Judge William A. Crowfoot, Case Number: 22AHCV00467, Date: 2024-04-19 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00467, Date: 2024-04-19 Tentative Ruling

On July 15, 2022, plaintiff William Zhang (“Plaintiff”) filed this action against defendants Kemi Cai (“Cai”), Zexian Li (“Li”) and Nick Chui (“Defendant”). On December 6, 2022, Plaintiff filed the operative First Amended Complaint. Plaintiff alleges that around April of 2015, Cai and Li induced Plaintiff to invest in and purchase an auto repair services business. (FAC, ¶ 6.) Plaintiff alleges he and Cai agreed to be co-owners and equal shareholders in C&W William Auto Repair, Inc. (“C&W”), a newly formed corporation, and would each contribute half the purchase price and initial capital investment and share all profits equally. (FAC, ¶ 7.)

Plaintiff alleges that Defendant, a certified public accountant, was introduced to him by Cai and that Defendant assisted with the formation and incorporation of C&W. (FAC, ¶ 10.) In early June 2015, in a telephone conversation between Plaintiff and Defendant, Defendant said he would “prepare and file the SS-4 and Statement of Information” with the IRS and Secretary of State and acknowledged that he knew about the co-ownership agreement between Plaintiff and Cai. (FAC, ¶ 11.) Plaintiff alleges that the Statement of Information he signed on August 13, 2015, identified him as the chief executive officer (“CEO”) and Cai as the Secretary. (FAC, ¶ 13.) However, Plaintiff alleges that the Statement of Information that was actually filed by Defendant and Cai with the Secretary of State did not include his name as an officer or director. (FAC, ¶¶ 15-18.) Since the purchase in 2015, no profits or proceeds have been disbursed to Plaintiff and no accounting or tax records have been provided to him. (FAC, ¶ 34.)

In or about August 2020, Plaintiff was informed by a third party that Cai had sold C&W without notifying or obtaining authority from Plaintiff. (FAC, ¶ 35.) Cai kept all the proceeds and stated that she was the sole owner of C&W when Plaintiff confronted her. (FAC ¶ 36.)

Plaintiff asserts the Tenth Cause of Action against Defendant for “Conspiracy to Commit Fraud.” Plaintiff alleges that Defendant was aware that Cai and/or Li intended to defraud Plaintiff and agreed and intended for the fraud to be committed. (FAC, ¶ 104.)

On November 20, 2023, Defendant filed this motion for summary judgment. In the alternative, Defendant seeks summary adjudication of Plaintiff’s Tenth Cause of Action and Defendant’s Third Affirmative Defense based on the statute of limitations.

In reviewing a motion for summary judgment, courts must apply a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent’s claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.) A defendant moving for summary judgment or summary adjudication “has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action . . . cannot be established, or that there is a complete defense to the cause of action.” (Code Civ. Proc., § 437c, subd. (p)(2).)

To meet this burden of showing a cause of action cannot be established, a defendant must show not only “that the plaintiff does not possess needed evidence” but also that “the plaintiff cannot reasonably obtain needed evidence.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854.) A moving defendant need not conclusively negate an element of plaintiff’s cause of action, but it is insufficient for the defendant to merely point out the absence of evidence. (Id. at p. 854; Gaggero v. Yura (2003) 108 Cal.App.4th 884, 891.) The supporting evidence can be in the form of affidavits, declarations, admissions, depositions, answers to interrogatories, and matters of which judicial notice may be taken. (Aguilar, supra, 25 Cal.4th at p. 855.) “Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subd. (p)(2).) The plaintiff may not merely rely on allegations or denials of its pleadings to show that a triable issue of material fact exists, but instead, “shall set forth the specific facts showing that a triable issue of material fact exists as to the cause of action.” (Ibid.) “If the plaintiff cannot do so, summary judgment should be granted.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal.App.4th 463, 467.)

“A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if that party contends that the cause of action has no merit or that there is no affirmative defense thereto, or that there is no merit to an affirmative defense as to any cause of action, or both, or that there is no merit to a claim for damages . . . or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs. A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Code Civ. Proc., § 437c, subd. (f)(1).) A motion for summary adjudication shall proceed in all procedural respects as a motion for summary judgment. (Id., subd. (f)(2).)

