Judge Timothy Patrick Dillon, Case Number: 21STCV30828, Date: 2023-07-20 Tentative Ruling

Judge: Timothy Patrick Dillon, Case: 21STCV30828, Date: 2023-07-20 Tentative Ruling

02/28/2023

Dept. 73

Judge Dillon

Steven Liu, individually and derivatively, v. Saratoga Maintenance Corp., et al. (21STCV34342)

Counsel for Defendants/moving party: Timothy R. Windham, Helen H. Lee (Lewis Brisbois Bisgaard & Smith)

Counsel for Plaintiff/opposing party: Steven W. Kerekes (Law Offices of Steven Kerekes)

DEMURRER WITH MOTION TO STRIKE

(filed 11/30/2022)

TENTATIVE RULING

The Demurrer is SUSTAINED as to the third cause of action with leave to amend.

The Demurrer is SUSTAINED as to the fourth cause of action without leave to amend.

The motion to strike is MOOT in part and GRANTED with leave to amend in part.

Discussion

This is a derivative action filed by Plaintiff Steven Liu on behalf of Defendant Saratoga Maintenance Corporation (“Saratoga”). Plaintiff originally pursued this action in his individual capacity, (see Case No. 19STCV25459), and alleged seven causes of action against Saratoga, Defendant John Leon, Defendant Frank Macciola, and Defendant Jerry Schmidt (collectively “Defendants”). The seven causes of action included: (1) breach of fiduciary duty – failure to use reasonable care; (2) breach of fiduciary duty – duty of loyalty; (3) fraudulent concealment (4) violation of civil § 5235, to enforce member’s right to production and inspection of HOA records; (5) violation of the Covenants, Conditions and Restrictions (CC&R), Article VII, Section V; (6) violation of Civil Code § 5515, and (7) violation of Corp. Code § 5145.

On the eve of trial, pursuant to an oral request made by Plaintiff, the court dismissed the entire action without prejudice. (09/09/21 Order – Dismissal, Case No. 19STCV25459.) On September 16, 2021, Plaintiff refiled the instant action reasserting all seven causes of action. With the exception of the fourth cause of action, all previous causes of action were realleged derivatively. Additionally, Plaintiff included two new claims: (1) Derivative Action for Declaratory Relief, and (2) Declaratory Relief.

The operative First Amended Complaint (“FAC”) asserts the same nine causes of action.

A summary of the underlying events according to Plaintiff is as follows. Saratoga is a homeowners’ association and Defendants Leon, Macciola, and Schmidt served as its Board of Directors. (FAC, ¶ 1.) On or around August 19, 2015, Defendants terminated a contract with a licensed landscaping company and hired Alberto Marquez (“Marquez”), an employee of the landscaping company, to perform landscaping work at higher cost and with fewer services provided. (FAC, ¶ 19.) As a result, annual landscaping costs for Saratoga members increased from $30,251 to $35,065. (FAC, ¶ 21.) After Marquez completed one year of work, Defendants, without discussion or approval from homeowners, increased Marquez’s monthly fee by 20%. (FAC, ¶ 23.) Leading up to and throughout this period, Leon made unauthorized and undocumented payments to Marquez on behalf of Saratoga for landscaping services rendered and then sought reimbursement. (FAC, ¶ 18-19, 25.) Consequently, Plaintiff, other homeowners, and Saratoga have been financially harmed. (FAC, ¶ 32.)

On November 30, 2023, Defendants filed the instant Demurrer and Motion to Strike the FAC arguing that the third, fourth, and eighth causes of action (1) fail to state sufficient facts to constitute a cause of action and (2) are uncertain, ambiguous, and unintelligible. Defendants also argue that the FAC fails to plead facts necessary to support punitive damages. Plaintiff filed opposition on February 14, 2023, and Defendants replied on February 21, 2023.

Meet and Confer

Code of Civil Procedure §§ 430.4 (a), and 435.5 (a), require meeting and conferring “in person or by telephone” at least five days before filing a demurrer or motion to strike. Defendants’ counsel declares that she had a telephone discussion with Plaintiff’s counsel on November 23, 2022 and they could not resolve the dispute. (Lee Decl., ¶2.) Accordingly, the Court finds that Defendants’ meet-and-confer efforts were sufficient.

Request for Judicial Notice

Courts may take judicial notice of regulations and legislative enactments issued by any public entity in the United States or of records of any court of this state. Cal. Evid. Code §§ 452(d)(1) and 452(e)(1). When the ground of demurrer is based on a matter of which the court may take judicial notice pursuant to Section 452 or 453 of the Evidence Code, such matter shall be specified in the demurrer, or in the supporting points and authorities for the purpose of invoking such notice. CCP § 430.70.

