Judge: Yolanda Orozco, Case: 22STCV08770, Date: 2022-11-07 Tentative Ruling

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Case Number: 22STCV08770    Hearing Date: November 7, 2022    Dept: 31

DEMURRER TO FIRST AMENDED COMPLAINT IS SUSTAINED, IN PART 

Background 

On March 10, 2022, Plaintiffs Felix Chac Chou; Stella Chuoa; Felix Chac Chou Farm, Inc. filed a Complaint. 

The operative First Amended Complaint (FAC) asserts causes of action against Defendants Minghong Investment, Inc., Bin “Bill” Yu; B&D Consulting, Corp.; Auma International Inc, and Does 1 to 25 for: 

1)     BREACH OF CONTRACT (LEASE AGREEMENT)

2)     BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING (LEASE AGREEMENT)

3)     BREACH OF CONTRACT (CONSULTING SERVICES AGREEMENT)

4)     BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING (CONSULTING SERVICES AGREEMENT)

5)     FRAUD

6)     FINANCIAL ELDER ABUSE

7)     VIOLATION OF BUS. & PROF. CODE §§ 17200 et seq.

8)     FAILURE TO PAY MINIMUM WAGE

9)     FAILURE TO PAY OVERTIME WAGES

10) FAILURE TO PROVIDE MEAL PERIODS

11)  FAILURE TO PROVIDE REST PERIODS

12) FAILURE TO PAY WAGES TIMELY

13) FAILURE TO PROVIDE ACCURATE ITEMIZED WAGE STATEMENTS

14) FAILURE TO MAINTAIN PAYROLL RECORDS

15) FAILURE TO REIMBURSE BUSINESS RELATED EXPENSES

16) INVALID FARM LABOR CONTRACT

17) INDEPENDENT CONTRACTOR MISCLASSIFICATION

18) CIVIL PENALTIES UNDER THE PRIVATE ATTORNEYS GENERAL ACT (LABOR CODE § 2698 et seq.)

19) FAILURE TO COMPENSATE FOR ALL HOURS WORKED

20) CONVERSION

21) REFORMATION OF THE ASSET PURCHASE AND SALE AGREEMENT

22) DECLARATORY RELIEF

23) DECLARATORY RELIEF 

On May 31, 2022, Defendant Chris Yoa filed a demurrer to the Plaintiffs’ FAC.

Plaintiff filed an opposition on October 11, 2022. Defendant Yoa filed a reply on October 17, 2022. 

Legal Standard 

Where pleadings are defective, a party may raise the defect by way of a demurrer.¿ (Coyne v. Krempels (1950) 36 Cal.2d 257, 262.) A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters.¿ (Code Civ. Proc., § 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In evaluating a demurrer, the court accepts the complainant’s properly-pled facts as true, and ignores contentions, deductions, and conclusory statements. (Daar v. Yellow Cab Co. (1976) 67 Cal.2d 695, 713; Serrano v. Priest (1971) 5 Cal.3d 584, 591.) Moreover, the court does not consider whether a plaintiff will be able to prove the allegations, or the possible difficulty in making such proof. (Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590, 604.) 

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. (Id.)¿¿ 

MEET AND CONFER 

Before filing a demurrer, the demurring party is required to meet and confer with the party who filed the pleading demurred, in person or telephonically, to determine whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc. (CCP) § 430.41.)  

Defense counsel for Yau complied with the meet and confer requirement. (Smith Decl. ¶¶ 2, 3, Ex. A.) 

Discussion 

Defendant Chris Yau (“Yau”) demurs to the Plaintiff’s FAC as to the fifth, sixth, seventh, and eighth to eighteenth causes of action for failing to state facts sufficient to state a cause of action, and are uncertain, vague, and unintelligible. 

