Case Name: Andy Truong v. Vickie Chan, et al.

Case No.: 18-CV-338602

Currently before the Court is defendant Vickie Cheung Chan’s (“Defendant” or “Vickie”) demurrer to the second amended complaint (“SAC”) of plaintiff Andy Truong (“Plaintiff”) and motion to strike portions contained therein.

Factual and Procedural Background

This is an action for breach of contract and fraud, among other things, arising out of a business dispute. In May 2012, Plaintiff and Defendant, his sister, entered into an oral agreement (the “Agreement”) for the purchase and operation of Que Huong FastFood, Inc. (the “Business”). (SAC, ¶ 1.) Pursuant to the Agreement, the parties were to have an equal interest in the ownership, operation and profits of the Business. (Id. at ¶¶ 5 & 6.) The parties specifically agreed that only Plaintiff and Defendant would have the right to make decisions relating to the Business and share equally in its profits; Defendant’s husband, defendant Steven Chan (“Steven”) was not to have any such involvement. (Ibid.)

For the first few years of the Business, the parties operated as equal partners in all facets and shared equally in the profits. (SAC, ¶ 7.) However, beginning in March 2014, Defendant and Steven began excluding Plaintiff from the operation of the Business and denied him access to its books and records, while continuing to acknowledge his right to half of the profits. (Id. at ¶¶ 8-9.) Although Defendant continued to personally deliver to Plaintiff what she represented was Plaintiff’s share of the profits, Defendant refused to provide Plaintiff with any documentation supporting the amount of the payment. (Id. at ¶ 10.)

In July 2017, Defendant eventually provided Plaintiff what she represented was the true and correct financial documents of the Business. (SAC, ¶ 11.) However, Plaintiff later learned that the documentation did not include all income and expenses of the Business. (Ibid.)

In August 2017, the defendants transferred title of the Business to defendant Mary Chan (“Mary”), a relation of Steven’s, from Defendant, who had initially been named registered owner pursuant to the terms of the Agreement, without Plaintiff’s knowledge and without consideration. (SAC, ¶¶ 6 & 13.)

In October 2018, Defendant told Plaintiff that title was transferred to Mary to avoid tax liability. (SAC, ¶ 15.) Defendant also told Plaintiff that she had used money from the Business to purchases another business, Fresh and Natural, in July 2015. (Id. at ¶ 16.) Defendant offered to purchase Plaintiff’s share of the Business, but she continued to refuse to provide the books and records of the Business to Plaintiff. (Id. at ¶ 17.)

Despite Defendant’s acknowledgment of Plaintiff’s entitlement to 50 percent of the profits, Plaintiff is informed and believes that the defendants, while in sole possession and control of the Business, engaged in fraudulent business practices, including failing to report cash payments, commingling funds and converting the Business’ money for their own benefit, and transferring title to Mary to avoid potential liability. (SAC, ¶ 18.) Plaintiff has not been permitted to access the books and records of the Business despite numerous requests to do so. (Id., ¶ 19.)

Based on the foregoing allegations, Plaintiff initiated the instant action on November 28, 2018. On April 15, 2019, Plaintiff filed a first amended complaint (“FAC”), asserting causes of action for: (1) breach of contract (against Vickie); (2) promissory estoppel (against Vickie); (3) intentional interference with contractual relations (against Steven and Mary); (4) conversion (against all defendants); (5) declaratory relief (against all defendants); (6) appointment of receiver (against all defendants); (7) fraud (against all defendants); (8) constructive trust (against Mary); (9) accounting (against all defendants); and (10) conspiracy (against all defendants).

Thereafter, Defendant filed a demurrer to some of the causes of action of the FAC and a motion to strike portions of the FAC. Plaintiff opposed both motions. On September 18, 2019, the Court entered an order overruling the demurrer to the first, second, fifth, sixth, ninth, and tenth causes of action, sustaining the demurrer to the fourth and seventh causes of action with leave to amend, denying the motion to strike individual causes of action, and granting the motion to strike the request for punitive damages and attorney fees.

On October 8, 2019, Plaintiff filed the operative SAC, alleging causes of action for: (1) breach of contract (against Vickie); (2) promissory estoppel (against Vickie); (3) intentional interference with contractual relations (against Steven and Mary); (4) conversion (against all defendants); (5) declaratory relief (against all defendants); (6) appointment of receiver (against all defendants); (7) fraud (against Vickie); (8) constructive trust (against Mary); (9) accounting (against all defendants); and (10) conspiracy (against all defendants).

