Judge Peter A. Hernandez, Case 21PSCV00806 2022-12-07 Tentative Ruling

The Court may change tentative rulings at any time. Therefore, attorneys are advised to check this website to determine if any changes or updates have been made to the tentative ruling.

Counsel may submit on the tentative rulings by calling the clerk in Dept. O at 909-802-1126 before 8:30 the morning of the hearing. Submission on the tentative does not bind the court to adopt the tentative ruling at the hearing should the opposing party appear and convince the court of further modification during oral argument.

The Tentative Ruling is not an invitation, nor an opportunity, to file any further documents relative to the hearing in question. No such filing will be considered by the Court in the absence of permission first obtained following ex-parte application therefore.

1. Defendant Xiaowei Hong’s Motion for a Protective Order Regarding [His] Deposition is DENIED as MOOT.

2. Defendants Xiaowei Hong’s, et al.’s Demurrer to Plaintiff’s Second Amended Verified Complaint is ruled on as follows: SUSTAINED as to the first through fifth causes of action (i.e., as to William, FCSI, HDDCC, KBDCSI, KBCCI, KBCW, KBDOI, PQI, KBHCI, Mary, Dong, FCI and KBDI), SUSTAINED as to the eighth and ninth causes of action (i.e., as to William) and OVERRULED as to sixth and seventh causes of action (i.e., as to William). The court will hear from counsel for Plaintiff as to whether leave to amend is requested, and as to which cause(s) of action, and will require an offer of proof if so.

Prior to June 2, 2016, Xiaowei Hong (“William”) approached Plaintiff for a $1 million loan to purchase inventory and equipment for Fullerton Cabinet Inc. (“FCI”) and KB Depot Inc. (“KBDI”). On or about June 2, 2016, Plaintiff loaned $1 million to FCI through William in a representative capacity for FCI, with 0.85% monthly interest. William executed a Promissory Note on behalf of FCI for said loan. Between June 2, 2016 and January 29, 2021, William only repaid a portion of the loan. On May 1, 2017, William filed a certificate of dissolution of FCI, representing therein that all company debts and liabilities had been actually paid or permitted for as far as company assets permitted. Prior to January 29, 2021, William approached Plaintiff for additional funds needed to purchase inventory for KBDI. On January 29, 2021, William made and executed a “Guaranty for Stock Ownership” in a representative capacity for KBDI, wherein Plaintiff would provide funds to William to purchase inventory for KBDI in return for 51% shares of KBDI until repayment of the debt was confirmed by Plaintiff. Plaintiff provided these funds but was not repaid or given the 51% shares.

On August 22, 2022, Plaintiff filed a Second Amended Complaint, asserting causes of action against William, KBDI, K&B Depot Inc., FCI, Fullerton Cabinet & Stone Inc. (“FCSI”), HD Design & Construction, Corp. (“HDDCC”), KB Depot Home Inc., KB Depot Cabinet & Stone Inc. (“KBDCSI”), KB Cabinets & Countertop Inc. (“KBCCI”), KB Cabinetry Wholesaler (“KBCW”), Haiyan Zhuang (“Mary”), Shu Hong, Lang Zhang (“L. Zhang”), Dong Zhang (“Dong”), Premium Quartz Inc. (“PQI”), GZ Transport Inc. (“GZ Transport”), Yong’s Trucking Inc. (“Yong’s Trucking”), KB Home Construction Inc. (“KBHCI”), KB Depot Outlet Inc. (“KBDOI”), New Sun International, LLC (“New Sun”) and Does 1-100 for:

On September 8, 2022, the court dismissed K&B Depot Inc., Shu Hong and New Sun without prejudice, per Plaintiff’s counsel’s oral request.

On September 14, 2022, Plaintiff dismissed KB Home Depot Inc., without prejudice.

“Before, during, or after a deposition, any party, any deponent, or any other affected natural person or organization may promptly move for a protective order. The motion shall be accompanied by a meet and confer declaration under Section 2016.040.” (Code Civ. Proc., § 2025.420, subd. (a).) “The court, for good cause shown, may make any order that justice requires to protect any party, deponent, or other natural person or organization from unwarranted annoyance, embarrassment, or oppression, or undue burden and expense. This protective order may include, but is not limited to, one or more of the following directions: . . . (2) That the deposition be taken at a different time . . . (5) That the deposition be taken only on certain specified terms and conditions. . .” (Code Civ. Proc., § 2025.420, subd. (b).)