Allegations in the FAC 

Plaintiffs Felix Chuo and Stella Chuo are husband and wife and are the owners of Felix Farm, Inc. and AAA Farm Inc. (FAC ¶¶ 24, 5, 24, 25.) Mr. Chuo suffered a heart attack in 2014 and was concerned that he could no longer operate the farm due to his health. (FAC ¶ 26.) Defendant Bill Yu was an acquaintance of the Plaintiffs since 1999 and he suggested that the Plaintiffs find a buyer for the farm so they could retire. (FAC ¶ 26.) 

On or about March 03, 2014, Felix Farm and defendant B&D Consulting Corp. (“B&D”) and Yu entered into a financial consulting agreement. (FAC ¶ 29, Ex. C.) Since October 2014, Yu has promoted Minghong as a potential buyer who could provide a lucrative initial public offering for the farm. (FAC ¶¶ 30, 31.) 

Between November 2014 and April 2015, Yu and the Plaintiffs mutually agreed on some objectives for the purchase of the farm to Minghong: (1) Minghong would purchase Felix Farm; (2) Mr. Chuo would enter into a four-year consulting agreement with Minghong and he would train managerial employees on operating the farm; (3) Mr. Chou would stop working at the end of the four-year consulting agreement and Minghong would take over operations; and (4) Minghong would also purchase AAA Frama and Plaintiffs could finally retire. (FAC ¶ 32.) 

The purchase price was set as six million dollars ($6,000,000.) in cash. (FAC ¶ 34, Ex. D, E.) All Defendants, including Yau, convinced Mr. Chou that a three-payment structure would be beneficial to Plaintiffs consisting of a $1.8 million cash payment, a $2.2 million “loan” that would never need to be repaid, and the third payment of $2 million deposited into an account in Macau, China. (FAC ¶ 35, Ex. F [Agreement for Purchase and Sale of Assets].) Plaintiffs assert this is the reason that the purchase price is listed as only 1.8 million dollars ($1,800,000). (FAC ¶ 36, Ex. F § 1.1.) 

The Plaintiffs allege that during the transaction they were represented by compromised counsel because Bin Li is alleged to have also been representing Minghong without disclosing this information to the Plaintiffs. (FAC ¶ 39.) Based on the representations from their counsel and Minghong, on April 08, 2015, the Plaintiffs entered into three contracts: (1) the Consulting Service Agreement (“CSA”), (2) the Agreement for Purchase and Sale of Assets (“APSA); and (3) a Lease Agreement (“Lease”). (FAC ¶ 43, Ex. G (“Lease”) 

The Plaintiffs also allege that the transactions with Minghong forced them into a position resembling indentured servitude. (FAC ¶ 45.) For providing consulting services to Minghong, the Plaintiffs were expected to pay Minghong, Mr. Chau’s new employer, “$1.15 million annually as a “Guaranteed Extra Expense.” (FAC ¶ 46, Ex. B, § 2.5.) Plaintiff Mr. Chuo was also expected to pay the operating costs of the farm, including insurance, utilities, repairs, and improvements and his compensation for his consulting services would be “all profit remaining” after he paid Minghong’s annual “Guaranteed Extra Expenses” and all operating costs of the farm; ensuring Plaintiffs would earn no profit and would remain uncompensated. (FAC ¶ 46, Ex. B, § 3.) 

The CSA also provided that the Plaintiffs would have to secure guaranteed annual payments to Minghong of $4.6 million which meant that if Plaintiffs did not make the annual payments to Minghong, they stood to lose real property worth millions of dollars. (FAC ¶ 48.) 

a.     Specific allegations against Defendant Chris Yau 

Plaintiffs allege Yau was a former employee and officer of Auma International, Inc. (FAC ¶ 11.) Auma was paid $150,000 as a sales commission. (FAC ¶ 44, Ex. H.) Yau along with Bill Yu are alleged to have advised Minghong and the Plaintiffs to structure the sale into three payments. (FAC ¶ 68.) Specifically, Yau convinced the Plaintiffs that a three-payment structure would be beneficial to the Plaintiffs. (FAC ¶ 35.) 

