Case Number: EC066100 Hearing Date: July 27, 2018 Dept: A

Scuderia Partners v Shen

Motion FOR LEAVE TO FILE CROSS-COMPLAINT

Calendar:

11

Case No.:

EC066100

Hearing Date:

7/27/18

Action Filed:

2/23/17

Trial Date:

8/27/18

MP:

Defendant Yufen “Feny” Shen

RP:

Defendant/Cross-Complainant Eric Shen

ALLEGATIONS:

In this action, Plaintiff Scuderia Capital Partners, Inc. alleges that Defendants Eric Po-Chi Shen (“Mr. Shen”) and his ex-wife Yufen “Feny” Shen (“Ms. Shen”) stole and embezzled money from Plaintiff. Plaintiff alleges that Mr. Shen, as then-CEO of Plaintiff, caused Plaintiff to accept a promissory note for $553,100 with Ms. Shen and that Mr. Shen spent more than $5 million of Plaintiff’s funds to purchase jewelry and handbags for Ms. Shen.

The FAC, filed May 25, 2017, alleges causes of action for: (1) breach of written contract against Ms. Shen; (2) rescission based on fraud and failure of consideration against Ms. Shen; (3) breach of fiduciary duty against Mr. Shen; (4) conversion against Defendants; (5) constructive fraud against Mr. Shen; and (6) unjust enrichment against Defendants.

RELIEF REQUESTED:

Ms. Shen moves for leave to file a cross-complaint against Mr. Shen.

DISCUSSION:

Request for Judicial Notice

Mr. Shen requests judicial notice of the Notice of Entry of Judgment, Stipulated Judgment, and Attachment to Stipulated Judgment that was filed on July 7, 2014 in the family court. The Court takes judicial notice of this document pursuant to Evidence Code, §452(d).

Merits

Pursuant to CCP §428.50(c), “A party shall obtain leave of court to file any cross-complaint except one filed within the time specified in subdivision (a) [at time of filing answer] or (b) [before trial date is set by court]. Leave may be granted in the interest of justice at any time during the course of the action.”

Under CCP §428.10(b), a party to an action may file a cross-complaint setting forth any cause of action he has against a person to be liable thereon if the cause of action asserted in the cross-complaint: (1) arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause brought against him, or (2) asserts a claim, right, or interest in the property or controversy which is the subject of the cause brought against him.

Judicial policy favors resolution of all disputed matters between the parties and, therefore, the courts have held that “there is a strong policy in favor of liberal allowance of amendments.” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 296-97.)

On May 8, 2018, Ms. Shen filed this motion for leave to file a proposed cross-complaint against Mr. Shen, who was a named defendant in this action until Plaintiff dismissed him from the case on April 17, 2018. The proposed cross-complaint is attached as Exhibit A to the motion. In the proposed cross-complaint, Ms. Shen seeks to assert claims against Mr. Shen for express (contractual) indemnity, declaratory relief, equitable indemnity, and fraud arising out of the same transactions underlying Plaintiff’s claims. Ms. Shen argues that allowing amendment will conserve the Court and parties’ time and resources so that all the cross-claims are adjudicated at the same time, and that Mr. Shen has participated fully in this action and discovery (which closed on February 26, 2018) such that he will not prejudiced by this cross-action.

In opposition, Mr. Shen argues that Ms. Shen improperly seeks to expand the scope of this case at the eve of trial and after the close of discovery, by seeking to add Mr. Shen into the action. Mr. Shen argues that allowing amendment would be prejudicial to him because the cross-claims would require discovery on the parties’ eight-year marriage and divorce proceedings and that the claims should be resolved in family court. He also claims prejudice, arguing Ms. Shen delayed in filing this motion because she was aware of any indemnity claims she may have had since the time the lawsuit was filed.

Here, there is no dispute that the causes of action asserted in the cross-complaint arise out of the same transactions, occurrence, or series of transactions or occurrences as Plaintiff’s claims against Ms. Shen. (See CCP §428.10(b)(1).) Plaintiff’s action was brought against both Mr. Shen and Ms. Shen, until Mr. Shen was recently dismissed from Plaintiff’s action.

