Judge: Stephen P. Pfahler, Case: 24STCV16884, Date: 2025-04-09 Tentative Ruling

Case Number: 24STCV16884    Hearing Date: April 9, 2025    Dept: 68

Dept. 68

Date: 4-9-25

Case 24STCV16884

Trial Date: Not Set

 

DEMURRER

 

MOVING PARTY: Defendants, Joseph Kim, et al.

RESPONDING PARTY: Plaintiffs, Edward Padilla, et al.

 

RELIEF REQUESTED

Demurrer to the Complaint

·         1st Cause of Action: Fraudulent Misrepresentation

·         2nd Cause of Action: Negligent Misrepresentation

·         3rd Cause of Action: Securities Violation –California Corporations Code section 25401

 

Motion to Strike

·         Claim for Punitive Damages

 

SUMMARY OF ACTION

Plaintiffs Edward Padilla and EMP 2016, LLC, alleges total “investment” of $998,500 based on a purported ownership shares in two multi-unit residential buildings in Los Angeles County—7006 Lanewood Ave., Hollywood, and 12625 Pacific Ave., Mar Vista—with Defendants Joseph Kim, Jeffrey Truong, Jordan Goforth, Lanewood Builders, LLC, J&J Lanewood Property, LLC, and CP Pacific, LLC. Plaintiff represents the existence of unsigned written agreements regarding the Lanewood Ave. property, but no executed proof of ownership or interest was ever provided. The complaint lacks any clear allegation as to the existence of any signed agreement for Pacific Ave. building, but alleges certain distributions were made, though any and all financial information remains unavailable. Plaintiffs summarize the series of transactions as “thefts by any other name.”

 

On June 15, 2023, Plaintiffs filed their complaint for Fraudulent Misrepresentation, Negligent Misrepresentation, and Securities Violation –California Corporations Code section 25401.

 

RULING

Demurrer: Sustained with Leave to Amend.

Defendants Joseph Kim, Jeffrey Truong, Jordan Goforth, Lanewood Builders, LLC, J&J Lanewood Property, LLC, and CP Pacific, LLC bring a demurrer to the entire complaint for Fraudulent Misrepresentation, Negligent Misrepresentation, and Securities Violation –California Corporations Code section 25401. Defendants challenge the complaint on grounds of failure to state facts supporting all causes of action against the individual defendants. Plaintiff in opposition maintains all challenged causes of action are properly pled. Defendants in reply reiterate the lack of facts and challenges Plaintiff’s reliance on lack of adequate available facts.


A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616; Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139 [“[U]nder our liberal pleading rules, where the complaint contains substantive factual allegations sufficiently apprising defendant of the issues it is being asked to meet, a demurrer for uncertainty should be overruled or plaintiff given leave to amend.]

 

1st Cause of Action: Fraudulent Misrepresentation

Defendants challenge the subject cause of action on grounds of insufficient factual particularity. “‘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.’” … [¶] ‘Promissory fraud’ is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) “Fraud in the inducement is a subset of the tort of fraud. It ‘occurs when “‘the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, which, by reason of the fraud, is voidable.’”’ (Citations.)” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295.) “[I]n order to support a claim of fraud based upon the alleged failure to perform a promise, it must be shown that the promisor did not intend to perform at the time the promise was made. (Conrad v. Bank of America (1996) 45 Cal.App.4th 133, 157 accord Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30.)

 

The court appreciates the basis of subject cause of action arising from the underlying opaque nature of the dispute. The allegations appear to present the claim based on the solicitation of the “investment” funds for Lanewood, while failing to disclose a prior lawsuit, lacking updates as to the state of an apparent construction improvement project, and potential disparate payment amounts amongst other shareholders possibly not in conformance with purported pro rata shareholdings. On Mar Vista, Plaintiff alleges a failure to provide information following the cessation of disbursements.