Defendants request judicial notice of the following public records:

1. Exhibit A: Complaint filed in Superior Court of Los Angeles as Case Number: 19STCV25459.

2. Exhibit B: Complaint filed in Superior Court of Los Angeles as Case Number 17AHSC05898.

Exhibits A and B are court records. Thus, judicial notice of these records is appropriate. Defendants’ request for judicial notice is GRANTED.

Plaintiff requests judicial notice of the following:

1. Exhibit A: Certificate of Compliance with ADR filed in the original case on 10/11/2019 in Liu v. Saratoga Maintenance Corp., et al., Case No. 19STCV25459.

2. Exhibit B: Joint Report to Court Regarding Status of Mediation, filed in the original case on 1/30/2020 in Liu v. Saratoga Maintenance Corp., et al., Case No.19STCV25459.

3. Exhibit C: Court’s Tentative Ruling on Demurrer filed in original case on 6/23/2020, Liu v. Saratoga Maintenance Corp., et al., Case No. 19STCV25459.

4. Exhibit D: Defendants’ Motion for an Order Requiring the Posting of a Bond fled in the Instant Action on or about October 21, 2021.

5. Exhibit E: The Court’s Minute Order Denying Motion for Bond in the instant case dated March 23, 2022.

6. Exhibit F: Demurer to original Complaint by defendants fled in the instant case on 9/6/2022.

7. Exhibit G: Court’s Ruling on Demurrer by defendants to original Complaint filed in the instant case dated 10/13/2022.

Judicial notice as to Plaintiff’s requested records is also appropriate. Exhibits A-G are court records. Accordingly, Plaintiff’s request for judicial notice is GRANTED.

ANALYSIS

Defendants demur to the third, fourth, and eighth causes of action in the FAC because they (1) fail to state sufficient facts to constitute a cause of action, and (2) are uncertain, ambiguous, and unintelligible.

A. Legal Standard for Demurrer

A demurrer tests the sufficiency of 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—any 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 pleading alone, and not the evidence or facts alleged.” (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such, the court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (Id.) The only issue a demurrer is concerned with is whether the complaint, as it stands, states a cause of action. (Hahn, supra, 147 Cal.App.4th at p. 747.)

I. Fraudulent Concealment

The elements of a cause of action for fraudulent concealment are: (1) concealment of a material fact; (2) by a defendant with a duty to disclose; (3) the defendant intended to defraud by failing to disclose; (4) plaintiff was unaware of the fact and would not have acted as it did had it known the fact; and (5) damages. (Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162.)

Defendants argue that the cause of action is barred by the statute of limitations. However, the Court has already found that the equitable tolling doctrine applies in this case and overruled the previous demurrer on this ground. Defendants do not reassert this argument in reply.

Defendants also argue that this cause of action being pled as a derivative action does not make sense, because there are no allegations that anything was concealed from the Association. Further, Plaintiff requested documents for himself under Civil Code Section 5205 (See Paragraph 64 of the FAC) as a member of the Association, not on behalf of the Association. The documents that were requested are the Association’s documents, so it is unclear how the Association is concealing documents from itself.

As the Court previously stated in its prior ruling on demurrer, Plaintiff brings this claim derivatively, in addition to his individual capacity, the real plaintiff is Saratoga. Thus, on its face, a derivative fraudulent concealment claim fails because Plaintiff cannot allege facts to show that that Saratoga did not know of the concealed facts or that Saratoga would have behaved differently if the concealed information had been disclosed. Plaintiff has not amended the Complaint to remedy this.

As to the direct claim, Plaintiff still fails to show how he would have behaved differently. Plaintiff has added allegations that he “would have petitioned and voted to require that proper and normal procedures be instituted and utilized before the defendants [could] authorize[d] payments from HOA funds, including receipt of proper invoicing, and verification of the work or materials invoiced. They would have also disallowed the improper payments and disbursements alleged above and disallowed the transfer of funds from the reserve account to the general operating account.” However, these allegations do not show how this would have prevented the resulting damage. Without further specificity, the damages appear to already have been sustained.

Accordingly, the Court SUSTAINS the Demurrer as to the third cause of action in its entirety.

II. Violation of Right to Production and Inspection

Plaintiff brings the fourth cause of action as an individual. Civil Code § 5235 states in relevant part

(a) A member may bring an action to enforce that member’s right to inspect and copy the association records. If a court finds that the association unreasonably withheld access to the association records, the court shall award the member reasonable costs and expenses, including reasonable attorney’s fees, and may assess a civil penalty of up to five hundred dollars ($500) for the denial of each separate written request.

(b) (b) A cause of action under this section may be brought in small claims court if the amount of the demand does not exceed the jurisdiction of that court. (Civ. Code § 5235 (b).)

Defendant argues that this claim is barred by the doctrine of res judicata because Plaintiff pursued this claim in small claims court. (See Defendants’ Request for Judicial Notice, Exh. B.) In opposition, Plaintiffs argue that the Court only sustained the previous demurrer based on this argument because Plaintiffs did not allege that the small claims court did not rule on the merits. However, in the Court’s ruling on this cause of action, it noted that the original Complaint alleged that the small claims court did not rule on the merits. (See Plaintiffs’ Request for Judicial Notice, Exh. G, Complaint ¶ 115.) Accordingly, the Court did consider this.

