Judge: Peter A. Hernandez, Case: 21PSCV00336, Date: 2022-09-26 Tentative Ruling

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Case Number: 21PSCV00336    Hearing Date: September 26, 2022    Dept: O

Defendants Jong Won Bok’s, Taijin USA’s, TJ International Co. Ltd.’s and Teehee Socks, Inc.’s Demurrer to Plaintiff’s Fourth Amended Complaint is SUSTAINED, without leave to amend, as to the first cause of action and OVERRULED as to the second cause of action.

Background[1]  

Case No. 21PSCV00336

Plaintiff Hyung Su Ryu dba Alex Ryu (“Ryu”) alleges as follows:

Ryu was forced out from his own company that he founded and built up, TeeHee Socks, Inc. (“TSI”). Ryu was fired and deprived of his salary and stock dividends. TSI is being relocated to Nevada.

On January 10, 2022, the court related this instant case to Case No. 21PSCV01072; this instant case was designated the lead case.

On April 12, 2022, the court sustained Defendants’ demurrer to the fourth and fifth causes of action in Plaintiff’s Third Amended Complaint without leave to amend.

On April 22, 2022, Ryu filed a Fourth Amended Complaint (“4AC”), asserting causes of action against Defendants Jong Won Bok (“Bok”), Taijin USA (“Taijin”), TJ International Co., Ltd. (“TJ International”), TSI and Does 1-100 for:

1.                  Breach of Contract—Stock Purchase Agreement

2.                  Breach of Contract—Salary Agreement

3.                  Fraud

4.                  Breach of Fiduciary Duty

5.                  Involuntary Dissolution

On May 19, 2022, the court related Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00134; this instant case was designated the lead case.

On September 8, 2022, the court related this instant case to Case No. 22PSCV00901; this instant case was designated the lead case.

A Status Conference (Related Cases) is set for September 26, 2022.

Case No. 21PSCV01072

Plaintiff Soxnet, Inc. (“Soxnet”) alleges as follows:

In approximately January 2015, Soxnet began manufacturing, importing and selling socks at wholesale to TSI. TSI would sell said socks at retail and would then pay Soxnet for the inventory it had been sold. This pattern and practice continued into May 2019 when Bok, Taijin and TJ International acquired a majority stake in TSI and became involved in its management and operations. As of April 1, 2021, TSI stopped making payments for unpaid wholesale inventory; the balance owed is $197,555.91. TSI also discontinued using Soxnet as its wholesaler/supplier, which was shortly after TSI, Bok, Taijin and TJ International terminated Ryu from his officer and director positions at TSI.

Again, on January 10, 2022, the court related this instant case to Case No. 21PSCV00336; Case No. 21PSCV00336 was designated the lead case.

On April 22, 2022, Soxnet filed a First Amended Complaint (“FAC”), asserting causes of action against TSI, Bok, TJ International, Taijin and Does 1-10 for:

1.                  Account Stated

2.                  Open Book Account

3.                  Work, Labor, Services, and Materials Rendered

4.                  Breach of Contract

5.                  Intentional Interference with Contractual Relations

On May 19, 2022, the court related Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00134; Case No. 21PSCV00336 was designated the lead case.

A Case Management Conference is set for September 26, 2022.

Case No. 22PSCV00134

TSI alleges as follows:

Ryu was the sole shareholder of TSI, as well as a director and officer, at the time of TSI’s January 13, 2015 incorporation. On or about May 10, 2019, Ryu agreed in writing to sell 51% of the outstanding shares of TSI to Taijin for $1,000,000.00; consequently, Ryu’s ownership interests in TSI was reduced to 49%. Ryu continued to act as TSI’s officer and director. Ryu was to be in charge of sales and inventory commencing June 1, 2019. On or about February 3, 2021, there was a dispute between TSI’s shareholders. Ryu has, within the last four years, misappropriated the sales of socks from TSI to Soxnet, which is a company wholly owned by Ryu and/or his wife, Miri P. Ryu (“M. Ryu”).

On February 9, 2022, TSI filed a complaint, asserting causes of action against Ryu and Does 1-100 for:

1.                  Breach of Duty of Loyalty

2.                  Intentional Interference with Prospective Economic Advantage

3.                  Negligent Interference with Prospective Economic Advantage

4.                  Unfair Business Practices

On May 19, 2022, the court related Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00134; Case No. 21PSCV00336 was designated the lead case.

On July 7, 2022, M. Ryu filed a cross-complaint, asserting causes of action against TSI, Bok, TJ International, Taijin and Roes 1-100 for:

1.                  Determination of Status and of Fair Market Value for Dissenting Shares, and Appointment of Appraiser

2.                  Failure to Produce Employment Records Under Labor Code § 226(b)

3.                  Failure to Produce Personnel Records Under Labor Code § 1198.5

4.                  Trademark Infringement Under 15 U.S.C. § 1114(1)

5.                  False Designation of Origin Under 15 U.S.C. § 1125(a)

6.                  Unfair Competition Under Bus. & Prof. Code § 17200 et seq.

7.                  Common Law Trademark Infringement

8.                  Common Law Unfair Competition

On August 22, 2022, M. Ryu dismissed the fourth through eighth causes of action in her cross-complaint, without prejudice.

On August 22, 2022, Ryu filed a First Amended Cross-Complaint, alleging causes of action against TSI, Bok, TJ International, Taijin and Roes 1-100 for:

1.                  Determination of Status and of Fair Market Value for Dissenting Shares, and Appointment of Appraiser

2.                  Failure to Produce Employment Records Under Labor Code § 226(b)

A Case Management Conference is set for September 26, 2022.

