Judge: Theodore R. Howard, Case: 19-1080374, Date: 2022-08-04 Tentative Ruling

Defendants Jae Hyung Pak; Seung Ahn (“Ahn” individually); Global Building Supply, Inc. (“Global “ individually; “Defendants” all together) Demurrer to plaintiff Jonathan Huang’s (“Plaintiff”) Third Amended Complaint (“TAC”) is SUSTAINED in part and OVERRULED in part.

 

A demurrer challenges the defects appearing on the face of the pleading or from other matters properly subject to judicial notice.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)  The issue is the sufficiency of the pleading, not the truth of the facts alleged.  Thus, no matter how unlikely or improbable, the allegations made must be accepted as true for the purpose of ruling on the demurrer.  (Del E. Webb Corporation v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604.)  Absent court orders or other items subject to judicial notice, or items attached as exhibits to the complaint, the court may not consider the contents of pleadings or other exhibits when ruling on a demurrer.  (Day v. Sharp (1975) 50 Cal.3d 904, 914;  Sosinsky v. Grant (1992) 6 Cal.App.4th 1746, 1749.)

 

“In our examination of the complaint we are guided by the well settled principles governing the testing of its sufficiency by demurrer: A demurrer admits all material and issuable facts properly pleaded. [Citations omitted.]  However, it does not admit contentions, deductions or conclusions of fact or law alleged therein. [Citations omitted.]”  (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 666, 672.)

 

Defendants demur to COA Nos. 1 through 4 and 7 through 10 on the bases that they fail to state sufficient facts to support a cause of action and are uncertain.  (Civ. Proc. Code § 430.10(e) and (f).)

 

A)        COA No. 1 – Fraud And Deceit, Intentional Misrepresentation; Cal. Civil Code Sections 1709, 1710

 

This cause of action appears to be one of intentional / fraudulent misrepresentation.

 

“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.)  “In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] “Thus ' ”the policy of liberal construction of the pleadings ... will not ordinarily be invoked to sustain a pleading defective in any material respect.“ ' [Citation.] [¶] This particularity requirement necessitates pleading facts which 'show how, when, where, to whom, and by what means the representations were tendered.' ”’”  (Id., at 645.)

 

Defendants demur on behalf of Ahn and Global.  Plaintiff indicates he will dismiss Global from this COA.  (Opposition, 4:25-26.) 

 

As to Ahn, Plaintiff again Ahn provided year-end financial statements from Ahn showing incorrect numbers.  (TAC ¶ 49.)  Plaintiff has also now alleged he met with both Ahn and Pak between March 2016 and May 2019 for discussions regarding I-MAXX business operations.  (TAC ¶ 68.)  During the meetings Ahn and Pak discussed the structure and details of intended financial activities and transactions that I-MAXX would engage in.  (Id.)  Ahn and Pak acted contrary to the representations made to Plaintiff during the meetings by misappropriating and mischaracterizing numerous financial activities and transactions for the benefits of Ahn, Pak, and their other entities.  (Id.)  During this time, Ahn handled the financials, bookkeeping, bank accounts, and tax returns for Ahn and Pak’s companies.  (TAC ¶ 69.)  Ahn manipulated I-MAXX’s QuickBook records to cover the fact Defendants had been converting I-MAXX assets; examples were given.  (Id.)  Defendants (Ahn included) also allegedly fraudulently caused debts to be marked as paid and converted assets to their alter egos.  (Id.)

 

The general misrepresentations being part of the conversations between Plaintiff, Pak, and Ahn are likely not enough to overcome the specificity requirement, however Plaintiff has alleged more specific misrepresentation being the financial documents Ahn is alleged to have knowingly created and used to hide transfers of assets away from I-MAXX to entities owned/operated by Pak and Ahn.  Plaintiff has also alleged the statements and actions were done intentionally with the intent to defraud Plaintiff, and has alleged resulting damages.  Plaintiff has pled sufficient and certain facts to support this COA against Ahn.

 

The Demurrer is OVERRULED as to Ahn.

