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

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.

Plaintiff alleges that 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’s original complaint in this action was filed on July 26, 2017 stating three causes of action: (1) Breach of Contract; (2) Violation of Statutory Duties to make records available for inspection, and; (3) Breach of Fiduciary Duty. A First Amended Complaint (“FAC”) was filed November 13, 2017 adding several additional causes of action: (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 §496.

Defendants previously demurred to the FAC’s tenth cause of action on the ground that it failed to state sufficient facts and the Court’s uncontested tentative ruling sustaining the demurrer to that claim with leave to amend was adopted as the Court’s final ruling on April 9, 2019. The Court found that none of the tenth causes of action’s allegations were “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.” (See April 9, 2019 Order.)

The operative Second Amended Complaint (“SAC”) was filed April 18, 2019 stating the same ten causes of action. Currently before the Court is Defendants’ demurrer to the tenth cause of action for violation of Penal Code §496 as alleged in the SAC, asserting that it continues to fail to state sufficient facts.

As an initial matter, the Court notes that the April 9, 2019 ruling does not constitute “law of the case” as Defendants suggest in their present demurrer as that doctrine only applies to decisions of appellate courts. (See People v. Barragan (2004) 32 Cal.4th 236, 246.)

Request for Judicial Notice
A precondition to judicial notice in either its permissive or mandatory form is that the matter to be noticed be relevant to the material issue before the Court. (Silverado Modjeska Recreation and Park Dist. v. County of Orange (2011) 197 Cal.App.4th 282, 307, citing People v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422 fn. 2.)

In support of the demurrer Defendants ask the Court to take judicial notice of two documents (attached to the request as exhibits A & B) pursuant to Evidence Code §§ 452(d) and 453. Exhibit A is a copy of the FAC (and attached exhibits) and Exhibit B is a copy of the Court’s uncontested tentative ruling on the prior demurrer to the 10th cause of action as alleged in the FAC. While notice of the FAC is unnecessary as the Court already considers the prior pleading in ruling on a demurrer to an amended pleading, notice of both documents is GRANTED pursuant to Evidence Code §452(d) (court records) only. The Court’s prior order may be noticed as to its contents and legal effect.

Demurrer to SAC
The Court in ruling on a demurrer treats it “as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Piccinini v. Cal. Emergency Management Agency (2014) 226 Cal.App.4th 685, 688, emphasis added, citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214.) Where a demurrer is to an amended complaint, the Court “may consider the factual allegations of prior complaints, which a plaintiff may not discard or avoid by making contradictory averments, in a superseding, amended pleading.” (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034 [internal quotations omitted].)

Allegations are not accepted as true on demurrer if they contradict or are inconsistent with facts judicially noticed. Similarly, facts appearing in exhibits attached to the complaint (part of the “face of the pleading”) are given precedence over inconsistent allegations in the complaint. (See Holland v. Morse Diesel Int’l, Inc. (2001) 86 Cal.App.4th 1443, 1447; Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1474 [rejecting allegation contradicted by judicially noticed facts]. See also Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505 [“[T]o the extent the factual allegations conflict with the content of the exhibits to the complaint, we rely on and accept as true the contents of the exhibits and treat as surplusage the pleader’s allegations as to the legal effect of the exhibits.”]) “While inconsistent theories of recovery are permitted, a pleader cannot blow hot and cold as to the facts positively stated.” (Manti v. Gunari (1970) 5 Cal.App.3d 442, 449, internal citation omitted.)

The general rule is that statutory causes of action, such as the tenth cause of action here, must be pleaded with particularity. (See Lopez v. Southern California Rapid Transit District (1985) 40 Cal.3d 780, 795; Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 790.)

Tenth cause of action-violation of Penal Code §496
Penal Code §496(a) states in pertinent part that “[e]very person who buys or receives 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. . . . A principal in the actual theft of the property may be convicted pursuant to this section. However, no person may be convicted both pursuant to this section and of the theft of the same property.” (Emphasis Added.) Penal Code §496(c) states that “[a]ny person who has been injured by a violation of subdivision (a) or (b) [not relevant here] may bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney’s fees.” (Brackets added).

“Penal Code section 496, subdivision (a) … makes receiving or buying property ‘that has been obtained in any manner constituting theft’ a criminal offense punishable by imprisonment.” (Bell v. Feibush (“Bell”) (2013) 212 Cal.App.4th 1041, 1043.) That statute extends liability to “[e]very person who buys or receives any property that has been stolen or has been obtained in any manner constituting theft.” (Penal Code §496(a).) A criminal conviction under §496(a) is not a prerequisite to seeking damages under §496(c), but there can be no violation of Penal Code §496 unless a defendant receives or purchases property that has already been stolen from another. As the California Courts of Appeal have not taken a uniform position on the proper role of Penal Code §496 in civil cases the Court must choose which interpretation to follow. (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456 [“the rule under discussion [stare decisis] has no application where there is more than one appellate court decision, and such appellate decisions are in conflict. In such a situation, the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions”].)

