Judge: Wesley L. Hsu, Case: 22PSCV00134, Date: 2023-03-27 Tentative Ruling
Case Number: 22PSCV00134 Hearing Date: March 27, 2023 Dept: L
Teehee Socks, Inc. v. Ryu (22PSCV00134; R/T
Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00901)
1. Cross-Defendants Teehee Socks, Inc.’s, Jong Won Bok’s, TJ International Co. Ltd.’s and Taijin USA’s Demurrer to First Amended Cross-Complaint is SUSTAINED without leave to amend.
2. Defendant Hyung Su Ryu aka Alex Ryu’s Demurrer to the First Amended Complaint of Plaintiff Teehee Socks, Inc. is SUSTAINED without leave to amend.
3. Defendant Hyung Su Ryu aka Alex Ryu’s Motion to Strike Portions of the First Amended Complaint of Plaintiff Teehee Socks, Inc. is DENIED as MOOT.
Background
Case No. 22PSCV00134
Teehee Socks, Inc. (“TSI”) alleges as follows:
Hyung
Su Ryu dba Alex Ryu (“Hyung”) was the sole shareholder of TSI, as well as a
director and officer, at the time of TSI’s January 13, 2015 incorporation. On
or about May 10, 2019, Hyung agreed in writing to sell 51% of the outstanding
shares of TSI to Taijin USA (“Taijin”) for $1,000,000.00; consequently,
Hyung’s ownership interests in TSI was reduced to 49%. Hyung continued to act
as a TSI officer and director. Hyung was to be in charge of sales and inventory
commencing June 1, 2019. On or about February 3, 2021, there was a dispute
between TSI’s shareholders. TSI alleges that Hyung has, within the last four
years, misappropriated the sales of socks from TSI to Soxnet, which is a
company wholly owned by Hyung and/or his wife, Miri Ryu (“Miri”).
On May 19, 2022, the court related Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00134; Case No. 21PSCV00336 was designated the lead case.
On July 7, 2022, Miri filed a cross-complaint, asserting causes of action against TSI, Jong Won Bok (“Box”), TJ International Co. Ltd (“TJ International”), Taijin and Roes 1-100 for:
1.
Determination
of Status and of Fair Market Value for Dissenting Shares, and Appointment of
Appraiser;
2.
Failure
to Produce Employment Records Under Labor Code § 226(b);
3.
Failure
to Produce Personnel Records Under Labor Code § 1198.5;
4.
Trademark
Infringement Under 15 U.S.C. § 1114(1);
5.
False
Designation of Origin Under 15 U.S.C. § 1125(a);
6.
Unfair
Competition Under Bus. & Prof. Code § 17200 et seq.;
7.
Common
Law Trademark Infringement; and,
8.
Common
Law Unfair Competition.
On August 22, 2022, Miri dismissed the fourth through eighth causes of action in her cross-complaint, without prejudice.
On August 22, 2022, Hyung filed a First Amended Cross-Complaint, alleging causes of action against TSI, Bok, TJ International, Taijin and Roes 1-100 for:
1.
Determination
of Status and of Fair Market Value for Dissenting Shares, and Appointment of
Appraiser; and,
2.
Failure
to Produce Employment Records Under Labor Code § 226(b)
TSI filed a Demurrer to the First Amended Cross-Complaint on October 20, 2022. Hyung filed his Opposition on January 17, 2023, and TSI filed its Reply on January 24, 2023.
On October 27, 2022, TSI filed a First Amended Complaint, asserting causes of action against Hyung and Does 1-100 for:
1.
Breach
of Duty of Loyalty
2.
Intentional
Interference with Prospective Economic Advantage
3.
Negligent
Interference with Prospective Economic Advantage
4.
Unfair
Business Practices
Hyung filed a Demurrer to, and Motion to Strike, the First Amended Complaint on November 14, 2023. TSI filed its Oppositions on January 18, 2023, and Hyung filed his Reply on January 24, 2023. At the Demurrer/Motion to Strike hearings on January 31, 2023, the court continued the matter to February 24, 2023, and the parties later sought to continue the hearing to February 27, 2023, when the Demurrer/Motion to Strike hearings in 22PSCV00901 were scheduled.
A demurrer may be made on grounds that the pleading, inter alia, does not state facts sufficient to constitute a cause of action and/or 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
TSI, Bok, TJ International, and Taijin demur (collectively “Cross-Defendants”), pursuant to Code of Civil Procedure section 430.10, to the First and Second Causes of Action in Hyung’s FACC, on the basis that they both fail to state facts sufficient to constitute causes of action and are uncertain.
Meet and Confer
At the outset, the court notes that while Hyung asserts that Cross-Defendants failed to meet and confer at least five days before their responsive pleading was due, Hyung does not appear to contend that no meet and confer was conducted whatsoever; accordingly, the court will proceed to the merits of the demurrer.
