Judge: Teresa A. Beaudet, Case: 23STCV02602, Date: 2023-11-01 Tentative Ruling

Case Number: 23STCV02602    Hearing Date: March 13, 2024    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

Plaintiffs Central Metal, Inc. (“CMI”) and Jong Uk Byun (“Byun”) (jointly, “Plaintiffs”) filed this action on February 6, 2023 against Defendants Hope YS Kim, Jason Kim, Young M. Kim, J&I Consulting, Inc. (“J&I Consulting”), and SA Recycling LLC. The Complaint alleges causes of action for (1) breach of fiduciary duty, (2) fraud, (3) constructive fraud,

(4) professional negligence, (5) violation of Business and Professions Code section 17200,

(6) financial elder abuse, (7) civil conspiracy, (8) conversion, (9) violation of Penal Code section 496, and (10) aiding and abetting.

On April 10, 2023, J&I Consulting filed a Cross-Complaint against CMI and Byun. J&I Consulting filed a First Amended Cross-Complaint (“FACC”) on June 2, 2023, alleging causes of action for (1) breach of contract and (2) fraud – promise with no intent to perform.

CMI demurred to both of the causes of action of the FACC. On November 1, 2023 the Court issued a minute order providing, inter alia, that “The CENTRAL METAL, INC.’S NOTICE OF DEMURRER AND DEMURRER TO FIRST AMENDED CROSS-COMPLAINT FOR DAMAGES FILED BY J & I CONSULTING, INC. [Hrg: 11/1/2023; Res. ID: 311493182073] filed by Jong Uk Byun, Central Metal, Inc. on 07/19/2023 is Sustained in Part.”

On November 27, 2023, J&I Consulting filed the operative Second Amended Cross-Complaint (“SACC”), alleging causes of action for (1) breach of contract, and (2) fraud – promise with no intent to perform. On December 6, 2023, J&I Consulting filed a Notice of Errata stating that “[t]hough Defendant/Cross-Complainant’s Second Amended Cross-Complaint filed on November 27, 2023 (‘Cross-Complaint’) makes references to Exhibit ‘A,’ the said exhibit was erroneously left out when filing. The correct document for Exhibit ‘A’ is the ‘Consulting Agreement’ and should have been attached to the Cross-Complaint. The attached Exhibit ‘A’ entitled the ‘Consulting Agreement’ dated December 21, 2019 should serve as Exhibit ‘A’ to the Cross-Complaint.” (J&I Consulting’s December 6, 2023 Notice of Errata, p. 2:4-9.)

CMI now demurs to both causes of action of the SACC. J&I Consulting opposes.

Request for Judicial Notice

The Court grants CMI’s request for judicial notice.

Discussion

A.    Legal Standard

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. ((Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” ((C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. ((Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” ((Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)

B.    Allegations of the SACC  

In the SACC, J&I Consulting alleges that “Byun was the owner of the real property located at 8201 Santa Fe Avenue, Huntington Park, CA (‘Property’).” (SACC, ¶ 9.) Byun was the owner of a company known as Central Metal, Inc. (SACC, ¶ 10.)

“On or about December 21, 2019, Cross-Complainant and Cross-Defendants entered into a written Consulting Agreement (“Agreement”) wherein Cross-Complainant agreed to provide consulting services concerning the sale of real estate, business entity and equipment located at 8201 Santa Fe Avenue, Huntington Park, CA.” (SACC, ¶ 11.) “[T]he Agreement provided that ‘[i]n the event that the sale of real estate, business entity, and equipment, etc. specified in this Agreement is successfully completed, President Byun shall pay 4% of the total sales price to J&I through the escrow company at the close of escrow in return for J&I’s consulting services.’” (SACC, ¶ 13.) J&I Consulting alleges that “[a]t all times relevant herein, Cross-Complainant never acted as Cross-Defendant’s real estate broker or salesperson other than in consulting capacity.” (SACC, ¶ 12.)

J&I Consulting alleges that “[o]n or about December 31, 2021, the Property was sold by Cross-Defendant Jong Uk Byun to a third party, and the sales price was $35,150,000.00.” (SACC, ¶ 14.) J&I consulting alleges that “[o]n or about December 31, 2021, Cross-Defendant Byun breached the Agreement by failing to pay the 4% consulting fee to Cross-Complainant.” (SACC, ¶ 15.)

J&I Consulting further alleges that “[o]n or about December 21, 2019, Cross-Defendant Byun made the promise that in the event that Property was sold by Cross-Defendant Byun, Cross-Defendant Byun would pay 4% of the sales price of the Property in the event that the Property was sold,” and that “[t]he aforesaid promises of Cross-Defendant Byun were false and Cross-Defendant Byun, at the time the promises were made, had no intention of fulfilling his promise.” (SACC, ¶¶ 20, 23.) J&I Consulting alleges that “the true intent behind the promise was to obtain as much consulting services of Cross-Complainant as possible, to sell the Property using the information and services received from Cross-Complainant and not pay Cross-Complainant once the Property was sold.”  (SACC, ¶ 24.)

