2012-00130253-CU-CO

Alliance Laundry Systems LLC vs. James L. Chen

Nature of Proceeding: Hearing on Demurrer (PWS, Inc.)

Filed By: Greenseid, David S.

Demurrer of PWS, Inc., PWS, Investments, Inc., and Joseph Galu’s Demurrer to the
First Amended Cross-complaint filed by the Chens is ruled on as follows:

Plaintiff Alliance Laundry Systems LLC’s complaint against defendants James L. Chen,
Chu Chen and Jong Chen alleges breach of contract and open book account. The
complaint alleges the Chens sold a commercial Laundry to Kevin Saepahn and Yen
Saephan. The Saephans requested financing for the purchase of the laundry from
Alliance, which Alliance agreed to provide on condition that the Chens personally
guarantee the loan. The personal guarantees were signed by the Chens. The
Saepahns defaulted on their note, and the Chens failed to pay Alliance on their
personal guarantees of the loan.

PWS is alleged to have been the fiduciary broker in the sales transaction and to have
“slipped in” the personal guarantee of the Saepahn’s loan without notifying the Chens.

The cross- complaint filed by the three defendant/Cross-complainant Chens, sets forth
seven causes of action against moving defendants PWS, Inc. et all and Alliance:1st for
Breach of Contract, 2nd for Fraud – Intentional Misrepresentation, 3rd for Fraud –
Negligent Misrepresentation, 4th for Declaratory Relief, 5th for Breach of Fiduciary
Duty, 6th for Constructive Fraud and 7th for Unfair Business Practices.

1st cause of action Breach of Written Contract: Sustained with leave to amend for
failure to state facts sufficient to constitute a cause of action. The Chens are required
to allege the terms of the contract(s) (oral or written) that were breached. The
opposition refers to the two written contracts attached to the 2AC, but does not allege
the terms of the contract or the nature of the breach. The contract attached as Exhibit
A is not legible.

2nd Cause of action Fraud: Sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action. The Chens not have adequately alleged who
on behalf of the PWS entities committed the fraud in the series of transactions
involving the purchase and sale of the laundry and allegedly concealing the personal
guarantee from the Chens at the close of escrow. The pleading does not allege that
PWS intentionally concealed the personal guarantee or that the Chens did not read the
agreement. However, the discovery rule is relaxed in cases involving PWS and its
agent Galu, a fiduciary upon whom the Chens relied.

3rd Cause of action Negligent Misrepresentation: Sustained with leave to amend
for failure to state facts sufficient to constitute a cause of action. The Chens have not
adequately alleged who on behalf of the PWS entities committed the negligent
misrepresentation(s) in concealing the personal guarantee from the Chens at the close
of escrow and in connection with the purchase and sale of the laundry. The discovery
rule is relaxed in cases involving a fiduciary who had an obligation to explain to the
Chens the terms of the sale agreement.

4th Declaratory Relief: Sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action

5th Breach of Fiduciary Duty: Overruled. Galu is alleged to have been the broker in
the transaction who failed to explain the terms of the sale which required the execution
of the personal guarantee.

6th Constructive Fraud: Overruled. Galu is alleged to have been the broker in the
transaction who failed to explain the terms of the sale which required the execution of
the personal guarantee.
7th Unfair Business Practices (B&P Code section 17200): Overruled. A cause of
action is stated based on the claims for breach of fiduciary duty and fraud. A private
plaintiff may bring a claim on his or her own behalf. A plaintiff may allege a
representative action, and if so must comply with the class action requirements;
however a plaintiff is not required to bring a representative action.

The motion to strike punitive damages language is granted, with leave to amend.

Plaintiff may file and serve a 3rd Amended Cross-complaint on or before October 15,
2013. Plaintiff is directed to remove the confusing allegations referring to all
defendants and to focus on the specific contracts and alleged misrepresentations
made by moving parties. Response to be filed and served within 10 days of service of
the amended complaint, 15 days if served by mail.

The minute order is effective immediately. No formal order pursuant to CRC Rule
3.1312 or further notice is required.