Judge Peter A. Hernandez, Case Number: 23PSCV03534, Date: 2024-09-24 Tentative Ruling

Judge: Peter A. Hernandez, Case: 23PSCV03534, Date: 2024-09-24 Tentative Ruling

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Case Number: 23PSCV03534 Hearing Date: September 24, 2024 Dept: 34

Chen Feng, et al. v. Blake Sing Hon, et al. (23PSCV03534)

1. Plaintiffs’ Motion to Seal is DENIED.

2. Plaintiffs’ Motion for Summary Judgment is DENIED. Plaintiffs’ motion for summary adjudication of the third cause of action for unjust enrichment is DENIED. Plaintiffs’ motion for summary adjudication of the first cause of action for breach of the Settlement Agreement, second cause of action for breach of the Purchase Agreement and third cause of action for declaratory relief is GRANTED.

Background

Plaintiffs Chen Feng and Zhen Zhong Cao (collectively “Plaintiffs”), Defendant Blake Sing Hon (“Defendant Hon”) and non-party Stephen Hon (collectively, the “Members”) were equal members of Defendant Cheyenne LLC (the “Company”), each holding a 25% membership interest therein. The Company purchased a warehouse located at 4775 E. Cheyenne Avenue in Las Vegas, Nevada (the “Property”).

On November 29, 2007, the Members executed a Management Agreement (the “Management Agreement”) pursuant to which Defendant Hon would manage the Company for an 8% bonus of the Company’s tax basis accumulated earnings each year, including net gain from sale of the Property.

A dispute arose between Plaintiffs and Defendant Hon regarding Hon’s management of the Company. Plaintiffs filed a derivative suit against Defendant Hon and the Company in October 2021 entitled Chen Feng, et al. v. Blake Sing Hon, Case No. 21STCV38166 (“Feng I”).

Plaintiffs, Defendant Hon and the Company settled Feng I on May 31, 2023 pursuant to a settlement agreement. Under the settlement agreement, (1) Hon would purchase Plaintiffs’ 50% interest in the Company for $8,000,000; (2) the Company would retain the Property; and (3) Plaintiffs would receive a 25% pro rata share of the Company’s assets.

On July 11, 2023, Plaintiffs, Defendant Hon and the Company entered into a Purchase Agreement further detailing the transfer of Plaintiffs’ membership interests to Defendant Hon. Plaintiffs allege the Purchase Agreement clearly described the transaction as a sale of Plaintiffs’ membership interests in the Company, not the sale of any real property.

Plaintiffs did not receive the proceeds from the Settlement Agreement and the Purchase Agreement until October 2023. Plaintiffs discovered upon receiving the proceeds that Defendants paid them $402,949.78 less. Plaintiffs allege Defendants included this amount in a bonus paid to Defendant Hon of $805,899.56. Plaintiffs allege half of this amount should have been paid to them as part of the equal division of the non-property assets of the Company.

Plaintiffs allege Defendant Hon maintains his purchase of their 50% interest in the Company triggered the 8% bonus under the Management Agreement. Plaintiffs disagree.

On November 13, 2023, Plaintiffs filed this action against Defendant Hon and the Company alleging (1) breach of settlement agreement; (2) breach of purchase agreement; (3) unjust enrichment; and (4) declaratory relief.

1. Plaintiffs’ Motion to Seal

Legal Standard

Under California Rules of Court 2.551(b)-(d):

(b) Motion or application to seal a record

(1) Motion or application required

A party requesting that a record be filed under seal must file a motion or an application for an order sealing the record. The motion or application must be accompanied by a memorandum and a declaration containing facts sufficient to justify the sealing.

(2) Service of motion or application

A copy of the motion or application must be served on all parties that have appeared in the case. Unless the court orders otherwise, any party that already has access to the records to be placed under seal must be served with a complete, unredacted version of all papers as well as a redacted version. Other parties must be served with only the public redacted version. If a party's attorney but not the party has access to the record, only the party's attorney may be served with the complete, unredacted version.