C.    First and Second Causes of Action

CMI asserts that its demurrer should be sustained as to both causes of action of the SACC because J&I lacks standing. More specifically, CMI asserts that “[t]he SACC pleads two causes of action, both of which arise out of one alleged wrong: J&I’s alleged entitlement to a real estate commission payment left unpaid by Cross-Defendant, pursuant to an Agreement attached as Exhibit A…J&I is not a California licensed real estate broker and thus has no standing to assert the claims pled…This deficiency has not been cured and the action must therefore be dismissed.” (Demurrer at p. 6:3-8.)

CMI cites to Phillippe v. Shapell Indus. (1987) 43 Cal.3d 1247, 1267, where the California Supreme Court noted that “[o]nly those persons licensed by the California Department of Real Estate may lawfully act as real estate brokers in this state. ((Bus. & Prof. Code, § 10130.) To bring an action to recover a real estate commission, a broker must plead and prove that he was duly licensed at the time his cause of action arose. (Bus. & Prof. Code, § 10136.) The effect of these laws is obvious -- only a person duly licensed may earn and recover compensation as a real estate broker.” Pursuant to Business and Professions Code section 10136, “[n]o person engaged in the business or acting in the capacity of a real estate broker or a real estate salesperson within this state shall bring or maintain any action in the courts of this state for the collection of compensation for the performance of any of the acts mentioned in this article without alleging and proving that he or she was a duly licensed real estate broker or real estate salesperson at the time the alleged cause of action arose.”

CMI asserts that here, “absent from J&I’s pleading is any allegation that they were a duly licensed real estate broker at the time of the sale of the Property.” (Demurrer at p. 7:1-2, emphasis omitted) In addition, Exhibit “E” to CMI’s request for judicial notice is the results of a search on the California Department of Real Estate website for “Public License Information.” (CMI’s RJN, Ex. E.) CMI’s Exhibit “E” states, inter alia, that “[n]o matching public record was found for Licensee: J & I CONSULTING, INC…” (Ibid.)

CMI also asserts that the causes of action are “barred as the commission agreement that serves as the basis for both claims was not made in the name of a licensed broker.” (Demurrer at p. 7:8-9.) CMI notes that the SACC alleges that “Cross-Complainant entered into the Agreement with Cross-Defendant Byun and spent hundreds of hours performing Cross-Complainant’s obligations under the Agreement.” (SACC, ¶ 21.)

CMI further notes that the “Consulting Agreement” attached to the SACC provides, inter alia, that “[t]he scope and contents of consulting to be provided by J&I to President Byun are as follows…b. Negotiations with buyers who will purchase real estate, business entity, equipment, etc. specified in this Agreement…” (SACC, ¶ 11, Ex. A; See Notice of Errata, Ex. A.) CMI asserts that “[t]his category of service falls squarely within those listed…under Business and Professions Code section 10131(a), requiring a real estate broker’s license.” (Demurrer at p. 8:12-13.) Business and Professions Code section 10131, subdivision (a) provides that “[a] real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others: (a) Sells or offers to sell, buys or offers to buy, solicits prospective sellers or buyers of, solicits or obtains listings of, or negotiates the purchase, sale, or exchange of real property or a business opportunity.” (Emphasis added.)

            CMI also notes that the SACC now alleges that “[a]t all times relevant herein, Cross-Defendant maintained a separate listing broker who represented Cross-Defendant during the above-referenced sale. Accordingly, Cross-Complainant was not contracted as a real estate broker or a salesperson. Rather, Cross-Complainant’s services were to consult Cross-Defendant during the sale of the property so that the property would be in a saleable condition. At all times relevant herein, Cross-Complainant never acted as Cross-Defendant’s real estate broker or salesperson other than in consulting capacity.” (SACC, ¶ 12.) CMI asserts that these allegations contradict the language in the Agreement attached as Exhibit A to the SACC. CMI notes that the alleged Consulting Agreement provides as follows:

 “2. Scope of consulting

The scope and contents of consulting to be provided by J&I to President Byun are as follows.

a. The main purpose of this Agreement is to prevent Hyundai Steel or Prime Metals’ Trustee attorney from proceeding with the foreclosure of the real estate specified in this Agreement and to extinguish the bonds held by Hyundai Steel or Prime Metals’ Trustee attorney by setting the amount to be negotiated and selling the real estate, business entity, equipment, etc.

b. Negotiations with buyers who will purchase real estate, business entity, equipment, etc. specified in this Agreement

c. Adjust the amount of bonds on the real estate, business, and equipment specified in this Agreement through negotiations with other creditors, including Hyundai Steel or Prime Metals’ Trustee attorney, so that it may be sold.

d. The bonds of the Trustee attorney of Hyundai Steel or Prime Metals and the bonds of Toni Ko, the secondary creditor, shall be extinguished only with the Santa Fe real estate. e. In the case of other Junior creditors, the amount of bonds remaining after the adjustment of the bond amount shall be set to the amount changed to other real estate that has already been set as collateral.

f. A real estate company shall be appointed and controlled to sell the real estate, business entity, equipment, etc. specified in this Agreement.” (SACC, ¶ 11, Ex. A; See Notice of Errata, Ex. A, ¶ 2, emphasis added.)[1]

CMI asserts that “J&I’s attempt to introduce new allegations to alter the scope of services that the parties agreed to in the contract executed years ago is improper, and such allegations may not save the pleading from demurrer…” (Demurrer at p. 10:9-11.) “For purposes of a demurrer, [the court] accept[s] as true both facts alleged in the text of the complaint and facts appearing in exhibits attached to it. If the facts appearing in the attached exhibit contradict those expressly pleaded, those in the exhibit are given precedence.” ((Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, 567-568.)