On December 12, 2019, Defendant filed the instant demurrer and motion to strike. Plaintiff filed papers in opposition to the matters on March 4, 2020. On March 10, 2020, Defendant filed replies in support of her demurrer and motion to strike.

Discussion

I. Demurrer

Defendant demurs to the first, second, fourth, fifth, sixth, seventh, ninth, and tenth causes of action on the ground of failure to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (d).)

A. Request for Judicial Notice

As an initial matter, Defendant asks the Court to take judicial notice of statements set forth in the declarations of Plaintiff and Plaintiff’s counsel, which were filed in opposition to discovery motions in this action. Specifically, Defendant seeks judicial notice of Plaintiff’s statement that “this lawsuit deliberately does not seek title to or ownership of the Business” and his counsel’s statement that “Plaintiff is deliberately not claiming title and/or ownership with Defendant to the [Business] ….” (RJN, Exs. A & B, italics omitted.) Defendant contends that those statements are proper subject of judicial notice because they are inconsistent with allegations in the SAC that Plaintiff is entitled to profits and other benefits of ownership. (Mem. Ps. & As., p. 1:12-16.) Defendant asserts the subject statements establish that Plaintiff is not an owner of the Business. (Ibid.)

“The court will take judicial notice of records such as admissions, answers to interrogatories, affidavits, and the like, when considering a demurrer, only where they contain statements of the plaintiff or his agent which are inconsistent with the allegations of the pleading before the court.” (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604-605.)

In the SAC, Plaintiff alleges that he and Defendant entered into an Agreement to purchase and operate the Business under which he had an equal ownership interest in the Business, i.e., a 50 percent interest. (SAC, ¶¶ 1, 5, 6, 30, 36-39, & 43.) The statements highlighted by Defendant do not directly contradict the allegations of the SAC as the statements do not establish that Plaintiff has no ownership interest in the Business. Plaintiff and his counsel never declare that Plaintiff is not, in fact, an owner of the Business. Rather, Plaintiff and his counsel state that the lawsuit does not claim or seek title or ownership to the Business. In other words, the declarations of Plaintiff and his counsel merely contain representations regarding the nature of the lawsuit and Plaintiff’s claims. Because the statements do not contradict the factual allegations of the SAC, they are not proper subjects of judicial notice.

Accordingly, Defendant’s request for judicial notice is DENIED.

B. Legal Standard

The function of a demurrer is to test the legal sufficiency of a pleading. (Trs. Of Capital Wholesale Elec. Etc. Fund v. Shearson Lehman Bros. (1990) 221 Cal.App.3d 617, 621.) Consequently, “ ‘[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice’ [citation].” (Hilltop Properties, Inc. v. State (1965) 233 Cal.App.2d 349, 353 (Hilltop); Code Civ. Proc., § 430.30, subd. (a).) “ ‘It is not the ordinary function of a demurrer to test the truth of the … allegations [in the challenged pleading] or the accuracy with which [the plaintiff] describes the defendant’s conduct. … .’ [Citation.] Thus, … ‘the facts alleged in the pleading are deemed to be true, however improbable they may be. [Citation.]’ [Citations.]” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958.)

C. Merits of Demurrer

Defendant’s demurrer is predicated on the following arguments: (1) Plaintiff’s claims fails because judicially noticeable statements establish that Plaintiff is not an owner of the Business; and (2) Plaintiff fails to plead facts sufficient to support the first second, fourth, fifth, sixth, seventh, ninth, and tenth causes of action.

1. Ownership Interest in Business

Defendant first asserts that Plaintiff’s first, second, fourth, and seventh causes of action fail because Plaintiff cannot have sustained the alleged damages as judicially noticeable statements establish that Plaintiff is not an owner of the Business.

This argument is predicated entirely upon statements set forth in the declarations of Plaintiff and Plaintiff’s counsel which are not proper subjects of judicial notice. As the Court has not taken judicial notice of the subject statements, Defendant’s argument is based on matter that cannot be considered on demurrer. (See Hilltop, supra, 233 Cal.App.2d at p. 353 [“ ‘[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice’ ”].) Therefore, Defendant’s argument lacks merit.

2. Sufficiency of the Factual Allegations

a. Breach of Contract (First Cause of Action)

Defendant maintains Plaintiff failed to adequately plead a claim for breach of contract because: (1) the judicially noticeable statements show that Plaintiff waived any ownership rights to the Business; and (2) Plaintiff did not allege any acts or omissions that either party was obligated to perform under the Agreement and, thus, that there was consideration.

