Judge William A. Crowfoot, Case Number: 23AHCV00473, Date: 2023-08-07 Tentative Ruling

Judge: William A. Crowfoot, Case: 23AHCV00473, Date: 2023-08-07 Tentative Ruling

On March 3, 2023, plaintiff Ruying Shi (“Plaintiff”) filed this action against defendant Yao Lu (“Defendant”), Ying Chen aka Cindy Chen Harris (“Chen”), Cole Matthew Harris (“Harris”), Robert Douglas Spiro (“Doug”), Jian Zhou (“Jian”), Cole Harris for Lt. Governor 2018, Inc., Capital Stone Holdings, Inc., and Capital Stone Management, Inc. asserting 13 causes of action arising from an alleged fraudulent scheme.

On November 13, 2023, Defendant filed a demurrer and motion to strike. Defendant demurs to all 13 causes of action and moves to strike Plaintiff’s request for punitive damages and attorney fees.

On January 3, 2024, Plaintiff filed opposition briefs to the demurrer and motion to strike.

Also on February 27, 2024, Plaintiff filed another set of opposition briefs. On February 28, 2024, Defendant filed an objection and moved to strike this set of briefs. The unopposed request to strike is GRANTED.

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.)

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Ibid.)

Plaintiff alleges a fraudulent scheme perpetuated chiefly by Chen, in concert with Chen’s distant relative, Defendant, among others. (Compl., ¶ 2.) Plaintiff alleges that in or around June 2017, Defendant told Plaintiff’s daughter, Elaine, that Chen wished to exchange American dollars with Chinese yuan (Chen needed yuan) and asked Elaine if Plaintiff would be able to assist. (Compl., ¶ 3.) At the time, Elaine was in a serious relationship with Defendant, and Plaintiff intended to buy a property for Elaine in Los Angeles. (Compl,, ¶¶ 3, 37, 39.) Therefore, Plaintiff agreed to help Defendant exchange the money in order to help Defendant and build a good relationship with the family of her future son-in-law. Plaintiff would provide ¥6,880,000 in exchange for USD$1,000,000. (Ibid.) Plaintiff having remitted ¥3.5 million, roughly half the agreed sum, to Chen’s relative in China, co-defendant Jian, Chen asked Plaintiff if she needed to use the sum of $1 million USD urgently and, if not, whether Plaintiff would be willing to lend the amount at an interest rate of 7.5%. (Compl., ¶¶ 4, 41.) Plaintiff agreed to lend the $1 million and the remittance of the entire amount of yuan was complete by July 17, 2017. (Id., ¶¶ 4-5.) The period of this initial loan was one year, from July 5, 2017, to July 5, 2018. (Id., ¶ 44.) Plaintiff alleges that this transaction “spiraled into a web of false representations and fraudulent statements where Defendants repeatedly assured Plaintiff that [Chen] and [Harris] were both members of a high social class and were able to pay back the loan sum at any time.” (Id., ¶ 6.) Plaintiff alleges these representations caused her to enter into consecutive agreement extensions with Chen from 2018 to 2021. (Id., ¶¶ 6-7.)

Plaintiff made efforts to seek repayment of the loan during these years, but was induced to “fork out more money purportedly for various scheme and ventures which Defendants were involved in.” (Comp., ¶ 7.) Plaintiff alleges that she sustained damages in excess of $1,493,049.24, consisting of the loan of $1,075,000, a penalty of $107,500 and interest of $310,549.24, plus additional interest. Plaintiff also requests attorney fees, litigation fees, and travel expenses paid to realize her creditor rights. (Compl., ¶ 10.)

1. First and Thirteenth Causes of Action for Breach of Contract, Fifth Cause of Action for Account Stated, Sixth Cause of Action for Promissory Estoppel, and Seventh Cause of Action for Breach of Covenant of Good Faith and Fair Dealing

“The elements of a cause of action for breach of contract are: (I) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff.” (Coles v. Closer (2016) 2 Cal.App 5th 384, 391 ) “Facts alleging a breach, like all essential elements of a breach of contract cause of action, must be pleaded with specificity.” (Levy v. State Farm Mut. Auto. Ins. Co. (2007) 150 CaL App. 4th 1, 5.) Implied in every contract is the covenant of good faith and fair dealing, which acts “as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-1032.)

