Case Name: Ming Yang v. Chengta “Eric” Yang, et al.

Case No.: 17CV317103

I. Background

According to the allegations in the first amended complaint (“FAC”), Ming Yang (“Plaintiff”) and his brother, defendant Chengta “Eric” Yang, had a falling out in the course of running a business together. Plaintiff claims his brother mismanaged the business and tried to force him out by spreading rumors and threatening to instigate criminal proceedings. Plaintiff alleges defendant Rocky Lee (“Lee”), their attorney, participated in this attempted ouster. Plaintiff asserts causes of action against his brother, his brother’s company ITutorGroup, Inc. (“ITG”), and Lee for: (1) breach of fiduciary duty (against his brother); (2) breach of fiduciary duty (against Lee); (3) defamation (against his brother and Lee); (4) civil extortion (against all defendants); and (5) intentional infliction of emotional distress (against his brother and Lee).

Lee and ITG (collectively, “Defendants”) each filed a demurrer to the fourth cause of action for civil extortion on the ground Plaintiff fails to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).)

II. Discussion

Defendants advance identical arguments in support of their demurrers, and so the Court addresses their arguments collectively. They assert Plaintiff fails to state a claim for civil extortion because there is no allegation that money or property was actually lost. They also argue Plaintiff cannot otherwise state a claim for attempted extortion because no such claim is recognized in California.

Penal Code section 518 defines the crime of extortion as “the obtaining of property from another, with his or her consent, [ ] induced by a wrongful use of force or fear….” “Fear, such as will constitute extortion, may be induced by a threat of any of the following: [¶] 1. To do an unlawful injury to the person or property of the individual threatened or of a third person. [¶] 2. To accuse the individual threatened…of any crime; [¶] 3. To expose, or impute to him, her, or them…any deformity, disgrace or crime….” (Pen. Code, § 519.)

“However denominated (e.g., extortion, menace, duress), [the California] Supreme Court has recognized a cause of action for the recovery of money obtained by the wrongful threat of criminal or civil prosecution.” (See Fuhrman v. California Satellite Systems (1986) 179 Cal.App.3d 408, 426, disapproved on another ground in Silberg v. Anderson (1990) 50 Cal.3d 205, 219.) “It is essentially a cause of action for moneys obtained by duress, a form of fraud.” (Fuhrman, supra, 179 Cal.App.3d at p. 426.) To be cognizable, the plaintiff must actually have acceded to the demand by paying money or relinquishing property to avoid the threatened harm. (Ibid.; see also Chan v. Lund (2010) 188 Cal.App.4th 1159, 1169–70.)

As Defendants articulate, Plaintiff does not allege he sold his shares or paid them money in response to their extortionate demands. Plaintiff explicitly describes their conduct as attempted extortion in the pleading. (FAC, ¶ 41.) Thus, Plaintiff fails to state a claim for civil extortion. Indeed, he tacitly concedes this point because he does not address it or identify any allegation to support a contrary conclusion.

Nevertheless, Plaintiff disputes whether his allegations are sufficient to constitute a claim for attempted extortion. No California court has recognized the existence of either an express or implied right of action for attempted extortion. And so, there is no binding authority that supports Plaintiff’s position. Instead, Plaintiff relies primarily on Monex Deposit Co. v. Gilliam (“Monex”) (2009) 666 F.Supp.2d 1135 and other federal decisions citing Monex. For the reasons that follow, Plaintiff’s argument is not persuasive.

In Monex, the district court considered whether the plaintiff adequately stated a claim for civil extortion when it affirmatively alleged in the pleading that it refused to give in to the defendant’s extortionate demands. (Monex, supra, 666 F.Supp.2d at p. 1136.) The district court stated: “At first glance, [Fuhrman] might suggest that Monex cannot state a claim for civil extortion. However, viewed in its proper factual, historical, and legal context, this [case] does not preclude an implied cause of action under California Penal Code section 523.” (Monex, supra, 666 F.Supp.2d at p. 1136.) This statement and the reasoning that followed in the decision, illuminate a fundamental flaw in the court’s analysis, namely that it confused two distinct inquiries: (1) whether the plaintiff stated a claim for civil extortion as defined in Fuhrman; and (2) notwithstanding the first inquiry, whether the plaintiff stated some other claim. Put differently, the district court seemingly acknowledged these inquiries are distinct and that its decision necessarily rested upon the recognition of a new, implied right of action for attempted extortion. (Id. at p. 1136.) But the district court ultimately concluded—contrary to Fuhrman—that a claim for civil extortion or duress, as compared to some new claim, had been stated based on its own purported definition. (Id. at p. 1137.) This approach is flawed and will not be followed.

