Judge Thomas D. Long, Case Number: 23STCV08965, Date: 2024-02-15 Tentative Ruling

On April 24, 2023, Plaintiff Chiyuki Kawai filed this action against Defendants Netsu-Ken USA Inc., Mitsuyoshi Akita, and Mariko Akita, alleging breach of contract and fraud.

On July 10, 2023, Plaintiff filed a first amended complaint (“FAC”), and on August 25, 2023, Plaintiff filed a second amended complaint (“SAC”).

On November 27, 2023, Defendants Netsu-Ken USA Inc. and Mitsuyoshi Akita (“Defendants”) filed a demurrer to the SAC.

A demurrer for sufficiency 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, accepting the alleged facts as true. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.)

Defendants’ request for judicial notice is denied as irrelevant because the complaint and FAC are already part of this case’s record.

Defendants argue that the amendments in the SAC render it a sham pleading, and the admissions in the FAC show that the causes of action are time-barred. (Demurrer at pp. 10-15.)

“Under the sham pleading doctrine, a plaintiff cannot avoid allegations that are determinative to a cause of action simply by filing an amended complaint which omits the problematic facts or pleads facts inconsistent with those alleged in the original complaint.” (Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1248.)

The FAC alleges that from May 2015 through August 2016, Plaintiff loaned various amounts of money to Defendants for a construction project, and Defendants would pay Plaintiff back with interest after the houses were sold (“2015 Contract”). (FAC ¶¶ 8-13, 31.) In June 2018, Plaintiff found out that Defendants sold the land without paying Plaintiff back, and Plaintiff demanded full repayment. (FAC ¶¶ 17-18, 25.) After negotiations, Plaintiff and Defendants entered into a new oral contract, under which Defendants promised to pay back the loan within one year (“2018 Contract”). (FAC ¶¶ 19-20, 26.) Defendants made some payments, but they failed to pay back the full amount. (FAC ¶¶ 21-23, 28.) In February 2023, Defendants stopped all payments and denied the 2018 Contract. (FAC ¶¶ 23, 28.)

The SAC similarly alleges the 2015 Contract and discovery of the breach in June 2018. (See SAC ¶¶ 15-19.) In June 2018, “Plaintiff allowed Defendants additional time to repay their debt.” (SAC ¶ 19.) Defendants then made installment payments. (SAC ¶¶ 20-43.) In October 2022, Plaintiff requested full payment by March 2023, but no further payments were made. (SAC ¶¶ 43-44.)

The SAC omits important facts about the 2018 Contract and its terms, including the one-year repayment period. Instead, Plaintiff tries to allege an implied contract—not an express oral contract—arising from Defendants’ installment payments. (See SAC ¶¶ 19-43.)

Plaintiff argues that it is permissible to amended pleadings to assert alternative legal theories. (Opposition at pp. 5-7.) “Plaintiff's shift in representation has led to a more thorough examination of the legal landscape to the facts, which mandates the put forth alternative causes of action in the SAC,” and the “change in counsel and subsequent formulation of alternative theories are founded on the same set of operative facts laid down in the original complaint but now enriched with granular detail that has surfaced upon closer scrutiny and further factual investigation.” (Id. at p. 6.) However, the discrepancies between the FAC and SAC are not alternative legal theories. Instead, the SAC omits facts about the express agreements and the dates of the alleged breaches.

Because of these factual inconsistencies, the Court will consider the FAC as well as the SAC in connection with this demurrer.

“‘In order for the bar of the statute of limitations 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.’” (Geneva Towers Ltd. Partnership v. City of San Francisco (2003) 29 Cal.4th 769, 781.)

An action based on a written contract must be brought within four years, and an action based on an oral contract must be brought within two years. (Code Civ. Proc., §§ 337, 339.) The statute of limitations for fraud is three years. (Code Civ. Proc., § 338.)

Defendants promised to repay the 2015 Contract when the houses were sold. (FAC ¶ 9; see SAC ¶¶ 15-16.) In June 2018, Plaintiff learned that Defendants sold the land without repaying the loan. (FAC ¶ 17; SAC ¶ 19.) Defendants’ failure to repay Plaintiff upon the sale was a breach of the 2015 contract. (FAC ¶¶ 9, 18; SAC ¶ 19.) Accordingly, an action based on the 2015 Contract must have been filed by June 2020 if an oral contract (two years) or by June 2022 if a written contract (four years).

