Case Name: Tran v. Global Equipment Services and Manufacturing Inc., et al.
Case No.: 2016-1-CV-301050

This is an action for breach of a stock option agreement. On June 5, 2006, plaintiff Chau Tran (“Plaintiff”) and defendant Global Equipment Services and Manufacturing (“GES”) entered into a stock option agreement wherein Plaintiff had the option to purchase 321,000 shares of GES stock, to be completed within 30 days of termination from GES. (See second amended complaint (“SAC”), ¶ 12.) On July 7, 2009, Plaintiff and GES entered into an employment agreement in which Plaintiff was granted the option to purchase an additional 337,500 shares of GES stock. (See SAC, ¶ 15.) On March 31, 2013, Plaintiff resigned from GES. (See SAC, ¶ 16.) On April 22, 2013, defendant and GES Director of Operations and HR Theresa Ta-Tran (“Theresa”) sent a copy of the stock option agreement to Plaintiff so that he could exercise his option to purchase shares. (See SAC, ¶ 17.) The Stock Option Agreement stated:

The Option shall be deemed exercised when the Company receives (i) written or electronic notice of exercise (in accordance with this Option Agreement) from the Optionee (or other person entitled to exercise the Option), (ii) full payment for the Shares with respect to which the Option is exercised, (iii) payment of any required tax withholding; and (iv) any other documents required by this Option Agreement or the Exercise Notice. Full payment may consist of any consideration and method of payment permitted by this Option Agreement…. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option.

(First amended complaint (“FAC”), exh. A, § 2 (“Exercise of Option”), p.2.)

The Exercise Notice states:

2. Delivery of Payment and Required Documents. Optionee herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement, and any and all withholding taxes due in connection with the exercise of the Option.

(FAC, exh, A to exh. A, § 2, p.A-1.)

After reviewing the stock option agreement, Plaintiff asked Theresa to confirm with GES’ records regarding the number of shares to which he was entitled, believing that he was entitled to more shares. (See SAC, ¶ 18.) On April 29, 2013, Theresa informed Plaintiff that there was no increased number of shares and that he must make payment and sign the documents by April 30, 2013. (See SAC, ¶ 19.) Plaintiff tendered a check of $3,210 for the purchase of 321,000 shares on or before April 30, 2013, but did not tender payment for the 337,500 shares granted to him in July 2009. (See SAC, ¶¶ 20-21.) The FAC attaches a copy of a check for $3,210, dated “April 30th 13.” (FAC, exh. A.) On May 16, 2013, Theresa confirmed timely receipt of the check and documents, and on May 11, 2013, Theresa confirmed that she had sent Plaintiff’s stock certificate. (See SAC, ¶¶ 22-23.) However, Plaintiff did not ever receive a stock certificate. (See SAC, ¶ 24.) On May 6, 2014, Theresa notified Plaintiff that it did not actually receive Plaintiff’s check, and requested either a copy of the deposited check or the submission of new payment for the stock as soon as possible. (See FAC, ¶ 21.) On July 24, 2014, Theresa told Plaintiff that he had until July 31, 2014 to provide a new check. (See FAC, ¶ 22.) Plaintiff apparently tendered a second check. (See FAC, ¶ 34.) Regardless, thereafter, Plaintiff requested an extension of time to provide a new check, and Don Tran, CEO of GES, granted the extension to August 29, 2014. (See FAC, ¶ 24.) On August 28, 2014, Plaintiff informed GES that he had given the funds to a third party and that the third party would write a check to GES on Plaintiff’s behalf; however, GES explained to Plaintiff that it could not accept third party payment for the purchase of the stock. (See FAC, ¶ 27.) On October 14, 2014, GES notified Plaintiff of his forfeiture of the stock option due to non-payment. (See FAC, ¶ 30.) Plaintiff asserts that he is entitled to the stock as “[p]ursuant to the terms of the Stock Option Agreement, GES was to issue the shares ‘promptly after the Option is exercised’”, and he has “tendered payment.” (SAC, ¶¶ 25-26.)

On April 28, 2017, Plaintiff filed the SAC against defendants GES and Theresa (collectively, “Defendants”), asserting causes of action for:

1) Breach of contract (against GES);
2) Breach of implied covenant of good faith and fair dealing (against GES);
3) Fraud (against GES);
4) Negligent misrepresentation (against GES and Theresa);
5) Conversion (against GES);
6) Unfair business practices (against all defendants);
7) Unjust enrichment (against GES);
8) Specific performance (against GES); and,
9) Constructive trust (against GES).

Defendants demur to each cause of action, asserting that the allegations of the FAC, coupled with Plaintiff’s discovery responses establish that the SAC’s causes of action fail to state facts sufficient to constitute a cause of action.