Contrary to what the district court suggests, the holding in Fuhrman is unambiguous and unaltered by its context. It remains, as stated in Fuhrman, that a plaintiff must necessarily have lost something to recover what was lost under a theory of duress or extortion. The issue of whether some other corresponding civil remedy should be recognized for the crime of attempted extortion is an entirely separate matter.

With respect to this latter issue, the district court’s stated rationale is insufficient as it consists of a bare conclusion that recognizing an implied right of action will further the purpose of Penal Code section 523. (Monex, supra, 666 F.Supp.2d at p. 1137.) In addition to the fact that the district court provided no explanation as to how recognizing a new claim furthers the purpose of that statute, its conclusion rests on an erroneous reading and application of Katzberg v. Regents of the University of California (2002) 29 Cal.4th 300.

In Katzberg, the California Supreme Court “join[ed] the jurisdictions that have endorsed, implicitly or explicitly, the view set out in the Restatement, that courts, exercising their authority over the common law, may, in appropriate circumstances, recognize a tort action for damages to remedy a constitutional violation.” (Katzberg, supra, 29 Cal.4th at p. 325.) Neither Monex nor the case at bench involve a constitutional violation. And so, Katzberg does not purport to establish the standard for evaluating whether a court should recognize a right of action based on a criminal statute. (See Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592, 602 [emphasizing adoption of Restatment in Katzberg was for the limited purpose of evaluating constitutional provisions].) Also, even assuming, Katzberg applies, the district court in Monex did not adhere to the legal standard adopted in that case.

Under the Restatement, “[w]hen a legislative provision protects a class of persons by proscribing or requiring certain conduct but does not provide a civil remedy for the violation, the court may, if it determines that the remedy is appropriate in furtherance of the purpose of the legislation and needed to assure the effectiveness of the provision, accord to an injured member of the class a right of action, using a suitable existing tort action or a new cause of action analogous to an existing tort action.” (Rest.2d Torts, § 874A.) A bare finding that a remedy furthers a legislative provision is insufficient. As illustrated in Katzberg, a court must consider whether the remedy is necessary, including by evaluating the adequacy of existing remedies. (Katzberg, supra, 29 Cal.4th at pp. 326–27.) In Monex, the district court failed to address both criteria. And so, its analysis was insufficient to support the conclusion it reached.

To summarize, to the extent the court in Monex concluded a claim for duress or extortion had been stated in the absence of an allegation of accession to the demand, its decision was contrary to California law. To the extent the court otherwise purported to create an implied right of action, it erroneously relied on Katzberg and, notwithstanding that error, provided an incomplete and insufficient rationale. For these reasons, the Court finds Monex and its reasoning unpersuasive.

When evaluating whether a private right of action lies for a statutory violation—including a violation of the Penal Code—“[t]he issue…is primarily one of legislative intent.” (Animal Legal Defense Fund v. Mendes (2008) 160 Cal.App.4th 136, 142.) “If the Legislature intended a private right of action, that usually ends the inquiry.” (Ibid.) “If the Legislature intended there be no private right of action, that usually ends the inquiry.” (Ibid.) “If…the Legislature expressed no intent on the matter either way, directly or impliedly, there is no private right of action….” (Ibid.)

Penal Code section 524 criminalizes attempted extortion, the elements of which are “(1) a specific intent to commit extortion, or to obtain property from another, with his or her consent, induced by a wrongful use of fear, and (2) a direct ineffectual act done towards its commission….” (Cross v. Cooper (2011) 197 Cal.App.4th 357, 386–87.) With that said, and perhaps in light of Monex, the parties discuss Penal Code section 523, which prohibits extortion by means of a letter or ransomware. Although extortion falling within the scope of Section 523 is “punishable in the same manner as if such property or other consideration were actually obtained by means of such threat,” Section 524 is, in fact, the statute generally governing attempt.

