Judge William A. Crowfoot, Case Number: 24NNCV02945, Date: 2025-01-02 Tentative Ruling

Judge: William A. Crowfoot, Case: 24NNCV02945, Date: 2025-01-02 Tentative Ruling

On July 17, 2024, plaintiff Uni-Glory Development, Inc. (“Plaintiff”) filed this action for fraudulent transfer and conspiracy to defraud creditors against defendants Tai On Ho aka Eric Ho (“Ho”), Lee Cheung (“Cheung”) (Ho and Cheung, collectively, the “Individual Defendants”), Onlee Investment Corporation (“Onlee”), and HC Arden Group Inc. (“HC Arden”) (Onlee and HC Arden, collectively, the “Corporate Defendants”). Plaintiff alleges that Fairview East, LLC (“Fairview East”) owed Plaintiff a judgment of $1,653,533.02, but that the Individual Defendants “looted in excess of $4.4 million dollars from Fairview East’s business operations through personal transfers of money” from Fairview East’s bank account at Mega Bank to the Corporate Defendants. (Compl., ¶¶ 12, 14-18.) Plaintiff alleges Ho made fraudulent transfers as an insider of Fairview East from October 2017 to June 2020 in order to render Fairview East “ ‘cash flow’ insolvent.” (Compl., ¶ 15.) Specifically, between October 2017 and January 2019, Ho allegedly transferred $3.1 million in cash from Fairview East’s bank account to Onlee, an entity owned, controlled, and operated by the Individual Defendants. (Compl., ¶ 16.) Between October 2017 and June 2020, Ho transferred $1.3 million from Fairview East’s bank account to HC Arden, another entity owned, controlled, and operated by the Individual Defendants. (Compl., ¶ 16.) Plaintiff alleges that at the time of these transfers, the Individual Defendants were “fully aware that [Fairview East] owed in excess of $1,200,000 to [Plaintiff] for unpaid construction work” and “looted [Fairview East] after [Plaintiff] filed in the [sic] civil action in the Los Angeles Superior Court in April 2017.” (Compl., ¶ 17.)

On November 4, 2024, the Individual Defendants filed a demurrer and motion to strike. The Corporate Defendants also filed their own demurrer and motion to strike, which is scheduled to be heard on January 3, 2025.

The Individual Defendants demur to each of the three causes of action asserted in the Complaint on the grounds that: (1) it omits an indispensable party, Fairview East, LLC, (2) the factual allegations concerning “badges of fraud” are insufficient, (3) there are no factual allegations to support holding the Individual Defendants liable for the alleged acts of the Corporate Defendants, (4) there are no factual allegations that the Individual Defendants’ conduct was a substantial factor in causing Plaintiff harm, (5) conspiracy is not a separate cause of action, and (6) Plaintiff failed to plead conspiracy with particularity.

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.) In construing the allegations, the court is to give effect to specific factual allegations that may modify or limit inconsistent general or conclusory allegations. (Financial Corporation of America v. Wilburn (1987) 189 Cal.App.3rd 764, 769.)

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.)

A plaintiff must join as parties to the action all persons whose interests are so directly involved that the court cannot render a fair adjudication in their absence. (Code Civ. Proc., § 389.) If such a person cannot be made a party, the court shall determine “whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed without prejudice, the absent party being thus regarded as indispensable.” In determining whether a party is indispensable, the court considers “(1) to what extent a judgment rendered in the person’s absence might be prejudicial to him or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person’s absence will be adequate; [and] (4)whether the plaintiff. . . will have an adequate remedy if the action is dismissed for nonjoinder.” (Code Civ. Proc., § 389, subd. (b).)

As an initial matter, the Individual Defendants argue that Plaintiff’s claims pursuant to the Uniform Voidable Transactions Act (“UVTA”), Civil Code section 3439.04, cannot proceed without including Fairview East. (Demurrer, pp. 7-8.) The Individual Defendants emphasize that Fairview East is the “debtor” under the UVTA and the UVTA claims arise “exclusively from alleged fraudulent transfers from Fairview East”; therefore, they argue, Fairview East’s intent is critical to Plaintiff’s claims and Fairview East is the only party that can attest to its own intent. (Demurrer, p. 8.) The Individual Defendants argue that Fairview East’s inability to defend itself and that they may result in “incurring double, multiple, or otherwise inconsistent obligations.” (Demurrer, p. 8.)