Although it would have been prudent for Ms. Shen to file a cross-complaint against Mr. Shen sooner, this in itself will not be a grounds to deny the motion. According to CCP §428.50(c), leave may be granted in the interest of justice at any time during the course of the action. Trial is soon-approaching, however, it is undisputed by the parties that Mr. Shen has participated in this action from its inception. It was only recently that Mr. Shen settled with Plaintiff in February 2018 and was dismissed from the action on April 17, 2018. There is no indication that notice of the April 17, 2018 request for dismissal was served on Ms. Shen to apprise her of Mr. Shen’s dismissal from the action, such that she should have filed this motion sooner. As Mr. Shen has been involved in this action until only recently, the Court does not find on the present showing that Mr. Shen would be prejudiced from the filing of the cross-complaint.

With regard to Mr. Shen’s concerns about discovery in the parties’ divorce proceedings, the Court finds these concerns to be minimal. As Mr. Shen and Ms. Shen were both involved in their divorce proceeding, it is likely that most of the relevant discovery sought is already within the possession of the parties. To the extent that further discovery may be necessary, the parties may consider moving for limited discovery. In the reply brief, Ms. Shen states she does not object to a brief continuance of the trial date if Mr. Shen wishes additional time to prepare for trial or to conduct targeted discovery related to the indemnification provision of the divorce settlement agreement.

Next, Mr. Shen argues that the cross-claims should be heard in family courts because family law cases should not spill over into civil law. (Neal v. Superior Court (2001) 90 Cal.App.4th 22, 25.) Mr. Shen argues that pursuant to the terms of the divorce settlement agreement, the family court retained the broadest possible general jurisdiction to value and divide any non-distributed assets and liabilities. (See Mr. Shen’s RJN, Ex. 1 at Stipulated Judgment, ¶36.) However, this provision does not state that the family court retained exclusive jurisdiction for any causes of action or matters arising out of the divorce settlement agreement, nor did it make the family court’s jurisdiction mandatory. Thus, the Court will not read the agreement to be as narrow as Mr. Shen suggests.

Finally, Mr. Shen also argues that the cross-claims are in essence family law disputes based on the divorce settlement agreement, and thus should be before the family court.

The first two causes of action for express indemnity and declaratory relief are based on the terms of the divorce settlement agreement. In the first cause of action, Ms. Shen alleges that she and Mr. Shen entered into the divorce settlement agreement in family court and that Mr. Shen breached his contractual obligations thereunder. The second cause of action similarly alleges that because Mr. Shen breached his obligations under the agreement, there is an actual and substantial controversy that exists between the parties regarding their rights under the agreement. While the terms of the divorce settlement agreement are at issue in these two causes of action, the allegations are dissimilar from Neal, as relied upon by Mr. Shen. In Neal, the Herman Neal sued Judith Neal, following their divorce proceeding, for: (1) declaratory relief based on a dispute in the family law case regarding whether he paid what he owes under the family law judgment; (2) fraud on the grounds that Judith made false statements in a family law OSC; (3) breach of contract that Judith breached the terms of the family law judgment; and (4) abuse of process for Judith’s allegedly false representations in family law court. In contrast, Ms. Shen’s claims do not arise out of the divorce proceeding, but rather seek to adjudicate whether Mr. Shen is obligated to indemnify Ms. Shen in this action based on the divorce settlement agreement.

The third and fourth causes of action for implied indemnity and fraud allege that Ms. Shen’s liability is solely due to Mr. Shen’s conduct towards Plaintiff. In the fraud cause of action, Ms. Shen alleges that Mr. Shen made fraudulent misrepresentations to her about the source of the checks he gave her to deposit, that he had been given gifts for his service and loyalty, and that her jewelry and handbags were purchased with his commissions. Again, these causes of action are separate and distinct from those brought in the family law court. For example, the fraudulent conduct alleged in this proposed cross-action do not involve fraud based on statements made before the family law court, but rather misrepresentations made to Ms. Shen about the origin of their wealth (i.e., Plaintiff). (See Neal, supra, 90 Cal.App.4th at 25.) Thus, Ms. Shen is seeking to allege that Mr. Shen made misrepresentations at the time he gave her the deposits and gifts—not as a part of their divorce proceedings.

As these causes of action are not disguised family law claims, they may be alleged against Mr. Shen by way of the proposed cross-complaint.

Accordingly, for the reasons above, the Court will grant the motion for leave to file the cross-complaint.

RULING:

Grant Ms. Shen’s motion for leave to file the cross-complaint.

Ms. Shen is ordered to separately provide a copy of the cross-complaint to the courtroom judicial assistant for filing at the time of the hearing.