Judge: Salvatore Sirna, Case: 22PSCV00446, Date: 2023-08-14 Tentative Ruling
The Court may change tentative rulings at any time. Therefore, counsel are advised to check this website periodically to determine whether any changes or updates have been made to the tentative ruling. Counsel may submit on a tentative ruling by calling the clerk in Department G at (909) 802-1104 prior to 8:30 a.m. the morning of the hearing.
Case Number: 22PSCV00446 Hearing Date: February 5, 2024 Dept: G
Defendants Yanlin Li, Fiorano Motorsport LLC, Bianco
Corsa Motorsport, Inc., and Yokohama Imports USA, LLC’s Demurrer to Plaintiffs’
Third Amended Complaint
Respondent: Plaintiffs M Capital Global California and
Sokly Chen
Defendants Yanlin Li, Fiorano Motorsport LLC, Bianco
Corsa Motorsport, Inc., and Yokohama Imports USA, LLC’s Motion to Strike
Portions of Plaintiffs’ Third Amended Complaint
Respondent: NO OPPOSITION
TENTATIVE
RULING
Defendants Yanlin Li, Fiorano Motorsport LLC, Bianco
Corsa Motorsport, Inc., and Yokohama Imports USA, LLC’s Demurrer to Plaintiffs’
Third Amended Complaint is OVERRULED. Defendants to file their Answer in ten (10)
days.
Defendants Yanlin Li, Fiorano Motorsport LLC, Bianco
Corsa Motorsport, Inc., and Yokohama Imports USA, LLC’s Motion to Strike
Portions of Plaintiffs’ Third Amended Complaint is
DENIED.
BACKGROUND
This is an action for breach of contract and fraud. In
August 2021, Plaintiff Sokly Chen, a member of Plaintiff M Capital Global
California (M Capital), met with Defendant Yanlin Li who invited Chen to invest
in Li’s vehicle dealership business by purchasing a 50% ownership interest in
Fiorano Motorsport LLC (Fiorano Motorsport) for $1,000,000. On September 22, Li
prepared an operating agreement that established Li and M Capital would be
members of Fiorano Motorsport. That same month, M Capital provided an additional
$1,500,000 at Li’s request so Fiorano Motorsport could allegedly open a
dealership. In total, M Capital invested a total of $6,683,000 in Fiorano
Motorsport. However, Plaintiffs allege Li subsequently embezzled most of these
funds through personal use or transferring the funds to other entities.
In February 2022, Fiorano Motorsport’s account had been
drained of funds as Li had been allegedly transferring the money to Li’s
personal accounts and pocketing revenue from purchases. When Li requested a
$2,350,000 investment from M Capital to cover expenses, M Capital questioned
why the sale revenue was insufficient. In response, Li claimed there was
insufficient revenue and that Li had used personal money to purchase vehicles.
Li then claimed the $2,350,000 was debt owed by M Capital and began attempting
to collect this debt by allegedly threatening M Capital employees, attempting
to break into M Capital’s office, falsely reporting Chen to law enforcement for
vehicle theft, and stalking Chen.
On May 10, 2022, M Capital filed a complaint against Li,
Fiorano Motorsport, Bianco Corsa Motorsport, and Does 1-50, alleging the
following causes of action: (1) fraud, (2) breach of fiduciary duty, (3) breach
of oral contract, (4) common counts, (5) conversion, and (6) accounting.
On September 12, 2022, Plaintiffs filed a First Amended
Complaint (FAC) against Li, Fiorano Motorsport, Bianco Corsa Motorsport (Bianco
Corsa), and Yokohama Imports USA, LLC (Yokohama, collectively Defendants) as
well as Does 1-50, alleging the following causes of action: (1) fraud, (2)
breach of fiduciary duty, (3) breach of contract, (4) breach of quasi contract,
(5) involuntary dissolution under Corporations Code section 17707.03, (6)
common counts, (7) conversion, (8) accounting, (9) offer and sale of unqualified,
non-exempt securities in violation of Corporations Code section 25110, (10)
misrepresentation and/ or omissions of material facts in violation of
Corporations Code section 25401, (11) unlawful sale of securities under the
Securities Act of 1933, section 5, (12) unlawful fraudulent scheme under the
Securities Act of 1933, section 17, (13) unlawful business practices under
Business & Professions Code section 17200, and (14) intentional infliction
of emotional distress.
On April 11, 2023, the court sustained Defendants’ demurrer
to Plaintiffs’ FAC in part and overruled it in part.
