Judge: Thomas Falls, Case: 22PSCV00487, Date: 2022-08-22 Tentative Ruling

Case Number: 22PSCV00487    Hearing Date: August 22, 2022    Dept: R

Peter Tran v. Michael Lin, et al. (22PSCV00487)

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(1)   Defendants JACK LIN’S, ACT CONSTRUCTION, LLC aka ACT CONSTRUCTION, INC.’S, and ACT HOLDING INVESTMENTS, LLC’s DEMURRER to Plaintiff’s Unverified Complaint

(2)   Defendants JACK LIN’S, ACT CONSTRUCTION, LLC aka ACT CONSTRUCTION, INC.’S, and ACT HOLDING INVESTMENTS, LLC’s MOTION TO STRIKE

Responding Party to Both Motions: Plaintiff, Peter Tran

Tentative Ruling

(1)   Defendants JACK LIN’S, ACT CONSTRUCTION, LLC aka ACT CONSTRUCTION, INC.’S, and ACT HOLDING INVESTMENTS, LLC’s DEMURRER to Plaintiff’s Unverified Complaint is OVERRULED IN PART (i.e., first, second, and third causes of action for breach of contract) and SUSTAINED IN PART with leave to amend (i.e., as to fourth-seventh causes of actions).

(2)   Defendants JACK LIN’S, ACT CONSTRUCTION, LLC aka ACT CONSTRUCTION, INC.’S, and ACT HOLDING INVESTMENTS, LLC’s MOTION TO STRIKE is GRANTED in part (i.e., as to Paragraph 15 and interest rates) and DENIED in part (i.e., as ot attorney fees and punitive damages), with leave to amend.

Background

This is a contracts case. Plaintiff PETER TRAN (“Plaintiff”) alleges the following against Defendants MICHAEL LIN (“Michael”), an individual; JACK LIN, an individual; ACT CONSTRUCTION, LLC aka ACT CONSTRUCTION, INC., an unregistered entity; ACT HOLDING INVESTMENTS, LLC, a California Limited Liability Company; and DOES 1-20: Plaintiff and Michael have been friends for years. Michael fraudulently induced Plaintiff to make investments in properties, using Act Construction to renovate and sell the properties at an alleged profit.[1] Plaintiff has loaned Defendants $500,000, some secured by promissory notes, which have not been paid.

On May 23, 2022, Plaintiff filed suit against Defendants for:

1.      Breach of Written Contract – Count 1;

2.      Breach of Written Contract – Count 2;

3.      Breach of Written Contract – Count 3;[2]

4.      Fraudulent Inducement;

5.      Intentional Misrepresentation;

6.      Negligent Misrepresentation; and

7.      Conversion

On July 14, 2022, JACK LIN, ACT CONSTRUCTION, LLC aka ACT CONSTRUCTION, INC., and ACT HOLDING INVESTMENTS, LLC (collectively, “Defendants”) filed the Motion to Strike.

On July 15, 2022, Defendants filed a Demurrer.[3]

On August 9, 2022, Plaintiff filed its Opposition to both the Motion to Strike and Demurrer.

I.                   Demurrer

Legal Standard

A demurrer may be made on the grounds that, inter alia, the pleading does not state facts sufficient to constitute a cause of action and/or that the pleading is uncertain. (Code Civ. Proc., § 430.10, subds. (e) and (f).)

When considering demurrers, courts read the allegations liberally and in context. 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 [citations omitted].) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) “[A] demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction placed on an instrument pleaded therein, or facts impossible in law, or allegations contrary to facts of which a court may take judicial knowledge.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 [citations omitted].)

Discussion

Defendants demur to all seven causes of action.

A.     Breach of Contract (First, Second, and Third Causes of Actions)

“The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.)

Defendants advance the following arguments as to why the breach of contract fails:

i.                    Plaintiff cannot, as a matter of law, assert a breach of contract cause of action against parties that are not parties to the contract (Act Construction and Act Holding)

ii.                  Each Promissory Note sets forth an interest of either nine percent (9%) or ten percent (10%) per month, which are usurious and thus render the notes void as a matter of law

Entity Liability

As a prefatory matter, Defendants advance their first argument without citation to authority. The court notes that absent a good faith basis for the modification or extension of an existing law, litigants are generally prohibited from asserting a position in litigation without authority. (See, e.g., In re Estate of Randall (1924) 194 Cal. 725, 728-29 [“Contentions supported neither by argument nor by citation of authority are deemed to be without foundation, and to have been abandoned.”].)

