Case Number: BC611130 Hearing Date: June 16, 2016 Dept: 37

CASE NAME: ABS-CBN Global Remittance, Inc. v. Island Pacific Supermarkets, Inc., et al.

CASE NO.: BC611130

HEARING DATE: 6/16/16

DEPARTMENT: 37

CALENDAR NO.: 10

TRIAL DATE: None

NOTICE: OK

SUBJECT: Motion for Judgment on the Pleadings

MOVING PARTY: Defendants Ryan Go and Fei Lu

OPPOSING PARTY: Plaintiff ABS-CBN Global Remittance, Inc.

COURT’S TENTATIVE RULING

Defendants’ request for judicial notice is granted, as more fully set forth below. The motion for judgment on the pleadings is denied. Counsel for Plaintiff to give notice.

STATEMENT OF THE CASE

The facts of the case, as alleged in the complaint, are set forth in the court’s June 9, 2016 ruling on the companion motion for judgment on the pleadings by the Island Pacific Defendants. Defendants Ryan Go and Fei Lu now move for judgment on the pleadings on the ground that Plaintiff fails to sufficiently set forth allegations of alter ego liability, Plaintiff fails to state facts sufficient to constitute a cause of action, and Plaintiff’s action is barred by the doctrine of unclean hands. For the reasons set forth below, the motion is denied.

DISCUSSION

I. Legal Standard

A defendant may move for judgment on the pleadings if the complaint does not state facts sufficient to constitute a cause of action against the defendant. (Code Civ. Proc., § 438, subds. (b)(1) & (c)(1)(B)(ii).) Except as provided by statute, the rules governing demurrers govern motions for judgment on the pleadings. (Cloud v. Northrup Grumman Corp. (1998) 67 Cal.App.4th 995, 999.) Therefore, the grounds for a motion for judgment on the pleadings must be apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Ibid.) The court accepts the truth of all material facts properly pleaded, but not the truth of “contentions, deductions or conclusions of law.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

II. Request for Judicial Notice

Defendants request that the court judicially notice (1) the memorandum of points and authorities filed by Plaintiff in the prior action in support of its motion for post-judgment appointment of a receiver for DL Global Foods; (2) the declaration of

Jonathan R. Zeko filed in support of the same motion; and (3) the final order entered on August 11, 2015, by the California Department of Business Oversight in the proceeding styled In re the Matter of ABS-CBN Global Remittance, Inc. The request is granted for the purposes set forth in this discussion. (See Evid. Code, § 452, subds. (c), (d).)

III. Summary of Allegations against Ryan Go and Fei Lu

Defendants’ primary contention on this motion is that there simply is not enough alleged against them in particular to support the causes of action. However, in evaluating the sufficiency of a pleading, courts “construe the complaint in a reasonable manner and read the allegations in context.” (Leonte v. ACS State and Local Solutions, Inc. (2004) 123 Cal.App.4th 521, 525.) As with a demurrer, courts liberally construe the allegations in the complaint to determine whether a cause of action has been stated. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.) Here, the allegations sufficiently define Defendants’ alleged role in the broader fraudulent scheme set forth in the complaint. Ryan Go is alleged to be the brother-in-law of Katherina Miave Lim Go and the manager of the Cerritos Island Pacific Market. (Compl. ¶¶ 7, 47.) Fei Lu is Ryan Go’s wife and allegedly worked at East West Bank, the institution Plaintiff was allegedly deceived into believing held about $2 million for its benefit. Plaintiff alleges that Ms. Lu helped generate fraudulent letters on East West Bank’s letterhead for the purpose of deceiving Plaintiff into believing the funds were held by the bank. (Compl. ¶¶ 45-47.) However, these allegations cannot be viewed in isolation. In considering the parties’ respective arguments on this motion, the court considers the broader context in which Defendants are alleged to have acted.

IV. Alter Ego Allegations

Defendants contend that Plaintiff fails to set forth alter ego liability for three reasons. First, Defendants argue that the alter ego allegations are factually insufficient to give rise to a cognizable claim of alter ego liability. Second, they assert that the alter ego allegations contradict allegations made by Plaintiff in the prior action. And third, Defendants maintain that the allegations are barred by the doctrine of judicial estoppel. For the following reasons, the court determines that Plaintiff has properly asserted a claim for alter ego liability.