In order to state a claim for breach of contract, a plaintiff must plead the following elements: (1) existence of the contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) damages to plaintiff as a result of the breach. (CDF Firefighters v. Maldonado (2008) 158 Cal.App.4th 1226, 1239.)

Defendant’s first argument is not well-taken because it is based on statements set forth in the declarations of Plaintiff and Plaintiff’s counsel of which the Court has not taken judicial notice. (See Hilltop, supra, 233 Cal.App.2d at p. 353 [“ ‘[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice’ ”].)

Defendant’s second argument regarding consideration also lacks merit. Plaintiff alleges the existence of an oral agreement between himself and Vickie for the purchase and operation of the Business. Under the Agreement, Plaintiff and Vickie were to have an equal interest in the ownership, operation, and profits of the Business, and they agreed that they were to act as equal business partners in the operation and management of the Business. “For the first few years after purchasing [the Business], [the parties] operated as equal business partners in investments into the business, including money and time contributions to the improvement, operation and management of [the Business].” (SAC, ¶ 7.) Plaintiff further alleges that he “performed all conditions, covenants and promises required on his part, except to the extent that [Vickie, Steven and Mary] have excluded him from the operations and decisions of The Business, and denied him access to the books and records ….” (Id. at ¶ 21.) Given that Plaintiff has sufficiently pleaded performance, Defendant’s argument that there is no properly pleaded consideration is rejected.

Accordingly, Defendant’s demurrer to the first cause of action is OVERRULED.

b. Promissory Estoppel (Second Cause of Action)

Next, Defendant contends Plaintiff fails to state a claim for promissory estoppel because: (1) the Court cannot enforce in equity an alleged promise of ownership and the benefits thereof because the judicially noticeable statements show that Plaintiff is not seeking any ownership rights to the Business; and (2) Plaintiff does not sufficiently plead reliance.

In order to state a claim for promissory estoppel, a plaintiff must plead the following elements: (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance. (US Ecology, Inc. v. California (2005) 129 Cal.App.4th 887, 901-902.) Promissory estoppel is “a doctrine which employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced.’ Because promissory estoppel is an equitable doctrine to allow enforcement of a promise that would otherwise be unenforceable, courts are given wide discretion in its application.” (Ibid., internal citations and quotations omitted.)

Defendant’s first argument is not well-taken because it is based on statements set forth in the declarations of Plaintiff and Plaintiff’s counsel of which the Court has not taken judicial notice. (See Hilltop, supra, 233 Cal.App.2d at p. 353 [“ ‘[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice’ ”].)

Defendant’s second argument that Plaintiff has failed to plead reliance also lacks merit. Defendant cites no legal authority which provides that reliance cannot be pleaded generally in order state a claim for promissory estoppel, as Plaintiff has done here. (SAC, ¶ 26.)

Accordingly, Defendant’s demurrer to the second cause of action is OVERRULED.

c. Conversion (Fourth Cause of Action)

Defendant argues Plaintiff’s claim for conversion fails because a general claim for unspecified “profits” is not actionable as a conversion claim.

“Conversion is the wrongful exercise of dominion over the property of another.” (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1066.) The elements of conversion are: (1) the plaintiff’s ownership of right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages. (Ibid.) “The foundation of the action rests neither in the knowledge nor the intent of the defendant. Instead, the tort consists in the breach of an absolute duty; the act of conversion itself is tortious.” (Ibid.)

Plaintiff’s conversion is predicated on allegations that the defendants converted his 50 percent% share of the Business’ profits to their own use. (SAC, ¶¶ 36-42.) Generally, money cannot be the subject of a conversion claim unless a specific sum capable of identification is involved. (Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4th 472, 485.) Here, Plaintiff has identified such a sum—the 50 percent of the profits of the Business that he had an ownership interest in that was misappropriated by the defendants.

Accordingly, Defendant’s demurrer to the fourth cause of action is OVERRULED.

d. Declaratory Relief (Fifth Cause of Action)

Defendant contends Plaintiff’s fifth cause of action for declaratory relief is deficient because: (1) the judicially noticeable statements show that Plaintiff is not seeking any title or ownership rights to the Business and, thus, he is not entitled a declaration that he is owed 50 percent of the profits of the Business and allowed to inspect its books; and (2) Plaintiff has not pleaded facts showing the existence of an actual controversy between the parties with respect to the sought-after declaration that he is not responsible for the acts of the defendants after he was excluded from the Business.

