Judge: Salvatore Sirna, Case: 23PSCV00140, Date: 2023-08-15 Tentative Ruling

Case Number: 23PSCV00140    Hearing Date: August 15, 2023    Dept: G

Defendant Fengchao Zhu’s Demurrer to Plaintiff’s First Amended Complaint

Respondent: Plaintiff Xiuqin Wang

TENTATIVE RULING

Defendant Fengchao Zhu’s Demurrer to Plaintiff’s First Amended Complaint is OVERRULED.

Defendant to file an Answer to Plaintiff’s First Amended Complaint in ten (10) days.

BACKGROUND

This is an action for breach of contract and fraud. From August to September 2022, Defendant Fengchao Zhu (Zhu) reached out to Plaintiff Xiuqin Wang and attempted to get Plaintiff or one of Plaintiff’s clients to exchange cash for a cashier’s check. On September 23, Plaintiff agreed to give Zhu $150,000 in cash on behalf of one of Plaintiff’s clients, Jia Liu (Liu), in exchange for a $150,000 casher’s check that would be payable to Liu. While Plaintiff and Zhu agreed to complete the transaction on September 24, Zhu was replaced by Bing Hong Chen (Chen) and Plaintiff then entered into the agreement with Chen.

After receiving the cashier’s check from Chen, Plaintiff took the cashier’s check to a Chase Bank where a bank manager informed Plaintiff that the cashier’s check had been forged. When Plaintiff confronted Chen and Zhu about the cashier’s check, they both assured Plaintiff that the cashier’s check was authentic. Plaintiff alleges Chen and Zhu subsequently failed to return the $150,000.

On January 17, 2023, Plaintiff filed a complaint against Zhu, Chen, and Does 1-20, alleging the following causes of action: (1) breach of contract, (2) fraud, (3) common count, (4) conversion, (5) civil theft, (6) constructive trust, (7) restitution/unjust enrichment, (8) breach of implied covenant of good faith and fair dealing, and (9) civil conspiracy.

On May 22, 2023, Plaintiff filed a First Amended Complaint (FAC) against the same defendants alleging the same causes of action.

On June 26, 2023, Zhu (Defendant) filed the present demurrer. Prior to filing, Defendant’s counsel met and conferred telephonically with Plaintiff’s counsel and was unable to reach a resolution. (Chu Decl., ¶ 3.)

A hearing on the demurrer is set for August 9, 2023. A case management conference and OSC Re: Failure to File Proof of Service are also set for August 15.

ANALYSIS

Defendant demurs to Plaintiff’s entire FAC. For the following reasons, the court OVERRULES Defendant’s 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.)

Sham Pleading Doctrine

In this case, Defendant argues Plaintiff cannot state a cause of action against Defendant because Plaintiff’s initial complaint only alleged Plaintiff entered into an agreement with Chen. (Complaint, ¶ 8-9.) In other words, Defendant argues Plaintiff’s allegations against Defendant should be rejected pursuant to the sham pleading doctrine. The court disagrees.

The sham pleading doctrine precludes the amendment of complaints that “omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers or motions for summary judgment.” (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425.) “If a party files an amended complaint and attempts to avoid the defects of the original complaint by either omitting facts which made the previous complaint defective or by adding facts inconsistent with those of previous pleadings, the court may take judicial notice of prior pleadings and may disregard any inconsistent allegations.” (Colapinto v. County of Riverside (1991) 230 Cal.App.3d 147, 151.)

Here, however, the court does not find Plaintiff engaged in sham pleading. While the Complaint only described Defendant’s role as introducing Plaintiff to Chen, it also alleged that each defendant was the agent of the other. (Complaint, ¶ 5.) Furthermore, Plaintiff also alleged defendants conspired together to defraud Plaintiff. (Complaint, ¶ 48.) Plaintiff’s additional allegations regarding Defendant in the FAC do not contradict the Complaint since they merely expand on and explain how Chen was Defendant’s agent, including detailing how Defendant assured Plaintiff that Chen was trustworthy and acting on Defendant’s behalf. (FAC, ¶ 11-14.)

