Judge: Wesley L. Hsu, Case: 22PSCV01098, Date: 2023-03-14 Tentative Ruling

Case Number: 22PSCV01098    Hearing Date: March 14, 2023    Dept: L

1. Defendant Jonathan Zhiyi Zhang’s Demurrer to Plaintiff’s First Amended Complaint is

OVERRULED in part (i.e., as to the first and second causes of action) and SUSTAINED in part (i.e., as to the third and fourth causes of action). The court will hear from counsel for Plaintiff 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 Jonathan Zhiyi Zhang’s Motion to Strike Portions of Plaintiff’s First

Amended Complaint is DENIED as MOOT in part (i.e., as to punitive damages) and

otherwise GRANTED (i.e., as to attorney’s fees).

 

Background   

 

Plaintiff Pengshi Xie (“Plaintiff”) alleges as follows: In late 2017, Plaintiff was solicited by

Defendant Deniel Jianhua Zheng (“Zheng”) to invest $50,000.00 in the marijuana business.

Plaintiff wired monies to an account designated by Zheng, but the business was never started.

Zheng did not return the money to Xie. In 2018, Zheng introduced Plaintiff to Defendant

Jonathan Zhiyi Zhang (“Zhang”). Zhang represented to Plaintiff that Zhang was actively

engaging in the agriculture business, that he had visited Zhang’s farms and other projects and

that they were doing well, and that Zhang was a reliable businessman whom Plaintiff could trust.

Zhang owns and controls Uninet Global Inc. (“Uninet”). On October 1, 2019, Uninet executed a

“Promissory Note with Option to Convert” (“First Promissory Note”), wherein Uninet promised

to repay $175,000.00 loaned to it by Plaintiff within 12 months, at 30% interest per annum.

Uninet has only repaid $75,000.00. In late 2019, Plaintiff deposited $900,000.00 to Zhang’s

personal accounts designated by Zhang upon Zhang’s request. Zhang represented that he would

use these monies, together with the $100,000.00 unpaid principal from the First Promissory

Note, to invest in Uninet’s expansion. Zhang orally promised that he would pay interest at 20%

per annum and made such interest payments from December 2019 to February 2022. On

November 1, 2021, Zhang arranged Uninet to execute a “Promissory Note with Options to

Convert” (the “Second Promissory Note”), wherein Uninet promised to repay Plaintiff

$1,000,000.00 within 12 months, at 20% interest per annum. Uninet last repaid interest in

February 2022 and has not paid any principal.

 

On October 21, 2022, Plaintiff filed a First Amended Complaint (“FAC”), asserting causes of

action against Zhang, Uninet, Zheng and Does 1-20 for:

 

1.      Breach of Contract

2.      Breach of Covenant of Good Faith and Fair Dealing

3.      Unjust Enrichment

4.      Fraud/Misrepresentation

 

A Case Management Conference, an Order to Show Cause Re: Failure to File Proof of Service and an Order to Show Cause Re: Why the Matter Should Not Be Dismissed for Failure to Prosecute are set for May 9, 2023.

 

1. Demurrer to FAC

 

Legal Standard

 

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

 

Zhang demurs, per Code of Civil Procedure § 43-.10, subdivisions (e) and (f), to the first through fourth causes of action in Plaintiff’s FAC, on the basis that they each fail to state facts sufficient to constitute causes of action and are uncertain.

First and Second Causes of Action (i.e., for Breach of Contract and for Breach of Covenant of Good Faith and Fair Dealing, Respectively)

 

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff's performance of the contract or excuse for nonperformance, (3) the defendant's breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)

 

Further, “[t]he implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation.” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031.) “Although breach of the implied covenant often is pleaded as a separate count, a breach of the implied covenant is necessarily a breach of contract.” (Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 873, 885.)

