Judge: Robert S. Draper, Case: 21STCV34899, Date: 2022-09-29 Tentative Ruling

Case Number: 21STCV34899    Hearing Date: September 29, 2022    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Cross-Defendants Howard Beck and Jae Chung Ko’s Demurrer to the First Amended Cross-Complaint is OVERRULED.

Cross-Defendants Howard Beck and Jae Chung Ko’s Motion to Strike is DENIED as to Punitive Damages.  

Cross-Defendants Howard Beck and Jae Chung Ko’s Motion to Strike is GRANTED as to Attorney Fees. 

Cross-Defendants have thirty days to answer.

FACTUAL BACKGROUND   

This is an action for breach of a partnership agreement. The Complaint alleges as follows.

Plaintiffs Howard Beck (“Beck”) and Jae Chung Ko (“Ko” and with Beck, “Plaintiffs” or “Cross-Defendants”) formed a partnership (the “Partnership”) with Defendant Un Taek Joo (“Joo”) to open a sushi restaurant (the “Restaurant”) in Los Angeles. (Compl. ¶ 9.) The oral partnership agreement (the “Oral Agreement”) specified that Plaintiffs would provide capital for the Restaurant, while Joo would serve as chef. (Ibid.) Additionally, pursuant to the Oral Agreement, Plaintiffs would receive 75% of the Restaurant’s profits, while Joo would receive 25%. (Compl. ¶ 10.) Plaintiffs paid for all the expenses in the coming months, while Joo paid nothing. (Compl. ¶¶ 13-21.)

On August 3, 2021, Joo was excluded from the Restaurant due to ongoing conflicts between Joo and other employees. (Compl. ¶ 22.) Plaintiffs agreed to pay Joo $100,000 in exchange for his interest in the Partnership. (Compl. ¶ 23.) Shortly thereafter, Joo embezzled $50,000 in Partnership funds. (Compl. ¶ 24.) Then, Joo changed the locks on the Restaurant so that Plaintiffs could not access it. (Compl. ¶ 25.) Plaintiffs allege that Joo is currently trying to transfer the lease to the Restaurant and is removing fixtures and other equipment from the establishment. (Compl. ¶ 26.)

The operative First Amended Cross-Complaint (“FAXC”) filed by Joo alleges as follows.

In November 2020, Joo entered into the Partnership with Beck and Ko pursuant to the Oral Agreement. (FAXC ¶ 10.) Cross-Defendants provided the capital, while Joo was responsible for management. (Ibid.) Joo was to be paid a $5000 a month salary, and to receive 25% of the Partnership’s net proceeds. (FAXC ¶ 12.) In September 2021, Beck and Ko breached the Oral Agreement by refusing to pay Joo his salary, taking over the Restaurant bank account, forging Joo’s signature on the Restaurant checking account, and embezzling Restaurant income. (FAXC ¶¶ 13(a-j).)

Additionally, Beck and Ko defrauded Joo by obtaining his personal information under the guise of helping Joo repair his credit, then obtaining two loans in his name through two shell companies; Cross-Defendants Atti Closet Corporation and Logisdepot LLC. (FAXC ¶¶ 31-33.)

PROCEDURAL HISTORY 

On September 22, 2021, Plaintiffs filed the Complaint asserting nine causes of action:

1.   Conversion;

2.   Treble Damages Pursuant to Penal Code 496(c);

3.   Breach of Oral Partnership Agreement;

4.   Breach of Fiduciary Duty;

5.   Judicial Dissolution of Partnership;

6.   Declaratory Relief;

7.   Constructive Trust;

8.   Unjust Enrichment; and,

9.   Injunctive Relief

On February 17, 2022, Plaintiffs filed the operative First Amended Complaint, removing the causes of action for unjust enrichment and injunctive relief.

On April 7, 2022, Joo filed the Cross-Complaint asserting six causes of action:

1.   Breach of Contract;

2.   Conversion;

3.   Breach of Fiduciary Duty;

4.   Accounting;

5.   Invasion of Privacy; and,

6.   Fraud;

On July 7, 2022, Joo filed the First Amended Cross-Complaint, removing the cause of action for Invasion of Privacy.

On August 16, 2022, Cross-Defendants filed the instant Demurrer and Motion to Strike as to the First Amended Cross-Complaint.

On September 12, 2022, Joo filed an Opposition.

On September 19, 2022, Cross-Defendants filed a Reply.

DISCUSSION 

                     I.        DEMURRER

Cross-Defendants demur to all causes of action pursuant to Code of Civil Procedure section 430.10.

