Judge William A. Crowfoot, Case Number: 23AHCV00378, Date: 2023-11-02 Tentative Ruling

Judge: William A. Crowfoot, Case: 23AHCV00378, Date: 2023-11-02 Tentative Ruling

On February 22, 2023, plaintiff Yi Mao (“Plaintiff”) filed this action against defendants Sharon Wei (“Wei”), Yi Zhang Zhou (“Zhou”), 161 Alice St. Arcadia LLC (“161 Alice LLC”), and 9416 Broadway LLC (collectively, “Defendants”) asserting causes of action for breach of contract, breach of fiduciary duty, aiding and abetting the breach of fiduciary duty, fraud, unjust enrichment, and constructive trust. Plaintiff alleged he owned interests in property located at 161 Alice Street in Arcadia, California (the “Alice Property”) and 9416 Broadway in Temple City (the “Broadway Property”)

On July 25, 2023, the Court ruled on a demurrer and motion to strike jointly filed by Zhou, 161 Alice LLC and 9416 Broadway. On August 14, 2023, Plaintiff filed an amended complaint (“FAC”) which added claims to quiet title and causes of action for constructive fraud and conversion.

Wei filed a demurrer and motion to strike on September 15, 2023. Subsequently, on September 27, 2023, Zhou, 161 Alice LLC, and 9416 Broadway LLC filed a demurrer. Plaintiff filed opposition briefs on October 20, 2023, and Defendants filed reply briefs on October 26, 2023.

A demurrer tests the legal sufficiency of the pleadings and will be sustained only where the pleading is defective on its face. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) “We treat the demurrer as admitting all material facts properly pleaded but not contentions, deductions or conclusions of fact or law. We accept the factual allegations of the complaint as true and also consider matters which may be judicially noticed. [Citation.]” (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007; Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604 [“the facts alleged in the pleading are deemed to be true, however improbable they may be”].) Allegations are to be liberally construed. (Code Civ. Proc., § 452.) A demurrer may be brought if insufficient facts are stated to support the cause of action asserted. (Code Civ. Proc., § 430.10, subd. (e).)

Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof. (Code Civ. Proc., § 435, subd. (b)(1).) The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436, subd. (a); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].) The court may also strike all or any part of any pleading not drawn or filed in conformity with California law, a court rule, or an order of the court. (Code Civ. Proc., § 436, subd. (b).) An immaterial or irrelevant allegation is one that is not essential to the statement of a claim or defense; is neither pertinent to nor supported by an otherwise sufficient claim or defense; or a demand for judgment requesting relief not supported by the allegations of the complaint. (Code Civ. Proc., § 431.10, subd. (b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Code Civ. Proc., § 437.)

As before, Plaintiff alleges that in July 2020, Wei solicited him to invest in the Alice Property and proposed that Plaintiff and Zhou would each own a 50% interest in the Alice Property if they each invested $350,000. (FAC, ¶ 20.) As part of this investment project, Wei would serve as the project manager and would be compensated with 20% of the net profit after the Alice Property was developed and sold, as long as the net profit from the sale was at least $400,000. (FAC, ¶ 20.)

Plaintiff agreed to invest in the Alice Property and on or about August 4, 2020, $350,000 was transferred from his bank account to Wei’s account at East West Bank. The money was transferred using Plaintiff’s check which was signed and endorsed by Wei pursuant to a limited power of attorney executed on March 14, 2012. (FAC, ¶ 21, Exs. A-B.) Plaintiff did not discover until October 2022 that Wei wrote “Gift” on the check, which Plaintiff claims constitutes a material breach of her fiduciary duties.

Wei and Zhou then signed and executed an investment project and loan agreement (the “Investment Agreement” or “Agreement”). (FAC, ¶ 24.) The Agreement identified Wei as the project manager and listed Zhou and Plaintiff as “Investor/Lender.” (FAC, ¶ 24.) While Plaintiff is listed as a party, Plaintiff alleges he did not learn of this Investment Agreement until September 30, 2022. (FAC, ¶ 26.)

On or about August 12, 2020, Wei asked for an additional one-month emergency loan from Plaintiff in the amount of $180,000 for the Alice Property, and induced Plaintiff into signing documents which falsely claimed that the loan was a gift and that Wei was Plaintiff’s sister. (FAC, ¶¶ 32-35.) Plaintiff alleges that Wei failed to fulfill her promise to repay the loan by September 12, 2020. (FAC, ¶ 26.)