(3) Procedure for party not intending to file motion or application

(A) A party that files or intends to file with the court, for the purposes of adjudication or to use at trial, records produced in discovery that are subject to a confidentiality agreement or protective order, and does not intend to request to have the records sealed, must:

(i) Lodge the unredacted records subject to the confidentiality agreement or protective order and any pleadings, memorandums, declarations, and other documents that disclose the contents of the records, in the manner stated in (d);

(ii) File copies of the documents in (i) that are redacted so that they do not disclose the contents of the records that are subject to the confidentiality agreement or protective order; and

(iii) Give written notice to the party that produced the records that the records and the other documents lodged under (i) will be placed in the public court file unless that party files a timely motion or application to seal the records under this rule.

(B) If the party that produced the documents and was served with the notice under (A)(iii) fails to file a motion or an application to seal the records within 10 days or to obtain a court order extending the time to file such a motion or an application, the clerk must promptly transfer all the documents in (A)(i) from the envelope, container, or secure electronic file to the public file. If the party files a motion or an application to seal within 10 days or such later time as the court has ordered, these documents are to remain conditionally under seal until the court rules on the motion or application and thereafter are to be filed as ordered by the court.

(4) Lodging of record pending determination of motion or application

The party requesting that a record be filed under seal must lodge it with the court under (d) when the motion or application is made, unless good cause exists for not lodging it or the record has previously been lodged under (3)(A)(i). Pending the determination of the motion or application, the lodged record will be conditionally under seal.

(5) Redacted and unredacted versions

If necessary to prevent disclosure, any motion or application, any opposition, and any supporting documents must be filed in a public redacted version and lodged in a complete, unredacted version conditionally under seal. The cover of the redacted version must identify it as “Public--Redacts materials from conditionally sealed record.” The cover of the unredacted version must identify it as “May Not Be Examined Without Court Order--Contains material from conditionally sealed record.”

(6) Return of lodged record

If the court denies the motion or application to seal, the moving party may notify the court that the lodged record is to be filed unsealed. This notification must be received within 10 days of the order denying the motion or application to seal, unless otherwise ordered by the court. On receipt of this notification, the clerk must unseal and file the record. If the moving party does not notify the court within 10 days of the order, the clerk must (1) return the lodged record to the moving party if it is in paper form or (2) permanently delete the lodged record if it is in electronic form.

A record filed publicly in the court must not disclose material contained in a record that is sealed, conditionally under seal, or subject to a pending motion or an application to seal.

(d) Procedure for lodging of records

(1) A record that may be filed under seal must be transmitted to the court in a secure manner that preserves the confidentiality of the records to be lodged. If the record is transmitted in paper form, it must be put in an envelope or other appropriate container, sealed in the envelope or container, and lodged with the court.

(2) The materials to be lodged under seal must be clearly identified as “CONDITIONALLY UNDER SEAL.” If the materials are transmitted in paper form, the envelope or container lodged with the court must be labeled “CONDITIONALLY UNDER SEAL.”

(3) The party submitting the lodged record must affix to the electronic transmission, the envelope, or the container a cover sheet that:

(A) Contains all the information required on a caption page under rule 2.111; and

(B) States that the enclosed record is subject to a motion or an application to file the record under seal.

(4) On receipt of a record lodged under this rule, the clerk must endorse the affixed cover sheet with the date of its receipt and must retain but not file the record unless the court orders it filed.

Applicable Case Law

Unless confidentiality is required by law, court records are presumed to be open to the public. (California Rules of Court, Rule 2.550(c).) Therefore, pleadings, motions, discovery documents, and other papers may not be filed under seal merely by stipulation of the parties. The parties' agreement that certain documents be filed under seal is improper and insufficient. (Savaglio v. Wal–Mart Stores, Inc. (2007) 149 Cal.App.4th 588, 600.) A prior court order must be obtained. (California Rules of Court, Rule 2.551(a); H.B. Fuller Co. v. Doe (2007) 151 Cal.App.4th 879, 888.) At a minimum, a party seeking to seal documents must come forward with a specific list of facts sought to be withheld and specific reasons for withholding them. (Id. at 894.)

