Judge: Salvatore Sirna, Case: 20PSCV00579, Date: 2022-11-21 Tentative Ruling
Case Number: 20PSCV00579 Hearing Date: November 21, 2022 Dept: A
Cross-Defendant Grace Zhang’s Demurrer to Cross-Complainant
Randy Zhao’s First Amended Cross-Complaint
Respondent: Cross-Complainant Randy Zhao
Cross-Defendant Grace Zhang’s Motion to Strike Portions of Cross-Complainant Randy Zhao’s First Amended Cross-Complaint
Respondent: Cross-Complainant Randy Zhao
TENTATIVE RULING
Cross-Defendant Grace Zhang’s Demurrer to
Cross-Complainant Randy Zhao’s First Amended Cross-Complaint is SUSTAINED with 20 days’ leave given to
amend.
Cross-Defendant Grace Zhang’s Motion to Strike Portions of Cross-Complainant Randy Zhao’s First Amended Cross-Complaint is deemed MOOT.
BACKGROUND
This
action arises from business disputes between partners in a real estate
brokerage. In 2018, Plaintiff/Cross-Defendant Grace Zhang (Zhang) and
Defendant/Cross-Complainant Randy Zhao (Zhao) formed Universal Realty, Inc.
(Universal) with 50-50 ownership for the purposes of entering into a franchise
agreement with real estate brokerage firm RE/MAX, LLC. By the beginning of
2019, Zhang and Zhao’s business relationship fell apart. Zhang claims Zhao began
involving Zhao’s girlfriend, Devon Ou (Ou), in the business and authorized Ou
to act on Zhao’s behalf. Zhang also claims Zhao began creating a toxic work
environment and after Zhang refused to buy Zhao out of Universal, Zhang claims
Zhao formed Universal Elite, Inc. (Universal Elite) to compete with Universal.
Zhao claims Zhang filed corporate documents without Zhao’s approval, mislead
Zhao as to Universal’s day-to-day affairs, failed to execute managerial duties
in good faith, utilized Universal’s resources to benefit Zhang’s other property
management and realty companies, had conflicts of interest and unlawful profit-sharing
arrangements with escrow companies, and ultimately refused to work with Zhao.
Zhang filed a complaint against Zhao, Ou, Universal, and Does 1-50 on September 3, 2020, alleging the following causes of action: (1) breach of oral partnership agreement (against Zhao and Does 1-50); (2) breach of fiduciary duty of loyalty (against Zhao and Does 1-50); (3) intentional infliction of emotional distress (against Zhao and Does 1-50); (4) intentional interference with prospective economic relations (against Zhao, Ou, and Does 1-50); (5) intentional interference with contractual relations (against Zhao, Ou, and Does 1-50); (6) dissolution of partnership pursuant to Corporations Code, section 16801 et seq. (against Zhao and Does 1-50); and (7) dissolution of corporation pursuant to Corporation Code, section 1800 et seq. (against Universal and Does 1-50).
On October 7, 2020, Zhao answered Zhang’s complaint with a general denial and affirmative defenses. Zhao also filed a cross-complaint against Zhang and Does 1-10, alleging the following causes of action: (1) breach of fiduciary duty (against Zhang); (2) breach of contract (against all defendants); (3) intentional interference with prospective economic relations (against all defendants); (4) breach of covenant of good faith and fair dealing (against all defendants); and (5) breach of covenant of good faith and fair dealing (against all defendants). Zhang answered on November 20, 2020, with a general denial and affirmative defenses.
On January 27, 2021, the court granted leave to amend and Zhang filed a First Amended Complaint (FAC), adding Peter Qian (Qian) and Universal Elite as defendants and alleging the following causes of action: (1) breach of oral partnership agreement (against Zhao and Does 1-50); (2) breach of fiduciary duty of loyalty (against Zhao and Does 1-50); (3) intentional infliction of emotional distress (against Zhao and Does 1-50); (4) intentional interference with prospective economic relations (against Zhao, Ou, Qian, Universal Elite, and Does 1-50); (5) intentional interference with contractual relations (against Zhao, Ou, Qian, Universal Elite, and Does 1-50); (6) dissolution of partnership pursuant to Corporations Code, section 16801 et seq. (against Zhao and Does 1-50); (7) dissolution of corporation pursuant to Corporation Code, section 1800 et seq. (against Universal and Does 1-50); (8) aiding and abetting (against Zhao, Ou, Qian, Universal Elite, and Does 1-50); (9) unfair business practices pursuant to Business and Professions Code, section 17200 (against Zhao, Ou, Qian, Universal Elite, and Does 1-50); and (10) injunctive relief (against Zhao, Ou, Qian, Universal Elite, and Does 1-50).