During negotiations, Yau along with the other Defendants are alleged to have advised Plaintiffs that they did not have to pay taxes on certain portions of the sale proceeds and Plaintiffs relied on this information. (FAC ¶¶ 50, 68.) Defendant Yau is alleged to have later used the fact that the Plaintiffs had unreported taxes on cash funds to blackmail the Plaintiffs into continuing to work for Minghong with repeated threats to report them to the IRS. (FAC ¶ ¶ 50, 68.) 

On July 1, 2021, Yau acting in her capacity as Minghong’s CPA visited the farm and with Defendant Bill Yu threatened Plaintiffs that if they did not continue their business relationship with Minghong, Minghong would take legal action against the Plaintiffs and expose their potential tax liabilities. (FAC ¶ 62.) 

5th COA: Fraud 

The elements of a cause of action for negligent misrepresentation include “[m]isrepresentation of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce another’s reliance on the fact misrepresented; ignorance of the truth and justifiable reliance on the misrepresentation by the party to whom it was directed; and resulting damage.” (Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154 [quotation marks omitted].) “California courts have recognized a cause of action for negligent misrepresentation, i.e., a duty to communicate accurate information, in two circumstances. The first situation arises where providing false information poses a risk of and results in physical harm to person or property. The second situation arises where information is conveyed in a commercial setting for a business purpose.” (Friedman v. Merck & Co. (2003) 107 Cal.App.4th 454, 477.) 

Defendant Yau argues that the Plaintiffs’ fraud claims fail because any alleged misrepresentations by Yau are not actionable because they pertain to future events and are opinions. “The law is well established that actionable misrepresentations must pertain to past or existing material facts. (Citation.) Statements or predictions regarding future events are deemed to be mere opinions which are not actionable. (Citation.)” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.) 

Plaintiffs allege that Defendants made misrepresentations and omissions to cover up Defendants’ fraudulent intent to deprive Plaintiffs of the full purchase price for the sale of Felix Farm and to force Plaintiffs into an indentured-servitude-like working relationship. (FAC ¶ 102.) Ms. Yau acting in the capacity of Minghong’s representative and its management team and as an employee and officer of Auma represented to Plaintiffs that a three-payment structure for the sale of Felix Farm would be advantageous and told Plaintiffs that they did not need to take further action related to the payment of taxes despite knowing that this information was false. (FAC  102(e).) Yau made this misrepresentation with the intent to use the Plaintiffs’ tax liability as leverage to threaten and blackmail the Plaintiffs into continuing to work for Minghong. (Id.) In this manner, Yau acted as a co-conspirator with the other Defendants. (FAC ¶ 103.) 

“To be actionable, a negligent misrepresentation must ordinarily be as to past or existing material facts. Predictions as to future events, or statements as to future action by some third party, are deemed opinions, and not actionable fraud.” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 158.) Plaintiffs assert that Yao’s opinions are actionable as misrepresentations and point to the California Supreme Court Case Bily v. Author Young & Co. (1992) which held: 

“Under certain circumstances, expressions of professional opinion are treated as representations of fact. When a statement, although in the form of an opinion, is “not a casual expression of belief” but “a deliberate affirmation of the matters stated,” it may be regarded as a positive assertion of fact. Moreover, when a party possesses or holds itself out as possessing superior knowledge or special information or expertise regarding the subject matter and a plaintiff is so situated that it may reasonably rely on such supposed knowledge, information, or expertise, the defendant's representation may be treated as one of material fact.” 

(Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 408.) 

Although the Plaintiffs allege that Yau was a CPA and a managing agent at Felix Farm, they fail to allege that she specifically held herself out as having superior knowledge or expertise to the Plaintiffs when she gave her opinions regarding the payment structure and tax liability. More importantly, the Plaintiffs fail to plead specific facts to support their fraud cause of action against Defendant Yau with sufficient particularity and they conflate her actions with those of other Defendants such that it cannot be ascertained who, what, where, and when the misrepresentations were made. 