Request for Judicial Notice
The court denies Cross-Defendants’ Request for Judicial Notice of the verified Fourth Amended Complaint filed April 22, 2022 in Case No. 21PSCV00336 as irrelevant.
Merits
First Cause of Action (i.e., Determination of Status and of Fair Market Value for Dissenting Shares, and Appointment of Appraiser)
Corporations Code section 1300, subdivision (a) states, in relevant part, that “[i]f the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) or subdivisions (e) or (f) of Section 1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b) . . .”
Hyung has alleged that he is a shareholder of TSI and is the holder of record for 49,000 outstanding shares of common stock (FACC ¶ 8); that a shareholders’ meeting was noticed and held on January 7, 2022 (Id., ¶ 9); that on January 5, 2022, Hyung objected in writing to the January 7, 2022 shareholder meeting (Id., ¶ 10); that, during the January 7, 2022 shareholders’ meeting, it was proposed that TSI be shut down and merged with another entity referred to as “Teehee NV” and thereby fully relocate TSI’s business operations to Nevada (Id., ¶ 11); that this proposal was approved by the majority shareholders of TSI (Id., ¶ 11, Exh. 2); that on/about January 18, 2022, Hyung received a copy of the Shareholder Resolution notifying him of the approval of the reorganization of TSI (Id., ¶ 12); that Hyung did not attend the January 7, 2022 shareholder meeting and did not approve TSI’s reorganization (Id., ¶ 13); that Hyung expressly dissented to TSI’s reorganization in writing via his counsel on February 2, 2022 (Id.); that Hyung’s right to require TSI to purchase his dissenting shares at fair market value was triggered by the Shareholder Resolution (Id., ¶ 15); that Hyung has made a written demand to TSI within 30 days after the Shareholder Resolution was mailed to him (Id., ¶ 18); that Hyung has submitted for endorsement to TSI’s principal office and its counsel Certificate No. 2, which represents all of his shares in TSI (Id., ¶ 19); and that TSI has not responded to Hyung’s written demand for purchase of his shares (Id., ¶ 25).
Cross-Defendants’ claim that Hyung’s First Cause of Action fails because Hyung has not alleged that (1) a reorganization had been approved, (2) he has “dissenting shares” under Corporations Code section 1300, subdivision (b) and that (3) there was a notice of approval of reorganization by the corporation’s outstanding shares. The court agrees with Cross-Defendants’ first claim, such that the second and third claims need not be addressed.
The Shareholder Resolution, attached as Exhibit 2 to the FACC, nowhere states that a reorganization of TSI was ever voted on, let alone approved; rather, it simply states, under the heading “4) Direction to move forward in 2002,” that “[t]he merger of Teehee CA and NV is expected to proceed for the sake of Teehee’s Tax, incidental expenses and its business. And after the merger, Teehee CA is expected to take a step to closing down its business. At this time, the shareholder restructuring is expected to be legally implemented in principle, in the form of Teehee NV taking it over.” (Emphasis added). “[F]acts appearing in exhibits attached to the complaint will also be accepted as true and, if contrary to the allegations in the pleading, will be given precedence.” (Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627.)
Cross-Defendants’ demurrer to the first cause of action is sustained.
Second Cause of Action (i.e., Failure to Produce Employment Records Under Labor Code § 226(b))
Labor Code section 226, subdivision (b) provides that “[a]n employer that is required . . . to keep the information required by subdivision (a) shall afford current and former employees the right to inspect or receive a copy of records pertaining to their employment, upon reasonable request to the employer . . .”
Hyung has alleged that, between “at least June 1, 2019 and February 3, 2021, he was employed by TSI and worked there as both an officer and director” (FACC, ¶ 34), that he was terminated from both positions on February 3, 2021 (Id.), that he made a written request on January 19, 2022 to inspect and make copies of his employment records (Id., ¶ 35) and that cross-defendants have failed to produce or allow inspection of same (Id., ¶ 39).
Cross-Defendants claim that Hyung’s Second Cause of Action fails because Hyung has not alleged that he was an employee. This is not true. (See FACC, ¶ 34). Further, their claim that Hyung was not an employee of TSI because he was an officer of TSI is not supported by any legal authority. The exemptions of Labor Code § 515, subdivision (a) pertain to overtime and have no bearing on Hyung’s entitlement to inspect and copy his employment records under Labor Code section 226.
Cross-Defendants also claim that Hyung’s Second Cause of Action is improperly asserted against Bok. Hyung claims that Bok can be personally liable pursuant to Labor Code section 558.1. Section 558.1, subdivision (a) provides that “[a]ny employer or other person acting on behalf of an employer, who . . . violates, or causes to be violated, Sections . . . 226 . . ., may be held liable as the employer for such violation.” Hyung, however, has not alleged that Bok himself violated section 226 or caused it to be violated.