On May 11, 2023, Plaintiffs filed a Second Amended
Complaint (SAC) against the same Defendants alleging the following causes of
action: (1) fraudulent inducement, (2) fraud, (3) breach of fiduciary duty, (4)
breach of contract, (5) breach of quasi contract, (6) involuntary dissolution
pursuant to Corporations Code section 17707.03, (7) common counts, (8)
conversion, (9) accounting, (10) sale of securities by unlicensed broker-dealer
in violation of Corporations Code section 25501.5 et seq., (11) offer and sale
of unqualified, non-exempt securities in violation of Corporations Code
sections 25503, 25504, 25504.1, and 25110 et seq., (12) offer
misrepresentations and/or omissions of material facts in violation of
Corporations Code sections 25401, 25403, and 25404 et seq., (13) unlawful sale
of securities pursuant to Securities Act, section five, (14) unlawful
fraudulent scheme pursuant to the Securities Act, section 17, (15) unlawful
business practices pursuant to Business and Professions Code section 17200, and
(16) intentional infliction of emotional distress (IIED).
On October 18, 2023, the court sustained Defendants’
demurrer to Plaintiffs’ SAC in part and overruled it in part.
On November 6, 2023, Plaintiffs filed a Third Amended
Complaint (TAC) against the same defendants alleging the same causes of action.
On January 5, 2024, Defendants filed the
present demurrer and motion to strike. Prior to filing on December 22, 2023, Defendants’
counsel met and conferred telephonically with Plaintiffs’ counsel and was
unable to reach a resolution. (Lee Decl., ¶ 18.)
A hearing on the demurrer and motion to
strike is set for February 5, 2024, along with a case management conference.
REQUEST FOR JUDICIAL NOTICE
Defendants request the court take judicial
notice of a membership interest purchase and sale agreement between Li and M
Capital pursuant to Evidence Code sections 452, subdivision (h) and 453. Evidence
Code section 452, subdivision (h) allows the court to take judicial notice of
“[f]acts and propositions that are not reasonably subject to dispute and are
capable of immediate and accurate determination by resort to sources of
reasonably indisputable accuracy.” But “case law holds that ‘the existence of a
contract between private parties cannot be established by judicial notice under
Evidence Code section 452, subdivision (h).’” (Travelers Indemnity Company
of Connecticut v. Navigators Specialty Insurance Company (2021) 70
Cal.App.5th 341, 354, quoting Gould v. Maryland Sound Industries, Inc. (1995)
31 Cal.App.4th 1137, 1145.) Thus, Defendants’ request is DENIED.
ANALYSIS
Demurrer
Defendants demur to Plaintiffs’ entire TAC on
the grounds that (1) Plaintiffs lack standing to bring a derivative action and
(2) Plaintiffs’ TAC fails to allege sufficient facts to state a claim as to
each of the sixteen causes of action. For the following reasons, the court OVERRULES Defendants’ demurrer in its entirety.
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.)
Standing
Defendants argue Plaintiffs lack standing to bring a
derivative action because they did not satisfy the procedural requirements for
a derivative action. This argument fails for the same reasons noted in the
court’s ruling on Defendants’ previous demurrer. (10/18/2023 Ruling, p. 3.)
Fraud (First and Second Causes of Action)
Defendants contend M Capital’s first cause of action for
fraudulent inducement and second cause of action for fraud against Li fail to
plead sufficient facts to state a claim. This
argument fails for the same reasons noted in the court’s ruling on Defendants’
previous demurrer. (10/18/2023 Ruling, p. 4.) Accordingly,
Defendants’ demurrer to these causes of action is OVERRULED.
Breach of Fiduciary Duty (Third Cause of Action)
Li maintains M Capital’s third cause of action for breach
of fiduciary duty fails to plead sufficient facts to state a claim. This
argument fails for the same reasons noted in the court’s ruling on Defendants’
previous demurrer. (10/18/2023 Ruling, p. 5.)
Accordingly, Defendants’ demurrer to this cause of action is OVERRULED.
Breach of Contract (Fourth and Fifth Causes of
Action)
Defendants argue M Capital’s fourth cause of action for
breach of contract and fifth cause of action for breach of quasi contract fail
to plead sufficient facts to state a claim. This argument fails for the same
reasons noted in the court’s ruling on Defendants’ previous demurrer. (10/18/2023 Ruling, p. 6.) Accordingly, Defendants’
demurrer to these causes of action is OVERRULED.
Involuntary Dissolution (Sixth Cause of Action)
Fiorano Motorsport contends M Capital’s sixth cause of
action for involuntary dissolution fails to plead sufficient facts to state a
claim because the Corporations Code requires “specific events to occur” and M
Capital has “failed to properly plead the necessary events.” In particular,
Fiorano Motorsport contends Corporations Code section 17708.03, subdivision
(b)(5) requires judicial dissolution of an LLC when “[t]hose in control of the
limited liability company have been guilty of, or have knowingly countenanced,
persistent and pervasive fraud, mismanagement, or abuse of authority.”
But in this case, the TAC has adequately pled such events
as it has sufficiently alleged causes of action for fraud and conversion
against Li. Accordingly, Defendants’ demurrer to this cause of action is OVERRULED.
Common Counts and Accounting (Seventh and Ninth
Causes of Action)
Defendants maintain M Capital’s seventh cause of action for
common counts and ninth cause of action for accounting fail to plead sufficient
facts to state a claim. This argument fails for the same reasons noted in the
court’s ruling on Defendants’ previous demurrer. (10/18/2023 Ruling, p. 7.) Accordingly, Defendants’
demurrer to these causes of action is OVERRULED.