Case No. 22PSCV00901

M. Ryu alleges as follows: M. Ryu owns the trademark known as “Teehee Kids” (“Mark”). TSI, Bok, TJ International and Taijin have used and are using the Mark in commerce to sell children’s socks in the United States and internationally via online services such as Amazon.com without M. Ryu’s consent.

On August 22, 2022, M. Ryu filed a complaint, asserting causes of action against TSI, Bok, TJ International, Taijin and DOES 1-100 for:

1.                  Trademark Infringement Under 15 U.S.C. § 1114(1)

2.                  False Designation of Origin Under 15 U.S.C. § 1125(a)

3.                  Unfair Competition Under Bus. & Prof. Code

On September 8, 2022, the court related this instant case to Case No. 21PSCV00336; Case No. 21PSCV00336 was designated the lead case.

Legal Standard

A demurrer may be made on grounds that the pleading, inter alia, does not state facts sufficient to constitute a cause of action and/or is uncertain. (Code Civ. Proc., § 430.10, subds. (e) and (f).) A demurrer may also be made, in an action founded upon a contract, on the basis that it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct. (Code Civ. Proc., § 430.10, subd. (g).)

When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905 [citations omitted].) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) “[A] demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction placed on an instrument pleaded therein, or facts impossible in law, or allegations contrary to facts of which a court may take judicial knowledge.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 [citations omitted].)

Discussion

Bok, Taijin, TJ International and TSI (collectively, “Defendants”) demur, pursuant to Code of Civil Procedure § 430.10, to the first and second causes of action in Ryu’s 4AC, on the basis that they both fail to state facts sufficient to constitute causes of action and are uncertain. They further demur on the basis that it cannot be ascertained whether the contracts are written, oral or implied by conduct.

First Cause of Action (i.e., Breach of Contract—Stock Purchase Agreement)

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff's performance of the contract or excuse for nonperformance, (3) the defendant's breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.) Further, the complaint must indicate on its face whether the contract is written, oral, or implied by conduct. (Code Civ. Proc., § 430.10, subd. (g).)

Ryu alleges that, on or about May 8, 2019, Ryu and TSI, on the one hand, and Bok, Taijin and TJ International, on the other hand, “entered into a written agreement whereby Bok would purchase 51% of Teehee’s stock through Taijin and TJ International (the ‘Stock Purchase Agreement’).” (4AC, ¶ 23.) The Stock Purchase Agreement (“SPA”) is attached as Exhibit 1 to the 4AC. (Id.) Ryu alleges that a February 24, 2019 written Joint Venture Agreement (which appears to be a foreign language document attached to Exhibit 1) and a lease agreement between Soxnet and TSI are incorporated in the SPA. (Id., ¶¶ 22 and 23.)

Ryu alleges that Defendants breached implied terms of the SPA “by depriving [Ryu] of his right to receive benefits under the [SPA], including his right to participate as an officer and director and in the management and operations of [TSI].” (4AC, ¶ 60.) Ryu further alleges that Defendants also breached the implied terms of the SPA “by discontinuing the use of Soxnet as [TSI’s] wholesale distributor. (Id., ¶ 61.)

“Facts appearing in exhibits attached to the complaint will also be accepted as true and, if contrary to the allegations in the pleading, will be given precedence.” (Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627.) The SPA attached as Exhibit 1 to the 4AC reflects that it was made between Ryu and TSI (identified as “Selling Shareholder”), on the one hand, and Taijin (identified as “Buying Shareholder” and as the “USA corporate entity of TJ International”), on the other hand. The signatories to the SPA, however, are Ryu individually (not on behalf of TSI) and “Bok Jong Won, as President of TJ International.” Neither Bok nor TSI, then, are parties to the SPA.

Further, Paragraph 10 of the SPA attached as Exhibit 1 to the TAC provides that “[t]his Agreement contains the entire agreement between the parties.” Ryu fails to allege that Defendants breached any of the express terms of the SPA, but only that certain “implied terms” therein were violated.

Defendants’ demurrer to the first cause of action is sustained, without leave to amend.

Second Cause of Action (i.e., Breach of Contract—Salary Agreement)

The elements of a breach of contract cause of action are set forth above.

Ryu alleges that in November 2019, Ryu had a verbal discussion with Bok, in Bok’s individual capacity and as a director and officer of Taijin, TJ International and TSI, wherein Bok offered to raise Ryu’s monthly salary from $10,000 to $12,000 if Ryu would relinquish his duties and responsibilities in the marketing, managing and operations of TSI to Bok for a two-year period (4AC, ¶¶ 26, 66, 67.)

Defendants assert that the aforesaid oral agreement violates the Statute of Frauds. Civil Code § 1624 provides that “[t]he following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent: (1) An agreement that by its terms is not to be performed within a year from the making thereof . . .” Ryu cites to Secrest v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4^th 544, 556 for the proposition that “[w]here the contract is unilateral, or, though originally bilateral, has been fully performed by one party, the remining promise is taken out of the statute [of frauds], and the party who performed may enforce it against the other” and claims that he has alleged full performance in Paragraph 68. Paragraph 68, however, alleges that Defendants terminated Ryu “before the Two-Year Period had expired;” as such, Ryu could not have fully performed “by stepping back and letting Bok take greater control of [TSI] during the Two-Year Period.”

With that said, Ryu also makes express reference to promissory estoppel “to prevent application of the statute of frauds” (4AC, ¶ 64), which Defendants fail to address. Defendants’ demurrer to the second cause of action, then, is overruled.