Defendant argues that Plaintiff has no evidence that Defendant shared a common plan or design to defraud Plaintiff, or that Plaintiff justifiably relied on any misrepresentations by the other defendants, Cai and Li, or that Plaintiff suffered any harm from Defendant’s actions. (Motion, p. 8.) Defendant includes no substantive argument or evidence about Plaintiff’s reliance or damages; therefore, the Court only considers Defendant’s argument about the existence of a “common plan.”

Defendant declares that he is a CPA who was retained by Cai and Li, who have been his clients for the past 10 years, to incorporate a company called C&W William Auto Repair Inc. (Chui Decl., ¶ 5.) In May of 2015, Cai called Defendant to request his services for incorporating C&W and told him that she was setting up the company with a partner named William Zhang. (Id.,¶ 6.) Shortly after, Defendant spoke with Plaintiff over the telephone to request information such as his name and Social Security number. (Id., ¶ 7.) However, Plaintiff did not want to give Defendant his Social Security number. (Ibid.) A few weeks after this conversation with Plaintiff, Cai told Defendant that Plaintiff was “out.” (Id., ¶ 8.) Defendant asked Cai if she wanted to go ahead with the incorporation and Cai said yes, so he filed the articles of incorporation for C&W on May 18, 2015. (Id., ¶¶ 8-9, Ex. A.) An initial statement of information was filed on August 25, 2015. (Id. ¶ 10, Ex. B.) Defendant states that he does not recall whether he filed this statement of information and that he believes it may have been filed by someone else because he normally uses an electronic signature and the signature on the form is handwritten. (Id., ¶ 11.) He admits filing a statement of information for C&W in June of 2023. (Id., ¶ 12, Ex. C.) He denies ever seeing the statement of information signed by Plaintiff as “President” on August 13, 2015, which he first saw at his deposition taken on July 19, 2023. (Id., ¶¶ 13-14.) He further denies having prepared it or being aware of its existence prior to his deposition. (Id.)

Based on this declaration, Defendant has met his moving burden to show that there is no triable issue regarding his alleged knowledge of Cai’s intent to defraud and any assistance he allegedly provided.

In opposition, Plaintiff argues that triable issues regarding Defendant’s involvement and knowledge exist and submits his declaration and Cai’s deposition testimony as evidence. Plaintiff declares that on August 13, 2015, he was provided with a Statement of Information which listed him as the CEO, CFO, and President, and as a director and he signed it. (Zhang Decl., ¶ 14.) He does not state who provided him with this document and asserts that Cai and Defendant prepared it without identifying the basis for his belief.

Nevertheless, Plaintiff raises a triable issue of fact by submitting Cai’s deposition testimony. Cai stated that she did not remember who drafted or wrote the actual Statement of Information filed with the Secretary of State. (Evans Decl., Ex. 7.) When Cai was asked whether she could have drafted or written out the form herself, she said: “I wouldn’t be able to, not even now.” (Id.) When asked whether anyone besides herself, her husband, and Defendant had ever been involved in running C&W, she answered, “No.” (Id.)

This testimony, which must be construed in Plaintiff’s favor as the party opposing summary judgment, raises a reasonable inference that Defendant was involved in drafting the statement of information that Plaintiff signed. “On a summary judgment motion, the court must therefore consider what inferences favoring the opposing party a factfinder could reasonably draw from the evidence. While viewing the evidence in this manner, the court must bear in mind that its primary function is to identify issues rather than to determine issues. Only when the inferences are indisputable may the court decide the issues as a matter of law. If the evidence is in conflict, the factual issues must be resolved by trial.” (Binder v. Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832, 839, citation omitted.) “The trial court may not weigh the evidence in the manner of a fact finder to determine whose version is more likely true. Nor may the trial court grant summary judgment based on the court's evaluation of credibility.” (Binder, supra, at p. 840, citations omitted; see also Weiss v. People ex rel. Dep’t of Transp. (2020) 9 Cal.5th 840, 864 [“Courts deciding motions for summary judgment or summary adjudication may not weigh the evidence but must instead view it in the light most favorable to the opposing party and draw all reasonable inferences in favor of that party”].)