In the opposition, J&I Consulting asserts that it did not provide any services that require a broker license. J&I Consulting notes that the alleged Consulting Agreement provides, as set forth above, that “[t]he main purpose of this Agreement is to prevent Hyundai Steel or Prime Metals’ Trustee attorney from proceeding with the foreclosure of the real estate specified in this Agreement and to extinguish the bonds held by Hyundai Steel or Prime Metals’ Trustee attorney by setting the amount to be negotiated and selling the real estate, business entity, equipment, etc.” (SACC, ¶ 11, Ex. A; See Notice of Errata, Ex. A, ¶ 2(a).) J&I Consulting contends that accordingly, “the primary goal of the agreement between the parties was to prevent foreclosure and extinguish bonds, not for the real estate transaction.” (Opp’n at p. 2:13-14.)

J&I Consulting notes that the Consulting Agreement provides, as set forth above, that “[a] real estate company shall be appointed and controlled to sell the real estate, business entity, equipment, etc. specified in this Agreement.” (SACC, ¶ 11, Ex. A; See Notice of Errata, Ex. A, ¶ 2(f).) J&I Consulting contends that “[i]f it were truly the intentions of J&I to render any kind of services for real estate transactions, there would have been no need to put this specific language in the contract.” (Opp’n at p. 2:22-24.) CMI counters that “[t]his argument fails to defeat demurrer because the language in the Agreement cannot be read selectively…” (Reply at p. 3:14-15.) Indeed, as discussed, alleged Consulting Agreement also provides that “[t]he scope and contents of consulting to be provided by J&I to President Byun are as follows…Negotiations with buyers who will purchase real estate, business entity, equipment, etc. specified in this Agreement…”  (SACC, ¶ 11, Ex. A; See Notice of Errata, Ex. A, ¶ 2(b), emphasis added.) In addition, the Consulting Agreement provides that “[t]he scope and contents of consulting to be provided by J&I to President Byun are as follows… “[t]he main purpose of this Agreement is to prevent Hyundai Steel or Prime Metals’ Trustee attorney from proceeding with the foreclosure of the real estate specified in this Agreement and to extinguish the bonds held by Hyundai Steel or Prime Metals’ Trustee attorney by setting the amount to be negotiated and selling the real estate, business entity, equipment, etc.” (Ibid., ¶ 2(a), emphasis added.)

As discussed, Business and Professions Code section 10131, subdivision (a) provides that

“[a] real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others: (a) Sells or offers to sell, buys or offers to buy, solicits prospective sellers or buyers of, solicits or obtains listings of, or negotiates the purchase, sale, or exchange of real property or a business opportunity.” (Emphasis added.) Further as discussed, “[n]o person engaged in the business or acting in the capacity of a real estate broker or a real estate salesperson within this state shall bring or maintain any action in the courts of this state for the collection of compensation for the performance of any of the acts mentioned in this article without alleging and proving that he or she was a duly licensed real estate broker or real estate salesperson at the time the alleged cause of action arose.” (Bus. & Prof. Code, § 10136.) CMI cites to Rees v. Department of Real Estate (1977) 76 Cal.App.3d 286, 295, where the Court of Appeal noted that “[i]f the broker takes any part in the negotiations, no matter how slight, he is not a middleman but a broker.” 

In addition, as discussed, Exhibit “A” to the SACC is “given precedence” over the allegations in the SACC that “Cross-Complainant never acted as Cross-Defendant’s real estate broker or salesperson other than in consulting capacity.” (Mead v. Sanwa Bank California, supra, 61 Cal.App.4th at p. 568; SACC, ¶ 12.)

Based on the foregoing, the Court sustains CMI’s demurrer to the first and second causes of action of the SACC, without leave to amend. J&I Consulting was provided the opportunity to amend its prior pleading, the FACC. In addition, in their opposition to the instant demurrer, J&I Consulting has not proffered any basis for any amendment to cure the deficiencies in its SACC. ((See Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 44, “[t]he burden of showing that a reasonable possibility exists that amendment can cure the defects remains with the plaintiff…”)

Conclusion

Based on the foregoing, the Court sustains CMI’s demurrer to the first and second causes of action of the SACC, without leave to amend.

The the Court orders CMI to file and serve a proposed judgment of dismissal within 10 days of the date of this order.¿ 

CMI is ordered to give notice of this order.¿ 

DATED:  March 13, 2024                              ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court