 

Again, Plaintiff’s opposition states that he will dismiss this COA as to Global.  Plaintiff made no arguments counter to the demurrer.

 

The Demurrer is SUSTAINED without leave to amend as to Global.

 

B)        COA No. 2 – Deceit/False Promise

 

““The elements of promissory fraud ... are: (1) a promise made regarding a material fact without any intention of performing it; (2) the existence of the intent not to perform at the time the promise was made; (3) intent to deceive or induce the promisee to enter into a transaction; (4) reasonable reliance by the promisee; (5) nonperformance by the party making the promise; and (6) resulting damage to the promise[e].”  (Rossberg v. Bank of Am., N.A. (2013) 219 Cal. App. 4th 1481, 1498.)  Further, “[e]very element of the cause of action for fraud must be alleged in the proper manner and the facts constituting the fraud must be alleged with sufficient specificity to allow defendant to understand fully the nature of the charge made.”  (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, 57 Cal. App. 3d 104, 109 (Ct. App. 1976).) 

 

Although Plaintiff has pled sufficient facts to support COA No. 1 as to Ahn, Plaintiff has failed to plead any specific promise made by Ahn that supports COA No. 2.

 

The Demurrer is SUSTAINED with one final leave to amend as to Ahn.

 

Plaintiff’s opposition states that he will dismiss this COA as to Global.  Plaintiff made no arguments counter to the Demurrer.

 

The Demurrer is SUSTAINED without leave to amend as to Global.

 

C)        COA No. 3 – Common Count: Money Had and Received

 

“A party demurring to a pleading that has been amended after a demurrer to an earlier version of the pleading was sustained shall not demur to any portion of the amended complaint. . .  on grounds that could have been raised by demurrer to the earlier version of the complaint. . .”  (Civ. Proc. Code § 430.41(b).) 

 

Defendants’ failure to demur to this COA in their prior demurrers bars them from attacking this COA in their present demurrer.

 

The demurrer is OVERRULED as to this COA.

 

D)        COA No. 4 – Breach of Oral Contract

 

The elements for breach of contract are: (1) parties capable of contracting, (2) mutual consent, (3) a lawful object, (4) sufficient cause or consideration, (5) plaintiff’s performance or excuse for failure to perform, (6) defendant’s breach, and (7) damage.  (Civil Code §§ 1550, 1605; Stockton Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 453; Gomez v. Lincare, Inc. (2009) 173 Cal.App.4th 508, 525.)  “All contracts may be oral, except such as are specially required by statute to be in writing.”  (Civ. Code § 1622.)

 

Defendants demur on behalf of Pak and Ahn.  There are no allegations that Ahn was a party to any contract, that Ahn agreed to enter any contract, or the terms of any contract.  Plaintiff has failed to properly allege any element of this cause of action against Ahn.

 

The Demurrer is SUSTAINED with one final leave to amend as to Ahn.

 

Regarding Pak, it is unclear what oral contract(s) Plaintiff is alleging.  Plaintiff has alleged multiple loans, payments, and/or transfers of money from his (and his family) accounts to Pak, various entities, and/or to pay for things outright.  All of the money out of Plaintiff’s pocket appears to total $581,293.46  (TAC ¶ 104), however it is unclear the terms of each and every separate contract between Pak and Plaintiff as some of the general payments have not been properly alleged as contracts.  Plaintiff has now alleged that Pak promised to repay several of the loans “on demand” and/or at later dates based on profitability of I-MAXX, and that Plaintiff did not determine there was a breach until Plaintiff made his actual demand a few months before the original Complaint was filed and Pak refused to pay.  (TAC ¶¶ 23, 35, 36, 44, 46-48, 106.) 

 

Generally, “[a] demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. [Citation.] In order for the bar ... to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.”  [Emphasis added.]  (Comm. for Green Foothills v. Santa Clara Cnty. Bd. of Supervisors (2010) 48 Cal. 4th 32, 42.)  “For purposes of the statute of limitations, loans payable on demand are deemed payable at their inception, and the statute begins to run from such time.”  (Buffington v. Ohmert (1967) 253 Cal. App. 2d 254, 256.) 