William moves the court for a protective order that his deposition be taken (1) at a different time and (2) only on certain specified terms and conditions (i.e., as follows: (1) after the OSC re: failure to file proof of service then set for March 22, 2022 in this case in order to allow the 7 defendants who have not yet been served to either be served or dismissed; (2) after the hearing on the demurrers by Hong and other 14 defendants [then set to be heard March 22, 2022 in this case] and (3) after the Motion to Transfer and Consolidate [then set to be heard on April 25, 2022 in the KB Depot Action].)

William represents that there are three currently pending actions—i.e., (1) case styled KB Depot, Inc., et al., Case No. 30-2021-01200051-CU-BT-CJC filed in Orange County (“KB Depot Action”); (2) case styled Li v. Hong, et al., Case No. 21PSCV00845 filed in Los Angeles [Dept. R] (“Jing Li Action”)[1] and (3) this instant case—between Plaintiff, Plaintiff’s wife (i.e., Jie Lie aka Kelly Li) and Plaintiff’s sister-in-law (i.e., Jing Li), on the one hand, and William and the other 25 named defendants/cross-defendants on the other hand. He further represents that on December 10, 2021, KB Depot and KB Cabinets & Countertop Inc. filed a Motion to Transfer and Consolidate in the KB Depot Action to transfer this case and Case No. 21PSCV00845 to Orange County Superior Court and have them consolidated with the KB Depot Action; said motion was set to be heard on April 25, 2022.

On January 21, 2022, Plaintiff unilaterally noticed William’s deposition for February 4, 2022. (Alparce Decl., ¶ 2, Exh. A.) On January 28, 2022, William’s counsel unsuccessfully met and conferred with Plaintiff’s counsel. (Id., ¶ 10, Exh. I.) This motion followed, on February 2, 2022.

William requests that Plaintiff wait until after the three aforementioned actions are consolidated and after all parties have been served and/or dismissed before he is deposed. William represents that, as of the February 2, 2022 filing of this motion, Plaintiff has not served “at least 7” of the named defendants. (Motion, 7:23-24.)

The instant motion originally came on calendar for hearing on June 22, 2022, but was continued by the court to September 8, 2022. On November 22, 2022, Plaintiff filed an opposition, advising therein that (1) all parties to the instant action have now been served or dismissed and that (2) KB Depot’s and KB Cabinets & Countertop Inc.’s Motion to Transfer and Consolidate in the KB Depot Action was heard and denied without prejudice on April 25, 2022.

The court April 25, 2022 minute order in the KB Depot Action states, in relevant part, as follows:

breached contracts and converted and defrauded millions of dollars from her. . .

met here. Each of the actions at issue relates to different alleged agreements and

(‘Li’). The Cross-Complaint by Li references a 2/24/16 purchase of a shareholder

interest and a 11/14/17 purchase of a shareholder interest, as well as several loans

actions will involve a common question of fact or law or that consolidation will

William, in reply, argues that there are still four defendants that have not yet been served or dismissed: Zetao Chen, Jiayi Liang, Yan Chen and Quiling Mei. William further argues that the Motion to Transfer and Consolidate in the KB Depot Action was denied without prejudice[2] and that, once the complaint in this instant action is settled, defendants herein intend to file a cross-complaint which will include additional parties and evidence a clear overlap between the various actions such that consolidated may be granted.

Again, William has requested that his deposition be taken at a different date and time pursuant to terms and conditions specified above, namely after the OSC re: failure to file proof of service, after the hearing on the demurrers by Hong and other 14 defendants and after the Motion to Transfer and Consolidate is heard in the KB Depot Action. The Motion to Transfer and Consolidate has been heard and denied without prejudice, while the OSC and demurrer are being heard on December 5, 2022 concurrently with the instant motion. William’s motion, then, is denied as moot, inasmuch as the terms and conditions will all have been addressed as of December 5, 2022.

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).)

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].)