On October 7, 2021, Zhao answered Zhang’s FAC with a general denial and affirmative defenses. Zhang also sought a preliminary injunction to prevent Zhou from (1) visiting their place of business without advance notice, (2) taking actions that affect the status quo of Universal’s business, and (3) soliciting Universal’s employees, which the court denied on November 3.
On September 13, 2022, after the court granted leave to amend, Zhao filed a First Amended Cross-Complaint (FACC) that added RE/MAX, LLC as a defendant and alleged the following causes of action: (1) breach of fiduciary duty (against Zhang and Does/Roes 1-10); (2) breach of contract (against Zhang and Does/Roes 1-10); (3) intentional interference with prospective economic relationships (against Zhang and Does/Roes 1-10); (4) breach of covenant of good faith and fair dealing (against Zhang and Does/Roes 1-10); (5) breach of covenant of good faith and fair dealing (against Zhang and Does/Roes 1-10); (6) breach of oral contract (against Zhang and Does/Roes 1-10); (7) intentional interference with contractual relations (against Zhang and Does/Roes 1-10); (8) intentional interference with prospective economic relations (against Zhang and Does/Roes 1-10); (9) negligent interference with prospective economic relations (against Zhang and Does/Roes 1-10); (10) indemnity (against Zhang and Does/Roes 1-10); and (11) declaratory relief (against all defendants).
On October 14, 2022, Zhang filed the present demurrer and motion to strike Zhao’s FACC. Previously on October 12, Zhang’s counsel met-and-conferred with Zhao’s counsel telephonically and was unable to reach a resolution. (Cheng Decl., ¶ 2.)
A hearing on the present motions is set for November 21, 2022. Final status conference is set for March 28, 2023, with a jury trial on April 11, 2023.
LEGAL STANDARD
A party
may demur to a complaint on the grounds that it “does not state facts
sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd.
(e).) A demurrer tests whether the complaint states a cause of action. (Hahn
v. Mirda (2007) 147 Cal.App.4th 740, 747 (Hahn).) When considering
demurrers, courts accept all well pleaded facts as true. (Fox v. JAMDAT
Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1078.) 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.) “The only issue involved in a demurrer hearing
is whether the complaint, as it stands, unconnected with extraneous matters,
states a cause of action.” (Hahn, supra, at p. 747.)
DISCUSSION
Zhang
demurrers to Zhao’s second cause of action (breach of contract), third cause of
action (intentional interference with prospective economic relations), fourth
and fifth causes of action (breach of covenant of good faith and fair dealings),
seventh cause of action (intentional interference with contractual relations), eighth
cause of action (intentional interference with prospective economic relations),
ninth cause of action (negligent interference with prospective economic
relations), tenth cause of action (indemnity), and eleventh cause of action (declaratory
relief). For the following reasons, the court OVERRULES Zhang’s demurrer to Zhao’s
fifth cause of action and SUSTAINS Zhang’s demurrer as to the rest.
Breach of Contract (Second Cause of Action)
Zhang
argues Zhao’s second cause of action for breach of contract is insufficiently
pled and uncertain. The court agrees.
To state a cause of action for breach of contract, a plaintiff must be able to establish “(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 a breach of contract claim “is based on 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 agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) In some circumstances, a plaintiff may also “plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.)
Here, Zhao alleges Universal’s corporate bylaws, rules, and procedures constitute a valid contract in writing. (FACC, ¶ 95.) Zhao claims Zhang breached these bylaws by “failing to conduct her duties and obligations in a fair and equitable manner.” (FACC, ¶ 97.) Zhao also alleges that the contractual relationship is “defined in Universal’s Bylaws, and the Parties’ oral agreement.” (FACC, ¶ 21.) While Zhao generally references Universal’s Bylaws, Zhao did not set out the terms verbatim, provide a copy of the bylaws to incorporate by reference, or plead facts establishing the legal effect of these bylaws beyond describing the basic roles they assigned each party. (FACC, ¶ 35.) Furthermore, in an opposition to Zhang’s demurrer, Zhao admits “the better way to bring this cause of action is to attach [Universal’s] corporate bylaws as an exhibit to the Cross-Complaint.” (Zhao Opp., p. 3:11-14.)
Thus, Zhao has failed to allege facts sufficient to establish the existence of a contract upon which a breach of contract claim could be brought. Accordingly, Zhang’s demurrer to this cause of action is SUSTAINED.
Intentional Interference with Prospective Economic
Relationships/Relations (Third and Eighth Causes of Action)
Zhang
argues Zhao’s third and fifth causes of action for intentional interference
with prospective economic relations is insufficiently pled and uncertain. The
court agrees.
To state a cause of action for intentional interference with prospective economic advantage or relations, a plaintiff must establish: “(1) a relationship between the plaintiff and some third party with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) a wrongful act, apart from the interference itself, by the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Salma v. Capon (2008) 161 Cal.App.4th 1275, 1290, quoting Arluk Medical Center Industrial Group, Inc. v. Dobler (2004) 116 Cal.App.4th 1324, 1340-1341.)
