Judge Peter A. Hernandez, Case Number: 23PSCV01362, Date: 2023-10-03 Tentative Ruling

Judge: Peter A. Hernandez, Case: 23PSCV01362, Date: 2023-10-03 Tentative Ruling

Case Number: 23PSCV01362 Hearing Date: October 3, 2023 Dept: K

Defendants Brighten Investment Group Inc.’s and Huandan Luan’s Demurrer to Complaint is SUSTAINED. 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.

Background

Plaintiff Connie Lin Sun (“Plaintiff”) alleges as follows:

Walnut Education Time, Inc. (“WETI”) is a Montessori school in Walnut, CA. As of October 15, 2018, WETI’s outstanding 1,000,000 shares were held as follows: 653,061 by Plaintiff, 100,000 by Claire Education Management Inc. and 246,939 by Pico Global LLC (of which Plaintiff is the managing member).

In April 2018, Huandan Luan (“Luan”) approached Plaintiff with a business proposal, wherein Luan and her company, Brighten Investment Group, Inc. (“Brighten”) would invest money in WETI in exchange for the opportunity to apply for an immigration visa to allow Luan, a Chinese citizen, to reside in the United States. Sun and Luan thereafter entered into a verbal agreement wherein (1) Luan and Brighten would deposit $500,000.00 into WETI, which Plaintiff and WETI could use interest free and without conditions during the pendency of Luan’s immigration status; (2) Luan and Brighten would hold a 51% ownership interest subject to certain conditions: (a) if and when Luan’s immigration visa petition was approved, the oral agreement would terminate and Luan and Sun would renegotiate a new agreement on the additional capital Luan and Brighten would need to invest to remain as a shareholder of WETI; if no new agreement were reached, Luan and Brighten would return the 51% ownership interest in WETI to Plaintiff and receive their $500,000.00 back; (b) if Luan’s petition were denied and/or Luan decided not to proceed with the immigration process, the oral agreement would terminate and Luan and Brighten would return the 51% ownership interests in WETI to Plaintiff and receive their $500,000.00 back; (3) Luan and Brighten would not come near WETI and not control, manage, or interfere with any of WETI’s operations and procedures other than as required for Luan’s petition; (4) Luan and Brighten would have no rights to access or review WETI’s books and records other than as required for Luan’s petition; (5) Luan and Brighten would have no rights to any profit sharing, dividends, wages, compensation or any monetary rights from WETI; (6) Luan and Brighten would be fully responsible for Luan’s immigration visa petition and process and the result of same and (6) Luan and Brighten would guarantee that there attorneys would prepare and review all necessary paperwork for the immigration process to be legal and legitimate.

Luan and Brighten subsequently deposited $500,000.00 into WETI and Luan’s attorney prepared a stock certificate #4 (which was later declared void by the U.S. Citizenship and Immigration Services [“USCIS”]) and an October 15, 2018 agreement entitled “Brighten Investment Group, Inc. Investment Agreement” (“Investment Agreement”); Plaintiff signed this latter document on WETI’s behalf at Luan’s attorney’s instruction. The Investment Agreement incorrectly stated that WETI was authorized to issue 2,040,817 shares of common stock and included a “condition precedent on closing” requiring Brighten to obtain both an infant center license and a day care center license, which it never did. Between March 2021-August 2022, Plaintiff and WETI issued $65,000.00 in wages to Luan at Luan’s attorney’s instruction for purposes of Luan’s immigration petition. They also remitted $14,175.00 to Luan’s attorney to satisfy Luan’s immigration via process, at the instruction of one of Luan’s attorneys. Luan filed immigration visa petitions, motions and appeals; during this process, Luan’s attorney prepared and instructed Sun to sign WETI’s Certificate of Amendment of Articles of Incorporation, which was filed by the California Secretary of State and increased the total number of shares WETI was authorized to issue to 5,000,000. Luan’s attorney did not reissue a new WETI share certificate to Brighten. Luan ultimately gave up on the immigration visa process. At the end of 2022, Luan and Brighten demanded that Plaintiff pay $120,000.00 in legal expenses and filing fees incurred in Luan’s immigration via process, refused to consider the above $65,000.00 in wages paid as a partial refund of the $500,000.00, demanded access to WETI’s books and records and are attempting to remove and terminate Sun’s positions with WETI.

On May 5, 2023, Plaintiff filed a complaint, asserting causes of action against WETI, Brighten, Luan and Does 1-100 for:

1. Rescission

2. Declaratory Relief

A Case Management Conference is set for October 3, 2023.

Legal Standard

A demurrer may be made on the 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)&(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].)

Discussion

Brighten and Luan demur to the first and second causes of action in Plaintiff’s complaint, on the basis that they both fail to state facts sufficient to constitute causes of action and are uncertain.

At the outset, the court declines to consider Exhibit A attached to Brighten’s and Luan’s demurrer as improper, inasmuch as it was not attached to the complaint, nor is it the subject of a Request for Judicial Notice.

First Cause of Action (i.e., Rescission)

Brighten and Luan first assert that rescission is not a stand-alone cause of action. “A party to a contract has two different remedies when it has been injured by a breach of contract or fraud and lacks the ability or desire to keep the contract alive. The party may disaffirm the contract, treating it as rescinded, and recover damages resulting from the rescission. Alternatively, the party may affirm the contract, treating it as repudiated, and recover damages for breach of contract or fraud. Rescission and damages are alternative remedies.” (Wong v. Stoler (2015) 237 Cal.App.4th 1375, 1384-1385.)

On demurrer, the court looks to the allegations to see if the facts alleged support any cause of action and not merely to the title of the cause of action. Plaintiff, however, has failed to plead facts that would constitute a breach of contract cause of action within the bounds of her first cause of action. Paragraph 74 of the complaint states that “[p]laintiff realleges and incorporates herein by reference paragraphs 1 through ___ of this Complaint as if set forth herein in full.” Plaintiff, then, has failed to incorporate Paragraphs 2-73 into her first cause of action. Plaintiff’s first cause of action consists of little more than a recitation of the grounds for rescission as set forth in Civil Code § 1689, subdivision (b), unaccompanied by any facts.

Brighten and Sun’s demurrer to the first cause of action is sustained.

Second Cause of Action (i.e., Declaratory Relief)

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.)

Paragraph 89 of the complaint states that “[p]laintiff realleges and incorporates herein by reference paragraphs 1 through ___ of this Complaint as if set forth herein in full.” Plaintiff, then, has failed to incorporate Paragraphs 2-88 into her second cause of action. Further, Plaintiff has failed to identify an actual controversy between the parties.

Brighten and Sun’s demurrer to the second cause of action is sustained.