Judge: Timothy Patrick Dillon, Case: 21STCV40250, Date: 2023-01-19 Tentative Ruling

Case Number: 21STCV40250    Hearing Date: January 19, 2023    Dept: 73

JI SHEN v. 3333 59TH, LLC, et al.

Counsel for Defendants (Movants): Jayan Hong, Halil Hasic (LAW OFFICES OF JAYAN HONG)

Counsel for Plaintiff (Opposition): Tony M. Lu (LAW OFFICES OF TONY M. LU)

Demurrer with Motion to Strike

(filed 9/19/22)

Tentative Ruling

The demurrer is overruled as to the first, second, and fifth causes of action and overruled as moot to the eleventh cause of action. The motion to strike is denied as moot.

I.                   Background

This is an action for contractual fraud and the mismanagement of five business entities. Ji Shen (“Plaintiff”) alleges that, in the end of 2017, he entered into an oral agreement with three individuals—Shaun Guo (“Guo”), Henry Wang (“Wang”), and Tim Chen (“Chen”) (collectively, “Partner Defendants”)—to begin a business for the retail sale of cannabis.  (Compl. ¶ 21.)  Pursuant to the parties’ oral agreement, Plaintiff and the Partner Defendants agreed that each partner would contribute twenty-five percent (25%), have equal ownership, have co-management authority, enjoy equal profits and distributions, and have the right to access corporate and financial records. (Id. ¶ 22.)  Plaintiff and the Partner Defendants additionally agreed to form business entities and acquire assets.  (Id. ¶ 22.)  Ultimately, pursuant to the parties’ agreement, five corporate entities were established: (1) 3333 59th LLC; (2) 6978 Stanley LLC; (3) Holistic Alternative Herbal Medicine, Inc.; (4) Port Retail LLC; and (5) SOCA Farms LLC (collectively, “Entity Defendants”). (Id. ¶¶ 2-6, 23.) Pursuant to the parties’ agreement, Plaintiff contributed at least $1.6 million, and became a twenty-five (25%) percent owner of each Entity Defendant.  (Id. ¶ 23.)

Plaintiff filed this action on November 1, 2021, alleging: (1) Breach of Oral Contract; (2) Breach of Implied Covenant of Good Faith and Fair Dealing; (3) Breach of Fiduciary Duty; (4) Aiding and Abetting Breach of Fiduciary Duty; (5) Money Had and Received; (6) Negligence; (7) Accounting; (8) Declaratory Relief; (9) Dissolution of LLC; (10) Dissolution of Corporation; and (11) Fraud.

On February 7, 2022, Partner Defendants and Entity Defendants (collectively, “Defendants”) demurred to the first, second, fourth, fifth, sixth, and eleventh causes of action. On June 8, 2022, this court sustained the demurrer with leave to amend as to the first, second, fifth, and sixth causes of action, and overruled the demurrer as to the fourth cause of action for aiding and abetting breach of fiduciary duty and the eleventh cause of action for fraud.

On July 5, 2022, Plaintiff filed the operative First Amended Complaint (FAC).  Plaintiff sets forth a new cause of action for Violation of Business & Profesions Code Section 17200 et seq.  Plaintiff does not reallege the negligence cause of action in the FAC.  The causes of action alleged in the FAC are as follows: (1) Breach of Oral Contract; (2) Breach of Implied Covenant of Good Faith and Fair Dealing; (3) Breach of Fiduciary Duty; (4) Aiding and Abetting Breach of Fiduciary Duty; (5) Money Had and Received; (6) Accounting; (7) Declaratory Relief; (8) Dissolution of LLC; (9) Dissolution of Corporation; (10) Fraud; and (11) Violation of Business & Professions Code Section 17200 Et Seq. 

On September 19, 2022, Defendants filed a demurrer and a motion to strike Plaintiff’s request for attorneys’ fees in conjunction with the eleventh cause of action for Violation of Business & Professions Code Section 17200 Et Seq.  Defendants demur to the first, second, fifth, and eleventh causes of action in the FAC, arguing that the FAC fails to allege sufficient facts to constitute these causes of action. Defendants demur to the FAC on the additional ground that second, fifth and eleventh causes of action are uncertain.

On January 3, 2023, Plaintiff filed oppositions.  In his oppositions, Plaintiff agrees to dismiss the eleventh cause of action for Violation of Business & Professions Code Section 17200 Et Seq.    without prejudice.  No reply has been filed.

II.                Analysis

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 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.  (Civ. Proc. Code §§ 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 p. 747.)

B.     Request for Judicial Notice

Defendants request the court take judicial notice of this court’s Minute Order dated June 8, 2022. The unopposed request is granted. (Evid. Code § 452, subd. (c).)

C.     First Cause of Action – Breach of Oral Contract

To properly allege a cause of action for breach of contract, a plaintiff must show (1) the existence of the contract, (2) the plaintiff’s performance or excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting damages to plaintiff.  (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.) 

Defendants argue Plaintiff’s breach of oral contract claim fails because Plaintiff does not allege any new consideration in the formation of later oral contracts with Entity Defendants between November 2017 through June 2020.  Defendants further argue that Plaintiff’s $1.6 million contribution cannot serve as consideration for purported subsequent agreements with the Entity Defendants.