In the alternative to a breach of contract claim, a plaintiff may assert a cause of action for promissory estoppel or a common count for an account stated. (See Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1413.) “The elements of promissory estoppel are (1) a promise, (2) the promisor should reasonably expect the promise to induce action or forbearance on the part of the promisee or a third person, (3) the promise induces action or forbearance by the promisee or a third person (which we refer to as detrimental reliance), and (4) injustice can be avoided only by enforcement of the promise.” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 803, reh’g denied (Apr. 11, 2013), review denied (July 10, 2013).)

As for an account stated, it is “based on prior transactions between the parties” and a plaintiff must allege that “the items of an account are true and that the balance struck is due and owing.” (Professional Collection Consultants v. Lauron (2017) 8 Cal.App.5th 958, 968 [quoting Maggio, Inc. v. Neal (1987) 196 Cal.App.3d 745, 752].) “‘[A]n element essential to render the account stated is that it receive the assent of both parties, but the assent of the party sought to be charged may be implied from his conduct.’” (Id. [quoting Hansen v. Fresno Jersey Farm Dairy Co. (1934) 220 Cal. 402, 408].) “When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable.” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394.)

“Under California law, only a signatory to a contract may be liable for any breach.” (Clemens v. Am. Warranty Corp. (1987) 193 Cal. App. 3d 444, 452.) Here, Plaintiff does not allege that Defendant was a party to the alleged loan agreement or the subsequent extensions. Instead, Plaintiff attaches copies of WeChat messages and loan agreement extensions showing that the agreement and subsequent extensions were between Plaintiff and Chen. (Compl., ¶¶ 45, 63, 68, 74, 83, 102; Exs. E, K, N, R). Furthermore, without a contract, Plaintiff’s cause of action for breach of the implied covenant and fair dealing necessarily fails. Accordingly, the demurrer to the First, Seventh, and Thirteenth Causes of Action is SUSTAINED.

Similarly, Plaintiff’s claims for promissory estoppel and account stated fail because she does not allege that any transaction took place between her and Defendant or that Defendant made any promise. Although Plaintiff alleges in passing that Defendant “promised” to “recover[] the loan from [Chen], there are no facts identifying when this promise was made.” (Compl., ¶ 60.) Therefore, the demurrer to the Fifth and Sixth Causes of Action is SUSTAINED.

“"Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff’s ownership or right to possession of the property at the time of the conversion; the defendant's conversion by a wrongful act or disposition of property rights; and damages.” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 15 451-452.)

Plaintiff argues that paragraphs 118 through 124 outlines the facts and allegations of conversion. (Opp., p. 6.) However, none of the allegations address Defendant in particular, or that Defendant stole or otherwise received Plaintiff’s property. Accordingly, the demurrer to the Second Cause of Action is SUSTAINED.

3. Third and Fourth Causes of Action for Fraud and Negligent Misrepresentation

The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (See Civil Code §1709.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) Negligent misrepresentation requires assertion of an untrue fact that is believed by the defendant to be true, lack of reasonable ground for the belief, defendant’s intent to induce plaintiff’s reliance upon the representation, plaintiff’s justifiable reliance upon the representation, and resulting damage. (Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 781; Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) A claim for fraud or negligent misrepresentation must be pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.)

Defendant argues that Plaintiff fails to allege any specific representations that he made regarding Chen’s ability to repay the alleged loan. Defendant also argues that Plaintiff fails to allege that he knew that the assurances were false at the time that he made them. Last, Defendant argues that any assurances were made after Plaintiff already loaned the money to Chen, therefore Plaintiff does not adequately allege the element of reliance.