Accordingly, the Court agrees with Defendants as it did in its prior order. Res judicata precludes parties or their privies from relitigating a cause of action that has been finally determined by a court of competent jurisdiction. (Rice v. Crow (2007) Cal.App.4th 725, 734.) The small claims court issued a judgment stating that “Defendants Johnny Leon; Saratoga do not owe the plaintiff Steven Liu any money on plaintiffs claim.” Therefore, the Court finds that Plaintiff’s fourth cause of action is precluded from relitigation.

Accordingly, the Court SUSTAINS the Demurrer as to the fourth cause of action.

III. Derivative Action for Declaratory Relief

As Plaintiff points out, Defendants make the same arguments they made on the previous demurrer, which the Court rejected. As the Court has previously stated, while no controversy may presently exist between Marquez and Saratoga, a controversy does exist derivatively between Plaintiff and Saratoga about Marquez. As such, the Court OVERRULES the Demurrer as to the eighth cause of action.

IV. Entire FAC

Defendants assert arguments relating to a demurrer to the entire FAC in the body of the demurrer. However, the notice does not put the entire FAC at issue and as such the Court does not address these arguments as they are not properly before the Court.

V. Leave to Amend

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”]; Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 [“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”]; Vaccaro v. Kaiman (1998) 63 Cal.App.4th 761, 768 [“When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend.”].) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

Because Plaintiff has only filed one amended complaint in this action, the Court GRANTS leave to amend as to the third cause of action. As to the fourth cause of action, res judicata applies. Accordingly, the Court DENIES leave to amend as to the fourth cause of action.

VI. Motion to Strike

A motion to strike lies only where the pleading has irrelevant, false or improper matter, or has not been drawn or filed in conformity with laws.¿ (Civ. Proc. Code § 436.)¿ The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice.¿ (Id. § 437.)¿¿¿

Defendants request the Court to strike the following portions of the FAC without leave to amend:

· Punitive Damages: Paragraphs 63, 66, 71, and Prayers for Relief Nos. 4 and 6.

1. Punitive Damages

Defendants move to strike Plaintiff’s prayer for punitive damages for failure to allege facts sufficient to show malice, oppression or fraud. Plaintiff contends that the Complaint is alleges multiple instances of malice and oppression.

Civ. Code § 3294 (b) permits a plaintiff to recover punitive damages from an employer who was personally guilty of oppression, fraud, or malice. “Malice” means an intent to cause injury or despicable conduct done with a willful and conscious disregard of the rights or safety of another. (Civ. Code § 3294 (b)(1).) “Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard for that person’s rights. “‘Despicable conduct’ is conduct that is so vile, base or contemptible that it would be looked down on and despised by ordinary decent people.” (Scott v. Phoenix Schools, Inc. (2009) 175 Cal.App.4th 702, 715.) A motion to strike punitive damages is properly granted where a plaintiff does not state a prima facie claim for punitive damages, including allegations that defendant is guilty of oppression, fraud or malice.¿ (Turman¿v. Turning Point of Cent. California, Inc.¿(2010) 191 Cal.App.4th 53, 63; Cal. Civ. Code § 3294(a).)

The Court finds that there are insufficient allegations of malice and oppression, and further in light of the ruling on demurrer there are insufficient fraud allegations. There are no specific facts showing undue hardship or despicable behavior.

Based on the foregoing, the motion to strike as to Paragraphs 66, 63, and 71 are MOOT in light of the ruling on demurrer, and GRANTED as to the prayer for punitive damages with leave to amend.

VII. Conclusion

The Demurrer is SUSTAINED as to the third cause of action with leave to amend.

The Demurrer is SUSTAINED as to the fourth cause of action without leave to amend.

The motion to strike is MOOT in part and GRANTED with leave to amend in part.

Plaintiff is granted ten (10) days leave to amend. Plaintiff to give notice.

Case Number: 21STCV30828 Hearing Date: July 20, 2023 Dept: 73

Yedam, Inc., et al. v. Daniel Lee, et al. (21STCV30828)

Counsel for Cross-Complainants/opposing parties: Dale J. Park, James J. Cho (Law Offices of Dale J. Park)

Counsel for Cross-Defendants/demurring parties: Frederick W. Lee, Sam M. Muriella (Frederick W. Lee Law Firm APC)

demurrer AND MOTION TO STRIKE (filed by Cross-Defendants Yedam, Inc., Eun Kyung Choi aka Grace Choi, Olive House, LLC and Lamis Tania, Inc. on March 20, 2023)

TENTATIVE RULING

Cross-Defendants Yedam, Inc., Eun Kyung Choi, Olive House, LLC and Lamis Tania, Inc.’s demurrer to the second amended cross-complaint is SUSTAINED as to the first, second, third, fourth, fifth, sixth, seventh, and tenth causes of action, and is OVERRULED as to the eighth and ninth causes of action.

