Judge: Theresa M. Traber, Case: 23STCV13260, Date: 2023-10-20 Tentative Ruling

Case Number: 23STCV13260    Hearing Date: April 17, 2024    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     April 17, 2024                        TRIAL DATE: NOT SET

CASE:                         Le Cui v. HicksLander LLC, et al.

CASE NO.:                 23STCV13260           

DEMURRER TO COMPLAINT (x3)

MOVING PARTY:               (1) Defendant Jerry Mao in pro per; (2) Defendant Jack Chao in pro per; (3) Defendant Michael Perry in pro per.

RESPONDING PARTY(S): (1)(2)(3) Plaintiff Lei Cui

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

            Plaintiff filed this action on June 9, 2023, alleging breach of contract in connection with Defendants’ failure to repay and guarantee a loan agreement codified in two promissory notes dated March 5, 2020, and June 7, 2020.

Defendants demur to the second, third, and fourth causes of action in the Complaint.

TENTATIVE RULING:

Defendant Jerry Mao’s Demurrer is SUSTAINED with leave to amend.

            Defendant Jack Chao’s Demurrer is SUSTAINED with leave to amend.

            Defendant Mike Perry’s Demurrer is stricken as improper.

DISCUSSION:

Demurrer to Complaint (Jerry Mao)

            Defendant Jerry Mao demurs to the second, third, and fourth causes of action.

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Legal Standard

A demurrer tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) 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, 147 Cal.App.4th at p. 747.) The ultimate facts alleged in the complaint must be deemed true, as well as all facts that may be implied or inferred from those expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403; see also Shields v. County of San Diego (1984) 155 Cal.App.3d 103, 133 [stating, “[o]n demurrer, pleadings are read liberally and allegations contained therein are assumed to be true”].) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

Meet and Confer

Before filing a demurrer, the demurring party shall meet and confer in person or by telephone with the party who has filed the pleading subject to the demurrer and file a declaration detailing their meet-and-confer efforts.  (Code Civ. Proc., § 430.41(a).) However, an insufficient meet-and-confer process is not grounds to overrule or sustain a demurrer.  (Code Civ. Proc., § 430.41(a)(4).)

            The Declaration of Jerry Mao attached to the demurrer states that he attempted to meet and confer with Plaintiff’s counsel via email on August 31, 2023, but the parties could not resolve this dispute. (Declaration of Jerry Mao ISO Dem. ¶¶ 3-4.) Defendant has satisfied his statutory meet-and-confer obligations.

Second Cause of Action: Intentional Misrepresentation

            Defendant Jerry Mao demurs to the second cause of action for intentional misrepresentation for failure to state facts sufficient to constitute a cause of action.

The elements of fraud are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)  

            Defendant first argues that the terms of the June 7, 2020 promissory note are unambiguous and that, since the note is fully integrated, Plaintiff cannot contradict the note by arguing, in violation of the Parol Evidence Rule, that Defendant HicksLanders, LLC falsely represented that it had pledged five airplanes as collateral to secure the loan. The interpretation of the contract has no bearing on the question of whether Defendant made a tortious misrepresentation in the context of its negotiation or execution. That said, the Complaint alleges that Defendants falsely represented that they had pledged five airplanes as collateral to secure repayment of the June 7, 2020 promissory note, when they had not done so. (Complaint ¶ 67.) However, as Defendant argues, the June 7, 2020 promissory note appears to contain an express term to this effect. (Complaint Exh. G.) In other words, Defendant promised to pledge five airplanes as collateral, and thereafter executed a loan contract by which the planes were pledged.

Plaintiff, in opposition, argues that there is ambiguity between the English and Chinese versions of the note as to when the “securities,” i.e., the aircraft, will be “processed.” Leaving aside the impropriety of offering extrinsic evidence in the context of a demurrer, this contention misses the point: the execution of the Note is the act which pledges the aircraft as security for the loan. The Court therefore finds that Plaintiff has failed to allege facts sufficient to constitute a cause of action for intentional misrepresentation because she has failed to allege a representation that was false.

Accordingly, Defendant’s Demurrer to the second cause of action is SUSTAINED.

Third Cause of Action: Negligent Misrepresentation

            Defendant also demurs to the third cause of action for negligent misrepresentation on the same grounds as the second cause of action. Accordingly, for the reasons stated above, Defendant’s Demurrer to the third cause of action is SUSTAINED.

Fourth Cause of Action: Breach of Guaranty Contract

            Defendant Mao demurs to the fourth cause of action for breach of the guaranty contract for failure to state facts sufficient to constitute a cause of action.

To state a cause of action for breach of contract, a plaintiff must plead the contract, the plaintiff’s performance of the contract or excuse for nonperformance, Defendant’s breach, and finally the resulting damage. (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 458.)