A. Sufficiency of the Allegations

The alter ego doctrine is a rationale for disregarding a corporation’s separate legal existence. The general formulation consists of two components—a unity of interest and ownership between the corporation and individual such that the corporation’s separate personality no longer exists, and an inequitable result if the individual were not held liable. “Before a corporation’s obligations can be recognized as those of a particular person, the requisite unity of interest and inequitable result must be shown.” (Leek v. Cooper (2011) 194 Cal.App.4th 399, 411.) In the complaint, the plaintiff need only allege ultimate facts, not evidentiary facts. (Doe v. City of Los

Angeles (2007) 42 Cal.4th 531, 550.) In addition, the plaintiff may plead with less particularity in circumstances where the defendant “ ‘may be assumed to possess knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff.’ ” (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 236.)

Plaintiff has satisfied this pleadings standard. In paragraphs 52-54 of the complaint, Plaintiff sets forth allegations of ultimate fact with respect to the various factors courts consider in determining whether to apply the alter ego doctrine. (See Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538-539.) These allegations show that in addition to DL Global Foods, the entities named in this action may be controlled by a group of people for the purpose of carrying out a fraudulent scheme in the money transfer business. Assuming these facts are true, Defendants may be liable under the alter ego doctrine. (See First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915-916.) This is particularly true in this case,

In their motion, Defendants rely primarily on Riddle v. Leuschner (1959) 51 Cal.2d 574, in which the appellate court partially reversed a judgment on the ground that there was no evidence one of the individual defendants had a unity of interest with the corporation found to be his alter ego. The Court reasoned, “The evidence is not sufficient to bring Leuschner, Sr., within the first of these requirements. It is undisputed that he held none of the stock, and there is no evidence that he had any interest as an owner in the business operated by either of the two corporations or that he had a right to share in any profits they might make.” (Id. at p. 580.) In contrast to Riddle, which was decided on a factual record, at this juncture in this case, in ruling on this motion, only the complaint is before the court. As discussed, Plaintiff presents sufficient allegations of ultimate fact to prevail on the motion.

B. Contradictory Allegations

Defendants contend that the court should disregard Plaintiff’s allegations of alter ego liability because of assertions made by Plaintiff in the prior action. As a general rule, litigants may not plead facts that contradict facts or positions they previously asserted in prior actions. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 877.) To prevent litigants from asserting contradictory positions in different actions, courts may consider affidavits filed on behalf of a litigant in a prior proceeding. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604.) Here, Defendants note that in the prior action, Plaintiff filed a motion for post-judgment appointment of a receiver for DL Global Foods, whose sole asset was a supermarket located in Cerritos, California. The gist of the motion was that because Mr. Jimenez was the sole shareholder of DL Global Foods, someone other than Mr. Jimenez should control the corporation to protect the value of the supermarket for Plaintiff’s benefit. (RJN, Exh. 1.) In support of the motion, Plaintiff presented the declaration of Jonathan R. Zeko, whom Plaintiff hired as special collection counsel to assist in satisfying the judgment resulting from the prior action. In the declaration, Mr. Zeko attested to the fact that Mr. Jimenez was the sole shareholder of DL Global Foods and that he completely controlled the entity’s operations. (RJN, Exh. 2.) Accordingly, Defendants maintain that

it is inconsistent for Plaintiff to now assert that another individual or entity, such as those named in this action, owned shares of the company or otherwise controlled its affairs.

However, this action is based on events that have allegedly transpired since the entry of the prior judgment. Thus, while Mr. Jimenez may have been the sole shareholder at the time Plaintiff moved for a post-judgment receiver—i.e., November 30, 2015—there is nothing before the court demonstrating that Mr. Jimenez remains the sole shareholder. The fact that Plaintiff has brought this action alleging that Defendants have helped and continue to help Mr. Jimenez and DL Global Foods thwart Plaintiff’s collection efforts suggests that circumstances may have changed since Plaintiff brought the prior motion. There is at least an inference from the allegations in the complaint that other members of the Lim family, as well as the corporate entities they allegedly control, may have gained a “unity of interest” with DL Global Foods to justify alter ego liability.

C. Judicial Estoppel

For these reasons, Defendants’ judicial estoppel argument is not determinative. The doctrine of judicial estoppel concerns the relationship between a litigant and the court, as opposed to other forms of estoppel which generally preclude one party from taking a position vis-à-vis another party. In contrast to other forms of estoppel, the purpose of judicial estoppel is to prevent a party from adversely impacting the judicial process, including the orderly administration of justice and the dignity of judicial proceedings. (Swahn Group, Inc. v. Segal (2010) 183 Cal.App.4th 831, 841.) At bottom, the doctrine is meant “to protect against a litigant playing fast and loose with the courts.” (Ibid., internal quotation marks omitted.)

To determine whether the doctrine applies, courts generally consider whether a litigant has taken irreconcilable positions before different judicial bodies. The doctrine consists of the following elements: “ ‘(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.’ ” (Aguilar v. Lerner (2004) 32 Cal.4th 974, 986-987.)