The Court finds more persuasive the appellate decisions that have determined that Penal Code §496’s use in civil litigation is limited to situations involving actual theft and subsequent purchase or receipt of already stolen property, despite the allure §496(c) may have for counsel in civil litigation. “If every plaintiff in an employment or contract dispute could also seek treble damages and attorneys’ fees on the ground that the defendant received ‘stolen property,’ such claims would become the rule rather than the exception, parties would more frequently assert claims for ‘theft’ in run-of-the-mill commercial disputes, and cases would be harder to settle. We cannot believe the Legislature contemplated, much less intended, those consequences when it enacted section 406, subdivision (c).” (Lacagnina v. Comprehend Systems, Inc. (2018) 25 Cal.App.5th 955, 972 [affirming grant of nonsuit on claim for violation of §496], internal citation omitted but citing Corley v. San Bernardino County Fire Protection District (2018) 21 Cal.App.5th 390, 397 [in interpreting statutes, courts must select construction that comports with apparent intent of Legislature and avoid an interpretation that would lead to absurd consequences.].)

The 10th cause of action as stated in the SAC, alleged against Defendant Seng “and all other defendants as alter egos,” asserts that Penal Code §496 was violated in the following ways: “First, Seng violated Section 496 by fraudulently misappropriating the Estate’s ownership interest and assets in the Defendant Companies entrusted to Seng through the falsification of corporate records. . . . Second, Seng violated Section 496 by fraudulently misappropriating other funds that had been entrusted to him. . . . Among the assets misappropriated by Seng were (a) life insurance proceeds received by Altest [which the Court has already ruled does not constitute receipt of stolen property] . . . (b) hundreds of thousands of dollars in payments to cover Seng and his wife’s personal taxes . . . and (c) payments to an employee IRA account made to Mr. Seng and his wife from Sentung [LLC] despite the fact that his wife is not employed by Sentung.” (SAC at ¶¶120-121.)

These allegations cannot be reasonably interpreted as describing Defendant Seng buying, receiving or obtaining property that has already been stolen from another. As noted above, in ruling on a demurrer the Court accepts as true “all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” Plaintiff’s legal contention that a civil defendant can violate §496(a) by purchasing, receiving or obtaining already stolen property from himself/herself is an unreasonable interpretation of the statutory language that ignores the clear distinction between receipt of stolen property, codified in Penal Code §496(a), and actual theft codified in Penal Code §484(a) (stating in pertinent part: “Every person who shall feloniously steal, take, carry, lead, or drive away the personal property of another, or who shall fraudulently appropriate property which has been entrusted to him or her, or who shall knowingly and designedly, by any false or fraudulent representation or pretense, defraud any other person of money, labor or real or personal property, or who causes or procures others to report falsely of his or her wealth or mercantile character and by thus imposing upon any person, obtains credit and thereby fraudulently gets or obtains possession of money, or property or obtains the labor or service of another, is guilty of theft.”) The tenth cause of action as alleged in the SAC can only be reasonably interpreted as an attempt to allege a civil claim for actual theft as defined in Penal Code §484(a). There is no private civil cause of action to enforce Penal Code §484. Such a civil claim would be redundant of multiple existing civil causes of action, several of which are alleged in the SAC, such as breach of contract, breach of fiduciary duty and conversion.

Defendants’ demurrer to the tenth cause of action on the ground that it fails to state sufficient facts is, again, SUSTAINED, as the claim fails to state sufficient facts to support a claim for receiving stolen property as defined in Penal Code §496(a).

The Court notes that Plaintiff’s opposition does not indicate how the tenth cause of action could be amended to state sufficient facts. In fact the opposition does not request leave to amend at all. Plaintiff bears the burden of proving an amendment would cure the defect identified on demurrer. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081; see also Medina v. Safe-Guard Products (2008) 164 Cal.App.4th 105, 112 fn. 8 [“As the Rutter practice guide states: ‘It is not up to the judge to figure out how the complaint can be amended to state a cause of action. Rather, the burden is on the plaintiff to show in what manner he or she can amend the complaint, and how that amendment will change the legal effect of the pleading.’”]) As leave to amend was previously granted to address the same defect that continues to exist in the tenth cause of action as alleged in the SAC, further leave to amend is DENIED.