Judge: Peter A. Hernandez, Case: 20PSCV00396, Date: 2023-09-26 Tentative Ruling

Case Number: 20PSCV00396    Hearing Date: November 15, 2023    Dept: K

Plaintiffs Sukhdev Vasisht and Vansukh, Inc.’s Motion for Order Granting Leave to File Third Amended Complaint is DENIED.

Background[1]  

Plaintiffs Sukhdev Vasisht (“Vasisht”) and Vansukh, Inc. (“Vansukh” and collectively with Vasisht as “Plaintiffs”) allege as follows:

Sometime in 2019, Rajinder Adlakha (“Rajinder”) approached Vasisht about selling a commercial property and a business located thereon to Plaintiff. Rajinder represented that he was the owner of said commercial property on which he owned and operated a laundromat and check cashing business and that a 7-Eleven franchisee was a tenant of the other unit at the property. Rajinder also conveyed that he was the operator and day-to-day manager of the laundromat and checking cashing business and that said businesses had a strong cashflow. Rajinder showed Vasisht a 2017 financial statement showing the business’s revenue and further represented that (1) the property collected $6,000.00 in monthly rent from the 7-Eleven tenant and that a 10% increase would take effect on January 1, 2020; (2) the laundromat and check cashing business paid $5,000.00 in monthly rent to Rajinder and that (3) the business generated $142,000.00 in net profits per year, as per a 2017 profit and loss statement provided by Rajinder to Vasisht.

When Vasisht advised that he did not have sufficient liquidity to make such a purchase, Rajinder told Vasisht that the sale of the commercial property would qualify for an SBA-backed purchase money loan and that he would be willing to carry a promissory note on any leftover amount the SBA would not cover. Rajinder introduced Vasisht to an agent, David Oak (“Oak”), to serve as a dual agent in the sale. Vasisht then met with Andrew Chong (“Chong”), a manager at Hanmi Bank (“Bank”), who directed Vasisht’s SBA loan submission. Vansukh is also a guarantor on the loan. The day of loan signing, Oak presented a new offer agreement to Vasisht as Reena Sona Adlakha (“Reena”) was the actual owner of the property.

After escrow closed, Reena and Rajinder failed to sign supplemental contract documents, withdrew rotation money, failed to pay the mortgage payments on Vasisht’s SBA loan and abandoned the business prior to the business changeover. Vasisht also learned that the property was damaged, that the rent increase from the 7-11 tenant would not take effect until March 2021, that his SBA loan is subject to voidance or cancellation because the property does not conform to SBA loan eligibility requirements, that the business generates a fraction of the revenues stated in the 2017 financial statement, that the 7-11 lease agreement he received prior to the close of escrow was forged and that the check cashing component of the business was actually a separate business owned by a corporate entity known as “Adlakha & Adlakha, Inc.”

On July 27, 2020, Rajinder’s default was entered. On August 21, 2020, Defendant United States Small Business Administration (“USSBA”) filed a “Notice to State Court and Adverse Party of Removal of Civil Action to United States District Court.” On September 10, 2020, an “Order Granting Defendant United States Small Business Administration’s Motion to Dismiss” was filed, wherein USSBA was ordered dismissed and the matter was remanded to state court.

On October 30, 2020, USSBA filed another “Notice to State Court and Adverse Party of Removal of Civil Action to United States District Court.” On February 22, 2021, an “Order Granting Defendant United States Small Business Administration’s Motion to Dismiss” was filed, wherein USSBA was ordered dismissed and the matter was remanded to state court.

On July 9, 2021, Plaintiffs filed a Second Amended Complaint (“SAC”) asserting causes of action against Bank, Rajinder, Reena (individually and as trustee of the Pinewood Irrevocable Trust Dated April 7, 2018) (“Reena”), Chong, Adlakha & Adlakha and Does 1-100 for:

