Case Name: Nancy Tung v. Savann Seng, et al.
Case No.: 17CV313581

I. Background

This case brought by Nancy Tung (“Plaintiff”), as administrator for the estate of Amy Shen Tung (“Decedent”), against Savann Seng (“Seng”), Altest Corporation (“Altest”), On Electronics, Inc., and Sentung, LLC (“Sentung”) (collectively “Defendants”) arises from a dispute over the handling of company assets and rental property.

According to the allegations of the operative first amended complaint (“FAC”), Decedent owned 50 percent of the outstanding shares issued by Altest, On Electronics, Inc., and Sentung, LLC (collectively “Corporate Defendants”). Additionally, she and Seng jointly owned, as tenants in common, residential real estate in San Jose, California (the “Property”).

Prior to Decedent’s death, she and the shareholders of Altest, including Seng, executed a buy-back agreement pursuant to which the shareholders of Altest would buy back Decedent’s shares when she died at a price of $2,500 per share, subject to revaluation by unanimous agreement of the shareholders.

Decedent died intestate in March 2016 and her daughter, Plaintiff, was appointed administrator of Decedent’s estate (“Estate”). When she died, Altest received $1,006,730.58 as the beneficiary of a life insurance policy it had obtained for her. Nevertheless, Altest refused to purchase Decedent’s shares from the Estate in accordance with the buy-back agreement. Plaintiff demanded compliance with the buy-back agreement and asked for accounting records and financial information, but Seng and the Corporate Defendants refused.

In the course of investigating and attempting to resolve the dispute over the buy-back agreement, Plaintiff learned Seng owed the Estate rents and profits generated by the Property. She also discovered the Corporate Defendants owed money to the Estate as well.

Plaintiff asserts ten causes of action for (1) breach of contract; (2) violation of statutory duties to make records available for inspection; (3) breach of fiduciary duty; (4) common count-book account; (5) breach of written contract; (6) common count-book account; (7) conversion; (8) constructive trust; (9) breach of operating agreement; and (10) violation of Penal Code section 496.

Defendants presently demur to the tenth cause of action. Plaintiff opposes.

II. Merits of Demurrer

Defendants demur to the tenth cause of action for violation of Penal Code section 496, subdivision (a) (“Section 496(a)”) on the ground of failure to state sufficient facts. (See Code Civ. Proc., § 430.10, subd. (e).)

The tenth cause of action alleges Seng violated Section 496(a) by fraudulently appropriating property entrusted to him, causing injury to the Estate.

Defendants argue this claim fails because Plaintiff does not allege conduct violating Section 496(a). Specifically, Defendants contend there are no allegations that any property was stolen by theft or that they did anything illegal with the property thereafter, as required by Section 496(a).

Section 496(a) states, “Every person who buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained, shall be punished by imprisonment in a county jail for not more than one year, or imprisonment pursuant to subdivision (h) of Section 1170.” Accordingly, the first and second elements of Section 496(a) are “ ‘(1) that the particular property was stolen, [and] (2) that the accused received, concealed or withheld it from the owner thereof . . . ’ ” (Finton Construction, Inc. v. Bidna & Keys, APLC (2015) 238 Cal.App.4th 200, 213, quoting People v. Moses (1990) 217 Cal.App.3d 1245, 1250.) Penal Code section 496, subdivision (c) provides a private right of action for “[a]ny person who has been injured” by the violation of Section 496(a).

Defendants’ position is persuasive. In the FAC, Plaintiff alleges Seng refused to turn over the life insurance proceeds to the Estate, deprived the Estate of its ownership interests in the Corporate Defendants, appropriated funds from the Corporate Defendants for his own use, and deprived the Estate of funds Decedent loaned to the Corporate Defendants. None of these allegations, however, are sufficient to satisfy the first element of Section 496(a) stating the property must have been stolen. With respect to the life insurance proceeds, Exhibit A of the FAC clearly states Defendants are the beneficiaries of the life insurance policy. They were therefore entitled to the proceeds and did not steal them. Further, the remaining allegations regarding the deprivation of ownership interests, appropriation of funds, and deprivation of loans are grossly vague and do not implicate the property was ever stolen by Defendants or anyone else. As for the ownership interests, Seng and the Corporate Defendants are necessarily entitled to the ownership interests and it is unclear how a “deprivation” of these constitute stolen property. Further, as to the appropriation of funds, the FAC merely alleges Sentung made distributions to Seng to cover tax expenses and that similar distributions were not equally made to Plaintiff. Again, it is unclear how this constitutes theft. Lastly, the allegation that Seng deprived Plaintiff of loans also does not implicate the first element of Section 496(a), since these loans were lawfully made to Defendants in the first place and therefore were not stolen. As such, the allegations are insufficient to support Plaintiff’s claim.

For the reasons stated above, Defendants’ demurrer to the tenth cause of action for failure to state sufficient facts is SUSTAINED with 10 days’ leave to amend.