Judge William A. Crowfoot, Case Number: 22AHCV00123, Date: 2024-01-31 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00123, Date: 2024-01-31 Tentative Ruling

On March 4, 2022, plaintiffs Xueyun Zou (“Zou”) and DL Trucking, Inc. (“DL Trucking”) filed this action against defendants Yao Guo (“Guo”), individually and as trustee of the Guo Protection Trust, and Gosdom, Inc. (“Gosdom”). In 2019, Guo allegedly portrayed herself as a movie producer of the films “Wally’s Wonderland” and “Fast & Furious 9” and fraudulently induced Plaintiff, who is 80-years old, into “investing” $400,000 in the production of those movies. These investments were memorialized in a Loan & Security Agreement and a Secured Promissory Note.

On August 29, 2023, DL Trucking filed the First Amended Complaint. The FAC omitted Zou as a plaintiff after the Honorable Colin P. Leis sustained Guo and Gosdom’s demurrers to all of Zou’s claims on the grounds that DL Trucking – not Zou – was a party to the Loan & Security Agreement and the Secured Promissory Note. DL Trucking alleges that it has received $30,000 from Guo, but is still owed over $400,000 and 1% of the net revenues related to Wally’s Wonderland. (FAC, ¶ 19.)

On October 18, 2023, Gosdom filed a cross-complaint (“Cross-Complaint”) against Zou’s children, Keqing Deng (“K. Deng”) and Donghong Deng aka Jennifer Deng (“D. Deng”). Gosdom claims that Guo was “duped into making investment and loans” to nonparties Remington Chase and Kevin Robl, who held themselves out to be “elite” film financers but were allegedly running a Ponzi scheme. Gosdom claims that it paid $110,000 to DL Trucking and alleges that D. Deng and K. Deng misappropriated $80,000. Gosdom claims that D. Deng portrayed herself as an officer of DL Trucking and instructed Gosdom to make payments to D. Deng’s brother, K. Deng, for tax purposes.

On December 5, 2023, the clerk, at Gosdom’s request, entered default against K. Deng.

On January 31, 2024, the Court granted a motion to quash Gosdom’s deposition subpoena to East West Bank, which sought all documents relating to K. Deng’s bank accounts from January 2019 to the present, including copies of all cancelled checks written to D. Deng or DL Trucking (the “First Subpoena”). The motion was filed by DL Trucking and D. Deng (collectively, “Moving Parties”). In granting the motion to quash, the Court concluded that the First Subpoena was overbroad and that only transactions between K. Deng, on one hand, and Gosdom, D. Deng, or DL Trucking, on the other, from May 2020 to the present would be relevant or reasonably calculated to lead to the discovery of admissible evidence. This conclusion was reached after a lengthy discussion of other procedural deficiencies, including Moving Parties’ claim that the First Subpoena should be quashed because Gosdom failed to give notice to K. Deng of the First Subpoena as required by Code of Civil Procedure section 1985.3 by serving him at an address that both Zou and D. Deng declare is not (and has never been) K. Deng’s home (the “San Dimas Address”).

On February 7, 2024, Moving Parties issued a revised subpoena to East West Bank (“Revised Subpoena”) seeking documents relating to K. Deng’s addresses on file with East West Bank for two accounts, as well as documents, including copies of checks, deposit records, and wire transfer records, relating to money transferred between K. Deng, D. Deng, Moving Parties, Zou, Gosdom, Guo, and from May 2020 to the present. Gosdom also seeks any and all documents regarding direct deposits made in May and September 2020, January through March 2021, and July through September 2021. (Motion, Ex. A.) Notice of the subpoena was given to K. Deng by mail to the San Dimas Address.

On March 1, 2024, Moving Parties filed the instant motion to quash on substantially the same grounds that the Revised Subpoena was not served properly on K. Deng and is overbroad. Moving Parties alternatively contend that the Revised Subpoena should be modified to only allow production of documents showing deposits or transfers made by only Gosdom into K. Deng’s account from May 2020 to September 2021 (as opposed to transactions made by Moving Parties, K. Deng, or Zou).

