The first, fifth, and sixth claims are barred by the statute of limitations. The only way to plead around this might be for Plaintiff to allege that Defendants confirmed a tolling of the statute memorialized in a written acknowledgement. CCP §360 requires a writing, “signed by the party to be charged thereby” in order to trigger the tolling of the statute of limitations. No such signed writing is alleged to exist. The “text messages” alleged to acknowledge and confirm the tolling of the statute do not qualify as a written extension of time to pay a debt under CCP §360 because they do not contain the required signature of the debtor.  

The demurrer to the first cause of action based on the statute of limitations is SUSTAINED without leave to amend. Consequently, the demurrers to the fifth and sixth causes of action are also SUSTAINED without leave to amend on the same basis.

The demurrer to the third cause of action is not sustained on the basis that it is barred by the statute of limitations. “A demurrer on the ground of the bar of statute of limitations will not lie where the action may be but is not necessarily barred.” (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 881.)  Plaintiff sufficiently alleges that Defendants made representations from 2014 to 2019 in order to mislead Plaintiff into believing that payment was forthcoming.

Third and Fourth Causes of Action – Fraud – Stock Buyback Agreement and $50,000.00 Loan Agreement

The elements of a cause of action for intentional fraud are 1) misrepresentation (false representation, concealment, or nondisclosure); 2) knowledge of falsity (scienter); 3) intent to defraud or induce reliance; 4) justifiable reliance; and 5) damages. (See Cal. Civ. Code §1709.)

Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) Fraud must be pleaded with specificity rather than with general and conclusory allegations. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

Plaintiff alleges that from 2014 to 2019, Defendants made misrepresentations in order to mislead Plaintiff into believing that payments were forthcoming in order to prevent Plaintiff from collecting on the debt(s). (See TAC ¶69.) Construing the pleading in a light most favorable to the Plaintiff, the Court finds that Plaintiff has alleged fraud with requisite specificity to withstand demurrer.

The demurrer to the third and fourth causes of action is OVERRULED.