Case Name: San Jose Nihonmachi, LLC v. Miraido Corp., et al.
Case No.: 17-CV-316504

This action arises from a dispute over a real estate development project and the settlement of a previous lawsuit amongst the parties, which parties are plaintiff San Jose Nihonmachi, LLC (“Plaintiff”) and defendants Miraido Corporation, Yoshihiro Uchida, Japantown Development, L.P., AFE Urban, Inc., and A.F. Evans Company, Inc.

Currently before the Court is defendant Yoshihiro Uchida’s demurrer on the ground of failure to state facts sufficient to constitute a cause of action to the second cause of action for breach of fiduciary duty in the second amended complaint (“SAC”). The Court previously sustained Uchida’s demurrer to this cause of action as alleged in the first amended complaint, and he argues Plaintiff simply did not amend the pleading when the Court gave it an opportunity to do so in connection with this previous demurrer.

In light of Uchida’s sole argument in support of the demurrer, it is unnecessary to recount the lengthy and convoluted factual allegations giving rise to Plaintiff’s claims in their entirety. In any event, these allegations about conduct occurring over the course of nearly 30 years are summarized in the order on the demurrer to the first amended complaint and have not been substantially amended since. Accordingly, the Court does not summarize all of the factual allegations in the SAC here and recounts only those allegations that are material to the disposition of Uchida’s demurrer.

Plaintiff alleges Uchida was the President and/or Chief Executive Officer (“CEO”) of defendant Miraido Corporation (“Miraido”). (SAC, ¶ 76.) Miraido was a general partner and Plaintiff’s predecessor-in-interest was a limited partner of a partnership formed to develop real estate in the Japantown neighborhood of San Jose. (SAC, ¶¶ 4, 76.) Plaintiff alleges Miraido and Uchida owed it a duty of loyalty, honesty, and care arising from the partnership. (SAC, ¶ 76.) Plaintiff first alleges Miraido and Uchida breached their fiduciary duty by failing to account for and retaining $956,160.30. (SAC, ¶ 76.) Plaintiff also alleges Miraido and Uchida failed to obtain consent to sell the real estate that was developed for $2,500,000 less than anticipated and to replace another partner when an existing partner filed for bankruptcy. (SAC, ¶¶ 77-78.) Finally, Plaintiff alleges Miraido and Uchida breached their duty by failing to conduct a final accounting before making distributions to partners upon liquidation of the partnership. (SAC, ¶ 79.)

As Uchida persuasively argues, Plaintiff still does not allege facts showing it had a fiduciary relationship with him, as distinct from Miraido, sufficient to state a breach of fiduciary duty claim. (See Meister v. Mensinger (2014) 230 Cal.App.4th 381, 395 [existence of a fiduciary relationship is an essential element of breach of fiduciary duty claim].)

Although a partnership is a fiduciary relationship, (Enea v. Super. Ct. (2005) 132 Cal.App.4th 1559, 1564), Plaintiff alleges Miraido was its partner, not Uchida. Thus, Plaintiff does not allege facts showing Uchida owed it a fiduciary duty based on the partnership. (See, e.g., Everest Investors 8 v. Whitehall Real Estate L.P. XI (2002) 100 Cal.App.4th 1102, 1107-08 [defendant, as distinct from general partner, did not owe a duty to limited partner and was not liable individually or as a coconspirator].)

Plaintiff’s theory still appears to be that Uchida owed it a fiduciary duty because he was CEO of its partner Miraido. A corporate officer has a fiduciary relationship with the corporation he or she works for and owes the corporation a duty “to act with honesty, loyalty, and good faith [ ].” (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1037.) But this relationship between the officer and the corporation does not give rise to a fiduciary duty owed to third parties transacting business with the corporation. (United States Liability Insurance Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 594-95.) A corporate officer is not liable to a third person for “a breach of duty owing to the corporation alone.” (Ibid.) Rather, “the act must also constitute a breach of duty owed to the third person.” (Ibid.) Accordingly, although Plaintiff alleges facts showing Uchida had a fiduciary relationship with Miraido as its CEO, this relationship does not give rise to any fiduciary duty owed to Plaintiff.

Plaintiff does not otherwise allege any new facts to show the existence of a fiduciary relationship between it and Uchida. Consequently, Plaintiff fails to state a cause of action for breach of fiduciary duty relative to him.

The points advanced by Plaintiff in opposition do not support a contrary conclusion. Plaintiff first asserts an officer of the entity that is a general partner owes the limited partner a fiduciary duty. Plaintiff does not cite any authority to support this assertion. Next, Plaintiff cites Cleveland v. Johnson (2012) 209 Cal.App.4th 1315 apparently for the proposition that an officer generally has a fiduciary relationship with a third party transacting business with his or her corporate employer. But Cleveland does not directly or indirectly support the proposition for which Plaintiff cites it and is not otherwise analogous to the case at bench. (See Cleveland, supra, 209 Cal.App.4th at pp. 1343-44 [considering duties owed to corporation’s investors].)

In conclusion, Uchida’s demurrer to the second cause of action is sustainable. When sustaining a demurrer, a court may deny leave to amend if the plaintiff cannot demonstrate any reasonable possibility of curing the defect in the pleading through amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Although the Court previously gave Plaintiff an opportunity to amend the pleading, it chose not to do so and instead stood on its legally defective theory of liability relative to Uchida. Furthermore, Plaintiff does not articulate how it could amend the pleading to state a viable claim if given another opportunity to do so. Accordingly, Uchida’s demurrer to the second cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.