Code of Civil Procedure section 1060 (“Section 1060”), which governs actions for declaratory relief, provides: “Any person interested under a written instrument …, or under a contract, or who desires a declaration of his or her rights or duties with respect to another … may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action … for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract.” In order to state a claim for declaratory relief, the complaint must show the following: (1) a proper subject of declaratory relief within the scope of Section 1060; and (2) an actual controversy involving justiciable questions relating to the rights or obligations of a party. (Tiburon v. Northwestern Pac. R. Co. (1970) 4 Cal.App.3d 160, 170.)

Defendant’s first argument is not well-taken because it is based on statements set forth in the declarations of Plaintiff and Plaintiff’s counsel of which the Court has not taken judicial notice. (See Hilltop, supra, 233 Cal.App.2d at p. 353 [“ ‘[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice’ ”].)

Defendant’s second argument only addresses a portion of the claim for declaratory relief and, therefore fails to dispose of the claim in its entirety. (See PHII, Inc. v. Super. Ct. (1995) 33 Cal.App.4th 1680, 1682 [a demurrer cannot be granted as to only a portion of a claim].)

Accordingly, Defendant’s demurrer to the fifth cause of action is OVERRULED.

e. Appointment of Receiver (Sixth Cause of Action) and Accounting (Ninth Cause of Action)

Next, Defendant maintains that Plaintiff cannot assert claims for the appointment of a receiver and an accounting because he has not properly alleged an interest in the Business and his underlying claims fail. Given the preceding analysis, both of these arguments are without merit.

Accordingly, Defendant’s demurrer to the sixth and ninth causes of action is OVERRULED.

f. Fraud (Seventh Cause of Cause)

Defendant next argues that Plaintiff’s fraud claim is deficiently pleaded for the following reasons: (1) it is time-barred by the applicable statute of limitations; (2) it lacks the requisite specificity; and (3) the SAC fails to plead any facts showing reliance or damages.

Defendant’s first argument regarding the statute of limitations is not well-taken. In order to sustain a demurrer on the basis of the statute of limitations, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint show that the action might be barred. (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1317.) “In assessing whether claims are time-barred, two basic questions drive [the] analysis: (a) [w]hat statutes of limitations govern the plaintiff’s claims? (b) [w]hen did the plaintiff’s causes of action accrue?” (Id. at p. 1316.) Generally, a cause of action accrues at the time when the claim is complete with all its elements. (Id. at p. 1317.) A claim for fraud accrues and, thus, the limitations period commences when “the plaintiff suspects or should suspect that her injury was caused by wrongdoing.” (Jolly v. Eli Lilly & Co. (1988) 44 Cal. 3d 1103, 1110; see also Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal. 4th 797, 807 [“we look to whether the plaintiffs have reason to suspect that a type of wrongdoing has injured them”].) Based on what is pleaded in the SAC, there is no way for the Court to know when Plaintiff suspected or should have suspected that he was a victim of fraud by defendants. Again, a demurrer based on statute of limitations grounds can only be sustained where the dates alleged in the complaint show “clearly and affirmatively” that the action is time-barred. (Geneva Towers Ltd. Partnership v. City & County of San Francisco (2003) 29 Cal.4th 769, 781.) The

Turning to Defendant’s remaining arguments, in order to state a claim for fraud, a plaintiff must plead the following elements: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or ‘scienter’); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.” (Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 638 (Lazar).) “Fraud actions are subject to strict requirements of particularity in pleading. … Accordingly, the rule is everywhere followed that fraud must be specifically pleaded.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) This requirement “necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ ” (Lazar, supra, 12 Cal.4th at p. 645.)

Defendant argument remaining arguments are not well-taken. The fraud cause of action is based, in part, on Defendant’s alleged misrepresentation that she would provide Plaintiff with the financial books and records of the Business. (SAC, ¶¶ 58 & 59.) Plaintiff specifically alleges that Vickie falsely represented to him in July 2017 and April 2018, via text, voicemail, and telephone conversations, that she provided him with the true and correct financial documents of the Business. (Id. at ¶¶ 11 & 12.) However, the documents did not include all income and expenses of the Business. (Ibid.) Similarly, in April 2018, Vickie and Plaintiff met in persona and Vickie represented that Plaintiff could review the books and records of the Business. (Id. at ¶ 14.) But Vickie refused to provide Plaintiff with the books and records of the Business or allow him an opportunity to review the books and records so he could determine the value of the Business and the amount of profits he was owed. (Id. at ¶¶ 8-10, 17, & 19.) At the time she made the alleged misrepresentations, Vickie knew them to be false and intended to defraud Plaintiff. (Id. at ¶¶ 58 & 59.) Plaintiff relied on the alleged misrepresentations and, as a result, continued to invest time and money into the Business and suffered economic losses. (Id. at ¶¶ 60-62.) These representations plead the elements of fraud, including reliance and damages, with the requisite specificity.