Cross-Complainants granted 15 days leave to amend.

Factual Background

Yedam, Inc. (“Yedam”) and Eun Kyung Choi (“Choi”) originally brought this breach of loyalty and unfair business practices action against Daniel N. Lee (“Lee”) and Jin Sook Lee (together, “the Lees”), and DM Cosmetics, Inc. (“DM Cosmetics”).

The Lees and DM Cosmetics, Inc. (“Cross-Complainants”) cross-complained against Yedam, Choi, Olive House LLC, and Lamis Tania, LLC (“Cross-Defendants”). After two demurrers, Cross-Complainants filed a second amended cross-complaint. The allegations of the second amended cross-complaint, while at times repetitive and contradictory, can best be summarized as follows:

Prior to 2017, Plaintiff/Cross-Defendant Choi owns Yedam. (SACC, ¶ 11.) Yedam was experiencing serious financial problems. (Ibid.) In February of 2017, Choi approached Defendant/Cross-Complainant Lee asking for help. (Id., ¶ 12.) Choi proposed Lee serve as Yedam’s general manager, whereby Lee would oversee the Korean market and Choi would oversee the Chinese market. (Ibid.) In exchange, Lee would be paid a $10,000 per month salary. (Ibid.) In addition, Choi would give Lee 49% ownership of Yedam if Lee could help Yedam “overcome [its] financial hardship and become profitable.” (Ibid.)

Lee agreed and moved from the US to Korea to serve as Yedam’s general manager. (Id., ¶ 13.) To help Yedam solve its financial issues, Lee loaned Yedam $70,000.00 in operating capital. (Id., ¶ 14.) Choi promised that the $70,000.00 would be paid back when Yedam become profitable, along with 7% interest per annum from April 1, 2017. (Ibid.) Lee successfully managed Yedam thereafter, and Yedam went from net losses in 2016 and 2017 to net profits of over a million dollars per year by the end of 2019. (Id., ¶ 15.)

However, in July of 2019, Yedam faced supply chain issues when the “Milk House Candle” company in the United States refused to renew its exclusive distribution contract with Yedam. (Id., ¶ 16.) In response, the Lees created a new brand of merchandise named “Dani Mackenzie” under DM Cosmetics, Inc. (Id., ¶ 17.) The Lees trademarked Dani Mackenzie in the United States in May of 2020. (Id., ¶ 18.) Around that same time, Choi proposed that Yedam purchase Dani Mackenzie merchandise from DM Cosmetics in exchange for Yedam having the right to use the Dani Mackenzie name. (Id., ¶ 19.) Choi told the Lees that there was no need to have a written licensing and distribution agreement because Choi would transfer 49% of Yedam’s ownership interest to Lee by the end of December 2020. (Id., ¶ 20.)

Dani Mackenzie became highly popular in Korea, and Yedam’s sales and profit soared to the point that Yedam was valued at over $50 million. (Id., ¶ 22.) On December 20, 2020, Lee demanded that Choi transfer 49% of Yedam to him. (Id., ¶ 23.) Lee also demanded that Choi and Yedam repay the $70,000 operating capital loan with 7% interest from April 1, 2017. (Ibid.) However, Choi terminated Lee from Yedam shortly thereafter and refused to convey the 49% ownership share. (Id., ¶ 25.) Further, Choi and Yedam stopped purchasing Dani Mackenzie merchandise from DM Cosmetics and started using other suppliers to manufacturer products bearing the Dani Mackenzie trade name. (Id., ¶ 28.) On March 18, 2021 and April 14, 2021, Cross-Complainants demanded that Cross-Defendants cease and desist manufacturing, supplying and/or selling products under the Dani Mackenzie name. (Id., ¶ 32.)

Based on these allegations, Cross-Complainants assert 10 causes of action against Cross-Defendants: (1) Breach of Oral Contract; (2) Breach of Oral Contract; (3) Fraud and Deceit (Intentional Misrepresentation); (4) Fraud and Deceit (Fraudulent Concealment); (5) Negligent Misrepresentation; (6) Misappropriation of Trade Secrets Pursuant to Cal. Civ. Code § 3426 et seq. and Cal. Bus. & Prof. Code § 16607; (7) Intentional Interference With Prospective Economic Relations; (8) Trademark Infringement; (9) Unfair Competition in Violation of Cal. Bus. & Prof. Code §17200 et seq. and California Trademark Law; and (10) Declaratory Relief.

Cross-Defendants now demur to each cause of action in the SACC and move to strike portions of the SACC relating to punitive damages and attorney’s fees.