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) As is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“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. [Citation.]”)  

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.”  (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.) 

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.) 

A.  First Cause of Action – Breach of Contract

Cross-Defendants demur to the First Cause of Action for Breach of Contract.

“The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.) 

Here, Cross-Defendants argue that the allegations regarding breach of contract are too general and are not supported by operative facts.

The First Amended Cross-Complaint alleges that in November 2020, the parties entered into an oral agreement to operate a sushi restaurant. (FAXC ¶ 10.) Joo was to manage the restaurant, while Beck and Ko were to provide capital. (Ibid.) Beck and Ko agreed not to interfere with Joo’s operation of the restaurant. (FAXC ¶ 11.) In addition, Joo was to be paid a $5000 monthly salary, and was to have 25% interest in the Partnership’s net profits. (FAXC ¶ 12.) In September 2021, Cross-Defendants breached that contract by failing to pay Joo his salary, taking over the bank account for the Restaurant, forging Joo’s signature on the bank account, embezzling restaurant income, using funds to renovate the restaurant without authorization, interfering with restaurant management, destroying Restaurant records, and failing to pay Joo his share of the Restaurant’s value. (FAXC 13(A-F).)

Accordingly, the First Amended Cross Complaint alleges facts sufficient to state a cause of action for breach of contract.

Cross-Defendants also argue that the claim fails because the First Amended Cross-Complaint fails to state the duration of the contract, and because the First Amended Cross Complaint “erroneously implied the restaurant was sold and that Cross-Defendants failed to pay Cross-Complainant his share of the restaurant’s value. The restaurant is open and Cross-Complainant is stealing the monthly revenue.” (Demurrer at p. 8.)

As to the first point, Cross-Defendants cite no authority stating that the failure to state the duration of a contract in a pleading is fatal to that cause of action.

As to the second point, Cross-Defendants engage in the type of factual argument that is improper at the pleading stage.

Accordingly, Cross-Defendants’ Demurrer to the First Cause of Action is OVERRULED.

B.  Second Cause of Action – Conversion

Cross-Defendants demur to the Second Cause of Action for Conversion.

To plead a cause of action for conversion, one must allege (1) the plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)  

 “‘Conversion is any act of dominion wrongfully exerted over another’s personal property in denial of or inconsistent with his rights therein.’” (Enterprise Leasing Corp. v. Shugart Corp. (1991) 231 Cal.App.3d 737, 747 (quoting Messerall v. Fulwider (1988) 199 Cal.App.3d 1324, 1329).) “‘It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.’” (Id.) 

Here, the First Amended Cross-Complaint alleges that between November 2020 and September 2021, Beck and Ko embezzled approximately $50,000 that were deposited into the Restaurant’s bank accounts. (FAXC ¶ 16.) Additionally, the First Amended Cross-Complaint alleges that Joo was legally entitled to that income, but Cross-Defendants siphoned it away for their own benefit. (FAXC ¶ 17.)

Cross-Defendants argue that the allegations are not pled with the requisite specificity, and especially object to the term “approximately” in reference to the amount of money converted. (Demurrer at p. 9.)

The Court finds that the First Amended Cross-Complaint puts Cross-Defendants on notice of what alleged activity constitutes the cause of action, and that the use of the term “approximately” is appropriate where, as here, Cross-Defendants are in better possession of the facts constituting the cause of action than Cross-Complainant.

Accordingly, Cross-Defendants’ Demurrer to the Second Cause of Action is OVERRULED.

C.  Third Cause of Action – Breach of Fiduciary Duty

Cross-Defendants demur to the Third Cause of Action for Breach of Fiduciary Duty.

The elements for a breach of fiduciary duty cause of action are “the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.” (Thomson v. Canyon (2011) 198 Cal.App.4th 594, 604.)  

“‘[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.’” (Hasso v. Hapke (2014) 227 Cal.App.4th 107, 140 (quoting Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 221).) “A fiduciary duty under common law may arise ‘when one person enters into a confidential relationship with another.’” (Id.) 

A partnership relationship is a fiduciary relationship. (See Enea v. Superior Court (2005) 132 Cal.App.4th 1559, 1564.) 

Cross-Defendants argue that the First Amended Cross-Complaint fails to allege facts demonstrating a duty, a breach of that duty, or an inducement of justifiable reliance by Cross-Complainant to his prejudice. (Demurrer at p. 10.)