“Before substantive courtroom proceedings are closed or transcripts are ordered sealed, a trial court must hold a hearing and expressly find that (i) there exists an overriding interest supporting closure and/or sealing; (ii) there is a substantial probability that the interest will be prejudiced absent closure and/or sealing; (iii) the proposed closure and/or sealing is narrowly tailored to serve the overriding interest; and (iv) there is no less restrictive means of achieving the overriding interest.” (NBC Subsidiary (KNBC-TV), Inc. v. Supr. Ct. (1999) 20 Cal.4th 1178, 1217-1218.)

Discussion

Plaintiffs move to seal Exhibit B to Plaintiff Feng’s declaration in support of Plaintiff’s Motion for Summary Judgment. Exhibit B to the Feng Declaration is the parties’ Confidential Settlement Agreement. Plaintiffs filed a Notice of Lodging on May 6, 2024, attaching an unredacted version of the Feng Declaration.

Although Plaintiffs filed a redacted version of the Feng Declaration for the public record, Plaintiffs did not redact or seek to seal their memorandum of points and authorities or their separate statement, both of which quote large sections of the Confidential Settlement Agreement. Defendants also submitted a full copy of the Confidential Settlement Agreement with no redactions as Exhibit A to their opposition. Although Plaintiffs objected to Defendants’ Exhibit A for lack of foundation, they made no objection based on confidentiality. Plaintiffs did not object to Defendant’s failure to comply with the requirements for sealing or their failure to maintain confidentiality.

In light of these facts, Plaintiffs’ have waived their right to request that the Settlement Agreement be sealed. Plaintiffs have themselves disclosed large portions of the Settlement Agreement in publicly filed documents. They also failed to object to Defendants’ attachment of the Settlement Agreement to the opposition.

Plaintiffs’ Motion to Seal is DENIED.

2. Plaintiffs’ Motion for Summary Judgment

Legal Standard

“A plaintiff or cross-complainant has met his or her burden of showing that there is no defense to a cause of action if that party has proved each element of the cause of action entitling the party to judgment on the cause of action. Once the plaintiff or cross-complainant has met that burden, the burden shifts to the defendant or cross-defendant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (CCP §437c(p)(1).)

“A party is entitled to summary judgment only if it meets its initial burden of showing there are no triable issues of fact and the moving party is entitled to judgment as a matter of law. This is true even if the opposing party fails to file any opposition. The court's assessment of whether the moving party has carried its burden—and therefore caused a shift—occurs before the court's evaluation of the opposing party's papers. Therefore, the burden on the motion does not initially shift as a result of what is, or is not, contained in the opposing papers.” (Mosley v. Pacific Specialty Insurance Company (2020) 49 Cal.App.5th 417, 434–435 (landlord’s failure to address issue of whether they were aware of their tenant’s marijuana growing operation was not grounds to grant summary judgment where moving party failed to satisfy its initial burden as to the issue); Thatcher v. Lucky Stores, Inc. (2000) 79 Cal.App.4th 1081, 1086-1087 (court cannot grant summary judgment based merely on lack of opposition; court must first determine if the moving party has satisfied its burden).)

In addition, the evidence and affidavits of the moving party are construed strictly, while those of the opponent are liberally read. (Government Employees Ins. Co. v. Sup. Ct. (2000) 79 Cal.App.4th 95, 100.) “All doubts as to the propriety of granting the motion (whether there is any issue of material fact [Code of Civil Procedure] § 437c) are to be resolved in favor of the party opposing the motion (i.e., a denial of summary judgment).” (Hamburg v. Wal-Mart Stores, Inc. (2004) 116 Cal.App.4th 497, 502.)

Evidentiary Objections

Plaintiffs’ Objections to Johnson Declaration—OVERRULED

Plaintiffs’ Objection to Defendants’ Exhibits—OVERRULED as to Exs. A (Settlement Agreement) and C (Management Agreement), SUSTAINED as to Exs. B, D and E.