Accordingly, Defendant’s demurrer to the seventh cause of action is OVERRULED.

g. Conspiracy (Tenth Cause of Action)

Finally, Defendant asserts that her demurrer to the tenth cause of action for conspiracy should be sustained because (1) conspiracy is not a cause of action and (2) the SAC fails to set forth facts establishing a conspiracy on the part of the defendants.

Defendant is correct that conspiracy is not a cause of action. Rather, it is “a legal doctrine that imposes liability on persons who, although not actually committing the tort themselves, share with the immediate tortfeasors a common plan or design in its perpetuation. By participation in a civil conspiracy, a co-conspirator effectively adopts as his or her own the torts of other co-conspirators within the ambit of the conspiracy. In this way, a co-conspirator incurs tort liability co-equal with the immediate tortfeasors.” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511, internal citations omitted.) Nevertheless, because Plaintiff has adequately pleaded numerous underlying predicate torts, the Court can evaluate the sufficiency of his conspiracy “cause of action” to determine whether he has adequately pleaded conspiracy as a basis for vicarious liability.

The elements of a civil conspiracy are: (1) the formation and operation of the conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) the damage resulting. (Mosier v. Southern Cal. Physicians Ins. Exchange (1998) 63 Cal.App.4th 1022, 1048.) General allegations of agreement have been held sufficient and the conspiracy averment has even been held unnecessary, providing the unlawful acts or civil wrongs are otherwise sufficiently alleged. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 47.) Given the existence of the underlying torts in the SAC and Plaintiff’s allegations that the defendants conspired to deprive him of his rights in the Business (see SAC, ¶¶ 76-78), Defendant’s argument is unpersuasive and does not provide a basis upon which to sustain her demurrer to the tenth cause of action.

Accordingly, Defendant’s demurrer to the tenth cause of action is OVERRULED.

II. Motion to Strike

Defendant moves to strike allegations of and requests for punitive damages from the SAC.

A. Legal Standard

Under Code of Civil Procedure section 436, a court may strike out any irrelevant, false, or improper matter inserted into any pleading or strike out all or part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ. Proc., § 436.) The grounds for a motion to strike must appear on the face of the challenged pleading or from matters of which the court may take judicial notice. (Code Civ. Proc., § 437, subd. (a).) In ruling on a motion to strike, the court reads the pleading as a whole, all parts in their context, and assuming the truth of all well-pleaded allegations. (See Turman v. Turning Point of Central California, Inc. (2010) 191 Cal.App.4th 53, 63, citing Clauson v. Super. Ct. (1998) 67 Cal.App.4th 1253, 1255.)

B. Punitive Damages

The right to recover punitive damages requires proof of “oppression, fraud, or malice” on the part of the defendant by “clear and convincing evidence.” (Civ. Code, § 3294, subd. (a).) For pleading purposes, in order to support a prayer for punitive or exemplary damages, the complaint must allege “ultimate facts of the defendant’s oppression, fraud or malice.” (Cyrus v. Haveson (1976) 65 Cal.App.3d 306, 316-317.) Simply pleading the statutory terms “oppression, fraud or malice” is insufficient to adequately allege punitive damages, but only to the extent that the complaint pleads facts to support those allegations. (Blegen v. Superior Court (1986) 176 Cal.App.3d 503, 510-511.) Therefore, specific factual allegations demonstrating oppression, fraud or malice are required. (Brousseau v. Jarrett (1977) 73 Cal.App.3d 864, 872.) However, the complaint will be read as a whole so that even conclusory allegations may suffice when read in context with facts alleged as to the defendant’s wrongful conduct. (Perkins v. Super. Ct. (1981) 117 Cal.App.3d 1, 6-7; Clauson v. Super. Ct. (1998) 67 Cal.App.4th 1253, 1255).

Here, the basis of Plaintiff’s request is malicious, oppressive and fraudulent conduct on the part of the defendants. Although the use of these terms by themselves is generally insufficient to support an award of punitive damages, Plaintiff has a fraud claim in the FAC that survives demurrer. A properly pleaded fraud claim is by itself sufficient to support a request for punitive damages. (See Stevens v. Super. Ct. (1986) 180 Cal.App.3d 605, 610.) Consequently, Defendant’s request to strike punitive damages lacks merit.

Accordingly, Defendant’s motion to strike allegations of and requests for punitive damages is DENIED.