Defendants’ request for judicial notice of the FAC and its allegations is GRANTED, as it is a proper subject of judicial notice. (See Evid. Code § 452, subd. (d); see also Hills Transp. Co. v. Southwest Forest Industries, Inc. (1968) 266 Cal.App.2d 702, 710 (stating that “a court may take judicial notice of all pleadings in a particular case”).) Defendants’ request for judicial notice of Plaintiff’s verified responses to requests for admission is also GRANTED. (See Evid. Code § 452, subd. (h); see also Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 485 (stating that “the court may take judicial notice of a party’s admissions or concessions… such as in answers to interrogatories or requests for admission”); see also Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604-605 (stating that “[t]he court will take judicial notice of records such as admissions, answers to interrogatories, affidavits, and the like, when considering a demurrer… where they contain statements of the plaintiff or his agent which are inconsistent with the allegations of the pleading before the court”); see also Bockrath v. Aldrich Chemical Co., Inc. (1999) 21 Cal.4th 71, 83 (stating that “a complaint’s allegations may be disregarded when they conflict with judicially noticed discovery responses”).)

Here, the FAC alleges that Plaintiff “tendered to GES a check in the amount of $3,210” but that “GES did not have a copy of his Stock Purchase Check, and did not show a corresponding deposit into its account” as of January 20, 2014. (FAC, ¶¶ 17, 20.) The FAC then alleges that on May 6, 2014, Theresa suggested that the check was lost and requested a copy of the deposited check or new payment for the stock. (See FAC, ¶ 21.) The FAC alleges that Plaintiff, in fact, then tendered a second check. (See FAC, ¶ 34.) Apparently, however, the second check did not clear because Plaintiff needed an extension of time to write a check to GES until August 29, 2014. (See FAC, ¶¶ 23-24.) Defendants argue that these facts indicate that Plaintiff cannot state facts sufficient to constitute a cause of action because the FAC admits that GES did not receive funds from the first check. Indeed, a pleader may not seek to avoid the defects of his prior complaint by adding or omitting facts inconsistent with prior allegations. (See Lockton v. O’Rourke (2010) 184 Cal.App.4th 1051, 1061 (stating that “if a party files an amended pleading and attempts to avoid defects of original complaint by either omitting facts that rendered prior complaint defective or adding facts inconsistent with prior allegations, court may take judicial notice of prior pleadings and disregard inconsistent allegations or read into amended complaint the allegations of the superseded complaint”), citing Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425-426; see also Owens v. Kings Supermarket (1988) 198 Cal.App.3d 379, 384.)

As Defendants argue, the SAC no longer alleges that Plaintiff tendered a second check. In Plaintiff’s motion for leave to amend, the motion neglected to note this omission to the Court. This is particularly noteworthy as Plaintiff’s responses to requests for admission establish that Plaintiff’s initial “check for $3,210 was returned for insufficient funds in September 2013” and that Plaintiff never had the funds, nor later attempted to fully tender payment for the shares. These facts are fatal to Plaintiff’s causes of action, as they demonstrate that: he neither performed nor had an excuse for performance of the subject contract; Plaintiff did not suffer any damages for breach of contract, conversion or fraud or any other cause of action; Plaintiff did not have a right to possession of the stock at the time of the alleged conversion; and, Defendants did not convert the stock by any wrongful act or receive any benefit from Plaintiff. (See Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913 (stating that “a cause of action for breach of contract requires of pleading of (1) the contract, (2) plaintiff’s performance or excuse for non-performance, (3) defendant’s breach, and (4) damage to plaintiff therefrom”); see Lazar v. Super. Ct. (Rykoff-Sexton, Inc.) (1996) 12 Cal. 4th 631, 638 (stating that a cause of action for fraud requires resulting damages); see also Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519 (stating that a cause of action for negligent misrepresentation also requires resulting damages); see also Michaelian v. State Compensation Ins. Fund (1996) 50 Cal. App. 4th 1093, 1114 (stating that a cause of action for constructive trust requires fraud, breach of fiduciary duty or other act which entitles the plaintiff to some relief); see also Oakdale Village Group v. Fong (1996) 43 Cal.App.4th 539, 543-544 (stating that a cause of action for conversion requires 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); see also Shive v. Barrow (1948) 88 Cal.App.2d 838, 847 (stating that “[i]t is well settled that, to entitle a party to specific performance, he must have (a) performed, (b) offered to have performed, or (c) proved a sufficient excuse for not performing, all the conditions required of him by the terms of the contract”); see also Lectrodryer v. SeoulBank (2000) 77 Cal.App.4th 723, 726 (stating that a cause of action for unjust enrichment requires “receipt of a benefit and unjust retention of the benefit at the expense of another”).)