Plaintiff contends that paragraph 23 of the FAC discusses consideration, and further, that Plaintiff never alleges having invested $1.6 million all at once.  Plaintiff further argues that the agreement between Plaintiff and Partner Defendants to work together, contribute money equally, and co-manage these five entities are sufficient considerations. 

The court agrees with Plaintiff.  Paragraph 23 states:

“Consequently and along the way, they formed and/or acquired 3333 59TH, 6978 STANLEY, HAHM, PORT RETAIL, and SOCA FARMS. By contributing at least $1.6 million, Plaintiff became a 25% member/shareholder of 3333 59TH, 6978 STANLEY, HAHM, PORT RETAIL, and SOCA FARM. GUO, WANG, and CHEN owned the remaining 75% equally.”

Thus, the FAC can be read to mean that the parties formed various oral contracts, in which Plaintiff contributed a total of $1.6 million in exchange for becoming a 25% member/shareholder.  On demurrer, wherein all inferences are drawn in favor of the plaintiff, the court finds Plaintiff has alleged sufficient facts to state a cause of action for breach of oral contract. Defendants do not offer additional argument to the contrary. 

Accordingly, the demurrer to the first cause of action is overruled.

D.    Second Cause of Action – Breach of Implied Covenant of Good Faith and Fair Dealing

“ ‘Every contract imposes on each party a duty of good faith and fair dealing in each performance and in its enforcement.’  [Citations.]  Simply stated, the burden imposed is ‘that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.’  [Citations.]”  (Careau & Co, supra, 222 Cal.App.3d at p. 1393.)  “A ‘ “breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself.”’ [Citation.]”  (Id. at p. 1394.)  “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.”  (Ibid.) 

The basis for Defendants’ demurrer to this cause of action are predicated upon the existence of an oral contract.  Because the court has found that Plaintiff has sufficiently alleged a breach of oral contract claim, the demurrer to the second cause of action is overruled.

E.     Fifth Cause of Action – Money Had and Received

A cause of action for money had and received is stated if it is alleged “that [1] the defendant received money ‘intended to be used for the benefit of [the plaintiff],’ [2] that the money was not used for the plaintiff’s benefit, and [3] that the defendant has not given the money to the plaintiff.”  (Avidor v. Sutter’s Place, Inc. (2013) 212 Cal.App.4th 1439, 1454.)  A cause of action for money had and received “ ‘lies for money paid by mistake, or upon a consideration which happens to fail, or extortion, or oppression, or an undue advantage of the plaintiff’s situation contrary to the laws made for the protection of persons under those circumstances.’ ”  (Minor v. Baldridge (1898) 123 Cal. 187, 191; see J.C. Peacock, Inc. v. Hasko (1961) 196 Cal.App.2d 353, 361 [“ ‘It is well established in our practice that an action for money had and received will lie to recover money paid by mistake, under duress, oppression, or where an undue advantage was taken of plaintiffs’ situation whereby money was extracted to which the defendant had no legal right.’ ”]; see also Schultz v. Harney (1994) 27 Cal.App.4th 1611, 1623 [“[t]he cause of action [for money had and received] is available where … the plaintiff has paid money to the defendant pursuant to a contract which is void for illegality”].) 

Defendants argue Plaintiff fails to cure the defects to the fifth cause of action.  Plaintiff contends that Defendants would not have any legal right to the $1.6 million because they did not grant any ownership interest to Plaintiff in exchange for the $1.6 million that they received from Plaintiff. The allegations in the fifth cause of action are sufficient. Plaintiff alleges that Defendants are holding his funds, the funds were not used for Plaintiff’s benefit, and Defendants are thereby indebted to Plaintiff. Plaintiff thus alleges sufficient facts to state a claim for money had and received.  (See Witkin California Procedure (6th Ed. 2021) 4 Pleading, sec. 567 [ Cause of action proper “[w]here the plaintiff elects the remedy of restitution after defendant’s breach or failure of consideration . . . .”].)

Accordingly, the demurrer to the fifth cause of action for Money Had and Received is overruled.

F.      Eleventh Cause of Action – Violation of Business & Professions Code § 17200 Et Seq.

In his opposition, Plaintiff voluntarily dismisses this claim without prejudice. (Opp., p. 4.) Accordingly, the demurrer to the eleventh cause of action is overruled as moot.

G.    Uncertainty

Defendants argue that the second, fifth, and eleventh causes of action fail for lack of certainty.  “[D]emurrers for uncertainty are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.”  (Mahan v. Charles W. Chan Ins. Agency, Inc. (2017) 14 Cal.App.5th 848, fn. 3.)  That Defendants could address each cause of action cuts against their uncertainty argument.  Therefore, Defendants’ demurrers based upon uncertainty are overruled.  

H.    Motion to Strike

Defendants move to strike Plaintiff’s request for attorneys’ fees in the FAC. Plaintiff seeks to recover attorneys’ fees under Code of Civil Procedure section 1021.5 in connection with the eleventh cause of action for Violation of Business & Professions Code section 17200 et seq. Because Plaintiff voluntarily dismisses this cause of action, Defendants’ motion to strike the request for attorneys’ fees is denied as moot.

III.             Disposition

The demurrer is overruled as to the first, second, and fifth causes of action and overruled as moot to the eleventh cause of action. The motion to strike is denied as moot.