Judge: Theresa M. Traber, Case: 20STCV20461, Date: 2023-02-08 Tentative Ruling

Case Number: 20STCV20461    Hearing Date: February 8, 2023    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     February 8, 2023                   TRIAL DATE: May 16, 2023

CASE:                         Jiangsu Guotai International Group v. JR Group Inc., et al.

CASE NO.:                 20STCV20461           

MOTION FOR LEAVE TO FILE A CROSS-COMPLAINT

MOVING PARTY:               Defendants JR Group Inc.; Siu Kwan Lam; and Ruby Lam

RESPONDING PARTY(S): Plaintiff Jiangsu Guotai International Group Guomao Co., Ltd.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is an action for fraud and breach of contract filed on May 29, 2020.  In the First Amended Complaint, filed November 16, 2020, Plaintiff alleges that Defendants entered into a contract for goods with Plaintiff, but that Defendants misrepresented their ability to pay while nevertheless accepting the goods.

Defendants JR Group, Inc., Siu Kwan Lam, and Ruby Lam move for leave to file a cross-complaint against Plaintiff.

TENTATIVE RULING:

            Defendants’ Motion for Leave to File a Cross-Complaint is GRANTED.

            Defendants are to serve and file their Cross-Complaint within 10 days of the date of this order.

DISCUSSION:

Defendants JR Group, Inc., Siu Kwan Lam, and Ruby Lam move for leave to file a cross-complaint against Plaintiff.

Parties generally must file a cross-complaint against the party who filed the complaint before or at the same time as the answer to the complaint. (Code Civ. Proc., § 428.50(a).) Parties seeking to file untimely compulsory cross-complaints may seek leave to do so from the Court, however, even though the failure to timely file resulted from oversight, inadvertence, mistake, neglect, or other cause. (Id. § 426.50.) In such a case, after notice to the adverse party, the Court must grant leave to file the cross-complaint if the party acted in good faith. Courts liberally construe section 426.50 to avoid forfeiture of causes of action. (Ibid.)

The purpose of the compulsory cross-complaint statute is to prevent piecemeal litigation. (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 959.) Compulsory cross-complaints consist of those causes of action existing at the time of service of the answer that the defendant must bring against the plaintiff, or else forfeit the right to bring them in any other action. (Code Civ. Proc., § 426.30(a).) Specifically, compulsory cross-complaints consist of the causes of action that “arise out of the same transaction, occurrence, or series of transactions or occurrences as the cause of action which the plaintiff alleges in his complaint.” (Id. § 426.10(c).) To avoid piecemeal litigation, courts liberally construe the term “transaction”—it is “‘not confined to a single, isolated act or occurrence . . . but may embrace a series of acts or occurrences logically interrelated.’ ” (Align Technology, supra, 179 Cal.App.4th at 960.)

Thus, a motion to file a compulsory cross-complaint at any time during the course of the action must be granted where forfeiture would otherwise result, unless the moving party engaged in bad faith conduct. (Silver Organizations Ltd. v. Frank (1990) 217 Cal.App.3d 94, 99.) The determination that the moving party acted in bad faith must be supported by substantial evidence. (Ibid.; Foot’s Transfer & Storage Co. v. Superior Court (1980) 114 Cal.App.3d 897, 902 [“We conclude that this principle of liberality requires that a strong showing of bad faith be made in order to support a denial of the right to file a cross-complaint under this section”].) “Factors such as oversight, inadvertence, neglect, mistake or other cause, are insufficient grounds to deny the motion unless accompanied by bad faith.” (Silver Organizations Ltd, supra, 217 Cal.App.3d at 99) Rather, bad faith is “defined as ‘[t]he opposite of “good faith,” generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake . . . , but by some interested or sinister motive[,] . . . not simply bad judgment or negligence, but rather . . . the conscious doing of a wrong because of dishonest purpose or moral obliquity; . . . it contemplates a state of mind affirmatively operating with furtive design or ill will.’” (Id. at 100.) 

Here, Defendants seek leave to file a cross-complaint against Plaintiff to assert claims for breach of contract, fraud, and intentional interference in a prospective contractual relationship. Defendants concede that the answer to the Amended Complaint was filed in March 2021 (See Declaration of Jenny Zhao ISO Mot. ¶ 4.) Defendants state the alleged unpaid commissions owed to Defendants by Plaintiff, which form the basis of the Cross-Complaint, were known to Defendants at the time the answer was filed, but that they initially lacked relevant documentation. (Id.) Defendants further state that, although the specifics were divulged in January 2022, Defendants refrained from seeking to file the Cross-Complaint in the hope that the matter would be resolved in Court-ordered mediation. (Id. ¶ 5.) The parties failed to reach a resolution at the June 3, 2022 mediation. (Id. ¶ 6.) However, Defendant JR was a suspended corporation at that time, and therefore, Defendants state, this motion could not be heard until after JR’s status was revived. (Id. ¶ 7.) The motion was further delayed by failure to pay filing fees and calendaring errors on the part of Defendants’ counsel. (Id. ¶ 8.)

In opposition, Plaintiff contends that this motion is filed in bad faith because Defendants were aware of their claims by at least February 2021. Plaintiff offers the deposition testimony of Defendant Lam, which states that she was aware of transactions that were subject to the alleged commission agreement that were placed between late 2019 and early 2020. (Plaintiff’s Exh. 1. pp. 67:20-72:10.) Defendants also identified these transactions in their discovery responses. (Plaintiff’s Exh. 2.) Plaintiff further argues that Defendants had expressed their intention of filing a cross-complaint alongside their answer. (Plaintiff’s Exh. 3.) Plaintiff argues that these materials and statements by Defendants are evidence of bad faith. Plaintiff does not offer, however, any evidence of a sinister motive, or intention to deceive on Defendants’ part. Plaintiff only argues that Defendants’ legal theories and justifications for the delay in filing this motion are unfounded. Whether or not that is so, Defendants’ erroneous legal theories or ill-advised tactical decisions are not, of themselves, evidence of bad faith. They are, at most, evidence of mistake or neglect. Plaintiff’s reliance on Crocker Nat. Bank v. Emerald in support of its position is not persuasive. In that case, as is evident from the passage cited by Plaintiff, the Court of Appeal concluded that the trial court did not abuse its discretion in denying leave to file a cross-complaint after a demurrer had been sustained to the moving party’s fifth amended cross-complaint without leave to amend. (Crocker Nat. Bank v. Emerald (1990) 221 Cal.App.3d 852, 864.) Thus, in Crocker, the defendant had multiple opportunities to present his claims before leave to amend was denied. Here, however, Defendants are seeking leave to file their first cross-complaint. Therefore, in the Court’s view, the principle of liberality in permitting leave to file compulsory cross-claims should not be abrogated here.

Plaintiff also contends that the cross-complaint is substantively defective in several respects. This contention is not relevant to the Court’s determination at this juncture. The preferred practice is to permit the cross-complaint and allow Plaintiff to challenge the sufficiency of the pleading at a later stage in the proceedings.  (See Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048 [“even if the proposed legal theory is a novel one, ‘the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer, motion for judgment on the pleadings or other appropriate proceedings’ ”].)

CONCLUSION:

            Accordingly, Defendants’ Motion for Leave to File a Cross-Complaint is GRANTED.

            Defendants are to serve and file their Cross-Complaint within 10 days of the date of this order.

            Moving Parties to give notice.

IT IS SO ORDERED.

Dated:  February 8, 2023                                ___________________________________

                                                                                    Theresa M. Traber

                                                                                    Judge of the Superior Court

            Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.