In opposition, Gosdom argues that K. Deng did not need to be served because no notice or paper, other than an amended pleading, need to be served upon any defaulted party. (Code Civ. Proc., §§ 1010; 1985.3(b)(1) [notice to be given “[t]o the consumer personally, or at his or her last known address, or in accordance with Chapter 5 (commencing with Section 1010) of Title 14 of Part 3, or, if he or she is a party, to his or her attorney of record”].) Moving Parties do not address this argument in their reply brief. However, the Court independently notes that Plaintiff’s proof of service of summons states that K. Deng was served by substituted service at the San Dimas Address. Thus, there is some circular logic involved in Gosdom’s position, which would allow a plaintiff to avoid legislative safeguards to protect a consumer’s right to privacy by naming an individual in a lawsuit, serving them at a defective address, and securing a default to subpoena their bank records. Nevertheless, the Court notes that the range of documents sought by Gosdom has been substantially narrowed such that any invasion to K. Deng’s right to privacy is minimal relative to Gosdom’s need for information to defend against this action and prosecute its cross-complaint. Furthermore, the parties have entered into a stipulated protective order which would limit the dissemination of any records produced which are designated as confidential.

Accordingly, the motion to quash is DENIED. The Court designates K. Deng’s records produced in response to the Revised Subpoena as Confidential under the terms of the parties’ Stipulated Protective Order signed on January 30, 2024. This designation does not eliminate the parties’ independent duties to file motions to seal in compliance with CRC 2.550 and 2.551 where applicable.

II. MOTION FOR SANCTIONS PURSUANT TO CODE OF CIVIL PROCEDURE SECTION 128.7

As stated above, on October 18, 2023, Gosdom filed its Cross-Complaint against Zou’s children, K. Deng and D. Deng. On February 14, 2024, D. Deng filed this motion for sanctions requesting $6,300 in reasonable attorney’s fees, along with filing fees, and an order striking the cross-complaint and dismissing the action.

Code Civil Procedure section 128.7(b) provides that by signing and filing a pleading, an attorney “is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, all of the following conditions are met: (1) [i]t is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation[;] (2) [t]he claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law[;] (3) [t]he allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery[;] (4) [t]he denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.” (Code Civ. Proc., § 128.7(b).) Section 128.7 authorizes the court to impose appropriate sanctions upon attorneys or parties that have violated subsection (b). (Id., § 128.7(c).)

A claim can be factually frivolous or legally frivolous. (See Peake v. Underwood (2014) 227 Cal.App.4th 428, 440.) “A claim is factually frivolous if it is ‘not well grounded in fact’ and it is legally frivolous if it is ‘not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law.’” (Id.) “In either case, to obtain sanctions, the moving party must show the party’s conduct in asserting the claim was objectively unreasonable.” (Id.) “A claim is objectively unreasonable if ‘any reasonable attorney would agree that [it] is totally and completely without merit.’” (Id.) Furthermore, “the fact that a plaintiff fails to provide a sufficient showing to overcome a demurrer or to survive summary judgment is not, in itself, enough to warrant the imposition of sanctions.” (Peake, supra, 227 Cal.App.4th at 448.)

Here, D. Deng argues that the Cross-Complaint is frivolous because it asserts causes of action for unjust enrichment, conversion, indemnity, and contribution. D. Deng argues that Gosdom lacks standing to assert any claim for unjust enrichment or conversion and that she and K. Deng cannot be liable for contribution or indemnity relating to DL Trucking’s claims against Gosdom because Gosdom allegedly paid D. Deng and K. Deng as agents of DL Trucking. This argument ignores Gosdom’s allegations that D. Deng fraudulently misrepresented her authority to act on behalf of DL Trucking and subsequently misappropriated the money Gosdom paid her. (Cross-Compl., ¶¶ 20-21.) To the extent that D. Deng claims that Gosdom has not suffered any damages out of this misappropriation or even that Gosdom never made any payments to her or K. Deng, this is an issue of fact. Therefore, the Court fails to see how the Cross-Complaint is so objectively unreasonable as to merit sanctions. The Court further notes that even if Gosdom’s claims were frivolous, sanctions are not mandatory and should be made with restraint. (Id.) In light of the foregoing, D. Deng’s motion for sanctions is DENIED.

Code Civil Procedure section 128.7 provides that “[i]f warranted, the court may award to the party prevailing on the motion the reasonable expenses and attorney’s fees incurred in presenting or opposing the motion.” (Code Civ. Proc., § 128.7(c)(1).) Attorney’s fees may be warranted when the sanctions motion is frivolous, unfounded, filed for an improper purpose, or otherwise unreasonable. (See Musaelian v. Adams (2011) 197 Cal.App.4th 1251, 1257-58.)

D. Deng’s motion rightfully raises questions about Gosdom’s standing to assert claims for unjust enrichment and conversion. Therefore, the Court cannot conclude that the sanctions motion was objectively unreasonable. Furthermore, although the sanctions motion relies on an obtuse interpretation of the Cross-Complaint, the Court does not have sufficient evidence to conclude at this time that it was brought primarily for an improper purpose. Accordingly, Gosdom’s request for sanctions is DENIED.

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.