“In California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) “Causes of action for intentional and negligent misrepresentation sound in fraud and, therefore, each element must be pleaded with specificity. (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1166 disapproved on other grounds by Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905.) Specificity “necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Lazar, supra, 12 Cal.4th at 631.)

Plaintiffs’ conclusory allegations that Yau misrepresented that the payment structure would be beneficial to the Plaintiffs and that they would incur no tax liability lacks particularity to support a fraud cause of action. (FACC ¶¶ 35, 50.)

Based on the foregoing, the demurrer is SUSTAINED as to the fifth cause of action WITH LEAVE TO AMEND. 

6th COA: Financial Elder Abuse

An elder is “any person residing in this state, 65 years of age or older.” (Welf. & Inst. Code, § 15610.27.) Elder financial abuse occurs when a person or entity “[t]akes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud’” or “[a]ssits in taking.” (See Welf. & Inst. Code, § 15610.30 subd. (a)(1), (2); see also Cameron v. Las Orchidias Properties, LLC (2022) 82 Cal.App.5th 481, 507.) “A person or entity is ‘deemed to have taken, secreted, appropriated, obtained, or retained property for a wrongful use if, among other things, the person or entity takes, secretes, appropriates, obtains, or retains possession of property and the person or entity knew or should have known that this conduct is likely to be harmful to the elder ... adult.’ (Citation.)” (Cameron, supra, 82 Cal.App.5th at 507.) “A plaintiff is not required to prove bad faith or fraud to prevail on a claim of financial elder abuse.” (Id. [citation omitted].)

Defendant Yau demurrers to the sixth cause of action on the basis that Yau did not “secrete, appropriate, obtained or retained any property of Plaintiffs.” 

Plaintiffs have sufficiently alleged that Yau was an agent or employee and coconspirator of Minghong in its plan to defraud Plaintiffs and was a CPA for Minghong. (FAC ¶¶ 18, 19, 20, 103.) Plaintiffs also allege Yau was a managing agent of Minghong at Felix Farm. (FAC ¶ 68.) She was present during the negotiations and “assisted” Minghong in defrauding the Plaintiffs when she advised them that the three-part payment structure would be beneficial and then threatened and blackmailed the Plaintiffs into continuing to work for Minghong. (FAC ¶¶ 35, 50.) 

Defendant Yau was not required to physically take the property, just assist in its “wrongful use” if she “knew or should have known that this conduct is likely to be harmful to the elder or dependent adult.” (See Welf. & Inst. Code, § 15610.30 subd. (b); see also Mahan v. Charles W. Chan Ins. Agency, Inc. (2017) 14 Cal.App.5th 841, 857.) Moreover, section 15610.30 covers “deprivation of any property right, including by means of an agreement, donative transfer, or testamentary bequest, regardless of whether the property is held directly or by a representative of an elder or dependent adult.” (Welf. & Inst. Code, § 15610.30 subd. (c).) 

Therefore, the Plaintiffs have pled sufficient facts to support its sixth cause of action and the claim is not uncertain, vague, or unintelligible. The demurrer to the sixth cause of action is OVERRULED. 

7th COA: Unfair Business Practices 

Business and Professions Code section 17200 (“UCL”) prohibits “any unlawful, unfair or fraudulent business act or practice.” (Bus. & Prof. Code, § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.) The UCL prohibits five types of wrongful conduct: (1) unlawful business acts or practices; (2) unfair business acts of practices; (3) fraudulent business acts or practices; (4) unfair, deceptive, untrue or misleading advertising; and (5) any act prohibited by Business & Professions Code Sections 17500-17577.5. (See Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 906–907.) 

“An unlawful business practice or act is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law.” (Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969.) “A business practice is unfair within the meaning of the UCL if it violates established public policy or if it is immoral, unethical, oppressive or unscrupulous and causes injury to consumers which outweighs its benefits.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1473.) Lastly, a fraudulent business practice claim under section 17200 “is not based upon proof of the common law tort of deceit or deception, but is instead premised on whether the public is likely to be deceived.” (Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490, 1499.) 