Plaintiff alleges that Wei committed fraud on or about October 29, 2020, by putting her name on the transfer deed for the Alice Property instead of listing Plaintiff and Zhou. (FAC, ¶ 38.)

On or about November 19, 2020, Wei solicited Plaintiff to invest in the Broadway Property. Shortly after, Wei and Zhou formed 161 Alice LLC. Wei filed articles of organization on or about November 29, 2020; Zhou filed a statement of information in which Zhou listed herself and Wei as managers or members without including Plaintiff. (FAC, ¶¶ 40-41.) Then, on April 20, 2021, Wei transferred title to the Alice Property to herself and Zhou; Wei and Zhou then transferred title and ownership to 161 Alice LLC.

From July 20 to July 27, 2022, Plaintiff travelled to Los Angeles from Toronto, CA (which the Court previously assumed referred to “Canada”, not “California”) to inspect his properties and bank accounts. (FAC, ¶ 49.) On this trip, Plaintiff discovered that Wei never returned the loan of $180,000 and confronted her, demanding immediate repayment with 2 years of interest. (FAC, ¶¶ 50-51.) Wei claimed that she invested the money into the Broadway Property on Plaintiff’s behalf and represented that Plaintiff now owned a 50% interest in the Broadway Property. (FAC, ¶ 52.)

Around October 1, 2022, Zhou, Wei, and Plaintiff met in person. Wei and Zhou reiterated that Plaintiff’s $180,000 loan was invested in the Broadway Property and that he was a 50% owner in both the Alice Property and the Broadway Property; Wei and Zhou also promised to transfer 50% of each property to Plaintiff. (FAC, ¶¶ 54.) Zhou and Plaintiff also jointly decided to put the Alice Property up for sale. (FAC, ¶ 55.)

On or about October 7, 2022, Zhou filed another statement of information for 161 Alice LLC. (FAC, ¶ 56, Ex. F.) Again, Zhou failed to list Plaintiff as a member of the LLC and only listed herself and Wei, thereby essentially representing that they were the only two owners of the Alice Property. (FAC, ¶ 56.) The same day, Zhou filed a statement of information for 9416 Broadway LLC which also listed herself and Wei as members or managers, without including Plaintiff. (FAC, ¶ 60, Ex. G.)

On or about October 21, 2022, the Alice Property was listed for sale at the price of $1.7 million. (FAC, ¶ 64.) On or about January 6, 2023, unbeknownst to Plaintiff, Wei and Zhou lowered the asking price for the Alice Property to $1.45 million. (FAC, ¶ 70.)

On January 27, 2023, Plaintiff’s loan to Wei for $350,000 matured, but Wei failed to repay the money to Plaintiff. (FAC, ¶ 71.) On February 14, 2023, Plaintiff sent formal demand letters to Zhou and Wei demanding that they restore to him his 50% interest in the Alice and Broadway Properties, but Zhou and Wei failed to do so, resulting in the filing of this action. (FAC, ¶¶ 72-73.)

As an initial matter, Wei argues that Plaintiff was only granted leave to amend his breach of contract claim but that Plaintiff impermissibly added his claims for quiet title, fraud, constructive fraud, and conversion against her.

The Court disagrees with Wei’s assertion. The Court previously noted that Plaintiff had failed to assert any cause of action against either of the LLC defendants; Plaintiff’s amended complaint aimed to remedy that defect. (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1015.) Furthermore, had Plaintiff filed a noticed motion for leave to amend in order to add the three additional claims against Wei, the motion would have been granted; Wei notably does not argue that the statute of limitations has run on any of these causes of action or that they are somehow barred as a matter of law. Therefore, in the interest of judicial economy, the Court overrules Wei’s demurrer to the First, Second, Sixth, Seventh, and Eighth Causes of Action on this ground is therefore OVERRULED.

Wei argues that Plaintiff fails to state sufficient facts to constitute a cause of action for breach of the Investment Agreement because: (1) there was no meeting of the minds and (2) the Agreement itself is uncertain. (Wei Demurrer, pp. 6-8.) Wei argues that there could not have been any “meeting of the minds” if Plaintiff was unaware of the Agreement at the time it was executed. Wei also argues that the Agreement is uncertain as to its essential terms because it fails to identify the term “Project” and only refers to “161 & 161 ½ Alice Street, Arcadia, CA 91006-3926.” (Id., p. 7.) Wei argues that there is no indication what the “Project” would be, whether it would be a simple acquisition and flip, an acquisition and a remodel followed by a sale, a subdivision or consolidation, or some other transaction or series of them. (Id.) In addition, Wei argues that neither the source of the revenue nor profit is identified, and collectively, these missing terms show that there is no contract because the parties’ obligations cannot be determined. (Id.)