Plaintiffs’ Request for Judicial Notice—GRANTED

Discussion

Law governing interpretation of contract

Interpretation of contract is a question of law for the court, and the goal should be to give effect to the mutual intent of the parties. (Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37; MacKinnon v. Truck Ins. Exch. (2003) 31 Cal.4th 635, 647-648. (citing Cal. Civ.Code § 1636). Such intent is to be inferred, if possible, from the written provisions of the contract based on their “ordinary and popular sense,” unless a “technical sense or special meaning is given to them by their usage.” (Id. at 648 (citing Cal. Civ.Code §§ 1639, 1644, 1638).) If the contractual language is clear and explicit, it governs. (Id.)

“When the parties dispute the meaning of a contract term, the trial court's first step is to determine whether the term is ambiguous, i.e., it is ‘reasonably susceptible’ to either of the meanings urged by the parties. In making this determination, the court is not limited to the contract language itself but provisionally receives, without actually admitting, any extrinsic evidence offered by a party which is relevant to show the contract could or could not have a particular meaning. If, in light of the language of the contract and the extrinsic evidence as to its meaning, the trial court determines the language is ‘reasonably susceptible’ to either of the meanings urged by the parties the court moves on to the second step which is to determine just what the parties intended the contract term to mean.” (Curry v. Moody (1995) 40 Cal.App.4th 1547, 1552.)

“If no extrinsic evidence was presented or if the extrinsic evidence was not in conflict, the resolution of the ambiguity is a question of law, which is subject to independent review on appeal. Even where uncontroverted evidence allows for conflicting inferences to be drawn, our Supreme Court treats the interpretation of the written contract as solely a judicial function.” (Scheenstra v. California Dairies, Inc. (2013) 213 Cal.App.4th 370, 390.)

Plaintiffs satisfy their burden on the first, second and fourth causes of action. Plaintiffs fail to satisfy their burden on the third cause of action for unjust enrichment.

Plaintiffs’ move for summary judgment as to the breach of Settlement Agreement, breach of Purchase Agreement, unjust enrichment and declaratory relief claims. The elements of Plaintiffs’ causes of action are as follows:

(1) “A settlement agreement is a contract, and the legal principles [that] apply to contracts generally apply to settlement contracts. The elements of a cause of action for breach of contract include the existence of a contract, the plaintiff's performance or excuse for nonperformance, the defendant's breach, and resulting damages to the plaintiff.” (J.B.B. Investment Partners Ltd. v. Fair (2019) 37 Cal.App.5th 1, 9.)

(2) “There is no cause of action in California labeled ‘unjust enrichment.’ But common law principles of restitution require a party to return a benefit when the retention of such benefit would unjustly enrich the recipient; a typical cause of action involving such remedy is ‘quasi-contract. Whether termed unjust enrichment, quasi-contract, or quantum meruit, the equitable remedy of restitution when unjust enrichment has occurred is an obligation (not a true contract) created by the law without regard to the intention of the parties.” (City of Oakland v. Oakland Raiders (2022) 83 Cal.App.5th 458, 477.)

(3) “The complaint is sufficient if it shows an actual controversy; it need not show that plaintiff is in the right.” (Lockheed Corp. v. Continental Ins. Co. (2005) 134 Cal.App.4th 187, 222 (citing 5 Witkin, Cal. Procedure, (4th ed. 1997) Pleading § 831, pp. 288-289.). “A complaint for declaratory relief is sufficient if it sets forth facts showing the existence of a controversy relating to the legal rights and duties of the parties under a written instrument and requests that those rights and duties be adjudicated.” (Taschner v. City Council (1973) 31 Cal.App.3d 48, 57 (disapproved of by Associated Home Builders etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582 on other grounds).)

Plaintiffs establish that the parties entered into the Settlement Agreement and the Purchase Agreement. (Feng Dec., ¶¶3, 4, 8, Exs. B (Lodged with Court) and C.) Under both agreements, Defendant Hon would pay $8,000,000 in total for Plaintiffs’ 50% membership interests in the Company. (Feng Dec., Ex. B, §2(a) and (d); Ex. C, §2(e).)