To plead this statutory claim, the pleadings must state with reasonable particularity the facts supporting the statutory elements of the violation. (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 619.) Plaintiffs cement their UCL claim on various Labor Code Violations to meet the unfair, unlawful, or fraudulent prong of the UCL. (FAC ¶¶ 127, 128, 129.) However,  Plaintiffs fail to anchor their UCL claim to other unlawful, unfair, or fraudulent conduct with sufficient particularity to sustain the seventh cause of action against Yau. 

As explained below, the Plaintiffs have failed to plead sufficient facts to support the allegation that Yau was a managing agent, therefore Plaintiffs’ Labor Code violations against Yau also fail, as does the UCL claim against Yau. 

The demurrer is SUSTAINED WITH LEAVE TO AMEND as to the seventh cause of action. 

8th, 9th, 10th, 11th, 12th, 13th, 14th, 15th, 16th, 17th, and 18th COA: Labor Code Violations 

Under the California Labor Code, an “employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates, or causes to be violated, Sections 203, 226, 226.7, 1193.6, 1194, or 2802, may be held liable as the employer for such violation.” (Lab. Code, § 558.1 subd. (a).) Under the Labor Code, the term “other persons acting on behalf of an employer” includes natural persons who are the “managing agent of the employer.” (Lab. Code, § 558.1 subd. (b).) 

Plaintiffs allege that Yau can be held liable as an employer because she was the managing agent of Felix Farm at the time the Labor Code violations took place. (FAC ¶¶ 67, 68.) Defendant Yau argues that as a CPA she provided professional services to Minghong and that her limited interactions with Plaintiffs did not render her an employer, and thus she cannot be held liable for any alleged Labor Code violations. 

The term “managing agent,” includes “only those corporate employees who exercise substantial independent authority and judgment in their corporate decision making so that their decisions ultimately determine corporate policy.” (White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 566.) These are corporate policies that “affect a substantial portion of the company and that are the type likely to come to the attention of corporate leadership.” (Roby v. McKesson Corp. (2009) 47 Cal.4th 686, 715.) Therefore, a “managing agent” is “more than a mere supervisory employee.” (White, supra, 21 Cal.4th at 573.) 

The California Supreme Court explained: 

“[S]upervisors who have broad discretionary powers and exercise substantial discretionary authority in the corporation can be managing agents. Conversely, supervisors who have no discretionary authority over decisions that ultimately determine corporate policy would not be considered managing agents even though they may have the ability to hire or fire other employees.” 

(White, supra, 21 Cal.4th at 577.) “[T]he critical inquiry is the degree of discretion the employees possess in making decision.” (King v. U.S. Bank National Association (2020) 52 Cal.App.5th 728, 713 [internal quotations and citation omitted].) The “scope of a corporate employee's discretion and authority” is “a question of fact for decision on a case-by-case basis.” (White, supra, 21 Cal.4th at 567.)

Here, the Plaintiffs’ conclusory allegation that Yau was a managing agent at Felix Farm is devoid of any facts to support the allegation. (FAC ¶¶ 66, 67.) The fact that Yau allegedly threatened and blackmailed the Plaintiffs into maintaining an employment relationship with Minghong is insufficient to show she was a managing agent. (FAC ¶¶ 62, 63.) Plaintiffs fail to plead facts to show how Yau exercised discretionary authority and judgment in corporate decision-making in a manner that made her a managing agent under the California Labor Code. 

Therefore, Defendant’s demurrer is SUSTAINED WITH LEAVE TO AMEND as to the eighth to eighteenth causes of action. 

Conclusion 

Defendant Chris Yau’s demurrer is OVERRULED as the Plaintiffs’ sixth cause of action and SUSTAINED WITH 30 DAYS LEAVE TO AMEND as to the fifth, seventh, and eighth to eighteenth causes of action. 

Moving party to give notice.