In opposition, Plaintiff dismisses Wei’s claims of ambiguity and points out that no ambiguity exists because Wei drafted the Agreement. Plaintiff also states that if Wei insists that no contract exists, that she return the amount of $350,000 to him. At the very least, Plaintiff argues, Wei’s actions created an implied contract between them which she then materially breached.

It is undisputed that Plaintiff did not sign the Investment Agreement attached as Exhibit C to the FAC, nor was he aware of it until September 30, 2022. In this regard, Plaintiff fails to state that the Investment Agreement constitutes an enforceable contract between him and Wei. Nevertheless, the remainder of the FAC’s allegations supports Plaintiff’s contention that he and Wei entered into an implied contract which she later breached. Therefore, the demurrer to the Third Cause of Action is sustained with 20 days’ leave to amend the allegations to reflect an implied contract instead of a written contract.

Zhou, 161 Alice LLC and 9416 Broadway demur to Plaintiff’s First and Second Causes of Action and argue that Plaintiff is not asserting a “real property claim” because his claims arise from a promissory note issued by Wei.

“Real property claim” means the cause or causes of action in a pleading which would, if meritorious, affect (a) title to, or the right to possession of, specific real property or (b) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility. (Code Civ. Proc., § 405.4.) Here, Zhou and the LLC defendants rely on Urez Corp. v. Superior Court (1987) 190 Cal.App.3d 1141, but this case is inapposite because the plaintiff was seeking to impose a constructive trust on real property only to recover money damages, which is not an action affecting title or possession of real property. Here, Plaintiff is not collecting on an ordinary promissory note, but is suing for the ownership interest in real property for which he allegedly paid Wei.

The Court previously overruled Zhou’s demurrer to Plaintiff’s cause of action for aiding and abetting the breach of fiduciary duty. Zhou demurs once again to this cause of action arguing that the FAC fails to state that she knew the full extent of Plaintiff relationship with Wei. Zhou argues that she could not have knowingly provided aid to Wei.

The extent of Zhou’s knowledge is an issue of fact to be resolved in litigation. For now, Plaintiff has sufficiently pleaded a claim for aiding and abetting breach of fiduciary duty by alleging that Zhou had actual knowledge of Wei’s breach of her fiduciary duties. (See, e.g., FAC, ¶¶ 57-58.)

Wei moves to strike parts of Plaintiff’s FAC on the grounds that Plaintiff was not allowed to add additional allegations or causes of action after the Court sustained the demurrer filed by Zhou and the LLC defendants. Because this portion is discussed above in connection with Wei’s demurrer and rejected, the motion to strike is moot on this ground.

Wei also moves to strike Paragraphs 65-68, which alleged that she improperly represented on her divorce petition that she owned an interest in the Alice and Broadway Properties. Wei contends that these allegations are protected by the litigation privilege (Civil Code § 47).

The litigation privilege is absolute, which means it applies regardless of the existence of malice or intent to harm. (Abraham v. Lancaster Community Hospital (1990) 217 Cal.App.3d 796, 810.) In the landmark case of Silberg v. Anderson (1990) 50 Cal.3d 205, 212, the California Supreme Court formulated the rule as follows: “[T]he privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.”

Here, Wei allegedly made certain representations about her interests in the Alice Property and the Broadway Property in connection with her divorce proceedings as part of her statutorily mandated disclosures. These representations clearly meet the Silberg test and are privileged.

In opposition, Plaintiff argues that the representations fall within the exception set forth in Civil Code section 47(b)(1), which states:

An allegation or averment contained in any pleading or affidavit filed in an action for marital dissolution or legal separation made of or concerning a person by or against whom no affirmative relief is prayed in the action shall not be a privileged publication or broadcast as to the person making the allegation or averment within the meaning of this section unless the pleading is verified or affidavit sworn to, and is made without malice, by one having reasonable and probable cause for believing the truth of the allegation or averment and unless the allegation or averment is material and relevant to the issues in the action.

This statutory exception is inapplicable because Wei’s representations were not “made of or concerning” Plaintiff.

Wei’s demurrer is SUSTAINED with 20 days’ leave to amend as to the Third Cause of Action and OVERRULED as to the First, Second, Sixth, Seventh, and Eighth Causes of Action.

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.