Procedural Background

On August 20, 2021, Plaintiffs filed their original complaint. The Court sustained portions of Defendants’ demurrer, and Plaintiffs filed a first amended complaint on March 15, 2022.

On April 18, 2022, Cross-Complainants filed their cross-complaint. Cross-Defendants demurred on July 15, 2022, and Cross-Complainants filed a first amended cross-complaint on August 15, 2022 before the hearing. Cross-Defendants demurred to the FACC on October 3, 2022.

On January 27, 2023, the Court sustained the demurrer to the FACC in its entirety.

On February 17, 2023, Cross-Complainants filed a second amended cross-complaint.

On March 20, 2023, Cross-Defendants demurred to the SACC and moved to strike portions relating to punitive damages and attorney’s fees. Cross-Complainants filed timely oppositions to the demurrer and motion to strike on July 7, 2023, and Cross-Defendants filed timely replies on July 13, 2023.

Discussion

In support of its demurrer and motion to strike, Cross-Defendants argue:

· Cross-Complainants fail to state proper claims for breach of oral contract.

o The sham allegations in the SACC are inconsistent with previous allegations.

o The breach of oral contract claims are subject to a 2 year statute of limitations and are thus time-barred.

o Any alleged debt is subject to the statute of frauds.

· The SACC fails to state facts sufficient to constitute fraud or negligent misrepresentation.

o The claims are not pled with particularity.

· There is no proper basis for misappropriation of trade secrets.

o The SACC does not include any additional allegations to overcome demurrer—it just slaps a label of DM Trade Secrets in lieu of the term Confidential Information.

· The seventh cause of action for intentional interference with prospective economic relations fails because the SACC does not allege an independently wrong act.

· The trademark infringement claim fails.

o The SACC does not identify any competing marks, and there is no allegation of likelihood of confusion.

· There are insufficient allegations of unlawful business practices.

· Declaratory relief is without basis because an adequate remedy exists.

· Cross-Complainants have failed to allege facts sufficient to show that any Cross-Defendant is guilty of fraud, oppression, or malice to justify an award of punitive damages. In addition, no remaining cause of action supports an award of attorney’s fees.

In opposition, Cross-Complainants argue:

· The demurrer should be overruled as to the first cause of action for breach of oral contract because the SACC makes enough clarifications to state a claim.

o The statute of limitations has not run and the statute of frauds does not apply.

· The SACC clearly describes that a second contract was formed as the basis for the second cause of action.

o The SACC alleges an agreement for Yedam to purchase Dani Mackenzie merchandise from DM Cosmetics.

· The SACC pleads the fraud allegations with enough specificity.

· The SACC establishes the elements of a trade secret to support the sixth cause of action.

· In sustaining the previous demurrer to the seventh cause of action the Court found that “[s]pecifics of the interference are also not provided”. Those specifics have been provided in the SACC.

· The SACC alleges likelihood of confusion to support trademark infringement.

· The unlawful practices are violations of the Lanham Act.

· Punitive damages are supported by several causes of action, and Cross-Complainants seek attorney’s fees for violation of the federal Lantham Act—not for violations of Civil Code section 3426.4.

Cross-Defendants reply:

· There are no less than three oral contracts and four distinct grounds for breach of contract alleged in the first two causes of action. Cross-Complainants simply ignore this improper pleading methodology. Cross-Complainants also inconsistently plead when Cross-Defendants were required to perform.

· Cross-Defendants reiterate their moving arguments against the remaining causes of action.

ANALYSIS

A. Timeliness

Both a demurrer and a motion to strike are due within 30 days of being served with a complaint. (Code Civ. Proc., §§ 430.40; 435, subd. (b)(1).)

Cross-Complainants filed their SACC on February 17, 2023. Cross-Defendants had until March 21, 2023 to respond. This demurrer and motion to strike was therefore timely filed on March 20, 2023.

B. Meet and Confer

A party is required to meet and confer, either in person or by telephone, with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., § 430.41, subd. (a).) The same is true for a motion to strike. (Code Civ. Proc., § 435.5, subd. (a).) The meet and confer effort must occur at least five days before the date the responsive pleading is due. (Code Civ. Proc., § 430.41, subd. (a)(2).)

Here, counsel for Cross-Defendants states he communicated with opposing counsel via email on March 15, 2023. (Muriella Decl., ¶ 6.) Code of Civil Procedure section 430.41, subdivision (a), requires that a demurring party meet in person or by telephone. Thus, the meet and confer requirement has not been met.

Nonetheless, the Court will address the merits.

C. Demurrer

i. Legal Standard

“The party against whom a complaint or cross-complaint has been filed may object, by demurrer or answer as provided in Section 430.30, to the pleading on any one or more of the following grounds…The pleading does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc. § 430.10.)