In opposition, Plaintiff argues that Fairview East, as an insolvent, judgment-proof entity, is not an indispensable party because establishing the required element of “intent” under the UVTA can be done by using any of the 11 separate “badges of fraud” identified in Civil Code section 3439.04. Furthermore, a judgment for fraudulent transfer may be entered against “the first transferee of the asset or the person for whose benefit the transfer was made” or “[a]n immediate or mediate transferee of the first transferee, other than a good faith transferee that took for value.” (Civ. Code, § 3439.08, subd. (b)(1).)

The Court agrees with Plaintiff that Fairview East is not an indispensable party. The Individual Defendants allegedly transferred the funds from Fairview East to the Corporate Defendants and Fairview East’s “intent” can be ascertained through Ho, the individual who allegedly controlled Fairview East’s bank accounts and made the transfers that Plaintiff seeks to void. Furthermore, Fairview East’s interest is adequately represented by the Individual and Corporate Defendants in this action because they share an interest in upholding the integrity of the transfers at issue in this action.

Next, the Individual Defendant demur to Plaintiff’s First and Second Causes of Action under the UVTA on the grounds that Plaintiff fails to allege any facts to support personal liability. (Demurrer, pp. 8, 12.) The Individual Defendants argue that the transactions occurred “exclusively between corporations” or “exclusively by corporate entities” and that there are no allegations that the Individual Defendants transferred their own funds or received Fairview East’s funds. (Demurrer, pp. 8, 12.) However, corporate entities cannot, by themselves act; rather, they act through individuals. In fact, the Individual Defendants cite to Wyatt v. Union Mortg. Co (1979) 24 Cal.3d 773, 785, which directly undercuts their argument. In Wyatt, the California Supreme Court stated, “Directors and officers of a corporation are not rendered personally liable for its torts merely because of their official positions, but may become liable if they directly ordered, authorized or participated in the tortious conduct.” (Id.)

Here, Plaintiff seeks to impose personal liability on the Individual Defendants for making (and conspiring to make) fraudulent transfers from Fairview East’s bank accounts to the Corporate Defendants that they used for their personal benefit. (Compl., ¶ 5.) Their alleged participation in the tortious conduct is sufficient to impart liability. Additionally, Plaintiff adequately alleges that the Individual Defendants are the alter egos of one another and the Corporate Defendants by alleging that each of the defendants was

influenced, dominated, and controlled by the others and there existed such a unity of interest and ownership that the individuality and separateness of each of these Defendants, in the corporate or other legal framework constructed by Defendants ceased to exist in that: that: (a) each of the Defendants represented itself to Plaintiff Uni-Glory as having authority to collectively bind the other Defendants; (b) each of the Defendants paid the debts and/or represented that they would pay the debts of the other Defendants; (c) each of the Defendants commingled assets; and/or (d) each of the Defendants exercised complete dominance over and control of the other Defendants.

These allegations, however boilerplate, are sufficient to plead “ultimate rather than evidentiary facts” necessary to survive demurrer. (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550; see also Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235–236; First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915–916; Cal.Rptr.3d 330, 169 P.3d 559.) Moreover, “less particularity [of pleading] is required where the defendant may be assumed to possess knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff.” (Burks v. Poppy Construction Co. (1962) 57 Cal.2d 463, 474.)

The Individual Defendants additionally argue that Plaintiff’s First Cause of Action fails because Plaintiff does not sufficiently allege facts to plead “actual intent.” The Individual Defendants claim that Plaintiff relies entirely on Fairview East’s bank statements and that these documents cannot reflect intent or “give rise to any of the governing ‘badges of fraud’” set forth in Civil Code section 3439.04(b). (Demurrer, p. 10.) The “badges of fraud” include the following: (i) whether the transfer or obligation was to an “insider”; (ii) whether the debtor was sued or threatened with suit before the transfer was made or obligation incurred; (iii) whether the transfer was of substantially all the debtor's assets; (iv) whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or obligation incurred; and (v) whether the debtor was insolvent or became insolvent shortly after the transfer was made or obligation incurred. (Civ. Code § 3439.04(b).)

In opposition, Plaintiff argues (and the Court agrees) that it has adequately pleaded actual intent by alleging that Ho was an “insider” of Fairview East and the Corporate Defendants when he caused Fairview East to transfer its assets. (Civ. Code, § 3439.04, subd. (b)(1).) Plaintiff also alleges that Fairview East was sued by Plaintiff in April 2017 for unpaid construction work before Ho began making the fraudulent transfers of substantially all of Fairview East’s assets. (Civ. Code, § 3439.94, subd. (b)(4)-(5).) As a result, Fairview East became insolvent and unable to meet its liabilities as they became due. (Civ. Code, § 3439.04, subd. (b)(9) Compl., ¶¶ 15-17.) Plaintiff also alleges that Fairview East received no consideration for the fraudulent transfers. (Civ. Code, § 3439.04, subd. (b)(8).)