That said, the general rule in California is that “only a signatory to a contract may be liable for any breach.”  (Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444, 452.)  A breach of contract cannot be made the basis of an action for damages against defendants who did not execute it and who did nothing to assume its obligations.  (Gold v. Gibbons (1960) 178 Cal.App.2d 517, 519.)   

Here, the only signatories to the contract were Michael and his father, Jack. However, as maintained by Plaintiff in its Opposition, Plaintiff also seeks liability against the corporate defendants via alter ego and conspiracy allegations. (Opp. pp. 2-3.)[4] In Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235-36, the Court of Appeal held that a plaintiff need allege only “ultimate rather than evidentiary facts.” (Id. quoting Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550) (emphasis added). Moreover, the “less particularity [of pleading] is required where the defendant may be assumed to possess knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff,” which certainly is the case here. (Burks v. Poppy Construction Co. (1962) 57 Cal.2d 463, 474.) Thus, as Plaintiff has alleged the necessary facts, its alter ego allegations are sufficient for purposes of a demurrer.[5]

Therefore, Plaintiff can recover for breach of contract from the corporate entity, the limited liability company, and Jack.

Usurious Interest Rate

“‘“Usury is the exacting, taking or receiving of a greater rate than is allowed by law, for the use or loan of money.” [Citation.] A transaction is usurious if there is a loan at greater than the legal rate of interest or an exaction at more than the legal rate for the forbearance of a debt or sum of money due. [Citation.]’ [Citation.] 

“California Constitution, article XV, section 1 limits the interest rate for a ‘loan or forbearance’ of money not primarily for personal, family or household purposes, to the higher of: (1) 10 percent per annum or (2) 5 percent plus the rate of interest prevailing on the 25th day of the month preceding the earlier of the date of the extension of the contract to make the loan or forbearance or the date of making the loan or forbearance, established by the Federal Reserve Bank of San Francisco on advances to member banks under sections 13 and 13(1) of the Federal Reserve Act. [Citation.]” [Citations.] 

“‘When a loan is usurious, the creditor is entitled to repayment of the principal sum only. He is entitled to no interest whatsoever. [Citations.]’ [Citation.]” [Citation.] “The attempt to exact the usurious rate of interest renders the interest provisions of a note void. [Citations.]” [Citation.]” (Hardwick v. Wilcox¿(2017) 11 Cal.App.5th 975, 978–979) (emphasis and underline added).

Defendants argue that “[i]n California, absent an exception, the maximum allowable interest rate for non-consumer loans is the greater of 10% per annum the ‘federal discount rate’ plus 5%.” (Demurrer p. 7, citing Cal. Const. art. XV, § 1(2)) (italics added). Thus, Defendants argue, they “could not have breached the notes by their purported failure to make the illegal interest payments.” (Reply pp. 2-3.)[6]

Here, a review of the promissory notes indicates that each Promissory Note that is attached as an exhibit to the Complaint sets forth an interest of either nine percent (9%) or ten percent (10%) per month. “Where a contract has several distinct objects, of which one at least is lawful, and one at least is unlawful, in whole or in party, the contract is void as to the latter and valid as to the rest.” (MKB Management, Inc. v. Melikian (2010) 184 Cal.App.4th 796, 803 (quoting Civil Code § 1599).) “If, on the other hand, a contract has only a single object and that object is unlawful, in whole or in part, the entire contract is void.” (Id. (citing Civil Code § 1598).) 

Accordingly, while Defendants need not be liable for any interest—whether legal or usurious—the contract itself is still valid. (See Hardwick, supra.)

Therefore, the demurrer is OVERRULED as to the breach of contract causes of actions (first through third causes of actions). 