The Court cannot weigh the credibility of Defendant’s declaration against Cai’s deposition testimony. This is the role of the factfinder at trial. Accordingly, the motion for summary judgment is DENIED and the motion for summary adjudication of the Tenth Cause of Action against Defendant is DENIED.

Defendant moves for summary judgment/summary adjudication of his third affirmative defense based on the statute of limitations.

The statute of limitations for fraud is three years. (See Code Civ. Proc., § 338(d).) The cause of action begins to accrue when the aggrieved party discovers the facts constituting the fraud. (Id.; San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1327 [“A cause of action does not accrue until the plaintiff either discovers the injury and its negligent cause or could have discovered the injury and cause through the exercise of reasonable diligence.”]) The discovery rule serves to postpone accrual of a claim until the plaintiff discovers, or has reason to discover, the cause of action. (See Nogart v. Upjohn Co. (1999) 21 Cal.4th 383, 397.) Pursuant to the discovery rule plaintiffs are “required to conduct a reasonable investigation after becoming aware of an injury, and are charged with knowledge of information that would have been revealed by such an investigation.” (Doe v. Roman Catholic Bishop of Sacramento (2010) 189 Cal.App.4th 1423, 1431.)

Defendant argues that Plaintiff’s claim is time-barred and that Plaintiff could have discovered the alleged fraud “soon after C&W was formed and began operating” as early as the end of August 2015 or by September 15, 2016. Defendant declares that he prepared corporate tax returns for C&W from 2015 to the present and that Cai is listed as the 100% owner of the corporation in each of these tax returns. (Chui Decl., ¶ 20, Ex. E.) Defendant argues that if Plaintiff had asked for the corporate tax returns as he was entitled to do, he would have discovered that Cai was the owner of C&W. Defendant also states that if Plaintiff had reviewed C&W’s corporate filings on record with the Secretary of State, he would have been aware that Cai was listed as the sole owner.

It is undisputed that Plaintiff believed he was the CEO and that he could have requested to review the books and records of C&W, including the tax returns and did not. Plaintiff’s failure to receive any financial documents or tax returns after September 2016, when the first tax return was prepared and filed, should have placed him on notice and caused him to investigate how his business was doing. Indeed, if he genuinely believed himself to be CEO, he should have felt some obligation to inquire. Therefore, Defendant has presented prima facie evidence that the action is barred by the statute of limitations.

In opposition, Plaintiff declares that he visited C&W on occasion and asked Cai and Li about the business on numerous occasions from 2015 to 2020, but that Cai and Li repeatedly told him that there were few customers and therefore, C&W was not yet generating any profits. (Zhang Decl. ¶¶ 21-22.) Plaintiff states he did not suspect that he had been essentially removed as an owner of C&W until August 2020, when he “stopped by [C&W] multiple times and noticed lots of cars parked in the [] parking lot and its business appeared to be doing well.” (Id., ¶ 23.) At that time, he began to investigate and discovered that a different Statement of Information without his name had been filed. (Id., ¶ 24.) Plaintiff further declares that prior to August 2020, there were never any statements or suggestions from Defendant, Cai, Li or anyone else that Plaintiff was not a co-owner. (Id., ¶ 27.)

Plaintiff’s claim that he relied solely on Cai and Li’s representations to assess the financial health of a business he co-owned, without reviewing any company records or tax returns, strains credulity, especially as Plaintiff claims that he was supposed to be the CEO, CFO, and President of C&W. However, as stated above, the Court is not the arbiter of credibility on a motion for summary judgment; this issue is reserved for the factfinder at trial. (Binder, supra, at p. 840.) Accordingly, Defendant’s motion for summary adjudication of his Third Affirmative Defense is DENIED.

In light of the foregoing, the motion for summary judgment/summary adjudication 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.