In opposition, Plaintiff attempts to explain the omitted allegation from the FAC with regards to the second submitted check, stating that “[u]pon careful review of the Stock Option Agreement, it was determined that GES, in fact, breached the Stock Option Agreement much earlier, and accordingly Plaintiff amended the complaint to reflect this theory of recovery… [b]ecause Plaintiff now takes the position that GES breached on or about April 30, 2013, when it failed to issue Plaintiff’s stock, all facts related to the events after December 2013 are irrelevant with respect to an April 30, 2013 breach and were thus removed to avoid confusion.” (Pl.’s opposition to demurrer (“Opposition”), p.4:2-7.) “Further to Counsel’s insinuations, the use of the phrase ‘full payment’ in the SAC refers to specific language in the Stock Option Agreement. It is not intended to imply the actual transfer of funds, but rather to iterate that Plaintiff completed his obligations under the Stock Option Agreement, sufficient to obligate GES to issue stock, when he delivered the check to GES.” (Opposition, p.4:9-13.) Plaintiff explains his theory, stating:

… when GES received Plaintiff’s check, it was then obligated to promptly issue his shares. Failure by GES to issue the shares amounts to a breach of the Stock Option Agreement.

It is a wholly separate issue and claim as to whether or not GES actually received funds for the purchase of the shares. Indeed, that could have been a basis for a claim of $3,210 against Plaintiff, had GES properly issued his stock. The Stock Option Agreement, however, does not require the transfer of funds prior to the issuance of shares, rather it requires the delivery of a check. Accordingly, by the express terms of the Stock Option Agreement, the lack of transfer of funds to GES is not fatal to Plaintiff’s causes of action.

(Opposition, p.6:2-10.)

Plaintiff is confused. As stated above, an essential element to a breach of contract cause of action is his own performance, or an excuse for non-performance. Here, Plaintiff concedes that he has never paid for the GES shares to which he is asserting a right. Instead, Plaintiff is relying on a tortured interpretation of the Stock Option Agreement that he did not have to pay for the GES shares, but simply had to deliver a check. However, the Stock Option Agreement plainly states that it requires “full payment for the Shares with respect to which the Option is exercised” as well as “payment of any required tax withholding.” The agreement additionally clarifies that “[f]ull payment may consist of any consideration and method of payment permitted by this Option Agreement.”

The presentation of a check that lacked sufficient funds does not constitute performance pursuant to the terms of the Stock Option Agreement. If there was still any confusion, the Exercise Notice additionally has a section discussing “Delivery of Payment and Documents,” reinforcing the requirement that Plaintiff shall “deliver[] to the Company the full purchase price of the Shares” to obtain the shares. Plaintiff presents no basis for his belief that full payment for GES shares does not involve the exchange of consideration, and only “requires the delivery of a check,” and the plain language and plain meaning of the agreements that he attached to the FAC defy Plaintiff’s proffered interpretation. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 (stating that “Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading”), quoting Cooper v. Leslie Salt Co. (1969) 70 Cal.2d 627, 636; see also Hendy v. Losse (1991) 54 Cal.3d 723, 742 (stating that “the burden is on the plaintiff… to demonstrate the manner in which the complaint might be amended”); see also Civ. Code § 1644 (stating that “[t]he words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed”); see also People ex rel. Plumas County v. Chambers (1871) 42 Cal. 201, 207-208 (California Supreme Court noting that the presentation of checks without sufficient funds in the account does not constitute payment); see also Corp. Code § 409, subdivision (a)(1) (stating that “[s]hares may be issued… [f]or such consideration as is determined from time to time by the board, or by the shareholders if the articles so provide, consisting of… money paid… but neither promissory notes of the purchaser (unless adequately secured by collateral other than the shares acquired or unless permitted by Section 408) nor future services shall constitute payment or part payment for shares of the corporation”).)

Plaintiff asserts in his Opposition that the SAC “now takes the position that GES breached on or about April 30, 2013”; however, Defendants cannot be liable for any such breach since the allegations of the FAC and judicially noticeable facts indicate that Plaintiff had not fully performed on that date or any other date, nor had an excuse from non-performance. Accordingly, as Plaintiff fails to demonstrate that he has any viable causes of action, Defendants’ demurrer to each cause of action of the SAC is SUSTAINED without leave to amend.

After Defendants have served notice of entry of the signed order, Defendants shall submit a proposed judgment either approved as to form or with proof of compliance with Rules of Court, Rule 3.1312.

The Court shall prepare the order.