Agency Allegations

In demurring to each of Plaintiff’s causes of action, Defendant argues it was Chen who made the agreement and took Plaintiff’s money, not Defendant. (Demurrer, p. 6:16-28, 8:14-16, 9:3-5, 9:12-14, 9:22-25.) However, because Plaintiff adequately alleges Chen was acting as Defendant’s agent by making the agreement with Plaintiff and accepting Plaintiff’s money, this argument fails to provide grounds for demurrer.

“An agent is one who represents another, called the principal, in dealings with third persons. Such representation is called agency.” (Civ. Code, § 2295.) “An agency is either actual or ostensible.” (Civ. Code, § 2298.) Actual agency occurs “when the agent is really employed by the principal” (Civ. Code, § 2299) while ostensible agency occurs “when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.” (Civ. Code, § 2300.) In other words, ostensible agency requires the following: “(1) conduct by the [principal] that would cause a reasonable person to believe that the [alleged agent] was an agent of the [principal], and (2) reliance on that apparent agency relationship by the plaintiff.” (Mejia v. Community Hospital of San Bernardino (2002) 99 Cal.App.4th 1448, 1453.)

Here, Plaintiff generally alleges each defendant was the agent and employee of each other. (FAC, ¶ 5.) However, Plaintiff also alleges than Chen reached out to Plaintiff on Defendant’s behalf, utilizing contact information that Plaintiff provided to Defendant. (FAC, ¶ 11.) When Plaintiff contacted Defendant to “confirm Chen’s credibility,” Defendant told Plaintiff that Chen would be completing the transaction that Defendant and Plaintiff agreed to and that Chen was very trustworthy, reliable, and credible. (FAC, ¶ 12-13.) After Plaintiff had issues with cashing the cashier’s check, Defendant assured Plaintiff than Chen was not cheating Plaintiff. (FAC, ¶ 17.)

Based on these allegations, Plaintiff adequately alleged that Defendant’s representations would have caused a reasonable person to believe Chen was Defendant’s agent by directing Plaintiff to complete their agreement through Chen. Furthermore, because Plaintiff alleges Plaintiff relied on Defendant’s representations in providing the money to Chen, Plaintiff adequately established reliance. Thus, Plaintiff stablished the existence of an ostensible agency relationship between the defendants. While Defendant also argues a prior communication between Plaintiff and Chen referred to Chen and Defendant as “friends,” it is the communications of Defendant as the alleged principal that establish ostensible agency.

Accordingly, the court finds Plaintiff adequately alleged Chen was acting as Defendant’s agent in dealing with Plaintiff.  Therefore, Defendant’s demurrer to Plaintiff’s first, third, fourth, fifth, sixth, seventh, eighth, and ninth causes of action is OVERRULED.

Fraud

With regards to Plaintiff’s second cause of action for fraud, Defendant contends Plaintiff failed to allege this cause of action with the requisite specificity. The court disagrees.

“The elements of fraud, which give rise to the tort action for deceit, 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.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638, quoting 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 676, p. 778.) The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. (Id., at p. 645.)

In this case, Plaintiff alleges Defendant represented to Plaintiff than Chen would accept Plaintiff’s cash in exchange for a valid cashier’s check on September 24. (FAC, ¶ 28.) Plaintiff also alleges Defendant called Plaintiff multiple times from September 24 to September 26 to assure that Chen was reliable or credible. (FAC, ¶ 12-13.) Based on these allegations, Plaintiff adequately alleged Defendant made false representations with adequate specificity. While Defendant also contends Plaintiff’s reliance was not justifiable because (1) Chen did not state Defendant was Chen’s business partner and (2) Plaintiff did not have a prior relationship, Defendant’s contentions are based on factual disputes that are not appropriate for a demurrer. (Amiodarone Cases (2022) 84 Cal.App.5th 1091, 1111 [noting “[j]ustifiable reliance is ordinarily a question of fact that is not properly determined on demurrer” unless no reasonable factfinder could find such reliance in light of the plaintiff’s education, experience, and knowledge].)

Accordingly, Defendant’s demurrer to Plaintiff’s second cause of action is OVERRULED.

CONCLUSION

Based on the foregoing, Defendant’s demurrer to Plaintiff’s FAC is OVERRULED in its entirety. 

Defendant to file an Answer to Plaintiff’s First Amended Complaint in ten (10) days.