Case Name: Green Valley Corporation v. Yutaka Matsumoto

Case No: 19CV348786

I. Background
II.

Plaintiff Green Valley Corporation (“Plaintiff”) brings this action for specific performance against Yutaka Matsumoto (“Matsumoto”), as trustee of the Higashi Revocable Trust (“Trust”).

According to the allegations of the first amended complaint (“FAC”), Plaintiff is a small, closely held corporation. (FAC, ¶ 1.) In 1995, Plaintiff and Michael Higashi (“Higashi”), individually and as trustee of the Trust, entered into a Stock Redemption Agreement (“Agreement”). (Id. at ¶ 4.) Pursuant to the Agreement, as trustee, Higashi agreed to sell all 60 shares owned in Plaintiff, to Plaintiff for a proscribed price and at certain intervals over a period of years. (Id. at ¶ 5.) In 2002 the parties executed an amendment to the agreement to reflect a one to 1000 stock split and a resulting modified pricing structure. (Id. at Ex. B.) At that point, the Trust still held 28 shares, which became 28,000. (Ibid.). The new agreement specified that the redemption of all of the Trust’s remaining shares would be executed by June 30, 2011. (Ibid.)

In 2003, Higashi requested a temporary suspension of the Agreement’s redemption plan because he did not need the capital and wanted to avoid the tax liability. (FAC, ¶ 6.) Plaintiff assented, and the parties orally agreed to the temporary delay and to resume the redemption at an indefinite point in the future. (Ibid.)

In 2006, Higashi died and his wife Lily Higashi (“Ms. Higashi”) became trustee of the Trust. (FAC, ¶ 7.) Plaintiff contacted Ms. Higashi and her brother Matsumoto to discuss resuming redemption of the shares. (Ibid.) However, Ms. Higashi requested that the temporary suspension continue, and Plaintiff orally agreed. (Ibid.) Ten years later, Ms. Higashi died, and Matsumoto became trustee of the Trust. (Id. at ¶ 8.)

Thereafter, Plaintiff and Matsumoto orally agreed to complete the full redemption of the remaining shares. (FAC, ¶ 8.) After some work to confirm the redemption price, in July 2018, Matsumoto’s counsel stated that he would not sell the shares in accordance with the Agreement. (Ibid.)

As a result of the foregoing, Plaintiff alleges one cause of action for specific performance.

Before the Court is Matsumoto’s demurrer to the FAC.

III. Request for Judicial Notice
IV.

In support of his demurrer, Matsumoto requests judicial notice of the original complaint filed by Plaintiff in this action. The request is made pursuant to Evidence Code section 452, subdivision (d) which allows a court to take judicial notice of “records of any court of the state.”

As a record of this Court, the original complaint is a proper subject for judicial notice.

Therefore, Matsumoto’s request for judicial notice is GRANTED.

V. Demurrer
VI.

Matsumoto demurs on several grounds, including the statute of limitations, the statute of frauds, and failure to plead the elements of a cause of action for specific performance.

While not expressly specified in the moving papers, Matsumoto appears to demur to the FAC on the ground of failure to state sufficient facts to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e); see Kendrick v. City of Eureka (2000) 82 Cal.App.4th 364, 367 [Where a complaint shows on its face that the action is barred by the statute of limitations, a general demurrer for failure to state a cause of action will lie]; see also C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 873 [A demurrer on the ground of failure to state facts sufficient to constitute a cause of action tests whether the plaintiff alleges each ultimate fact essential to the cause of action asserted].)

A. Legal Standard
B.

A demurrer tests the legal sufficiency of a pleading, but not the truth of a plaintiff’s allegations or the accuracy with which he or she describes the defendant’s conduct. (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958; citing Committee on Children’s Television Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213.) A demurrer reaches only to the contents of the pleading and such matters subject to judicial notice. (Code Civ. Proc. § 430.10, subd. (a); South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, citations omitted.) “It is not the ordinary function of a demurrer to test the truth of the [ ] allegations, or the accuracy with which [they] describe the defendant’s conduct” and the facts alleged are deemed to be true, however improbable. (Align Technology, Inc. v. Tran, supra, 179 Cal.App.4th 949, 958.)

C. Statute of Limitations
D.

Matsumoto first demurs on the ground that the statute of limitations bars the cause of action for specific performance.

A suit in equity to compel specific performance of a contract is governed by the four-year statute of limitations for contract. (Code Civ. Proc., § 337; see Spear v. California State Auto. Assn. (1992) 2 Cal.4th 1035, 1041.) “Where performance of contractual obligations is severed into intervals… courts have found that an action attacking the performance for any particular interval must be brought within the period of limitations after the particular performance was due.” (Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co. (2004) 116 Cal.App.4th 1375, 1388.)

In the present case, the last performance due was redemption of the last six shares under the contract on June 30, 2011. As a result, the latest the statute of limitations would have run is June 2015, and the complaint filed in May 2019 would be time barred.

Plaintiff alleges that the contract was modified by an oral agreement, thus extending the statute of limitations. “A contract in writing may be modified by an oral agreement to the extent that the oral agreement is executed by the parties.” (Civ. Code, § 1698, subd. (b).) However, an unexecuted oral agreement is unenforceable as an agreement to alter the terms of a written instrument. (Stafford v. Russell (1953) 117 Cal.App.2d 326, 330.)

Here, the oral agreement is not alleged to have been executed. To the contrary, the remaining 28 shares remain unredeemed, thus this subdivision does not apply.

Alternatively, “unless the contract otherwise expressly provides, a contract in writing may be modified by an oral agreement supported by new consideration.” (Civ. Code, § 1698, subd. (c).) The statute of frauds, Civil Code section 1624, is required to be satisfied if the contract as modified is within this provision. (Ibid.) “Oral modifications of written agreements are precluded only if the written agreement provides for written modification.” (Conley v. Matthes (1997) 56 Cal.App.4th 1453, 1465.)

In its opposition to the demurrer, Plaintiff does not address the clause in the amendment to the Agreement specifying that “[a]ny change, amendment, or modification of this Amendment must be in writing and signed by all parties to this Amendment.” (FAC, Ex. B.) The Agreement further states, “This Amendment and the Agreement contain the entire agreement of the parties with respect to the subject matter hereof… and any previous agreement, whether oral or written, are merged into this Amendment.” (Ibid.) Taken together, the amendment indicates it is the “entire agreement” and that oral modifications are precluded. Thus, there can be no subsequent oral modification of the Agreement, and the “entire agreement” was to be performed by June 2011.

Plaintiff’s argument regarding equitable estoppel also does not assist it, as there are no allegations in support. Where a defendant’s conduct induces a plaintiff to forebear from initiating a suit, the defendant is estopped from using the delay in filing as a defense. (See Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 384.) The facts must allege that the defendant’s conduct “actually and reasonably induced plaintiff[ ] to forbear suing” within the statute of limitations. (Id. at 385.) Nowhere does the FAC allege that Plaintiff was induced to forgo suing by Matsumoto’s conduct, or by the conduct of the other trustees, so the estoppel argument is not supported.

Therefore, the cause of action for specific performance of the contract is barred by the four-year statute of limitations.

Consequently, the demurrer to the cause of action on the ground of failure to state sufficient facts is SUSTAINED, with 10 days leave to amend.