 

The following “oral contracts” appear to be time barred as they were “payable on demand” and the original Complaint was filed on 07/01/19:

 

-        05/26/16 - $100,000 loan.  (TAC ¶¶ 23-24.)  The limitations period would have run on 05/26/18;

-        08/10/16 - $25,000 loan.  (TAC ¶ 35.) The limitations period would have run on 08/10/18;

-        09/06/16 - $15,000 loan.  (TAC ¶ 36.) The limitations period would have run on 09/06/18;

-        January 2017 - $50,000 loan.  (TAC ¶ 44.) The limitations period would have run on January 2019; and

-        February 2017 - $5,000 loan and $10,000 loan.  (TAC ¶ 46-48.) The limitations period would have run on February 2019.

 

Plaintiff has not alleged how the statute of limitation on the above “payable on demand” loans has not run.  The above loans also equal only $205,000, and not the $581,293.46 alleged under this COA.  (TAC ¶ 104.)  To the extent the remaining $376,293.46 comes from some other oral contract(s), Plaintiff has not alleged any specific terms of said contract(s).  Plaintiff simply alleging approximately three-year’s worth of facts does not apprise Defendants or the court of the terms, number(s) of, or extent of any oral contract(s) between Plaintiff and Pak.

 

Demurrer is SUSTAINED with one final leave to amend as to Pak.

 

E)        COA Nos. 7 – 10 – Derivative Claims

 

Defendants argue COA Nos. 7-10 are derivative claims and thus Corp. Code § 800 applies, which in relevant part states:

 

(b) No action may be instituted or maintained in right of any domestic . . . by any holder of shares or of voting trust certificates of the corporation unless both of the following conditions exist:

(1) The plaintiff alleges in the complaint that plaintiff was a shareholder. . . at the time of the transaction or any part thereof of which plaintiff complains . . .; and

(2) The plaintiff alleges in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.”  [Emphasis added.]  (Id.)

 

Plaintiff has alleged he was a 25% shareholder of I-MAXX.  (TAC ¶¶ 70; Corp. Code § 800(b)(1).)  Plaintiff has also alleged he did not make any effort to secure action from the board of directors as doing so would have been futile since Pak is the sole director and majority shareholder of record who owns and operated I-MAXX.  (TAC ¶ 78; Corp. Code § 800(b)(2).)  Pak has been served with copies of the Complaint, FAC, and TAC, however Plaintiff has also alleged I-MAXX is a suspended corporation.  (Id.)  Plaintiff was not required to notify the board prior to initiating this lawsuit but may instead notify the board after initiating and thus may maintain the lawsuit if it is progress.  (Corp. Code § 800(b).)  Plaintiff has adequately pled derivative action requirements under Corp. Code § 800

 

F)        COA No. 7 – Misappropriation of Corporate Funds

 

Defendants have made no arguments regarding this specific cause of action, other than against the general derivative claim, which as noted (supra) is permitted.

 

Demurrer is OVERRULED as to this COA.

 

G)        COA No. 8 – Breach of Fiduciary Duty

 

“The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.”  (Knox v. Dean (2012) 205 Cal. App. 4th 417, 432.) 

 

“A fiduciary relationship is “ 'any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter's knowledge or consent....' ” “  (Wolf v. Superior Ct. (2003) 107 Cal. App. 4th 25, 29 (“Wolf”).)   “Traditional examples of fiduciary relationships in the commercial context include trustee/beneficiary, directors and majority shareholders of a corporation, business partners, joint adventurers, and agent/principal.  [Citations.] [¶] Inherent in each of these relationships is the duty of undivided loyalty the fiduciary owes to its beneficiary, imposing on the fiduciary obligations far more stringent than those required of ordinary contractors. As Justice Cardozo observed, “Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive is then the standard of behavior.” ‘ “  [Emphasis added.] (Id., at 30.)