William, KBDI, FCI, FCSI, HDDCC, KBDCSI, KBCCI, KBCW, KBDOI, Mary, Dong, PQI and KBHCI (collectively, “William, et al.”) demur, pursuant to Code of Civil Procedure § 430.10, to the first through ninth causes of action in Plaintiff’s SAC, on the basis that they each fail to state facts sufficient to constitute causes of action and are uncertain.

At the outset, the court notes that Plaintiff’s first and second causes of action have been asserted against William, KBDI and FCI; said causes of action are asserted against the remaining demurring defendants solely as alter egos. Plaintiff’s third through fifth causes of action have been asserted against all demurring defendants. Plaintiff’s sixth cause of action has been asserted against William only. Plaintiff’s seventh through ninth causes of action have been asserted against William and KBDI only; however, only William has demurred to the seventh through ninth causes of action.

“Under the alter ego doctrine,. . . when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4^th 523, 538.) “The essence of the alter ego doctrine is not that the individual shareholder becomes the corporation, but that the individual shareholder is liable for the actions of the corporation.” (Leek v. Cooper (2011) 194 Cal.App.4th 399, 415.) “To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.” (Id. [emphasis added].)

Again, FCSI, HDDCC, KBDCSI, KBCCI, KBCW, KBDOI, Mary, Dong, PQI and KBHCI have been named as defendants to Plaintiff’s first and second causes of action purely on an alter ego basis.

Here, however, Plaintiff seeks to hold the above entity defendants liable for individuals’ actions, known as “reverse piercing.” “Reverse piercing,” however, appears to be rejected in the corporate context: “a third party creditor may not pierce the corporate veil to reach corporate assets to satisfy a shareholder's personal liability.” (Postal Instant Press, Inc. v. Kaswa Corp. (2008) 162 Cal.App.4th 1510, 1512-1513; but see Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214 [distinguishing Postal and permitting reverse piercing of LLCs].) FCSI, HDDCC, KBDCSI, KBCCI, KBCW, KBDOI, PQI and KBHCI are all alleged to be corporations.

Regardless, even if reverse piercing was permitted in this case, Plaintiff has not pled facts showing a unity of interest and ownership and an unjust result. Plaintiff’s claims against FCSI, HDDCC, KBDCSI, KBCCI, KBCW, KBDOI, PQI and KBHCI fail on this basis.

Additionally, Plaintiff has also failed to sufficiently plead alter ego as to Mary and Dong, which is the only reason Mary and Dong were named as defendants to the first and second causes of action.[3] Mary and Dong are individuals and cannot be alter egos of another individual. Mary’s and Dong’s demurrer to the first and second causes of action is sustained on this basis.

First and Second Causes of Action (i.e., Declaratory Relief and Breach of Written Contract, Respectively)

The elements of a cause of action for declaratory relief are: (1) a person interested under a written instrument or a contract; or (2) a person who desires a declaration of his or her rights or duties; (3) with respect to another; or (4) in respect to, in, over or upon property; and (5) an actual controversy. (Code Civ. Proc., § 1060.)

“[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4^th 811, 821.)

Plaintiff’s claims against William are based on the Promissory Note and Guaranty for Stock Ownership. (SAC, Exhs. A and B.) Plaintiff, however, has expressly alleged that William entered into the aforesaid contracts “ostensibly in a representative capacity” for FCI and KBDI and not as an individual. (SAC, ¶¶ 39 and 42.) Plaintiff, moreover, has not asserted the first and second causes of action against William on an alter ego basis. William’s demurrer to the first and second causes of action, then, is sustained.

Plaintiff’s claims against FCI are based on the Promissory Note. (SAC, Exh. A.) The “terms” of said Note, however, is stated “to be determined.” At a minimum, then, is uncertain as pled when the Promissory Note came due and whether FCI is even in breach. FCI’s demurrer to the first and second causes of action is sustained.

Plaintiff’s claims against KBDI are based on the Guaranty for Stock Ownership. (SAC, Exh. B.) Said guaranty provides that “Weng Bo starting from 1/29/2021 will provide the money to Xiaowei Hong.” Plaintiff, however, alleges that Plaintiff actually made the payments to Jingbo Li, Dejun Chen and Shihua Li. (SAC, ¶¶ 43-45.) Further, said guaranty fails to state when KBDI was required to repay the loan. KBDI’s demurrer to the first and second causes of action is sustained.

