Judge: Peter A. Hernandez, Case: 24STCV10370, Date: 2024-08-26 Tentative Ruling

Case Number: 24STCV10370    Hearing Date: August 26, 2024    Dept: 34

Li v. Chou et al. (24STCV10370)

Defendants James C. Chou, CJ Max Investments LLC and Helious Enterprises LLC’s Demurrer to the Complaint is OVERRULED as to first, second, and ninth causes of action, and SUSTAINED as to the third through eight causes of action. The court will inquire of the parties whether leave to amend is warranted.

Background

Plaintiff Steven Li, aka Jianjun Qiao (“Plaintiff”) alleges as follows:

Plaintiff and Defendants James C. Chou, CJ Max Investments LLC and Helious Enterprises LLC (collectively “Defendants”) entered into a written Investment Return Agreement (the “Agreement”) on November 18, 2012, wherein and whereby Plaintiff agreed to invest the sum of Six Million Dollars ($6,0000,000) (the “Investment”) in exchange for the return of that Investment on the terms and conditions set forth in the Agreement. The Agreement provided for an end term on January 10, 2022.

On April 25, 2024, Plaintiff filed a complaint, asserting the following causes of action against Defendants and Does 1-100:

1.     Breach of Written Contract;

2.     Declaratory Relief;

3.     Unjust Enrichment;

4.     Accounting;

5.     On Open Book Account;

6.     On Account Stated;

7.     For Money Advanced;

8.     Negligence; and

9.     Breach of Fiduciary Duty

A Case Management Conference is set for August 26, 2024.

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) 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].)

Discussion

Defendants demur, pursuant to Code of Civil Procedure § 430.10, subdivisions (e) and (f), to the first through ninth causes of action in Plaintiff’s Complaint, on the basis that they each fail to state facts sufficient to constitute a cause of action and are uncertain.

Defendants contend generally that the Complaint cannot go forward based on three general arguments: (1) The Agreement is illegal; (2) The Agreement’s related causes of action cannot be adjudicated under the doctrine of mootness because the funds have been forfeited by the United States Government; and, (3) The Statute of Limitations bar the claims. The court will OVERRULE the demurrer on the basis that these arguments are premature as they concern matters beyond the face of the pleading or via proper judicial notice.  (Donabedian, supra, 116 Cal.App.4th at 994.). Proper judicial notice was not done in this case. Moreover, “where a complaint, challenged by general demurrer charging failure to comply with the applicable statute of limitations, does not on its face disclose that the action was necessarily barred, courts should overrule the demurrer and permit the defense to be raised by answer.” (Childs v. State of California (1983) 144 Cal.App.3d 155, 160-161).

Uncertainty

A demurrer on grounds of uncertainty will not be sustained unless the complaint is so bad that the defendant cannot reasonably respond.  (Koury v. Maly’s of California (1993) 14 Cal.App.4th 612, 616.)  A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.  (Ibid.)

The court finds the Complaint is not so uncertain for all causes of action except the seventh cause of action that Defendants cannot reasonably respond.  Plaintiff sufficiently alleges that his claim is based on a breach of contract claim.  Any remaining issues can be clarified through discovery.  However, the seventh cause of action appears to concern a loan. A review of the Agreement demonstrates that the contractual obligations between the parties concerned an investment agreement not a loan agreement.

Thus, Demurrer on this basis is OVERRULED as to the first through six, and eighth and ninth causes of action, and SUSTAINED as to the seventh cause of action.

First Cause of Action (i.e., Breach of Contract)

“[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.4th 811, 821.) “If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference.” (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 459.)

The Complaint alleges that “on or about January 9, 2012, in Los Angeles County, California, Plaintiff, on the one hand, and Defendant Chou entered into a written Investment Return Agreement (the “Agreement”), wherein and whereby Plaintiff agreed to invest the sum of Six Million Dollars ($6,0000,000) (the “Investment”) in exchange for the return of that Investment on the terms and conditions set forth in the Agreement.” (Complaint, ¶ 15.) The Agreement is attached as an Exhibit to the Complaint. (Id., Exhibit 1.) A review of the Agreement demonstrates that Plaintiff has adequately alleged a breach of contract claim.

Defendant’s demurrer to the first cause of action is OVERRULED.

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 29 of the Complaint states that “[p]laintiff refers to paragraphs 1 through 28 inclusive, of the First Cause of Action, and incorporates the same herein by reference.” Plaintiff’s incorporation of these paragraph adequately identifies an actual controversy between the parties, i.e., the breach of contract.

Defendants’ demurrer to the second cause of action is OVERRULED.

Third Cause of Action (i.e. Unjust Enrichment)

“Unjust enrichment is not a cause of action, however, or even a remedy, but rather [] a general principle, underlying various legal doctrines and remedies[][.] It is synonymous with restitution. [][.] Unjust enrichment has also been characterized as describing [] the result of a failure to make restitution[]”  (McBride v. Boughton (2004) 123 Cal.App.4th 379, 387 [citation omitted].)[1] It is a common law obligation implied by law based on the equities of a particular case and not on any contractual obligation.  (Id. at p. 388-89.) It can be applied to provide relief in a breach of contract case when there are allegations that the contract was entered into through fraud or is unenforceable. (Id., at 388.) Here, only Defendants claim the contract was procured by fraud.

The Complaint fails to allege sufficient facts which would entitle it to equitable relief.  As discussed below, the Complaint does not sufficiently allege Negligence.  “In keeping with the doctrine's focus on the unjust nature of the enrichment, ‘[i]t is well settled that restitution will be denied where application of the doctrine would involve a violation or frustration of the law or opposition to public policy. [Citations.]’ [Citation.]”  (Id., at 387.)  The Complaint also does not provide any public policy argument or other facts to show Defendants were unjustly enriched at Plaintiff’s expense.