Cross-Defendants then claim that the stated date of the inspection and copying was for January 7, 2022, only 8 days after Hyung’s request and that, as such, the request was invalid. Labor Code section 226, subdivision (c), however, provides that “[a]n employer who received a . . . request to inspect or receive a copy of records pursuant to subdivision (b) pertaining to a current or former employee shall comply with the request as soon as practicable, but no later than 21 calendar days from the date of the request.” The express language of the statute, then, merely imposes a 21-day deadline for the employer and in no way invalidates a request seeking compliance sooner than 21 days.
With that said, Cross-Defendants’ demurrer to the second cause of action is sustained, for the first two reasons set forth above.
2. Demurrer to FAC (22PSCV00134)
Legal Standard
See Motion #1.
Discussion
Hyung demurs, pursuant to Code of Civil Procedure section 430.10, to the first through fourth causes of action in TSI’s FAC, on the basis that they both fail to state facts sufficient to constitute causes of action and are uncertain.
Request for Judicial Notice
The court rules on Hyung’s Request for Judicial Notice as follows: granted as to Exhibit B (i.e., a copy of corporate meeting minutes for TSI dated January 29, 2021 produced by TSI on November 29, 2021 in response to Requests for Production of Documents, Set One, propounded by Hyung in related Case No. 21PSCV00336) and denied as to Exhibit C (i.e., TSI’s September 23, 2021 responses to Hyung’s Special Interrogatories, Set One, propounded by Hyung in related Case No. 21PSCV00336).
TSI’s objections are overruled as moot.
Merits
First Cause of Action (i.e., Breach of Duty of Loyalty)
“The elements of a cause of action for breach of a duty of loyalty, by analogy to a claim for breach of fiduciary duty, are as follows: (1) the existence of a relationship giving rise to a duty of loyalty; (2) one or more breaches of that duty; and (3) damage proximately caused by that breach.” (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 410.)
TSI has alleged that subsequent to May 10, 2019, Hyung continued to act as a director and an officer of TSI (FAC, ¶ 13); that, by virtue of his position as an officer and a director, Hyung had a duty of loyalty to act in TSI’s best interests at all times (Id., ¶ 20); that Hyung either removed or denied TSI’s managers and staff access to the Amazon account starting on February 4, 2021 and for an approximate period of one week (Id., ¶¶ 21 and 22); that in March 2022, Hyung removed brands, including Teehee Socks and Teehee Kids, from the Amazon account (Id., ¶ 26); that the aforesaid actions have caused harm to TSI (Id., ¶¶ 24 and 28) and that Huang undertook such actions out of vengeance and so that online sales for Teehee Socks and Teehee Kids would go to Soxnet (Id., ¶¶ 24 and 26).
Hyung’s Exhibit B to the RJN, however, reflects that Hyung was terminated from his officer and director positions at TSI before February 4, 2021.
Hyung’s demurrer to the first cause of action is sustained.
Second and Third Causes of Action (i.e., Intentional Interference with Prospective Economic Advantage and Negligent Interference with Prospective Economic Advantage, Respectively)
“The five elements for intentional interference with prospective economic advantage are: (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; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Youst v. Longo (1987) 43 Cal.3d 64, 71, fn. 6.)
“The tort of negligent interference with prospective economic advantage is established where a plaintiff demonstrates that (1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship.” (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 786.)
The tort of interference with prospective economic advantage “protects the expectation that the relationship [with some third party] eventually will yield the desired benefit, not necessarily the more speculative expectation that a potentially beneficial relationship will arise.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1164 [internal quotations and citation omitted].)
TSI vaguely alleges that it “had and has valid business relationships and business expectancies based on its history of sales of its socks to customers and purchasers primarily online through Amazon.” (FAC, ¶ 31.) TSI has not provided any specific names of customers or purchasers from whom business was allegedly misappropriated or diverted. This is insufficient.
Hyung’s demurrer to the second and third causes of action is sustained.
Fourth Cause of Action (i.e., Unfair Business Practices)
Business and Professions Code § 17200 prohibits any unlawful, unfair or fraudulent business practice or act.
“The ‘unlawful’ practices prohibited by section 17200 are
any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory,
regulatory, or court-made.” (Saunders v. Superior Court (1994) 27
Cal.App.4th 832, 838-839). A business
practice is “unfair” within the meaning of the UCL if it violates established
public policy or if it is immoral, unethical, oppressive or unscrupulous and
causes injury to consumers which outweighs its benefits. (Nolte
v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1407–1408.) A fraudulent business practice under
section 17200 “is not based upon proof of the common law tort of deceit or
deception, but is instead premised on whether the public is likely to be
deceived.” (Pastoria v. Nationwide Ins. (2003)
TSI has failed to allege unlawful, unfair and/or fraudulent business practices. TSI’s cause of action is comprised of conclusory allegations based on its defectively pled first through third causes of action.
Hyung’s demurrer to the fourth cause of action is sustained.
3. Motion to Strike FAC
Based upon the ruling made on the demurrer, Hyung’s motion to strike is denied as moot.