1.                  Rescission—Civil Code § 1689 [Bank]

2.                  Cancellation of Written Instrument—Civil Code § 3412 [Bank]

3.                  Fraud—Concealment [Bank and Chong]

4.                  Fraud—Intentional Misrepresentation of Fact [Bank and Chong]

5.                  Negligent Misrepresentation [Bank and Chong]

6.                  Breach of Contract [Bank]

7.                  Tortious Breach of Contract [Bank]

8.                  Breach of the Implied Covenant of Good Faith and Fair Dealing [Bank]

9.                  Unfair Competition—Business and Professions Code § 17200 [Bank and Chong]

10.              Civil Conspiracy [Bank and Chong]

11.              Declaratory Relief [Bank and Chong]

12.              Negligence [Bank and Chong]

13.              Breach of Fiduciary Duty [Bank and Chong]

14.              Aiding and Abetting Fraud—Intentional Misrepresentation of Fact [Bank and Chong]

15.              Aiding and Abetting Fraud—Concealment [Bank and Chong]

16.              Aiding and Abetting Fraud—Negligent Misrepresentation of Fact [Bank and Chong]

17.              Aiding and Abetting Breach of Fiduciary Duty

On January 27, 2022, the court granted Rajinder’s and Reena’s Motion to Compel Arbitration as to Vasisht and ordered all other matters stayed pending completion of arbitration.

On April 1, 2022, Adlakha & Adlakha’s default was entered.

On January 17, 2023, counsel, with the consent of their clients, agreed to terminate the prior order regarding arbitration and stipulated to place this matter back on the court’s calendar; on that date, the court lifted the stay on the case in its entirety.

On October 31, 2023, the court sustained Bank’s demurrer to the first through sixteenth causes of action and Chong’s demurrer to the third through fifth and ninth through sixteenth causes of action in Plaintiffs’ SAC, without leave to amend.

The Final Status Conference is set for April 30, 2024. Trial is set for May 14, 2023.

Legal Standard

“The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading…” (Code Civ. Proc., § 473, subd. (a)(1); and see § 576 [“Any judge, at any time before or after commencement of trial, in the furtherance of justice, and upon such terms as may be proper, may allow the amendment of any pleading or pretrial conference order”].)

“[T]he trial court has wide discretion in allowing the amendment of any pleading.” (Bedolla v. Logan & Frazer (1975) 52 Cal.App.3d 118, 135.) “[I]t is irrelevant that new legal theories are introduced as long as the proposed amendments relate to the same general set of facts.” (Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048 [quotation marks and citation omitted].) “[E]ven if the proposed legal theory is a novel one, the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer, motion for judgment on the pleadings or other appropriate proceedings.” (Id. [quotation marks and citation omitted].) With that said, “the failure of a proposed amendment to state facts sufficient to constitute a cause of action or defense may support an order denying a motion to amend.” (California Casualty Gen. Ins. Co. v. Superior Court (1985) 173 Cal.App.3d 274, 280, disapproved of on other grounds in Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4^th 390)

Courts must apply a policy of great liberality in permitting amendments to the complaint at any stage of the proceedings, up to and including trial, when no prejudice is shown to the adverse party. (Atkinson v. Elk Corp. (2003) 109 Cal.App.4^th 739, 761.) However, “even if a good amendment is proposed in proper form, unwarranted delay in presenting it may—of itself—be a valid reason for denial. . . denial may rest upon the element of lack of diligence in offering the amendment after knowledge of the facts, or the effect of the delay on the adverse party.” (Roemer v. Retail Credit Co. (1975) 44 Cal.App.3d 926, 940.)

Also, “[a] motion to amend a pleading before trial must: (1) Include a copy of the proposed amendment or amended pleading, which must be serially numbered to differentiate it from previous pleadings or amendments; (2) State what allegations in the previous pleading are proposed to be deleted, if any, and where, by page, paragraph, and line number, the deleted allegations are located; and (3) State what allegations are proposed to be added to the previous pleading, if any, and where, by page, paragraph, and line number, the additional allegations are located.” (Cal. Rules of Court (“CRC”), rule 3.1324, subd. (a).)

Additionally, “[a] separate declaration must accompany the motion and must specify: (1) The effect of the amendment; (2) Why the amendment is necessary and proper; (3) When the facts giving rise to the amended allegations were discovered; and (4) The reasons why the request for amendment was not made earlier.” (CRC Rule 3.1324, subd. (b).)