Defendant’s demurrer to the third cause of action is SUSTAINED.

Fourth Cause of Action (i.e. Accounting)

“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.4th 156, 179.)

Plaintiff “demands an accounting of all affairs of the Defendants to determine the exact amount of money due to Plaintiff. (Complaint, ¶ 38.)  

It is unclear what Plaintiff refers to “all affairs.” To the extent Plaintiff seeks an accounting of the interest that he alleges he is owed, such allegations should be more specific. But it appears based on a plain reading of the Complaint that Plaintiffs seeks more than an accounting concerning the parameters of the Agreement.

Defendants’ demurrer to the Fourth Cause of Action is SUSTAINED.

Fifth Cause of Action (i.e. Open Book Account)

Open book account is a form of common counts cause of action.  The elements are:  (1) A detailed statement which constitutes the principal record of one or more transactions between a debtor and a creditor arising out of a contract or some fiduciary relation; (2) that shows the debits and credits in connection therewith, and against whom and in favor of whom entries are made; (3) entered in the regular course of business as conducted by such creditor or fiduciary; and, (4) kept in a reasonably permanent form and manner; (5) in a bound book, on a sheet or sheets fastened in a book or to backing but detachable therefrom, on a card or cards of a permanent character, or is kept in any other reasonably permanent form and manner.  (CCP § 337a; Tsemetzin v. Coast Federal Savings & Loan Assn. (1997) 57 Cal. App. 4th 1334, 1343.)

Plaintiff alleged that within the last four years, Defendant became indebted to Plaintiff for money due.  (Complaint, ¶ 41.)  However, Plaintiff fails to allege that it maintained an account of the debits and credits involved in the transaction at issue in this instant litigation and how this “record” was maintained and failed to allege facts showing that this record was kept in a reasonable permanent form and manner.

Defendants’ demurrer to the fifth cause of action is SUSTAINED

Sixth Cause of Action (i.e. Account Stated)

An account stated is an agreement, based on prior transactions between the parties, that the items of an account are true and that the balance struck is due and owing. (Gleason v. Klamer (1980) 103 Cal.App.3d 782, 786.) This agreement must demonstrate “an indebtedness from one party to the other existed, that a balance was then struck and agreed to be the correct sum owing from the debtor to the creditor, and the debtor expressly or impliedly promised to pay the creditor the amount thus determined to be owing. (H. Russell Taylor’s Fire Prevention Services, Inc. v. Coca-Cola Bottling Corp. (1979) 99 Cal.App.3d 711, 726.) Here, the alleged debt owed is through the Agreement alleged in Count 1, not a series of “prior” transactions where the parties have agreed on the sum total of the transactions.

Defendants’ demurrer to the sixth cause of action is SUSTAINED.

Seventh Cause of Action (i.e. For Money Advanced): see generally discussion concerning Uncertainty, above.

Eighth Cause of Action (i.e. Negligence)

Defendants contend Plaintiffs did not allege the elements of a Negligence cause of action. (See Demurrer, at p. 21.) Defendants are correct.  The elements for a negligence claim are:  (1) legal duty owed to plaintiffs to use due care; (2) breach of duty; (3) causation; and (4) damage to plaintiff. (County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App. 4th 292, 318;  Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917.)

To the extent that the court allows Plaintiff to amend his Complaint and allege the specific elements of Negligence, Plaintiff should be mindful not to merely restates a duty that was established through the contractual relationship as detailed in the Agreement. This would be duplicative of the obligations allegedly breached in the First Cause of Action. 

Defendants demurrer to the eighth cause of action is SUSTAINED.

Ninth Cause of Action (i.e. Breach of Fiduciary Duty)

“The elements of a cause of action for breach of fiduciary duty are: (1) the existence of a fiduciary duty; (2) the breach of that duty; and (3) damage proximately caused by that breach.” (IIG Wireless, Inc. v. Yi (2018) 22 Cal.App.5th 630, 646 [quotations and citation omitted].)

“[A] fiduciary relationship is any relation existing between parties to a transaction wherein one of the parties is duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter's knowledge or consent.” (Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1338 [internal quotations and citation omitted].) “[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.” (Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 632 [quotations and citation omitted; emphasis added].)

Defendants demur does not discuss specifically the elements of a breach of fiduciary duty claim and how the Complaint is insufficient. It appears that Defendants’ only contention is that the claim is barred by the Statute of Limitations. As shown above, the demurrer based on statute of limitations is OVERRULED. Accordingly, the Demurrer as to the ninth cause of action is OVERRULED.

Leave to Amend

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d. 335, 349 [court shall not “sustain a demurrer without leave to amend if there is a reasonable possibility that the defect can be cured by amendment].

[1]              There is a split of authority across the appellate courts regarding whether unjust enrichment is a cause of action or a principle of law. Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 911 (Jogani) and Melchior v. New Line Prods., Inc. (2003) 106 Cal.App.4th 779, 794 (Melchior) hold that unjust enrichment is a principle underlying various doctrines and remedies, including quasi-contract.  On the other hand, Hirsch v. Bank of America (2003) 107 Cal.App.4th 708, First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, and Lectrodryer v. Seoul Bank (2000) 77 Cal.App.4th 723 view it as a separate cause of action. Because the Supreme Court in Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 51 refers to unjust enrichment as a “principle” of law and not as a separate cause of action, this Court finds that the Jogani and Melchior authorities are more persuasive.