B.     Fourth Cause of Action for Fraudulent Inducement

To establish a fraud cause of action, Plaintiff must allege (1) misrepresentation, (2) knowledge of falsity, (3) intent to defraud or to induce reliance, (4) justifiable reliance, and (5) resulting damage. (See¿Engalla¿v. Permanente Medical Group, Inc.¿(1997) 15 Cal.4th 951, 974.)  In California, fraud, including negligent misrepresentation, must be pled¿with specificity. (Small v. Fritz Companies, Inc.¿(2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino¿v. Bank of America¿(2014) 224 Cal.App.4th 1462, 1469.)¿ 

“Fraud in the inducement . . . occurs when ‘the promisor knows what he is signing but his consent is induced by fraud, mutual assent is¿present¿and a contract is formed, which, by reason of the fraud is¿voidable.” (Rosenthal v. Great Western Financial Securities Corp.¿(1996) 14 Cal.4th 394, 415 (quoting¿Ford v. Shearson Lehman American Express, Inc.¿(1986) 180 Cal.App.3d 1011, 1028).)¿ 

Defendants argue that “there are no allegations that Defendant Jack, Act Construction, or Act Holding made any type of misrepresentation . . . Plaintiff attempts to circumvent this requirement by alleging some type of conspiracy.” (Demurrer p. 8.)

Here, the FAC alleges that:

Michael represented to Tran that Defendants had a competitive advantage. Defendants purchased the residential properties in “all cash,” leading to a quicker escrow closing. Jack, allegedly had a real estate license, which saved costs on purchase, and a contractor’s license for Act Construction with several crews of undocumented workers. This allowed them to maintain large crews, inexpensively, thereby creating extensive profits. Michael also represented that there were many investors with Act Construction. Similarly, Michael made false representations about a further investment in a property located at 3156 Fairmount Street, Los Angeles, California 90063, to induce Plaintiff to enter into the final promissory note with Michael.

(FAC ¶41) (emphasis added).

Thus, while Michael may have been representations, Plaintiff has not alleged with specificity which of the moving Defendants made representations and what said representations were. In fact, Plaintiff’s Opposition further makes references to representations Michael made, not the moving Defendants. (See Opp. p. 6 [“Michael Lin also falsely stated that Jack Lin has a real estate license. Complaint, ¶14. Michael Lin also fabricated another potential residential purchase by way of text on January 6, 2022, to induce Plaintiff to enter into the third promissory note. See Complaint, ¶20. Finally, Michael Lin made false representations by way of texts on February 10, 2022, and February 19, 2022, with Plaintiff about his failure to repay the loans as a delay tactic to avoid repayment. See Complaint, ¶22”] (emphasis added).

Therefore, the court SUSTAINS the demurrer as to the fourth cause of action for fraudulent inducement, with leave to amend.[7]

C.     Fifth Cause of Action for Intentional Misrepresentation

Intentional misrepresentation requires the defendant to represent a material fact as true when it is actually false and the defendant knew the representation was false when the defendant made it, or the defendant made the representation recklessly and without regard for its truth. (See Manderville v. PCG & S Group, Inc. (2007) 146 Cal.App.4th 1486, 1498.)  

For the same reasons above, this cause of action fails to state sufficient facts.

Therefore, the court SUSTAINS the demurrer as to the fifth cause of action, with leave to amend.

D.    Sixth Cause of Action for Negligent Misrepresentation

Negligent misrepresentation differs in that the defendant makes false statements, honestly believing that they are true, but without reasonable ground for such belief. (Buy v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407.)  

For similar reasons stated above—notably that Plaintiff has not alleged that the moving Defendants made any statements—this cause of action fails to state sufficient facts.

Therefore, the court SUSTAINS the demurrer as to this cause of action, with leave to amend.

E.     Seventh Cause of Action for Conversion

To plead a cause of action for conversion, one must allege (1) the plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)   “Money may be the subject of conversion if the claim involves a specific, identifiable sum . . . .” (Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 209.)

Defendants argue that the failure to pay money owed does not constitute conversion. (Demurrer p. 12.) Indeed, “[a] cause of action for conversion of money can be stated only where a defendant interferes with the plaintiff's possessory interest in a specific, identifiable sum, such as when a trustee or agent misappropriates the money entrusted to him.” (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 284.)