 

Notwithstanding, the plain language of the operative complaint lacks specific indication as to whether Plaintiffs in fact seeks to allege fraudulent misrepresentation, in that the opposition also references concealment based on the failure to disclose. It’s also not clear as to whether Plaintiff also seeks to allege some form of promissory fraud perhaps based on investment terms. The opposition reiterates the allegations in the complaint, without additionally clarifying the specific basis of the fraud itself.

 

The court acknowledges the exception to the strict pleading requirements for fraud, when the facts remain unknown and require further discovery.  Still, while the court declines to consider the strawman argument regarding lack of any written contract, the lack of articulation as to any purported investment terms and representations of a presumed return on investment purportedly presented to Plaintiff before the provision of any funds, still render the basis of the entitled cause of action somewhat uncertain. Even assuming Plaintiffs meant to allege concealment, relied upon but missing from the operative complaint and opposition, is articulation regarding the purpose for alleging Defendants’ obligation for the basis of disclosure regarding the prior lawsuit. Most importantly, the operative complaint lacks actual address of each and every NAMED defendant. Again, the court appreciates the necessity for more discovery, but also notes the basis factual questions addressed by the court presumably lie within the knowledge of Plaintiffs in that Plaintiffs named all defendants and were presumably directly solicited in all communications. If not, Plaintiffs should also address the form of communication.

 

The demurrer is sustained.

 

2nd Cause of Action: Negligent Misrepresentation

“Negligent misrepresentation is a form of deceit, the elements of which consist of (1) a misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed and (5) damages.” (Fox v. Pollack (1986) 181 Cal. App. 3d 954, 962.) A negligent misrepresentation claim requires a positive assertion. (Diediker v. Peelle Financial Corp. (1997) 60 Cal. App. 4th 288, 297-98.)

 

Again, the court cannot determine the specific basis of any terms. Facts presumably within the knowledge of Plaintiffs barring an allegation of blindly presenting the funds without any expectation of a specific return, which would then undermine the entire purpose of any such claim. Thus, the demurrer is sustained with leave to amend.

 

3rd Cause of Action: Securities Violation –California Corporations Code section 25401

Defendants challenge the subject cause of action on grounds of no specific basis for the existence of a security, thereby qualifying for corporate relief.

 

“It is unlawful for any person to offer or sell a security in this state, or to buy or offer to buy a security in this state, by means of any written or oral communication that includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in the light of the circumstances under which the statements were made, not misleading.” (Corp. Code, § 25401.)

 

Any person who violates Section 25401 shall be liable to the person who purchases a security from, or sells a security to, that person, who may sue either for rescission or for damages (if the plaintiff or the defendant, as the case may be, no longer owns the security), unless the defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know (or if the defendant had exercised reasonable care, would not have known) of the untruth or omission. Upon rescission, a purchaser may recover the consideration paid for the security, plus interest at the legal rate, less the amount of any income received on the security, upon tender of the security. Upon rescission, a seller may recover the security, upon tender of the consideration paid for the security plus interest at the legal rate, less the amount of any income received by the defendant on the security. Damages recoverable under this section by a purchaser shall be an amount equal to the difference between (a) the price at which the security was bought plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received on the security by the plaintiff. Damages recoverable under this section by a seller shall be an amount equal to the difference between (1) the value of the security at the time of the filing of the complaint plus the amount of any income received by the defendant on the security and (2) the price at which the security was sold plus interest at the legal rate from the date of sale. Any tender specified in this section may be made at any time before entry of judgment. In addition to the relief described above, the court shall award reasonable attorney's fees and costs to a prevailing purchaser or seller who succeeds in establishing a right to the relief provided by this section.” (Corp. Code, § 25501.)

 

The complaint lacks any allegation of any actual security, and as provided above, a lack of any terms. The demurrer is sustained.

 

 

Motion to Strike: Moot.

 

 

The demurrer is sustained with 30 days leave to amend. Plaintiff may NOT add any new causes of action, and ONLY add facts in support of successfully challenged causes of action. (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) Any other new causes of action added without leave of court may be subject to a motion to strike. The motion to strike is moot.

 

The court will concurrently conduct a Case Management Conference and OSC re: Sanctions.

 

Moving party to provide notice.