In any event, unlike other sections of the Penal Code, neither section 523 nor section 524 explicitly authorize a private right of action. (Compare Pen. Code, §§ 523–24 with Pen. Code, § 496, subd. (c) [authorizing civil remedy for victims of theft].) And, Plaintiff does not identify any language in those statutes establishing the Legislature otherwise intended to create a private right of action. Contrary to what Plaintiff suggests, the fact that unsuccessful extortion by means of a letter or ransomware is punishable to the same extent as completed extortion does not establish an intent to create “an equivalent private cause of action.” (Opp. at p. 7:9–11.) Most significantly, there is no statutory claim for civil extortion upon which an equivalent claim could be patterned. (See Pen. Code, § 518.) Rather, civil extortion is another name for a species of fraud known as duress. (See Fuhrman, supra, 179 Cal.App.3d at p. 426.) And so, Plaintiff does not establish the statutes at issue contain terms that “strongly and directly indicate that the Legislature intended to create a private cause of action.” (Lu, supra, 50 Cal.4th at p. 592.)

Plaintiff does not discuss the legislative history. And so, there is no basis for concluding that, despite the absence of an express intent, intent to create a private right of action is implicit under the circumstances. (See Lu, supra, 50 Cal.4th at pp. 597–602.)

In summary, Plaintiff’s discussion is insufficient to establish the Legislature expressly or impliedly intended to create a private right of action for attempted extortion. The California Supreme Court has expressed that “a party contending for judicial recognition of [a new private] right bears a heavy, perhaps insurmountable, burden of persuasion.” (Lu, supra, 50 Cal.4th at p. 601.) Plaintiff fails to carry this burden here.

The Court makes a final observation that, because a claim for civil extortion operates to allow a plaintiff to recover the money wrongfully obtained by the defendant, it is unclear what remedial purpose would be served by recognizing a private right of action for attempted extortion.

“‘[T]he traditional aims of punishment’ are ‘retribution or deterrence.’” (People v. Ruiz (2018) 4 Cal.5th 1100, 1107, quoting People v. Alford (2007) 42 Cal.4th 749, 759.) This is true with respect to the sections of the Penal Code proscribing attempted and completed extortion. Arguably, with a case of completed extortion, a criminal prosecution may fulfill the objectives of retribution and deterrence without remedying the individual’s financial loss. In that scenario, the existence of a civil remedy is presumably necessary to remedy, not just the social harm of the crime, but the individual’s property loss. The same cannot be said for attempted extortion. An inchoate offense, like any crime, harms our social fabric and could conceivably cause an emotional injury in isolation. But, by definition, a victim of attempted extortion suffers no immediate financial loss having refused to accede to the threat. Thus, while society retains an interest in punishing and deterring the conduct, there is no outstanding financial loss necessitating a civil remedy. (See generally Strebel v. Brenlar Investments, Inc. (2006) 135 Cal.App.4th 740, 748–50 [discussing purpose and measure of tort damages].) And, it is unclear how emotional distress damages could be recovered under the circumstances. (See generally Erlich v. Menezes (1999) 21 Cal.4th 543, 557.) Thus, recognition of a private right of action for attempted extortion would essentially create a penalty. (See generally McGuier v. More-Gas Investments, LLC (2013) 220 Cal.App.4th 512, 522.) The Legislature has already established a penalty for the crime, and so the Court will not create a civil penalty here.

In consideration of the foregoing, Plaintiff fails to state a claim for civil extortion of any kind (either completed or attempted). When a court sustains a demurrer, it may deny leave to amend if there is no reasonable possibility the plaintiff can amend the complaint to state a viable claim. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) A “[p]laintiff must show in what manner he [or she] can amend his [or her] complaint and how that amendment will change the legal effect of the pleading.” (Ibid.) Under the circumstances, there is no reasonable possibility Plaintiff could amend the pleading to state a viable claim for extortion. With that said, Plaintiff seeks leave to assert a claim for intentional infliction of emotional distress instead. But such an amendment goes beyond curing the defective claim. And, Plaintiff has already asserted a claim for intentional infliction of emotional distress. Thus, the demurrer to the fourth cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.