            Defendant argues that Plaintiff cannot prevail on this cause of action because the underlying June 7, 2020 promissory note charged excessive interest in violation of the California Constitution. The California Constitution prohibits loans with interest rates exceeding 10% per year, with certain exemptions not at issue here. (Cal. Const., art. XV, § 1.) The Complaint alleges that the parties initially agreed to a $250,000 loan at 18% interest per annum, but before executing the note agreed to adjust the loan to the provision of $285,000 at 3.5088% interest. (Complaint ¶ 39.) The copy of the note attached to the Complaint does not clearly support this allegation, but also is so unclear and confusing that it cannot be construed as an evident contradiction of the allegations in the Complaint. The first page of the note states in typewritten text that it is a loan for $285,000 (in numbers) or two hundred fifty thousand US dollars (in writing) at 3.5088% interest. (Complaint Exh. G. p.1.) However, that first page contains numerous handwritten notes in black pen that appear to adjust the principal down to either $250,000 or $253,000 and the interest up to 18%. (Id.) But the typewritten payment schedule on the second page of the Note, specifying eleven monthly payments of $3,750 plus a lump sum payment of $253,750, does not reflect the typewritten terms of the loan but rather the handwritten loan of $250,000 with an 18 percent interest rate. (Id. p.2.) The guaranty agreement contains similar revisions, adjusting the principal sum down from $295,000 to either $250,000 or $253,000. (Complaint Exh. G. p. 8.)  Taking Plaintiff’s Complaint and attached exhibits together, it is not clear whether Plaintiff seeks to recover interest at the rate of 3.5088% or 18% or what she alleges the interest terms to be on the parties’ agreement.  The problem here is a stark lack of clarity in both Plaintiff’s allegations in the Complaint and the heavily revised promissory note attached to the Complaint.  As a result, the Court cannot discern the thrust of Plaintiff’s claim much less find that the confusing attached documents should dictate the terms of the parties’ arrangement, in the absence of explanatory parol evidence that may not be considered on demurrer.  As a result, the Court will sustain the demurrer for uncertainty.

            The Court observes, however, that even if it were to conclude that the parties’ agreement included a usurious interest rate, that fact would not undermine Plaintiff’s contract claim against Defendants, because he could still sue to recover the principal amount of the loan.  (Hardwick v. Wilcox (2017) 11 Cal. App. 5th 975, 979 [“When a loan is usurious, the creditor is entitled to repayment of the principal sum only. He is entitled to no interest whatsoever.” (citations omitted)].) 

            Accordingly, Defendant Mao’s Demurrer to the fourth cause of action is SUSTAINED.

Leave to Amend

When a demurrer is sustained, the Court determines whether there is a reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318).  When a plaintiff “has pleaded the general set of facts upon which his cause of action is based,” the court should give the plaintiff an opportunity to amend his complaint, since plaintiff should not “be deprived of his right to maintain his action on the ground that his pleadings were defective for lack of particulars.” (Reed v. Norman (1957) 152 Cal.App.2d 892, 900.) Accordingly, California law imposes the burden on the plaintiffs to demonstrate the manner in which they can amend their pleadings to state their claims against a defendant.  (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) “Denial of leave to amend constitutes an abuse of discretion unless the complaint shows on its face it is incapable of amendment.  [Citation.]  Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given." (Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.)

            With respect to the second and third causes of action, Plaintiff has not shown how the Complaint might be amended to cure this defect. However, in light of the strong presumption in favor of amendment when no opportunity has been provided, the Court will exercise its discretion to permit leave to amend as to these claims.

As to the fourth cause of action, Plaintiff has not shown how the Complaint might be amended to cure the confusing nature of the allegations supporting this cause of action.  For example, it is not clear whether Plaintiff is seeking to enforce a loan contract with an 18 percent interest rate or a 3.5088 percent that is plainly below the 10% limit set by the California Constitution. What is more, the errors and handwritten revisions in the promissory note raise questions regarding their origin and the timing of their addition to the note. Since Plaintiff alleges that the parties agreed to adjust the interest on the note down to 3.5088% but does not explain whether this agreement was intended incorporated into the note and other documents, the Court finds that Plaintiff should be presented an opportunity to amend the pleadings to clarify the specific terms of the contract he seeks to enforce, including the interest rate that governs that contract (according to Plaintiff), and to address by allegation the meaning of the handwritten changes to the Note.

Conclusion

            Accordingly, Defendant Jerry Mao’s Demurrer is SUSTAINED with leave to amend.

Demurrer to Complaint (Jack Chao)

            Defendant Jack Chao demurs to the second and third causes of action in the Complaint on the same basis as Defendant Mao. Accordingly, for the reasons stated above, Defendant Chao’s Demurrer is likewise SUSTAINED with leave to amend.

Demurrer to Complaint (Mike Perry)

            Defendant Perry was defaulted on September 5, 2023. As a party in default, Defendant Perry is not entitled to demur to the Complaint. (E.g. Forbes v. Cameron Petroleums (1978) 83 Cal.App.3d 257, 262.)

            Accordingly, Defendant Perry’s Demurrer to the Complaint is stricken as improper.

CONCLUSION:

            Accordingly, Defendant Jerry Mao’s Demurrer is SUSTAINED with leave to amend.

            Defendant Jack Chao’s Demurrer is SUSTAINED with leave to amend.

            Defendant Mike Perry’s Demurrer is stricken as improper.

            Moving Parties to give notice.

IT IS SO ORDERED.

Dated:  April 17, 2024                        ___________________________________

                                                                                    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.