 

Plaintiff has alleged Pak was the sole director and majority shareholder of I-MAXX, which created a fiduciary duty between Pak and I-MAXX.  (TAC ¶¶ 78, 131; Wolf, supra, 107 Cal. App. 4th at 30.)   Plaintiff has alleged Pak’s breaches of the fiduciary duty by undercapitalizing I-MAXX, refusing to respect corporate formalities, and diversion of funds and goods from I-MAXX for Pak’s personal benefit and the benefit of other entities owned and operated by Pak which resulted in harm to I-MAXX and Plaintiff.  (TAC ¶¶ 23-62, 69-85, 131-132.) 

 

While Pak alleges Plaintiff did not become a shareholder until September 2017 based on the shareholder certificate (TAC Ex. 17) and that many of the acts Plaintiff has complained about occurred before the date of the certificate, Plaintiff has alleged Pak offered Plaintiff 25% share of I-MAXX for a $100,000 loan, which Plaintiff also alleged he made on 05/26/16.  (TAC ¶¶ 23-24.)  Plaintiff also alleged he requested a written partnership agreement or other corporate documentation showing he was an equity partner in I-MAXX multiple times, however Pak said Plaintiff needed to trust him and did not issue a shareholder certificate until later.  (TAC ¶¶ 25, 53.)  The court is also unable to make an evidentiary ruling at this time regarding the veracity or weight of the shareholder certificate date.  Plaintiff has pled sufficient and certain facts to support this COA. 

 

The Demurrer is OVERRULED as to this COA.

 

H)        COA No. 9 – Conversion

 

“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages. . .”  (Lee v. Hanley (2015) 61 Cal. 4th 1225, 1240.)

 

“Money cannot be the subject of a cause of action for conversion unless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment.”  (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal. App. 4th 384, 395.)  “A generalized claim for money is not actionable as conversion.” (Id.)  “It is true that sometimes money can be treated as specific property, and where identified can form the basis of an action for conversion and might also be the subject of an action for the specific recovery of personal property. But where the money or fund is not identified as a specific thing the action is to be considered as one upon contract or for debt and not for conversion.”  (Baxter v. King (1927) 81 Cal. App. 192, 194.)  Finally, “[w]hile it is true that money cannot be the subject of an action for conversion unless a specific sum capable of identification is [Citation], it is not necessary that each coin or bill be earmarked. When an agent is required to turn over to his principal a definite sum received by him on his principal's account, the remedy of conversion is proper.”  (Haigler v. Donnelly (1941) 18 Cal. 2d 674, 681.)

 

Defendants are correct that a COA for conversion money cannot stand unless there is a specific and identifiable sum involved.  The COA as pled is not one for solely money, but rather also for goods and assets of I-MAXX that were allegedly converted.  (TAC ¶ 136.)  For example, Plaintiff has alleged Pak Global would take merchandise from I-MAXX without paying required dealer prices and leaving outstanding unpaid invoices and that Pak would instruct employees to mark all I-MAXX invoices paid without invoices actually being paid.  (TAC ¶ 31.)  Pak ordered his son to mark all SOLIDEX to I-MAXX outstanding invoices as paid without actually providing payment.  (TAC ¶ 32.)  Pak ordered I-MAXX employees to do work for JP Design House at I-MAXX’s expense and to take materials from I-MAXX without payment.  (TAC ¶ 33.)  Global Construction Company also took product from I-MAXX without payment.  (TAC ¶ 34.)  However, as worded, the COA does focus largely on the conversion of money, the sum of which has not specificized.  This should be easily amendable.

 

The Demurrer is SUSTAINED as to this COA, with leave to amend.

 

I)         COA No. 10 – Involuntary Dissolution

 

Plaintiff’s opposition indicates he will dismiss the dissolution COA. 

 

The Demurrer is SUSTAINED without leave to amend as to this COA.

 

Plaintiff is given leave to file a Fourth Amended Complaint within 15-days of written notice of the court’s ruling.

 

Defendants to give notice.