On reply, the Individual Defendants argue that there are eleven badges of fraud and that Plaintiff has only identified four. This is not only inaccurate, as Plaintiff has identified five badges of fraud, but unpersuasive. “The presence of a single badge of fraud may spur mere suspicion; the confluence of several can constitute conclusive evidence of actual intent to defraud, absent ‘significantly clear’ evidence of a legitimate supervening purpose.” (See In Re Acequia, Inc. (9th Cir. 1994) 34 F.3d 800, 806.) Notably, Individual Defendants cite no authority stating that there is a minimum number of “badges” which must be alleged in order to withstand demurrer. Accordingly, the Court OVERRULES the Individual Defendants’ demurrer to the First Cause of Action on this ground.

The Individual Defendants also demur to the First and Second Causes of Action on the grounds that Plaintiff fails to sufficiently allege causation. (Demurrer, p. 10.) This argument is premised entirely on the allegation that the transactions took place up to 7 years before the judgment against Fairview East was entered and therefore “too attenuated to show that any act of the Individual Defendants could have comprised a ‘substantial factor’ in causing alleged harm to [Plaintiff].” (Demurrer, p. 10.) Whether the transactions took place 7 years before Fairview East was liable on a judgment is irrelevant because they took place after Fairview East had been sued for unpaid construction work. (Compl., ¶ 17.) Therefore, the demurrer to the First and Second Causes of Action on this ground is OVERRULED.

To plead a claim for conspiracy, the plaintiff must allege the following elements with particularity: “(1) the formation and operation of the conspiracy, (2) wrongful conduct in furtherance of the conspiracy, and (3) damages arising from the wrongful conduct.” (AREI II Cases (2013) 216 Cal.App.4th 1004, 1022.) The Individual Defendants argue that Plaintiff’s third cause of action for conspiracy is not pleaded with sufficient specificity against Cheung, and therefore, since Ho cannot conspire by himself, the cause of action for conspiracy fails. The Individual Defendants also argue, on reply, that since the First and Second Causes of Action fail to state sufficient facts, the allegations of a conspiracy also fail because a conspiracy is not a separate cause of action. It is true that conspiracy is a theory of liability other than an independent tort, but the point remains that it exists to impose liability where there has been “concerted action” to accomplish a “criminal or unlawful purpose by criminal or unlawful means” and results in damage. (Taylor v. S&M Lamp Co. (1961) 190 Cal.App.2d 700, 705.) “[A] debtor and those who conspire with him to conceal his assets for the purpose of defrauding creditors are guilty of committing a tort and each is liable in damages.” (Id. at p. 706.) As explained above, the Court overrules the demurrer to the First and Second Causes of Action, therefore, Plaintiff’s conspiracy claim is not “dead on arrival”, as the Individual Defendants claim. (Reply, p. 6.)

Here, Plaintiff sufficiently and specifically pleads a theory of liability based on conspiracy. Cheung, specifically, is alleged to be the Secretary of Onlee and the Secretary and Chief Financial Officer of HC Arden and owned, operated, and controlled both Corporate Defendants for her own personal expenses and benefit. (Compl., ¶¶ 3-5.) Plaintiff also alleges that the Individual Defendants both were “fully aware” of Fairview East’s debts and obligations yet agreed to use the Corporate Defendants to receive and hide Fairview East’s assets. (Compl., ¶¶ 2-5, 17.) Plaintiff also alleges the timeframe in which these transactions took place as well the amount of money that was allegedly transferred. (Compl., ¶¶ 34, 37.)

The Individual Defendants move to strike Plaintiff’s allegations pertaining to punitive damages. To be entitled to punitive damages under Civil Code section 3294, a complaint must allege specific facts supporting a claim of oppression, fraud, or malice. (See Grieves v. Superior Court (1984) 157 Cal.App.3d 159, 166 (“Not only must there be circumstances of oppression, fraud or malice, but facts must be alleged in the pleading to support such a claim.”)

Here, Plaintiff’s claims are premised on fraud and the conspiracy to commit fraud by transferring $4.4 million from Fairview East to the Corporate Defendants. Therefore, Plaintiff has adequately pleaded the “fraud” required by Civil Code section 3294 to support a claim for punitive damages. Therefore, the Individual Defendants’ motion to strike is DENIED.

The Individual Defendants’ demurrer is OVERRULED. The Individual Defendants’ motion to strike 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.