In Opposition, Plaintiff states that “[t]his argument overlooks that conversion can occur through commingling, without there being an allegation of being held in trust, which is specifically cited in the Demurrer.” (Opp. p. 9.)[8]

Here, however, Plaintiff asserts a conversion cause of action based upon the “$500,000 Plaintiff loaned/invested with Defendants.” (FAC ¶68.) Thus, as the property identified is the loan but the failure to pay does not constitute a sufficient wrongful act to support a claim for conversion, then the complaint fails to state sufficient facts.

Therefore, the court SUSTAINS the demurrer as to this cause of action, with leave to amend.

Conclusion

II. Motion to Strike

Legal Standard

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436(a)) (emphasis added). The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Id., § 436(b).) The grounds for a motion to strike are that the pleading has irrelevant, false or improper matter, or has not been drawn or filed in conformity with laws. (Id. § 436.) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id. § 437.)

“Where the defect raised by a motion to strike is reasonably capable of cure, leave to amend is routinely and liberally granted to give the plaintiff a chance to cure the defect in question.” (CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1146.) 

Request for Judicial Notice (“RJN”)

Both Plaintiff and Defendant ask the court to take judicial notice of the California Contractors State License Board – Contractor’s License Detail for License #972540.

The court grants judicial notice as contractor’s license details as (i) “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy” and (ii) as ‘executive’ acts are those performed by administrative agencies.

The court also grants judicial notice of Plaintiff’s Exhibit 2, which is the Act Holding Investments, LLC’s Statement of Interest filed with the California Secretary of State.

Defendants seek to strike the following:

1.      The entirety of Paragraph 15 of the Complaint with Exhibit 1 and

2.      The Prayer for Relief every reference to:

a.       “Interest pursuant to statute”

b.      “Prejudgment interest pursuant to Civil Code section 3287, 3289(b)”

c.       “Costs of suit”

d.      “Attorneys’ fees”

e.       “Punitive damages”

Paragraph 15 states:

A review of the Contractors State License Board (CSLB) website demonstrates that the purported License No. 972542 for Act Construction is for another company entitled Mangan, Inc. Defendants provided to Tran in and around April 13, 2020, what turned out to be a false document that indicates Act Construction is a licensed “general contractor” under License No.: 972542.

Defendants explain that the “the license number that appears on Act Construction’s Proposal, which is attached as Exhibit 1 to the Complaint, is a simple typographical error.” While the company tied to that license number is not licensed, Act Construction holds a California Contractors State License Board License No. 972540.

However, as noted by Plaintiff, Defendants use the name “Act Constructions,” “Act Construction,” and “Act Construction, LLC” interchangeably. Thus, to the extent they intend to strike paragraph 15 on the grounds that Act Constructions is licensed, Defendants have not explained any license for Act Constructions, LLC or Act Construction, LLC.

Nevertheless, as Paragraph 15 states that Act Construction is unlicensed—which is clearly refuted by the California Contractors State License Board—the court GRANTS Defendants’ motion to strike Paragraph 15 and Exhibit 1 (the print-out of the license), with leave to amend.

Usurious Interest

While Plaintiff argues it is still entitled to a legal rate of interest pursuant to per statute and prejudgment interest, such recovery has been extinguished as the loan is usurious. (See discussion in Demurrer.)

Therefore, the motion to strike interest rates is GRANTED.

Attorney Fees

Contrary to Defendants’ contention “Plaintiff has not alleged, and cannot allege, that Plaintiff is entitled to attorney’s fees against Act Construction and Act Holding based on a contract,” the contract itself (the promissory notes) provide for recovery of attorney fees. (See Complaint, Ex. 2, Paragraph 8.)

Therefore, the court DENIES the motion to strike recovery of attorney fees.

Punitive Damages

Defendants argue “[i]f the Court sustain one or more of the demurrers to the three causes of action, the corresponding requests for punitive damages must also be stricken.” (Motion p. 7.)

The court agrees with Plaintiffs that Defendants fail to provide a substantive legal or factual argument as to why Plaintiff cannot pray for punitive damages.[9]

Therefore, the court DENIES the motion to strike punitive damages.

Conclusion

Based on the foregoing, the motion to strike is GRANTED in part (i.e., as to Paragraph 15 and references to interest rates) and DENIED in part (i.e., as to attorney fees and punitive damages), with leave to amend.