Discussion

Plaintiffs move the court for an order granting them leave to file their proposed Third Amended Complaint (“TAC”), which adds a cause of action for third party beneficiary breach of contract against Bank, new defendants (i.e., Juhee Kim [“Kim”][2], Anna Chung [“Chung”][3], Kirstin Alvarez [“Alvarez”][4], Christina Ahn [“Ahn”][5] and Hyun Soon Yi [“Yi”][6]) and makes certain additions/deletions as set forth in the “Appendix of Proposed Changes.”

Evidentiary Objections

The court rules on Bank’s and Chong’s evidentiary objections to the Declaration of Also A. Flores (“Flores”) as follows: Sustained in full.

Merits

The instant motion was filed on October 20, 2023, while Bank’s and Chong’s demurrer to Plaintiffs’ SAC (heard on September 26, 2023) was under submission. Flores’s accompanying declaration fails to comply with CRC Rule 3.1324, subdivision (b)(4); more specifically, he does not address why, given the timing of the depositions of Chong and Kim (i.e., which occurred on May 16, 2023 and June 13, 2023, respectively), Plaintiffs waited until after the September 26, 2023 hearing on Chong’s and Bank’s demurrer to the SAC (and while the matter was under submission) to file the instant motion.

Further, while Flores asserts that Plaintiffs learned during the aforesaid depositions that Bank and Chong concealed certain alleged facts from Plaintiffs, Flores has failed to attach transcripts of the aforesaid depositions to his moving declaration. Plaintiffs cannot seek to remedy this deficiency in their reply papers. In particular, Plaintiffs have failed to demonstrate that their proposal to add Kim, Chung, Alvarez, Ahn and Yi is appropriate; indeed, with respect to these individuals, Flores attests that he somehow “ascertained” during Kim’s deposition that they “were aware of material facts that were withheld from Vasisht.” (Flores Decl., ¶ 11).

Regardless, on October 31, 2023, the court sustained Bank’s demurrer to the first through sixteenth causes of action and Chong’s demurrer to the third through fifth and ninth through sixteenth causes of action in Plaintiffs’ SAC, without leave to amend; significantly, with respect to the third through fifth causes of action (i.e., for Fraud—Concealment, Fraud—Intentional Misrepresentation of Fact and Negligent Misrepresentation, respectively), the court noted that:

At the hearing, Plaintiff sought to add additional allegations of wrongdoing

by the Bank and Chong, including, inter alia, the following:

(1)               Bank employee Chong had access to report with ‘correct’ square footage;

(2)               Bank employee Kim in possession of UCC filing indicating a different

owner;

(3)               Bank in possession of a certified lease attached to title report showing

different percentage of Pronto Laundry square footage;

(4)               Bank in possession of environment review report indicating different

ownership;

(5)               Bank in possession of credit report indicating that Bank had false income

amounts for commercial property purchased by Plaintiffs.

None of the above-referenced allegations indicate that the Bank or Chong

fraudulently represented the nature of the loan and the commercial property

purchase. In fact, it appears Plaintiffs’ contention stems from their lack of due

diligence.

(October 31, 2023 Order, pp. 6-7.)

The court, in fact, determined that Plaintiff should not be given leave to amend any of his causes of action against Chong and Bank, stating:

            At the hearing, the court pressed Plaintiffs’ counsel to proffer proof as to

why leave should be granted. The court was hard pressed to find such proof.

The Bank’s and Chong’s involvement did not involve any misrepresentations

to Plaintiffs and the crux of this case stems from the alleged wrongdoing of the

other non-bank defendants. To seek liability as Plaintiff would suggest for

turning a blind eye to the fraudulent sale of the commercial property would

necessitate some involvement by the Bank and Chong to participate in such a

scheme. The allegations set forth fail to meet the specificity requirements

and/or are incompatible with the causes of action raised in the SAC.

(Id., p. 10).

It does not appear to the court that Plaintiff has proffered any proof via the instant motion which was not proffered at the time of the hearing on the demurrer. In any event, as Bank and Chong point out, it was Vasisht’s obligation to warrant that the information he provided to Bank and the SBA was accurate. (Ho Decl., Exh. 1, Exh. A, p. 5[7], Exh. D, p. 14 [i.e., clause entitled “Occupancy”] and Exh. E). The court remains unclear as to what damages Plaintiffs claim were sustained, inasmuch as Plaintiffs did actually receive the SBA-backed loan.

The motion, then, is denied.