Here, Zhao alleges Zhang and Zhao entered into an agreement with Qian to work as a real estate agent in exchange for a commission and rights to a one-third ownership interest in Universal. (FACC, ¶ 101.) After Qian began working for Universal, Zhao alleges Zhang unilaterally fired Qian and “reneged on the agreement.” (FACC, ¶ 103.) Zhao maintains this act of firing Qian disrupted the relationship between Qian, Zhang, and Zhao. (FACC, ¶ 104-105.) However, it is unclear from the pleadings how this constitutes intentional interference with a prospective economic relationship or advantage. According to the facts pled, this case does not involve a prospective economic benefit as Qian was already employed by Zhao and Zhang. Furthermore, Zhao does not allege any facts establishing the existence of another prospective economic relationship with Qian outside of Qian’s work for Universal. Thus, Zhao has failed to plead sufficient facts establishing the existence of a prospective economic relationship between Zhao and Qian.
Zhao also alleges that Zhang interfered with “various third parties” who were in an economic relationship with Zhao by refusing to reinstate Zhao’s salesperson license and serve as Zhao’s broker. (FACC, ¶ 139-143.) Zhao claims that the franchise agreement with RE/MAX prohibits Zhao from maintaining a salesperson license at a different real estate brokerage. (FACC, ¶ 86.)
In addition to establishing the defendant interfered with a plaintiff’s prospective economic advantage, plaintiff must establish that defendant’s conduct “was wrongful by some legal measure other than the fact of interference itself.” (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393.) “To establish that the defendant's interfering conduct was independently wrongful, the plaintiff must instead prove that the conduct—whether directed at the plaintiff or someone else—was ‘proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.’” (Drink Tank Ventures LLC v. Real Soda in Real Bottles, Ltd. (2021) 71 Cal.App.5th 528, 538, quoting Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1142.)
Here, Zhao fails to plead sufficient facts establishing Zhang engaged in wrongful conduct by refusing to provide Zhang with a salesperson license as that alone does not rise to the level of wrongful. “Because a bare breach of contract, without more, is not tortious, such a breach cannot constitute independently wrongful conduct capable of giving rise to the tort of intentional interference with a prospective economic advantage.” (Id., at p. 540.) Zhao does plead that Zhang violated a fiduciary duty by “creating a false advertisement on behalf of [Zhao] in an effort to have [Zhao] investigated by the Department of Real Estate as a pretext to prohibit [Zhao] from practicing real estate under [Zhang’s] brokerage license.” (FACC, ¶ 33, xv.) It is unclear what exactly Zhao is alleging here and if there was any consequence to Zhao as Zhao describes an “effort to have [Zhao] investigated by the Department of Real Estate.” (FACC, ¶ 33, xv.) Ultimately, more facts must be pled here to establish if this was a wrongful act required for the tort of intentional interference with prospective economic advantage.
Accordingly, Zhang’s demurrer to these two causes of action is SUSTAINED.
Breach of Covenant of Good Faith and Fair Dealing
(Fourth and Fifth Causes of Action)
Zhang
argues Zhao’s fourth and fifth causes of action for breach of covenant of good
faith and fair dealing is insufficiently pled and uncertain.
With regards to Zhao’s fourth cause of action, Zhao admits “[t]he fourth cause of action should be dismissed without prejudice as it is inapplicable.” (Zhao Opp., at p. 4:6.) The court agrees.
Although Zhao’s fifth cause of action is titled as a “breach of covenant of good faith and fair dealing,” the subsequent allegations request dissolution of Universal. (FACC, ¶ 115-121.) Zhang notes that Zhao’s counsel stated the cause of action was mislabeled and requests the demurrer be sustained. (Demurrer, at p. 10:19-21.) However, the fact that a pleading was mislabeled is insufficient to support sustaining a demurrer if the complaint nonetheless pleads facts sufficient to state a claim for relief. (Saunders v. Cariss (1990) 224 Cal.App.3d 905, 908 [“Erroneous or confusing labels attached by the inept pleader are to be ignored if the complaint pleads facts which would entitle the plaintiff to relief.”].) Because Zhang raises no other legal or factual argument with regards to the sufficiency of Zhao’s dissolution claim, the court will overrule Zhang’s demurrer.
Accordingly, Zhang’s demurrer is SUSTAINED as to Zhao’s fourth cause of action and OVERRULED as to Zhao’s fifth cause of action.
Intentional Interference with Contractual Relations
(Seventh Cause of Action)
Zhang
argues Zhao’s seventh cause of action for intentional interference with
contractual relations is insufficiently pled and uncertain. The court agrees.