Conversion (Eighth Cause of Action)
Defendants argue M Capital’s eighth cause of action for
conversion fails to plead sufficient facts to state a claim. This argument
fails for the same reasons noted in the court’s ruling on Defendants’ previous
demurrer. (10/18/2023 Ruling, p. 7.)
Accordingly, Defendants’ demurrer to this cause of action is OVERRULED.
Securities Law Violations (10th, 11th, 12th, 13th,
and 14th Causes of Action)
Defendants contend M Capital’s tenth, eleventh, twelve,
thirteenth, and fourteenth causes of action for securities law violations fail
to plead sufficient facts to state a claim. This argument fails for the same
reasons noted in the court’s ruling on Defendants’ previous demurrer. (10/18/2023 Ruling, p. 8-10.) Accordingly, Defendants’
demurrer to these causes of action is OVERRULED.
Unlawful Business Practices (Fifteenth Cause of
Action)
Defendants maintain M Capital’s fifteenth cause of action
for unlawful business practices fails to plead sufficient facts to state a
claim. This argument fails for the same reasons noted in the
court’s ruling on Defendants’ previous demurrer. (10/18/2023 Ruling, p. 10.) Accordingly, Defendants’
demurrer to this cause of action is OVERRULED.
IIED (Sixteenth Cause of Action)
Li argues Chen’s sixteenth cause of action for IIED fails
to plead sufficient facts to state a claim. This
argument fails for the same reasons noted in the court’s ruling on Defendants’
previous demurrer. (10/18/2023 Ruling, p. 10.)
Accordingly, Defendants’ demurrer to this cause of action is OVERRULED.
Motion to Strike
Defendants move to strike punitive damages from Plaintiffs’
TAC as well assorted statements from Plaintiffs’ SAC. For the following
reasons, the court DENIES Defendants’ motion.
Legal Standard
Motion to Strike
Upon a party’s motion or the court’s own motion, the court
may strike any irrelevant, false, or improper matter inserted in any pleading.
(Code Civ. Proc., § 436, subd. (a).) The court may also “[s]trike out 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.” (Code Civ. Proc., § 436, subd.
(b).) “The grounds for a motion to strike shall appear on the face of the
challenged pleading or from any matter of which the court is required to take
judicial notice.” (Code Civ. Proc., § 437, subd. (a).)
An immaterial or irrelevant allegation includes “(1) An
allegation that is not essential to the statement of a claim or defense,”
“(2)¿An allegation that is neither pertinent to nor supported by an otherwise
sufficient claim or defense,” or “(3)¿A demand for judgment requesting relief
not supported by the allegations of the complaint or cross-complaint.” (Code
Civ. Proc., § 431.10.)
Punitive Damages
Civil Code section 3294 allows punitive damages when a
plaintiff establishes by clear and convincing evidence that a defendant is
guilty of oppression, fraud, or malice. (Civ. Code, § 3294, subd. (a).) For the
purposes of determining punitive damages, malice is defined as “conduct which
is intended by the defendant to cause injury to the plaintiff or despicable
conduct which is carried on by the defendant with a willful and conscious
disregard of the rights or safety of others.” (Civ. Code, § 3294, subd. (c)(1).)
Oppression is defined as “despicable conduct that subjects a person to cruel
and unjust hardship in conscious disregard of that person's rights.” (Civ.
Code, § 3294, subd. (c)(2).) Lastly, fraud is defined as “an intentional
misrepresentation, deceit, or concealment of a material fact known to the
defendant with the intention on the part of the defendant of thereby depriving
a person of property or legal rights or otherwise causing injury.” (Civ. Code,
§ 3294, subd. (c)(3).)
“In addition to the requirement that the operative
complaint set forth the elements as stated in section 3294, it must include
specific factual allegations showing that defendant's conduct was oppressive,
fraudulent, or malicious to support a claim for punitive damages.” (Today’s
IV, Inc. v. Los Angeles County Metropolitan Transportation Authority (2022)
83 Cal.App.5th 1137, 1193.) Furthermore, “[p]unitive damages may not be pleaded
generally.” (Ibid.)
Discussion
In
this case, as noted above, the TAC has adequately alleged causes of action for
fraud. Thus, punitive damages allegations are not unsupported. To the extent Defendants
also seek to strike paragraphs from the SAC, the court notes the SAC is no
longer the operative complaint. And even if Defendants had properly cited to
the correct operative complaint, Defendants also fail to develop their argument
and explain in detail why each paragraph must be stricken.
Accordingly,
Defendants’ motion is DENIED.
CONCLUSION
Based on the
foregoing, Defendants’ demurrer to Plaintiffs’ TAC is OVERRULED in its
entirety.
Furthermore,
Defendants’ motion to strike portions of Plaintiffs’ TAC is DENIED.
Defendants to file an Answer in ten (10) days.