“A cause of action is stated for money had and received if the defendant is indebted to the plaintiff in a certain sum for money had and received by the defendant for the use of the plaintiff.” (Schultz v. Harney (1994) 27 Cal.App.4^th 1611, 1623 [internal quotations and citation omitted.]

Although Plaintiff has alleged this claim against all defendants, the only defendants that are alleged to be “in debt” to Plaintiff are FCI, KBDI and possibly William.

Further, as to William, FCI and KBDI, “[w]hen a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable.” (McBride v. Boughton (2004) 123 Cal.App.4^th 379, 394.) William, et al.’s demurrer is sustained.

“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.4^th 153, 157.)

Plaintiff has failed to plead this cause of action against William, et al. with the required specificity. William, et al.’s demurrer is sustained.

“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages.” (Burlesci v. Petersen (1991) 68 Cal.App.4^th 1062, 1066.)

Plaintiff alleges that on April 14, 2021, he and his agents/employees were locked out of 17425 Railroad Street in the City of Industry (“Office”), that his unspecified “business property and other assets” were confiscated and that defendants “converted” his business property and other assets for their own use. (SAC, ¶¶ 52, 101 and 102.) Plaintiff has failed to plead that he had any right to access the Office nor identify what “business property and other assets” he claims have been converted. William, et al.’s demurrer is sustained.

Sixth Cuse of Action (i.e., Breach of Fiduciary Duties)William argues that a shareholder does not owe a fiduciary duty to another shareholder unless they are a controlling shareholder and that Plaintiff has alleged that he is the majority and controlling shareholder of KBDI. (SAC, ¶¶ 106 and 112.) Plaintiff, however, has pled in Paragraph 112 that fiduciary duties were owed by William and Does 1-100 “each as officers, directors and minority shareholders of KB Depot.” (Emphasis added; see also ¶ 114 [“A demand to KB Depot would be futile, as Defendant William is its sole director and in fact controls KB Depot. . .”].). Plaintiff’s claim, then, is not based entirely on William’s shareholder status. William’s demurrer is overruled.

“A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.” (Teselle v. McLoughlin (2009) 173 Cal.App.4^th 156, 179.) Again, Plaintiff’s cause of action against William is not based entirely on William’s shareholder status. William’s demurrer is overruled.

Plaintiff seeks an involuntary dissolution of KBDI pursuant to Corporations Code § 1800[4]. It is unclear how William as an individual can be sued for involuntary dissolution of a corporate entity. William’s demurrer is sustained.

Plaintiff seeks an injunction under the Guaranty for Stock Ownership. (SAC, Exh. B). Plaintiff,

however, has expressly alleged that William entered into the aforesaid guaranty “ostensibly in a

representative capacity” for FCI and not as an individual. (SAC, ¶ 42.) It is unclear, then, why

William is named to this cause of action in his individual capacity. William’s demurrer is sustained.

[1] On January 10, 2022 the court declined to relate Case No. 21PSCV00845 to the instant case.

[2] William represents that the motion was denied without prejudice “specifically to allow Defendants to renew its Motion to Transfer and Consolidate once the pleadings have been settled” (Reply, 3:10-12). The court can find no such statement in the April 25, 2022 minute order.

[3] Although Plaintiff contends that the SAC sufficiently pleads aiding and abetting liability against Mary and Dong, the fact remains that Plaintiff expressly asserted the first and second causes of action against defendants other than William, FCI and KBDI on an alter ego basis only.

[4] Corporations Code § 1800, subdivision (a) provides as follows: “(a) A verified complaint for involuntary dissolution of a corporation on any one or more of the grounds specified in subdivision (b) may be filed in the superior court of the proper county by any of the following persons: (1) One-half or more of the directors in office. (2) A shareholder or shareholders who hold shares representing not less than 33 ¿ percent of (i) the total number of outstanding shares (assuming conversion of any preferred shares convertible into common shares) or (ii) the outstanding common shares or (iii) the equity of the corporation, exclusive in each case of shares owned by persons who have personally participated in any of the transactions enumerated in paragraph (4) of subdivision (b), or any shareholder or shareholders of a close corporation. (3) Any shareholder if the ground for dissolution is that the period for which the corporation was formed has terminated without extension thereof. (4) Any other person expressly authorized to do so in the articles.” (Emphasis added).