18-CIV-04571 CNE (USA) CORPORATION, ET AL. VS. FANG DUANMU, ET AL.

CNE (USA) CORPORATION FANG DUANMU
ANDREW S. AZARMI JAMES CAI

WRIT OF ATTACHMENT TENTATIVE RULING:

Plaintiffs CNE (USA) Corporation et. al.’s Motion for a Right to Attach Order and an Order for Issuance of a Writ of Attachment is GRANTED-IN-PART and DENIED-IN-PART, as set forth below. Code Civ. Proc. § 481.010 et. seq.

As to Defendant Fang Duanmu, the motion is GRANTED-IN-PART. As to Defendant Duanmu, the Court finds that Plaintiffs’ Application satisfies the requirements of § 483.010(a), namely, (1) the claim upon which the attachment is based is one upon which an attachment may be issued, (2) without deciding the ultimate merits of Plaintiffs’ claim(s), Plaintiffs have established the probable validity of their claims for conversion/breach of the duty of loyalty (see Code Civ. Proc. § 481.190, “more probable than not…”), (3) the attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based, and (4) the amount to be secured is greater than zero. Code Civ. Proc. § 483.090(a).

The parties here have competing claims, each of which is supported, at least to some extent, by evidence. See, generally, Guohong Xue Decl., ¶¶4-28; Duanmu Decl., ¶¶ 2-12, Exhs. A-D; Fu Decl., ¶¶ 2-6, Ex. A. Plaintiffs contend that beginning in late 2015, Defendant Liu, who had been appointed by Plaintiffs to head the due diligence aspect of a proposed real estate development venture in San Jose, Ca., began entering into employment agreements with Defendant Duanmu and others without Plaintiff CNEGC’s (the parent corporation in Beijing) knowledge or consent. As alleged, Defendant Liu, in Sept. 2015, without Plaintiff CNEGC’s approval, and allegedly in knowing violation of CENGC’s corporate policies, issued two “Letters of Authorization” that essentially delegated his authority to Defendant Duanmu to head the San Jose project. Liu also established four corporate subsidiaries in California, all of which were wholly-owned by the parent CENGC, and apparently opened bank accounts for each of the them, which Liu funded/capitalized with money from Plaintiff CENGC. Defendants appear to concede that Liu’s retention of additional employees, including the proposed salaries for new employees, required the pre-approval of CENGC. Duanmu Decl., Ex. B (8-4-17 Sheppard Mullin Memorandum, stating: “all employee salaries must be approved by the Parent Company.”). Plaintiffs contend they never authorized Liu to employ Duanmu, Fu, or the other Defendants, and did not know that Liu had in fact entered into employment agreements with Defendants until mid-2017. Plaintiffs also contend that until July 2017, they did not know Liu had appointed Duanmu (via the Letters of Authorization) to head the project, which they argue violates CNEGC corporate policy. Liu retired and/or was terminated in Sept. 2017, but only after (as alleged) improperly granting Duanmu control over the California subsidiaries, including their bank accounts. Duanmu apparently had in her possession a number of blank checks that Defendant Xie, whom had been given authority to sign checks for the California entities, had left with Duanmu (at Duanmu’s request) before Xie’s resignation in mid-2017. In the Fall of 2017, Duanmu contacted Plaintiffs directly, complaining that she and the other Defendants, despite having worked for CNE for over a year (and herself nearly two years), had never been paid a penny for their services, and demanding immediate payment of their salaries. Plaintiffs refused, and demanded that all funds from the California entities be immediately returned to the corporate parent. As alleged, from Sept. 2017 to March 2018, given Plaintiffs’ refusal to pay them, and armed with the blank checks left behind by Defendant Xie, Duanmu began writing checks to herself and the other Defendants from the California corporate bank accounts. Plaintiffs offer evidence that Duanmu essentially emptied the bank accounts through these payments to herself and others, which totaled about $2,023,562 (the amount sought to be attached). In this Application, Plaintiffs seek to attach real property in Millbrae and Dublin, Ca. owned by Defendants Duanmu and Fu. See Azarmi Decl. Defendants, conversely, and in addition to initiating arbitration proceedings against Plaintiffs, have cross-claimed in this case for additional wages and bonuses they contend are still owed to them. See 9-26-18 Cross-Complaint for breach of Employment Agreements, alleging violations of California labor and employment laws.

As to Defendant Duanmu, the Court finds that the evidence establishes the “probable validity” of Plaintiffs’ claims for conversion and breach of the duty of loyalty. Code Civ. Proc. § 481.190 (“more probable than not…”); see Xue Decl., ¶¶4-28 and attached exhibits. Defendants’ arguments in Opposition are not entirely unsupported. Notably, Plaintiffs appear to have had knowledge, long before mid-2017, that Duanmu was involved in Liu’s project in some way, and Duanmu appears to have been copied on communications between CNEGC and project members, with Plaintiffs’ knowledge. Xue Decl., ¶12. The Court also acknowledges the 2017 Sheppard Mullin Memorandum, opining that Plaintiffs likely have some liability exposure to Defendants for unpaid wages, even if their alleged employment was never officially approved by the Beijing parent entity. Duanmu Decl., Ex. B. However, the evidence appears to establish that both before and after Duanmu started writing checks to herself and the other Defendants in late 2017, Plaintiffs had made clear their position that they had not approved Defendants’ employment, had not approved the proposed salaries (Duanmu’s was purportedly $500,000/yr.), were not authorizing any payments to them, and in fact had requested the Duanmu relinquish all control over the entities. The evidence further indicates that from Sept. 2017 to March 2018, without Plaintiffs’ knowledge, knowing they did not approve of any such payments to Defendants, and while at the same time demanding payment from Plaintiffs, Duanmu essentially engaged in self-help by writing checks to herself and the other Defendants from the corporate bank accounts.

In light of the evidence presented, as to Defendant Duanmu, the Court GRANTS-IN-PART the Application, in the amount of $1,000,000. According to Plaintiffs, the payments to Duanmu totaled about $1.3 million. As referenced in the Sheppard Mullin Memo., whether her retention as an employee/consultant was authorized by CNEGC or not, and without deciding this issue, Duanmu may have a valid argument that she was entitled to some compensation from Plaintiffs for services rendered, whether based on a quantum meruit theory or otherwise. Accordingly, the Court authorizes the requested writ of attachment against Duanmu’s Millbrae property in part, in the amount of $1,000,000. The Court finds that Defendants’ remaining arguments in Opposition to this Application lack merit.

As to Defendant Fu, who was apparently paid substantially less than Duanmu (about $415,000), the Application is DENIED. The allegations and evidence of wrongdoing appear to focus primarily on Duanmu and Liu, not Fu. It appears Fu may have provided some services to the California entities from April 2016 to Oct. 2017, and thus may have been entitled to some compensation. While Fu benefitted from Duanmu’s payments, her role in the alleged conversion is unclear.

The foregoing findings are made for purposes of the requested writ of attachment only, and shall have no effect on the trial of this action, and may not be received as evidence on any issue. Code Civ. Proc. § 484.100.

This Order is contingent on Plaintiffs first filing an undertaking in the amount of $10,000 (Code Civ. Proc. Sect. 484.090; 489.210; 489.220).

If the tentative ruling is uncontested, it shall become the order of the Court, pursuant to Rule 3.1308(a)(1), adopted by Local Rule 3.10, effective immediately, and no formal order pursuant to Rule 3.1312 or any other notice is required as the tentative ruling affords sufficient notice to the parties.