The parties entered into a new oral contract in September 2018. (FAC ¶ 19 [“After negotiations, in or around September 2018, Plaintiff and Defendants entered into a new oral contract.”]; see SAC ¶ 19 [“Plaintiff allowed Defendants additional time to repay their debt.”].) Under this 2018 Contract, Defendants promised to pay back the loan within one year. (FAC ¶ 20.) Defendants made some payments, but they did not pay the entire loan by February 2023. (FAC ¶¶ 22-23; SAC ¶¶ 20-45.) Defendants’ failure to repay the loan by September 2019 was a breach of the 2018 Contract. (FAC ¶ 20.) Accordingly, an action based on the oral 2018 Contract must have been filed by June 2020—two years after the breach.

Plaintiff also alleges that the 2015 Contract and 2018 Contract were induced by fraud. (FAC ¶¶ 30-33; SAC ¶¶ 60, 62.) Plaintiff knew or should have known that these promises were false when Defendants failed to perform. (See FAC ¶¶ 9, 18, 20; SAC ¶ 19.) Accordingly, an action based on these misrepresentations must have been filed within three years: by June 2021 (2015 Contract) or September 2022 (2018 Contract).

Plaintiff did not file this action until April 24, 2023, long after all applicable statutes of limitation had expired.

Plaintiff argues that the breach of contract occurred no earlier than October 7, 2022, when Defendants did not honor their repayment obligation. (Opposition at p. 9.) Plaintiff also became aware of the promissory fraud at the same time. (Ibid.) However, the allegations about subsequent extended deadlines and installment payments cannot revive the causes of action based on the 2015 and 2018 Contracts that already accrued by Defendants’ breaches and cannot start the running of a new period of time. (Code Civ. Proc., § 360.)

The demurrer is SUSTAINED. Plaintiff has not shown how he can remedy the deficiencies, so no leave to amend is granted.

Accordingly, the Court orders Netsu-Ken USA Inc. and Mitsuyoshi Akita DISMISSED from the SAC.

A complaint must be served on all named defendants and proofs of service must be filed with the court within 60 days after the filing of the complaint. (California Rules of Court, rule 3.110(b).)

“It is undoubtedly true that a defendant need only be served with summons once and that service of an amended complaint by mail under Code of Civil Procedure section 1012 is sufficient where the defendant has made an appearance in the action.” (Engebretson & Co. v. Harrison (1981) 125 Cal.App.3d 436, 441.) But the plaintiff must first serve the with the summons and complaint in a manner that confers jurisdiction over the defendant (see Code Civ. Proc., § 410.50), or the defendant must make a general appearance before the plaintiff can serve the defendant by mail to the defense counsel. A defendant makes a general appearance by participating in an action “in some manner which recognizes the authority of the court to proceed.” (Mt. Holyoke Homes, LP v. California Costal Com. (2008) 167 Cal.App.4th 830, 844.)

On May 9, 2023, Plaintiff filed proofs of service showing personal service of the summons and complaint on Netsu-Ken USA Inc. and Mitsuyoshi Akita. No proof of service was filed for Mariko Akita. The FAC and SAC each have an attached proof of service showing electronic service on David Craig Bernstein, Esq., “Counsel for Defendants.” Counsel filed this demurrer on behalf of only Netsu-Ken USA Inc. and Mitsuyoshi Akita. There is no evidence of service of the original summons and complaint on Mariko Akita, and Mariko Akita has not made any general appearance in this action.

Typically, the Court would set an Order to Show Cause Re: Dismissal for Failure to Serve Defendant Mariko Akita. Here, however, the Court finds that unnecessary because the entire action is subject to dismissal, including the allegations against the unserved defendant. The SAC alleges that Mariko Akita is an officer and alter ego of Netsu-Ken USA Inc., and she was an active participant in the breach of contract and fraud. (SAC ¶¶ 7, 9-11, 58, 67.) Because the allegations against Mariko Akita are the same as those against Netsu-Ken USA Inc. and Mitsuyoshi Akita, for which the demurrer is sustained, these allegations also fail to state a claim against Mariko Akita. Thus, they are subject to being stricken for not being drawn in conformity with the law. (Code Civ. Proc., § 436, subd. (b).)

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court