 

Plaintiff’s first cause of action is based on the First Promissory Note and the Second Promissory Note. (FAC, ¶ 28). Plaintiff has alleged that “[o]n or about October 1, 2019, Uninet executed a Promissory Note with Options to Convert (the ‘First Promissory Note’) with Xie” and that “[b]ased on the First Promissory Note, Zhang still owes $100,000 principal and applicable interest to Xie.” (Id., ¶ 21). Plaintiff has attached a copy of the First Promissory Note as Exhibit A. (Id.)

 

Plaintiff has further alleged that “[o]n or about November 1, 2021, after multiple requests from Xie regarding entering into a written agreement for the $1,000,000 loan[,] Zhang arranged Uninet to execute a Promissory Note with Options to Convert (the ‘Second Promissory Note’) with Xie” and that “[a]fter the last interest payment in February 2022, Defendants did not repay any further interest or any principal in accordance with the Second Promissory Note.” (Id., ¶ 23). Plaintiff has attached a copy of the First Promissory Note as Exhibit B. (Id.)

 

Plaintiff appears to acknowledge that Zhang is not a party to the First Promissory Note and the Second Promissory Note, but seeks to hold Zhang liable under an alter ego theory.

 

“Under the alter ego doctrine,. . . when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.) “The essence of the alter ego doctrine is not that the individual shareholder becomes the corporation, but that the individual shareholder is liable for the actions of the corporation.” (Leek v. Cooper (2011) 194 Cal.App.4th 399, 415.) “To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.” (Id.)

 

The court determines that Plaintiff has sufficiently pled alter ego in Paragraphs 15-17. Zhang’s demurrer to the first cause of action, then, is overruled.

 

Zhang demurs to the second cause of action on the basis that it is dependent upon a defectively pled first cause of action. Zhang’s argument, however, fails, based on the ruling above. Zhang’s demurrer to the second cause of action is overruled.

 

Third Cause of Action (i.e., for Unjust Enrichment)

 

“There is no cause of action for unjust enrichment. Rather, unjust enrichment is a basis for obtaining restitution based on quasi-contract or imposition of a constructive trust.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1490.)

 

Zhang’s demurrer to the third cause of action is sustained.

 

Fourth Cause of Action (i.e., for Fraud/Misrepresentation)

 

The elements of a cause of action for fraud are: “a representation, usually of fact, which is false, knowledge of its falsity, intent to defraud, justifiable reliance upon the misrepresentation, and damage resulting from that justifiable reliance.” (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 72-73). “Every element of the cause of action for fraud must be alleged in the proper manner and the facts constituting the fraud must be alleged with sufficient specificity to allow defendant to understand fully the nature of the charge made.” (Id. at 73 [quotation marks and citation omitted].) “This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Id. [quotation marks and citation omitted; emphasis in original].)

 

Here, the only representation attributed to Zhang is set forth in ¶ 22 (i.e., “Zhang represented to Xie orally that he will use the $900,000, together with the $100,000 unpaid principal from the First Promissory Note, to invest in the business expansion of Uninet”). Plaintiff, however, has not pled the particularities of the alleged representation and the falsity of same (i.e., alleging only as to the latter that “[i]t is believed that Defendants have used Plaintiff’s funds for his personal use”), nor has he sufficiently pled the element of reliance.

 

Zhang’s demurrer to the fourth cause of action is sustained.

 

2. Motion to Strike Portions of FAC

 

Zhang moves the court for an order striking out the following portions of Plaintiff’s FAC:

 

1.      Paragraph 46, Page 9, Lines 17-19 (i.e., punitive damages)

2.      Prayer, Page 10, Paragraph 6 (i.e., punitive damages)

3.      Prayer, Page 10, Paragraph 8 (i.e., attorneys’ fees).

 

Zhang’s motion to strike is denied as moot in part (i.e., with respect to Plaintiff’s punitive damages allegations), based upon the ruling made on the demurrer. It is otherwise granted (i.e., as to attorneys’ fees). Code of Civil Procedure § 1021 provides that “[e]xcept as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties. . .” Plaintiff has failed to articulate a statutory or contractual basis for attorney’s fees.