Pursuant to the Settlement Agreement, Plaintiffs were also to receive a distribution of 50% of their pro rata share of all assets of the Company, other than the Property or ownership interest in it, less Plaintiffs’ proportionate share of the loan liabilities. (Feng Dec., Ex. B, §2(d).) The Purchase Agreement also incorporated this provision, entitling Plaintiffs to a distribution of 50% of their pro rata share of the Company’s assets, other than the Property. (Feng Dec., Ex. C, §2(e).)

In exchange for these distributions, Plaintiffs agreed to dismiss Feng I within seven days of the Effective Date of May 31, 2023. (Feng Dec., Ex. B, §8.) Plaintiffs filed a dismissal of Feng I on June 9, 2023. (Related Case 21STCV38166.)

Upon close of the escrow for Defendants’ payment of Plaintiffs’ 50% pro rata share of the Company’s assets, other than the Property, the Company paid Defendant Hon an 8% commission as a bonus or commission under the Management Agreement. (Feng Dec., ¶2, Adams Dec., ¶4.) The Management Agreement provides that Defendant Hon would receive “an eight percent (8%) bonus of the Company’s tax basis accumulated earnings each year, including net gain from the sale of the Cheyenne Industrial Center property.” (Feng Dec., Ex. A, §1.)

Plaintiffs establish that Defendants did not sell the Property to anyone and Defendant Hon’s purchase of Plaintiffs’ membership interests does not qualify as a sale of the Property under the Management Agreement. (Feng Dec., Ex. B., §§1, 2(a), Rectial G; Ex. C, §§1, 2(a), (b) and (e), Recitals F, G.) Plaintiffs establish that Defendant Company still owns the Property, as reflected in the Clark County Assessor’s records. (Plaintiffs’ Request for Judicial Notice, Ex. A.)

Plaintiffs establish that Defendants’ payment or designation of $805,899.56 of the Company’s assets as a commission to Defendant Hon under §1 of the Management Agreement breached the parties’ Settlement Agreement and Purchase Agreement. In doing so, Defendants refused to distribute to Plaintiffs their 50% pro rata share of all of the Company’s assets, other than the Property. This would include 50% of the $805,899.56 Defendants have designated as a commission due Defendant Hon. Defendants have refused to pay Plaintiffs 50% of this amount pending resolution of this action.

Plaintiffs therefore establish the existence of the Settlement and Purchase Agreements, Defendants’ breach of these agreements by refusing to pay Plaintiffs 50% of the $805,899.56 of Company’s assets earmarked as a commission for Defendant Hon, Plaintiffs’ performance under both Agreements and Plaintiffs’ damages in the amount of $402,949.78. Plaintiffs have also established a justiciable controversy over their entitlement to the $402,949.78 and Defendant Hon’s entitlement to an 8% commission under the Management Agreement. The burden therefore shifts to Defendants to raise a triable issue of fact as to the first, second and fourth causes of action.

However, Plaintiffs fail to establish entitlement to judgment on the third cause of action for unjust enrichment. Unjust enrichment is not a cause of action.

Defendants fail to raise a triable issue of fact as to Plaintiffs’ first, second and fourth causes of action

Defendants do not dispute any of the material facts submitted by Plaintiffs. Defendants only dispute Plaintiffs’ interpretation of what qualifies as a sale under the Management Agreement.

Defendants argue that the terms of the Settlement Agreement make clear that Plaintiffs’ sale of their membership interests to Hon qualify as a “sale of the Cheyenne Industrial Center property” under the Management Agreement.

Defendants argue the Settlement Agreement reflects the parties’ intentions regarding the purchase and sale of the Property. (Defendants’ Ex. A, Recitals G and I.) However, Recital G only sets forth Plaintiffs’ offer to purchase the Property, which parties ultimately decided to forgo and replace with Defendant Hon’s purchase of Plaintiffs’ membership interests, “Rather than purchase the entire Property from [Company]…the Parties agree Hon shall purchase Plaintiffs’ respective member interests….” (Defendants’ Ex. A, Recital G.) This same language was included in Recital F of the Purchase Agreement. (Feng Dec., Ex. C, Recital F.)