The elements of a cause of action for intentional interference with contractual relations are “(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257, 289.)
Here, Zhao’s pleadings are contradictory and vague. Zhao alleges “[d]uring all times relevant, [Zhao] was a licensed real estate salesperson authorized to represent and represented individuals and businesses in real estate transactions.” (FACC, ¶ 129.) Zhao also alleges Zhang “refused and continues to refuse to reinstate [Zhao’s] salesperson license.” (FACC, ¶ 129.) Lastly, Zhao alleges Zhao was in contractual relationships with “third parties” who Zhao represented in real estate transactions and could not perform when Zhang refused to reinstate Zhou’s salesperson license and act as Zhou’s broker. (FACC, ¶ 130-132.) While Zhou claims vague contractual relationships with third parties to engage in real estate transactions, Zhou does not allege any additional facts to establish whether these contracts were valid, whether they were entered into before or after Zhang refused to reinstate Zhao’s license, and whether Zhang was aware of them. While a demurrer admits all material facts properly pled, it does not admit “conclusions of fact or law.” (Winn v. Pioneer Medical Group, Inc. (2016) 63 Cal.4th 148, 152.)
Thus, because Zhao has not pled sufficient facts to establish valid contracts with third parties, Zhao has not sufficiently pled a cause of action for intentional interference with contractual relations.
Accordingly, Zhang’s demurrer to this cause of action is SUSTAINED.
Negligent Interference with Prospective Economic
Relations (Ninth Cause of Action)
Zhang
argues Zhao’s ninth cause of action for negligent interference with prospective
economic relations is insufficiently pled and uncertain. The court agrees.
“The elements of negligent interference with contract or prospective economic advantage are (1) the existence of a valid contractual relationship or other economic relationship between the plaintiff and a third party containing the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge (actual or construed) of the relationship; (3) the defendant's knowledge (actual or construed) that the relationship would be disrupted if the defendant failed to act with reasonable care; (4) the defendant's failure to act with reasonable care; (5) actual disruption of the relationship; and (6) resulting economic harm.” (Nelson v. Tucker Ellis, LLP (2020) 48 Cal.App.5th 827, 844, fn. 5.)
Here, Zhao claims an economic relationship “with various third parties” that contain the probability of future economic benefit. As in Zhao’s seventh cause of action, Zhao fails to plead any further facts regarding these “various third parties” and their economic relationship with Zhao, as well as what facts support the probability of a future economic benefit for Zhao. Thus, Zhao has failed to plead sufficient facts to support a claim of negligent interference with prospective economic relations.
Accordingly, Zhang’s demurrer to this cause of action is SUSTAINED.
Indemnity (Tenth Cause of Action)
Zhang
argues Zhao’s tenth cause of action for indemnity is insufficiently pled,
uncertain, and not ripe. The court agrees.
“To state a claim for equitable indemnity, a defendant must allege the same harm for which he may be held liable is properly attributable—at least in part—to the cross-defendant.” (Platt v. Coldwell Banker Residential Real Estate Services (1990) 217 Cal.App.3d 1439, 1445, fn.7.)
Here, Zhao seeks indemnification from Zhang for any liability to third parties. (FACC, ¶ 158-160.) However, because Zhao has not been held liable by a third party, any action for indemnity against future liability from hypothetical third parties is premature and improper. (See Robert H. Jacobs, Inc. v. Westoaks Realtors, Inc. (1984) 159 Cal.App.3d 637, 641.)
Accordingly, Zhang’s demurrer to this cause of action is SUSTAINED.
Declaratory Relief (Eleventh Cause of Action)
Zhang
argues Zhao’s eleventh cause of action for declaratory relief is insufficiently
pled, uncertain, and not ripe. The court agrees.
“To qualify for declaratory relief, a party would have to demonstrate its action presented two essential elements: (1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to the party’s rights or obligations.” (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909, quotation marks and brackets omitted.) “The courts do not issue advisory opinions about the rights and duties of the parties under particular agreements, if no actual, justiciable controversy has yet developed.” (Otay Land Co. v. Royal Indemnity Co. (2008) 169 Cal.App.4th 556, 563.)
Here, Zhao has not demonstrated the existence of a justiciable controversy between Zhao and other third parties like RE/MAX that would justify a declaratory judgment on Zhao’s liability under the franchise agreement with RE/MAX. Zhao’s “concern that he along with [Zhang] may be held [liable] to Re/Max Headquarters for [Zhang’s] wrongful actions” is not sufficient to create a justiciable controversy. (See Centex Homes v. St. Paul Fire & Marine Ins. Co. (2015) 237 Cal.App.4th 23, 29 [anticipatory claims are not actual or ripe].)
Accordingly, Zhang’s demurrer to this cause of action is SUSTAINED.
CONCLUSION