A demurrer tests the sufficiency of 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 contest—any 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. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Proc., §§ 430.30, 430.70.) The only issue a demurrer is concerned with is whether the complaint, as it stands, states a cause of action. (Hahn, supra, 147 Cal.App.4th at 747.)

ii. Application

Cross-Defendants have demurred to all 10 causes of action in the SACC.

First and Second Causes of Action for Breach of Oral Contract

“The elements of a breach of oral contract claim are the same as those for a breach of written contract: a contract; its performance or excuse for nonperformance; breach; and damages.” (Stockton Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 453.) The statute of limitations for breach of oral contract claims is two years. (Code Civ. Proc. § 339.)

Here, Cross-Complainants fail to establish the first element—that is, for both causes of action they fail to adequately specify the terms of a contract.

Regarding the first cause of action, Cross-Complainants argue in their opposition that the SACC “sum[s] up their allegations in a clear and straight forward manner: (1) In February, 2017, and repeatedly in 1/2018, 1/2019, 1/2020, and 6/2020, Choi and Yedam agreed to pay Lee $10,000 per month as salary from 2/2017 until 12/2020, the remaining balance is in the sum of $350,000. (2) In 1/2018 and repeatedly in 1/2019, 1/2020, and 6/2020, Choi and Yedam agreed to repay Lee the $70,000 loan together with 7% interest per annum from 4/1/2017 until paid in full. (3) In February, 2017, and repeatedly in 1/2018, 1/2019, 1/2020, and 6/2020, Choi agreed to transfer 49% shares of Yedam, Inc. [SACC, Page 14, Lines 1-8].” (Opposition, page 6, lines 2-11.)

These allegations refer to at least three separate oral agreements. First, there is the alleged agreement by Choi and Yedam to pay Lee a $10,000 per month salary. Second, there is an alleged agreement by Lee to loan Yedam $70,000. Third, there is an alleged agreement to transfer 49% ownership in Yedam to Lee. As alleged in the SACC, these agreements were formed on separate dates and breached on separate dates. Moreover, Lee’s performance under each agreement is different. For the first agreement, Lee only needed to serve as Yedam’s general manager to be entitled to his salary, but for the second and third agreements, Yedam needed to “overcome the financial hardship and become profitable.” (SACC, ¶ 41.) Indeed, the SACC admits that the salary and equity agreement was separate from the agreement to loan $70,000 in operating capital. (Id., ¶ 40.) Cross-Complainants must separate the alleged agreements into separate causes of action. Without doing so, Cross-Complainants have not satisfied the first element of establishing the terms of a contract.

Because Cross-Complainants have alleged multiple agreements—along with multiple breaches of those agreements—in a single cause of action, the Court cannot determine whether the claims are subject to the two-year statute of limitations. As the Court explained when it found the breach of oral contract claims in the FACC were time-barred, Cross-Complainants can avoid the effect of their earlier admissions by including a satisfactory explanation of why the earlier admissions are incorrect. (January 27, 2023 Order, citing Weil & Brown et al., Cal. Prac. Guide: Civ. Pro Before Trial (The Rutter Group 2022) § 7:48.) However, before doing so, Cross-Complainants must first allege the terms of a single contract and the date of its breach for each cause of action. The SACC fails to do this in clear terms. The Court is therefore unable to determine when the breach occurred, and thus whether the claims are subject to the statute of limitations.

Regarding the second cause of action for breach of oral contract, the SACC still does not adequately set forth the terms of a contract. The SACC alleges in conclusory terms that “as of June, 2020, a ‘Exclusive Purchase and Distribution Agreement of Dani Mackenzie Merchandise’, was agreed upon by and between DM Cosmetics, Inc., a California corporation as Seller, and Yedam, Inc.” (SACC, ¶ 64.) However, the SACC states the terms and conditions were the following: “(1) YEDAM would purchase ‘Dani Mackenzie’ products and merchandise from DM COSMETICS only, including Candles, Diffuser, Scent Oil, and (2) In exchange that YEDAM would be allowed to use the trade name and trademark of “Dani Mackenzie” in Korea territory. (3) This ‘Exclusive Purchase and Distribution Agreement of Dani Mackenzie Merchandise’ will be terminated, if and when the 49% ownership interest in YEDAM is transferred to DANIEL LEE at the end of December, 2020.” (Ibid.) In other words, the terms of this purported second agreement are inextricably linked to the terms of the oral contracts alleged in the first cause of action. Thus, it is still unclear whether Cross-Complainants are alleging that this is a new contract or a continuation of the alleged oral contract in the first cause of action.

For these reasons, the demurrer is sustained as to the first and second causes of action for breach of oral contract. Cross-Complainants are admonished to separate each oral contract and its respective breach into separate causes of action.

Third, Fourth, and Fifth Causes of Action for Fraud and Negligent Misrepresentation

As explained by the California Supreme Court:

“Some California cases have stated broadly that ‘[t]he subsequent failure to perform as promised warrants the inference that defendant did not intend to perform when she made the promise. [Citations.]’ This may suggest that proof that a promise was made and that it was not fulfilled is sufficient to prove fraud. This is not, and has never been, a correct statement of the law, and we disapprove the cases cited to the extent they suggest otherwise.