The First Amended Cross-Complaint alleges that Cross-Defendants owed Joo a fiduciary duty because of their oral agreement to form a partnership (FAXC ¶ 22), that Cross-Defendants breached that duty by refusing to pay Joo his salary and embezzling funds, among other allegations (FAXC ¶ 23), and that as a result, Joo was damaged in an amount not less than $1,000,000.00 (FAXC ¶ 24.)

Accordingly, Cross-Defendants’ Demurrer to the Third Cause of Action is OVERRULED.

D.  Fourth Cause of Action – Accounting

Cross-Defendants demur to the Fourth Cause of Action for Accounting.

“A cause of action for accounting requires a showing of a relationship between the plaintiff and the defendant, such as a fiduciary relationship, that requires an accounting or a showing that the accounts are so complicated they cannot be determined through an ordinary action at law.” (Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1413.) “‘An action for accounting is not available where the plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation.’” (Id. (quoting Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179).)  

 “The right to an accounting can arise from the possession by the defendant of money or property which, because of the defendant’s relationship with the plaintiff, the defendant is obliged to surrender.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179-80.)  

As noted above, the First Amended Cross-Complaint alleges that the parties were in a partnership, and that Cross-Defendants embezzled an amount of money that cannot be ascertained at this time.

Accordingly, Cross-Defendant’s Demurrer to the Fourth Cause of Actions is OVERRULED.

E.  Fifth Cause of Action – Fraud

Cross-Defendants Demur to the Fifth Cause of Action for Fraud.

The elements of fraud are: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) In California, fraud, including negligent misrepresentation, must be pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.)  

Here, the First Amended Cross-Complaint alleges that beginning in September 2020, Cross-Defendants represented themselves as professionals in credit repair to Joo. (FAXC ¶ 31.) Joo provided Cross-Defendants his personal information, including his social security number, date of birth, license plate number, and place of residence, as he believed Cross-Defendants would help to repair his credit. (Ibid.) Instead, Cross-Defendants used Joo’s personal information to create two businesses, through which they obtained loans in Joo’s name, and without his permission. (FAXC ¶ 34.) Cross-Defendants have not repaid those loans. (FAXC ¶ 35.)

The First Amended Cross-Complaint alleges fraudulent activity with the requisite specificity to state a cause of action for fraud.

Accordingly, Cross-Defendants’ Demurrer to the Fifth Cause of Action is OVERRULED.    

                   II.        MOTION TO STRIKE

Next, Cross-Defendants move to strike Joo’s prayer for punitive damages and attorney fees from the First Amended Cross-Complaint.

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436(a).) The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Id., § 436(b).) The grounds for a motion to strike are that the pleading has irrelevant, false or improper matter, or has not been drawn or filed in conformity with laws. (Id. § 436.) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id. § 437.) 

A.  Punitive Damages

Cross-Defendants move to strike Joo’s Prayer for Punitive Damages.

California Civil Code section 3294 authorizes the recovery of punitive damages in non-contract cases where “the defendant has been guilty of oppression, fraud, or malice . . . .” (Civ. Code § 3294(a).) Punitive damages thus require more than the mere commission of a tort. (See Taylor v. Superior Court (1979) 24 Cal.3d 890, 894-95.) Specific facts must be pleaded in support of punitive damages. (See Hillard v. A.H. Robins Co. (1983) 148 Cal.App.3d 374, 391-92.)

Here, Cross-Defendants argue that Joo fails to allege facts demonstrating oppression, fraud, or malice. However, Joo has alleged sufficient facts to state a cause of action for fraud. Accordingly, a reasonable trier of fact could find Cross-Defendants behaved fraudulently, and “[t]he final decision of “[w]hether to award punitive damages . . . and the amount of such an award are questions committed to the trier of fact. [Citation.]” (Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 925.) 

Accordingly, Cross-Defendants’ Motion to Strike the Prayer for Punitive Damages is DENIED.

B.  Attorney Fees

Cross-Defendants move to strike Joo’s Prayer for Attorney Fees.

California Code of Civil Procedure section 1021 provides for attorney’s fees specifically provided by statute or by agreement between the parties. (Code Civ. Proc. § 1021.)

Here, Cross-Defendants argue that the First Amended Cross-Complaint does not allege a statutory or contractual basis for attorney fees. Cross-Defendants’ argument is well-taken, and Joo does not address this point in his Opposition.

Accordingly, Cross-Defendants’ Motion to Strike Joo’s Prayer for Attorney Fees .is GRANTED.

DATED: September 29, 2022 

____________________________

Hon. Robert S. Draper 

Judge of the Superior Court