Judge Salvatore Sirna, Case 23PSCV00063 2023-04-18 Tentative Ruling

Judge: Salvatore Sirna, Case: 23PSCV00063, Date: 2023-04-18 Tentative Ruling

Case Number: 23PSCV00063 Hearing Date: April 18, 2023 Dept: G

Defendants Dear John Denim, Inc. and Chiu Fai Yeung’s Demurrer to Plaintiff’s Complaint

Respondent: Plaintiffs Gladden Makin House, Ltd. and Derek Wong

TENTATIVE RULING

Defendants Dear John Denim, Inc. and Chiu Fai Yeung’s Demurrer to Plaintiff’s Complaint is SUSTAINED with twenty (20) days leave to amend.

BACKGROUND

This is a breach of contract action arising from international shipping agreements. Plaintiff Gladden Makin House, Ltd. (Gladden) is a Hong Kong corporation engaged in the business of exporting textiles from China to the United States. Plaintiff worked with textile factories in China and an export shipping company in Hong Kong to fulfill orders from California businesses that include Swat Fame, Inc. (Swat Fame), Defendant Dear John Denim, Inc. (Dear John), and Defendant Ashley Mason, LLC (Ashley Mason). Defendant Makin International, Inc. (Makin) served as an intermediary for Swat Fame and Dear John by forwarding their orders and payments to Gladden while Ashley Mason dealt directly with Gladden.

In August 2017, Ashley Mason attempted to cancel an shipment from Gladden but after receiving the shipment, Ashley Mason allegedly accepted it and refused to tender any payment. Makin also allegedly retained payments from Swat Fame that were meant for Gladden. During the same month, Makin’s president and CEO, Defendant Wade Leener (Leener), reached out to the Chinese factories and shipping company that worked with Gladden to convince them to work directly with Makin by falsely claiming Gladden was going to shut down.

On January 9, 2023, Plaintiffs Gladden and Derek Wong (Wong) filed a complaint against Defendants Makin, Ashley Mason, Dear John, Leener, Michelle Mulleneaux (Mulleneaux), Chiu Fai Yeung (Yeung), and Does 1-10, alleging the following causes of action: (1) breach of contract, (2) breach of contract with third-party beneficiary, (3) conversion, and (4) intentional interference with contractual relations.

On March 14, 2023, Dear John and Yeung (collectively, Defendants) filed the present demurrer. Prior to filing on February 17, Defendants’ counsel met and conferred telephonically with Plaintiffs’ counsel and was unable to reach a resolution. (Tan Decl., ¶ 3.)

A hearing on the demurrer is set for April 18, 2023. A case management conference and OSC re: Failure to File Proof of Service are set for June 8.

ANALYSIS

Defendants demur to Plaintiffs’ second cause of action (breach of contract with third-party beneficiary). For the following reasons, the court SUSTAINS Defendants’ demurrer with leave to amend.

Legal Standard

Demurrer

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.)

Breach of Contract

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.)

Pursuant to California law, third party beneficiaries of contracts have the right to enforce the terms of the contract under Civil Code section 1559 which provides: ‘A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.’” (Harper v. Wausau Ins. Co. (1997) 56 Cal.App.4th 1079, 1086, citing Civ. Code, § 1559.) “A third party may qualify as a beneficiary under a contract where the contracting parties must have intended to benefit that individual and such intent appears on the terms of the agreement. [Citations.] It is well settled, however, that Civil Code section 1559 excludes enforcement of a contract by persons who are only incidentally or remotely benefited by the agreement.” (Id., at p. 1087.)

Discussion

In this case, Defendants argue Plaintiffs have not established that Makin and Dear John intended for Plaintiffs to be third party beneficiaries of their shipping arrangement. It is unclear to the court, however, how Defendants even breached the agreement with Makin, let alone Plaintiffs. According to Plaintiffs’ Complaint, Gladden fulfilled orders from Dear John and received payment through Makin. (Complaint, ¶ 34-35.) Plaintiffs allege the purchase orders formed binding and enforceable contracts between Dear John and Makin. (Complaint, ¶ 55.) Plaintiffs also allege Gladden is a third-party beneficiary of the contracts because “Dear John had a history of paying Makin, who passed that payment along to Gladden.” (Complaint, ¶ 55.)

Plaintiffs allege “Gladden is now owed monies as a result of being the intended beneficiary of the contract between Dear John and Makin.” (Complaint, ¶ 55.) But Plaintiffs’ Complaint does not identify why Gladden is owed money with respect to Dear John. And while Plaintiffs allege Ashley Mason failed to pay payments on a delivery and Makin kept payments from Swat Fame that were due to Gladden (Complaint, ¶ 37-38.), Plaintiffs do not make any similar allegations against Dear John. Thus, in absence of allegations establishing Dear John breached a contract, Plaintiffs’ Complaint fails to state a cause of action.

Accordingly, Defendants’ demurrer to Plaintiffs’ second cause of action is SUSTAINED with leave to amend.

CONCLUSION

Based on the foregoing, Defendants’ demurrer to Plaintiffs’ Complaint is SUSTAINED with twenty (20) days leave to amend as to the second cause of action.