Rather, ‘something more than nonperformance is required to prove the defendant's intent not to perform his promise.’ [Citations.]…If plaintiff adduces no further evidence of fraudulent intent than proof of nonperformance of an oral promise, he will never reach a jury.”

(Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30–31.)

Here, Cross-Complainant’s fraud and negligent misrepresentation claims are based solely on Cross-Defendant’s alleged nonperformance. For example, the third cause of action alleges that Choi and Yedam promised to pay Lee a salary and to repay Lee’s loan but failed to do so. (SACC, ¶¶ 81-90.) Despite the conclusory allegation that “Cross-Defendant made these promises without any intention to perform from the beginning” (Id., ¶ 85), there are no underlying factual allegations of fraudulent intent on the part of Choi or Yedam. These allegations are the same as Cross-Complainant’s breach of oral contract allegations. Cross-Complainants are simply alleging that Choi and Yedam failed to perform their contractual obligation to pay Lee a salary and repay Lee’s loan to Yedam.

Likewise, the fifth cause of action alleges that Choi and Yedam negligently misrepresented to the Lees that “Yedam would order and purchase the ‘Dani Mackenzie’ brand from DM Cosmetics only” and that “CHOI would transfer the 49% ownership interest in YEDAM to DANIEL LEE at the end of December, 2020.” (SACC, ¶ 117.) These are merely recitations of Choi and Yedam’s obligations to perform under the alleged oral contracts. There are no independent allegations of a negligent misrepresentation.

Cross-Complainants’ allegations sound in breach of contract—i.e., Choi agreed to pay Lee a salary and convey an ownership share in Yedam but failed to perform her obligations under the agreements. There are no independent, factual allegations of fraudulent intent.

Accordingly, the demurrer is sustained as to the third, fourth, and fifth causes of action for fraud and negligent misrepresentation.

Sixth Cause of Action for Misappropriation of Trade Secrets

A “trade secret” is defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

(Civ. Code § 3426.1, subd. (d).)

“Under the UTSA, a prima facie claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff's trade secret through improper means, and (3) the defendant's actions damaged the plaintiff.”

(Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665.)

The SACC states: “Cross-Complainants LEE and DM COSMETICS claim that they are the owner of the following list of trade secrets: 1) the fomulars of Candles, Diffuser, Scent Oil; 2) the list of manufacturers and suppliers of DM Cosmetics; 3) list of customers; 4) distribution and sales methods, among others (hereinafter referred to ‘DM TRADE SECRETS’).” (SACC, ¶ 129.) However, beyond this conclusory statement, Cross-Complainants do not explain how the formulas derived independent economic value. Read in context, the allegations are that Choi and Yedam started producing similar products using a different supplier. The SACC fails to adequately allege that Cross-Complainants owned a trade secret or that Cross-Defendants acquired it through improper means.

Accordingly, the demurrer is sustained as to the sixth cause of action for misappropriation of trade secrets.

Seventh Cause of Action for Intentional Interference with Prospective Economic Relations

“For intentional interference, the plaintiff must plead and prove: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship… With respect to the type of intentional disruptive acts that are actionable, they must be wrongful by some independent legal measure, beyond interference.” (Golden Eagle Land Investment, L.P. v. Rancho Santa Fe Assn. (2018) 19 Cal.App.5th 399, 429.)

Here, the SACC fails to allege intentional acts on the part of the part of Cross-Defendants that were wrongful by some independent legal measure, beyond interference. The SACC merely alleges that Choi and Yedam “interfered with the business opportunities of Cross-Complainants, by telling the department stores not to purchase DM Cosmetics’ ‘Daniel’s Truth’ merchandise.” (SACC, ¶ 141.) Per case law, this does not rise to the level of intentional interference.

Accordingly, the demurrer is sustained as to the seventh cause of action for intentional interference with prospective economic relations.

Eighth Cause of Action for Trademark Infringement

“[T]o prevail on a trademark infringement claim, a plaintiff must prove: (1) that it has a protectable ownership interest in the mark; and (2) that the defendant’s use of the mark is likely to cause consumer confusion.” (La Terra Fina USA, LLC v. TerraFina, L.L.C. (N.D. Cal., Sept. 27, 2017, No. 17-CV-03613 NC) 2017 WL 4284167, at *6.)

“We identified eight relevant factors for determining whether consumers would likely be confused by related goods: [1] strength of the mark; [2] proximity of the goods; [3] similarity of the marks; [4] evidence of actual confusion; [5] marketing channels used; [6] type of goods and the degree of care likely to be exercised by the purchaser; [7] defendant's intent in selecting the mark; and [8] likelihood of expansion of the product lines.” (Network Automation, Inc. v. Advanced Systems Concepts, Inc. (9th Cir. 2011) 638 F.3d 1137, 1145, internal quotes omitted.)