Although courts reduce the doctrine to five independent elements, courts are mindful that the doctrine is equitable and discretionary in nature, intended to prevent a litigant from gaining unfair advantage. (Minish v. Hanuman Fellowship (2013) 214 Cal.App.4th 437, 449.) The doctrine “is an extraordinary and equitable remedy that can impinge on the truth-seeking function of the court and produce harsh consequences, [and] it must be ‘applied with caution and limited to egregious circumstances.’ ” (Ibid.) In other words, it is not sufficient that a litigant merely has taken inconsistent positions in different proceedings. There must be evidence of intentional self-contradiction or bad faith to justify the application of the doctrine. (Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1017.)

Defendants have not shown that judicial estoppel is applicable to the circumstances of this case. As discussed, there is not necessarily a contradiction between the position that Plaintiff took in the prior action—that Mr. Jimenez was the sole shareholder of DL Global Foods and that he completely controlled the entity’s operations—and the allegations in this action that other individuals and entities may sufficiently control DL Global Foods to warrant a finding of alter ego liability. In addition, there is no indication that Plaintiff has engaged in intentional self-contradiction or bad faith. Accordingly, application of judicial estoppel at this stage of the proceedings is not appropriate.

In sum, Plaintiff has properly asserted a claim for alter ego liability.

V. Fraudulent Conveyance (First Cause of Action)

Plaintiff’s first cause of action for fraudulent conveyance is based on the allegation that Defendants conspired and agreed that Mr. Jiminez and DL Global Foods would incur the underlying obligations to Plaintiff, and that the assets of Mr. Jimenez and DL Global Foods would subsequently be transferred to Defendants without adequate consideration. The alleged purpose of the fraudulent conveyance was to leave Mr. Jimenez and DL Global Foods, as judgment debtors, with insufficient assets to pay their obligations to Plaintiff. (Compl. ¶ 57.) These allegations are sufficient to state a cause of action. (Yaesu Electronics Corp. v. Tamura (1994) 28 Cal.App.4th 8, 13 [“A fraudulent conveyance is a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim”].)

Defendants contend that Plaintiff fails to identify a fraudulent transfer with the requisite specificity. While Defendants are correct that, as a factual matter, “there must be a transfer of an asset” for a fraudulent transfer to occur (Fidelity Nat. Title Ins. Co. v. Schroeder (2009) 179 Cal.App.4th 834, 841), the specifics relating to the transfer or transfers at issue in this case need not be identified by Plaintiff at this juncture. Given the nature of the alleged fraud, it is understandable that Plaintiff would not yet know the details of the fraudulent scheme, which would appear to be within Defendants’ knowledge. Accordingly, it is sufficient for Plaintiff to allege these matters on information and belief. (See Pridonoff v. Balokovich (1951) 36 Cal.2d 788, 792-793.) The motion as to the first cause of action is denied. VI. Fraud (Second Cause of Action)

The second cause of action for fraud is based on the underlying judgment against Mr. Jimenez and DL Global Foods, and the allegation that Defendants are liable for that judgment as alter egos of, and conspirators with, the judgment debtors. (Compl. ¶¶ 42-46, 63-71.) Plaintiff avers that Mr. Jimenez and DL Global Foods created fake identities of bank employees, falsified letters and e-mails, and fabricated bank deposit slip receipts to perpetrate the alleged fraud. (Compl. ¶ 64.) Plaintiff alleges that Defendants in this action participated in this conduct and are liable for the fraud—on

which it already has a judgment—as alter egos and conspirators. (Compl. ¶¶ 68-69.) As discussed, Ms. Lu allegedly worked at East West Bank and allegedly assisted in the fabrication of fraudulent letters on the bank’s letterhead. (Compl. ¶¶ 45-47.) Mr. Go is allegedly the manager of the market in Cerritos, California owned by DL Global Foods that was central to the alleged fraudulent scheme. (Compl. ¶ 47.) These allegations are sufficient to put Defendants on notice of the alleged fraud.

Plaintiff raises an exception to the general requirement that fraud be pled with specificity. Less specificity is required where the defendant likely has greater knowledge of the facts than the plaintiff. (City of Industry v. City of Fillmore (2011) 198 Cal.App.4th 191, 211.) In the circumstances presented by this case, where the alleged fraud involves many actors working with one another to avoid payment to Plaintiff, Defendants are likely to have greater knowledge of their dealings with one another than Plaintiff. It is apparent from the allegations that Defendants may have close relationships with Mr. Jimenez and DL Global Foods, and the precise nature of the relationships is an issue of fact for a later juncture. Plaintiff has alleged enough to overcome this motion.