Defendants also cite to Recital I as evidence that Defendant Hon’s purchase of Plaintiffs’ membership interests was a sale of the Property. Recital I states, “The Parties have now decided, as more specifically described below, to effectuate a full and complete settlement of the Lawsuit, sale of the Property, and end to their joint ownership in [the Company].”

Recital I does not establish that the sale of Plaintiffs’ membership interests in the Company is a sale of the Property under the Management Agreement. Parties statement that “in lieu of paying LV Cheyenne the entire $16 million purchase price” for the Property, the parties agreed that Defendant Hon “has the right to purchase and acquire the 25% membership interests owned by each Plaintiff in LV Cheyenne….” (Defendants’ Ex. A, §2(a).) If, however, Defendant Hon was unable to complete the purchase of Plaintiffs’ membership interests, Plaintiffs were granted the “right to purchase the Property.” (Id. at §3(a).)

Based on this language, Defendant Hon’s purchase of Plaintiff’s membership interest was not a sale of the Property or a “deemed sale of the property.” Defendant’s Hon’s purchase of Plaintiffs’ interests was “in lieu of” and “rather than” a sale of the Property to Plaintiffs. A right to purchase the Property was only created in Plaintiffs and that right was never exercised, because Defendant Hon purchased Plaintiffs’ membership interests.

Defendants also rely on the phrase “Deemed Property Purchase” in Recital F of the Settlement Agreement, which states “Rather than purchase the entire Property from the Company, however, the Parties agreed that Hon would purchase Seller’s pro rata interest in the Property by purchasing all of the Sellers’ Interests in the Company on the terms, and subject to the conditions, set forth herein and in the Parties’ related Settlement Agreement (defined below), thus effectively transferring to Hon the Sellers’ complete pro rata share of the Property (the “Deemed Property Purchase”).” (Defendants’ Ex. A, Recital F.)

Defendants fail to submit any evidence that the parties intended the phrase “sale of the Cheyenne Industrial Center property” under the Management Agreement to include the “Deemed Property Purchase” under the Settlement Agreement. The phrase “deemed property purchase” itself indicates there was no true purchase or sale of the Property, hence the parties’ use of the word “deemed.” The phrase “Deemed Property Purchase” was specifically defined as Defendant Hon’s purchase of Plaintiffs’ membership interests, not the Property itself. Parties also refrained from referring to Hon’s purchase of Plaintiffs’ interests as a “Deemed Property Sale.”

Defendant Hon submits no evidence that the Property was ever sold to anyone, that there was ever a “net gain” from a sale (a requirement for the 8% commission under the Management Agreement), or that the parties’ ever intended to include Defendant Hon’s purchase of the Plaintiffs’ membership interests as a “sale” of the Property under §1 of the Management Agreement. A reasonable interpretation of the plain language of the Management Agreement, Settlement Agreement and Purchase Agreement does not support Defendants' position that the 8% commission was triggered by Defendant Hon’s purchase of Plaintiffs’ membership interest.

Parties could easily have inserted language addressing whether Defendant Hon’s purchase of Plaintiffs’ membership interests or the “Deemed Property Purchase” qualified as a “sale” of the Property under §1 of the Management Agreement. Parties did not do so, however, nor did they ever refer to Defendant Hon’s purchase of Plaintiffs’ membership interest as a “sale” of the Property.

Defendants therefore fail to raise a triable issue of fact as to the first, second and fourth causes of action for breach of the Settlement Agreement, breach of the Purchase Agreement and declaratory relief. Based on the undisputed facts, Plaintiffs’ motion for summary adjudication of the first, second and fourth causes of action is GRANTED.

Conclusion

Plaintiffs’ Motion for Summary Judgment is DENIED. Plaintiffs’ motion for summary adjudication of the third cause of action for unjust enrichment is DENIED. Plaintiffs’ motion for summary adjudication of the first cause of action for breach of the Settlement Agreement, second cause of action for breach of the Purchase Agreement and third cause of action for declaratory relief is GRANTED.