In opposition, Plaintiff broadly argues that she adequately alleges Defendant’s false assurances and her reliance on them. Plaintiff generally alleges that Defendant “had always painted a picture of [Chen] as being a trustworthy person” by describing her as a “role model for the Chinese community.” (Compl., ¶ 61.) But Plaintiff only alleges a specific misrepresentation by Defendant when he spoke with Elaine in October 2017, and “dismissed any such notion of non-payment and assured Elaine that as a respectful role model in the community, [Chen] would not default on the loan.” (Compl., ¶ 48.) At this time, Defendant also told Elaine that he had “no single shred of doubt that [Chen] would pay back the loan.” (Compl., ¶ 52.) As Defendant points out, this alleged statement was made months after the initial loan was already agreed to.

Accordingly, the demurrer to the Third and Fourth Causes of Action is SUSTAINED.

A civil conspiracy requires an express or tacit agreement only to commit a civil wrong or tort, which then renders all participants 'responsible ... for all damages ensuing from the wrong. (Navarrete v. Meyer (2015) 237 Cal.App.4th 1276, 1293.) Similarly, “ ‘[l]iability may . . . be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.’” (Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318, 1325-26 [quoting Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846]; see also Schulz v. Neovi Data Corp. (2007) 152 Cal.App.4th 86, 93.) “Mere knowledge that a tort is being committed and the failure to prevent it does not constitute aiding and abetting.” (Fiol, supra, 50 Cal.App.4th at p. 1326.)

Here, Plaintiff alleges that Defendant: (1) referred Plaintiff to Chen for the purpose of the initial currency exchange, (2) knew that Chen would not be paying back the loan “from the very beginning”, (3) maintained a relationship with Elaine for purposes of defrauding her. (Compl., ¶ 39-40, 53.) However, Plaintiff does not state facts showing an agreement between Defendant and any other co-defendant to commit a wrong or tort. She also does not state any facts supporting Defendant’s alleged knowledge of Chen’s intention to defraud Plaintiff, nor does she allege any conduct by Defendant which would constitute a breach of duty owed to her by Defendant. Instead, the only allegations of a conspiracy pertain to an alleged scheme involving loans backed by the Small Business Administration from the Paycheck Protection Program (“PPP”). (Compl., ¶ 28.)

California does not recognize unjust enrichment as an independent cause of action. (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370.) There are also no allegations to support a theory of restitution because Plaintiff does not allege that Defendant received a benefit and retained it at her expense. (Lectrodryer v. SeouIBank (2000) 77 Cal.App.4th 723, 726.)

The elements of intentional infliction of emotional distress are (1) extreme and outrageous conduct (2) directed to the plaintiff by defendant, (3) with the intention of (4) causing, or reckless disregard of the probability of causing, (5) severe or extreme emotional distress. (Christensen v. Superior Court (1991) 54 Cal.3d 868, 903.) Negligent infliction of emotional distress is not an independent tort; it is merely convenient terminology descriptive of the context in which the negligence occurred. (Long v. PKS, Inc. (1993) 12 Cal.App.4th 1293, 1297.) Damages for severe emotional distress are recoverable in a negligence action when they result from the breach of a duty owed to the plaintiff that is assumed by the defendant or imposed on the defendant as a matter of law, or that arises out of a relationship between the two. (Id.) Under either theory, for conduct to be outrageous it must be so extreme as to exceed all bounds of that usually tolerated in a civilized community. (See Ess v. Eskaton Properties, Inc. (2002) 97 Cal.App.4th 120, 130.) Generally, conduct will be found to be actionable where the recitation of the facts to an average member of the community would arouse his resentment against the actor, and lead him to exclaim, “Outrageous!” (Id.)

Here, Plaintiff only alleges that Chen and Harris inflicted outrageous conduct (whether intentionally or negligently) and caused her emotional distress. Accordingly, Defendant’s demurrer to the Eleventh and Twelfth Causes of Action is SUSTAINED.

Because the Court sustains Defendant’s demurrer in its entirety, the motion to strike is moot and taken off calendar.

Defendant’s demurrer is SUSTAINED in its entirety to each cause of action in the Complaint.

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.