Defendants contend that an order by the California Department of Business Oversight (DBO) conclusively establishes that Plaintiff, as a matter of law, cannot demonstrate the element of justifiable reliance. Defendants contend that the DBO determined Plaintiff violated certain statutory provisions set forth in the Financial Code regulating the money transfer business, and the result is that Plaintiff’s losses resulted from its own failure to maintain internal controls and procedures regarding the collection of funds from money transfer agents. (See RJN, Exh. 3.) To reach this conclusion, however, Defendants rely on the truth of the matters asserted in the DBO’s order. The court does not take judicial notice of the DBO’s order for the truth of the matters asserted therein. Taking judicial notice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113.) Thus, while the court may judicially notice the existence of the DBO’s order and the DBO’s findings, the court does not accept the truth of those findings on this motion.

Accordingly, the motion is denied as to the second cause of action.1

VII. Aiding and Abetting Breach of Fiduciary Duty (Third Cause of Action)

The third cause of action is based on the allegation that Defendants aided and abetted Mr. Jimenez and DL Global Foods breach their fiduciary duties to Plaintiff. (Compl. ¶ 73.) In the complaint, Plaintiff avers that Mr. Jimenez and DL Global Foods
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1 In addition, Defendants do not address the allegation that they are liable for the fraud of Mr. Jimenez and DL Global Foods on a theory of civil conspiracy. (See Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511.)

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owed fiduciary duties by virtue of the agency agreement that they entered into with Plaintiff. (Compl. ¶¶ 39, 73.) Plaintiff alleges that Defendants aided and abetted the judgment debtors breach their fiduciary obligations by participating in the underlying fraud and the more recent fraudulent conveyance. (Compl. ¶ 76.) By committing the independent tort of fraudulent conveyance—as well as conversion, discussed below—Defendants allegedly assisted the judgment debtors breach their fiduciary obligations. These allegations are sufficient (see American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1477), and the motion as to the third cause of action is denied.

VIII. Conversion (Fourth Cause of Action)

The fourth cause of action for conversion is based on the allegation that Defendants converted $1,708,832.05, as well as interest, attorney fees, and costs, to which it is entitled by virtue of the underlying judgment. (Compl. ¶ 82.) This is a specific, identifiable sum of money and sufficient to support the fourth cause of action. (See Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 284.) The motion as to this cause of action also is denied.

IX. Unclean Hands

Finally, Defendants contend that Plaintiff’s action is barred by the doctrine of unclean hands. Unclean hands is an equitable doctrine used by courts to preclude a plaintiff from obtaining relief based on principles of fairness, regardless of the merits of the plaintiff’s underlying claim. The doctrine is “ ‘available to protect the court from having its powers used to bring about an inequitable result in the litigation before it.’ ” (Stine v. Dell-Osso (2014) 230 Cal.App.4th 834, 844.) For the doctrine to be applicable in a given case, the plaintiff must have engaged in misconduct related to the dispute with the defendant asserting the defense. “The misconduct that brings the clean hands doctrine into play must related directly to the cause at issue. Past improper conduct or prior misconduct that only indirectly affects the problem before the court does not suffice.” (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 979.) Accordingly, in considering whether to apply the doctrine in a particular circumstance, courts focus on “ ‘the equities of the relationship between the parties, and specifically whether the unclean hands affected the transaction at issue.’ ” (Jade Fashion & Co., Inc. v. Harkham Industries, Inc. (2014) 229 Cal.App.4th 635, 653-654.)

The unclean hands defense is not appropriate at this juncture given the absence of a factual record. Defendants contend that Plaintiff did not operate its money transfer business in compliance with the regulatory regime for the money transfer industry, and they note that Plaintiff does not allege compliance with Financial Code section 2060. Defendants rely primarily on Lynn v. Duckel (1956) 46 Cal.2d 845, where the Court applied the unclean hands doctrine to a landowner who, without the required permit from the city’s department of public works, performed certain grading and leveling work then sued the department for a mandatory injunction. (Id. at p. 850.) The Court reasoned, “The record discloses that plaintiff, without written permit and in violation of

the San Francisco Public Works Code, graded Argent Alley so as to make it available for vehicular traffic when it had been previously used solely for pedestrian traffic. By grading a roadway into the alley without a permit, plaintiff circumvented the city’s permit procedure established for the protection of the public.” (Ibid.) Thus, the doctrine was applied on a factual record, which is absent from this case at this stage of the proceedings. Here, there is nothing before the court demonstrating that Plaintiff violated the Financial Code or that such a violation is necessarily related to the alleged fraud. Therefore, the motion is also denied on this issue.