Judge: Wesley L. Hsu, Case: 22PSCV00134, Date: 2023-03-28 Tentative Ruling
Case Number: 22PSCV00134 Hearing Date: March 28, 2023 Dept: L
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 in part and OVERRULED in part. Specifically, the Demurrer as to the first
cause of action is sustained, but, as to
the second cause of action, is overruled except with respect to Jong Won Bok.
The court will hear from counsel for Hyung as to whether leave to amend is
requested, and as to which cause(s) of action, and will require an offer of
proof if so.
2. Defendant Hyung Su Ryu aka Alex Ryu’s
Demurrer to the First Amended Complaint of
Plaintiff Teehee
Socks, Inc. is SUSTAINED. The court will hear from counsel for TSI as to
whether leave to amend is requested, and as to which cause(s) of action, and will
require an offer of proof if so.
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. 21PSCV00336
Plaintiff Hyung Su Ryu dba Alex Ryu (“Hyung”) alleges as follows: Hyung was forced out from his own company
that he founded and built up, TeeHee Socks, Inc. (“TSI”). Hyung was fired and
deprived of his salary and stock dividends. TSI is being relocated to Nevada.
On January
10, 2022, the court related this instant case to Case No. 21PSCV01072; this
instant case was designated the lead case.
On April 12, 2022,
the court sustained Jong Won Bok (“Bok”), Taijin USA’s (“Taijin”), TJ International Co., Ltd.’s
(“TJ International”), and TSI’s demurrer to the fourth and fifth causes of
action in Hyung’s Third Amended Complaint, without leave to amend.
On April 22, 2022, Hyung filed a Fourth Amended Complaint
(“4AC”), asserting causes of action against Bok, Taijin, TJ International, TSI
and Does 1-100 for:
1.
Breach
of Contract—Stock Purchase Agreement
2.
Breach
of Contract—Salary Agreement
3.
Fraud
4.
Breach
of Fiduciary Duty
5.
Involuntary
Dissolution
On May 19,
2022, the court related Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00134;
this instant case was designated the lead case.
On September
8, 2022, the court related this instant case to Case No. 22PSCV00901; this
instant case was designated the lead case.
On September
26, 2022, the court sustained Bok’s, Taijin’s, TJ International’s and TSI’s
demurrer to the first cause of action in Hyung’s 4AC, without leave to amend.
On March 8,
2023, TSI, Taijin and TJ International filed a First Amended Cross-Complaint,
asserting causes of action against Hyung, Miri P. Ryu (“Miri”), Soxnet, Inc.
(“Soxnet”) and Roes 1-50 for:
1. Breach of Contract
2. Breach of the Implied Covenant of Good
Faith and Fair Dealing
3. Fraud
4. Unfair Business Practices
A Case
Management Conference is set for March 28, 2023.
Case No. 21PSCV01072
Plaintiff
Soxnet alleges as follows: In approximately January 2015, Soxnet began
manufacturing, importing and selling socks at wholesale to TSI. TSI would sell
said socks at retail and would then pay Soxnet for the inventory it had been
sold. This pattern and practice continued into May 2019 when Bok, Taijin and TJ
International acquired a majority stake in TSI and became involved in its
management and operations. As of April 1, 2021, TSI stopped making payments for
unpaid wholesale inventory; the balance owed is $197,555.91. TSI also
discontinued using Soxnet as its wholesaler/supplier, which was shortly after
TSI, Bok, Taijin and TJ International terminated Hyung from his officer and
director positions at TSI.
Again, on
January 10, 2022, the court related this instant case to Case No. 21PSCV00336; Case No. 21PSCV00336
was designated the lead
case.
On April 22,
2022, Soxnet filed a First Amended Complaint (“FAC”), asserting causes of
action against TSI, Bok, TJ International, Taijin and Does 1-10 for:
1. Account Stated
2. Open Book Account
3. Work, Labor, Services, and Materials
Rendered
4. Breach of Contract
5. Intentional Interference with
Contractual Relations
On May 19,
2022, the court related Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00134;
Case No. 21PSCV00336 was designated the lead case.
On September
26, 2022, the court sustained Bok’s, TJ International’s and Taijin’s demurrer
to the fifth cause of action in Soxnet’s FAC, without leave to amend.
A Case
Management Conference is set for March 28, 2023.
Case No. 22PSCV00134
TSI alleges as
follows: 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 for $1,000,000.00; consequently, Hyung’s ownership interests
in TSI was reduced to 49%. Hyung continued to act as TSI’s 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. 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.
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, 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
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
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
2. Failure to Produce Employment Records Under
Labor Code § 226(b)
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
A Case
Management Conference is set for March 28, 2023.
Case No.
22PSCV00901
Miri alleges
as follows: Miri owns the trademark known as “Teehee Kids” (“Mark”). TSI, Bok,
TJ International and Taijin have used and are using the Mark in commerce
to sell children’s socks in the United States and internationally via online
services such as Amazon.com without Miri’s consent.
On August 22,
2022, Miri filed a complaint, asserting causes of action against TSI, Bok, TJ
International, Taijin and DOES 1-100 for:
1. Trademark Infringement Under 15 U.S.C.
§ 1114(1)
2. False Designation of Origin Under 15
U.S.C. § 1125(a)
3. Unfair Competition Under Bus. &
Prof. Code §§ 17200 et seq.
4. Common Law Trademark Infringement
5. Common Law Unfair Competition
On September
8, 2022, the court related this instant case to Case No. 21PSCV00336; Case No.
21PSCV00336 was designated the lead case.
A Case
Management Conference is set for March 28, 2023.
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, per Code of Civil Procedure § 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 TSI, Bok, TJ International and Taijin 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 TSI’s, Bok’s, TJ
International’s, and Taijin’s 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 § 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); 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 Teehee’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).
TSI, Bok, TJ International, and Taijin 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 TSI’s, Bok’s, TJ International’s, and Taijin’s 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 2022,” 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.)
TSI’s, Bok’s, TJ International’s, and Taijin’s 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 § 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).
TSI, Bok, TJ International, and Taijin 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 § 226.
TSI, Bok, TJ International, and Taijin 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 § 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.
TSI, Bok, TJ International, and Taijin 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 § 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, TSI’s, TJ International’s, and Taijin’s
demurrer to the second cause of action is overruled, for the reasons set forth
above, but Bok’s demurrer to the second cause of action is sustained. The court will hear from counsel for Hyung as
to whether leave to amend should be granted.
2. Demurrer to FAC
Legal Standard
See
Motion #1.
Discussion
Hyung demurs, per Code of Civil Procedure § 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, Ryu
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.