Here, Cross-Complainants have made out a claim for trademark infringement. First, Cross-Complainants offer evidence that Cross-Complainant DM Cosmetics owns the trademark rights to “Dani Mackenzie.” (SACC, Ex. A.) Next, the SACC alleges that Cross-Complainants revoked Cross-Defendants’ rights to the Dani Mackenzie mark on January 4, 2021 when Choi terminated Lee from Yedam and stopped purchasing “Dani Mackenzie” merchandise from DM Cosmetics. (Id., ¶ 150.) Finally, the SACC alleges that Cross-Defendants nonetheless continue to use Cross-Complainant’s “Dani Mackenzie” mark without permission on the same type of products, with the same formulas, and in the same marketplaces used by DM Cosmetics. (Ibid.) According to the SACC, this “creates a false and misleading representation and confusion of fact that DM COSMETICS might be related to YEDAM, or YEDAM may be the owner and manufacturer of ‘Dani Mackenzie’ products.” (Ibid.) In other words, Cross-Complainants have pled facts showing a likelihood of confusion.

Accordingly, the demurrer to the eighth cause of action for trademark infringement is overruled.

Ninth Causes of Action for Unfair Competition in Violation of Cal. Bus. & Prof. Code §17200 et seq. and California Trademark Law

“To bring a UCL claim, a plaintiff must show either an (1) ‘unlawful, unfair, or fraudulent business act or practice,’ or (2) ‘unfair, deceptive, untrue or misleading advertising. [Citation.]” (Adhav v. Midway Rent A Car, Inc. (2019) 37 Cal.App.5th 954, 970.)

Here, Cross-Complainants have pled an unlawful business act—namely, an alleged violation of trademark laws. The demurrer as to the ninth cause of action is therefore overruled.

Tenth Cause of Action for Declaratory Relief

There is no independent basis for asserting a cause of action for declaratory relief. Adequate remedies exist for the other causes of action brought by Cross-Complainants. The demurrer as to the tenth cause of action is sustained.

D. Motion to Strike

i. Legal Standard

“Any party, within the time allowed to respond to a pleading, may serve and file a notice of motion to strike the whole or any part” of that pleading. (Code Civ. Proc., § 435, subd. (b).) “The Court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false or improper matter asserted in any pleading; (b) Strike out 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.” (Code Civ. Proc., § 436.)

ii. Application

Cross-Defendants ask the Court to strike 12 portions from the SACC. Portions 1-10 and 12 relate to punitive damages. Portion 11 is a prayer for attorneys’ fees.

Regarding punitive damages, there are insufficient factual allegations in the SACC of malice, fraud, or oppression. All the allegations relating to punitive damages are conclusory. For example, paragraph 106 of the SACC reads: “The acts and conduct of Cross-Defendants, and each of them, as set forth above, were despicable and done maliciously, intentionally, willfully and with conscious disregard of Cross-Complainants rights, and with the intent to vex, injure or annoy Cross-Complainants such as to constitute oppression, fraud, or malice under Cal. Civ. Code Section 3924, entitling Cross-Complainants to punitive damages to be proven at time of Trial. As a result, Cross-Complainants are entitled to an award of exemplary damages in an amount sufficient to punish Cross-defendants, and each of them, and deter the conduct in the future.” The remaining allegations are similar in their conclusory nature.

The Court does not find an adequate basis for punitive damages, and thus portions 1-10, and 12 relating to punitive damages are stricken.

Regarding the prayer for attorney’s fees, the Court has overruled the demurrer to the cause of action for trademark infringement. However, the Lantham Act only allows for the recovery of attorney’s fees in exceptional cases. (15 U.S.C. § 1117, subd. (a).) This is not an exceptional case, and there is no other basis for awarding attorney’s fees.

Thus, portion 11 relating to Cross-Complainants prayer for attorney’s fees is stricken. The motion to strike is granted in its entirety.

E. Leave to Amend

“Where the complaint is defective, [i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his [or her] complaint…However, if the plaintiff's causes of action is [sic] not viable, leave to amend should not be granted if there is no basis for the court to conclude further amendment would cure the defects.” (Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 211, internal quotations omitted.) If the demurrer is sustained, plaintiff “has the burden of proving the possibility of cure by amendment.” (Czajkowski v. Haskell & White, LLP (2012) 208 Cal.App.4th 166, 173, citing Grinzi v. San Diego Hospice Corp. (2004) 120 Cal.App.4th 72, 78-79).

The Court grants Cross-Complainants leave to amend. However, the Court refers to its ruling on the previous demurrer and cautions Cross-Complainants against inconsistent pleadings.

F. Conclusion

Cross-Complainants are granted 15 days leave to amend.

Cross-Defendants are ordered to give notice.