Case Name:   ELSV, LLC v. Benny Ko, et al.

 

Case No.:       1-13-CV-254835

 

Demurrer by Defendant Lucy Gao to Complaint of Plaintiff ELSV, LLC

 

Plaintiff ELSV, LLC is a real estate investment company owned by David D. Tsang. (Complaint, ¶14.)  In 2009, Plaintiff became acquainted with defendant Liberty Asset Management Corporation (“LAMC”) through its agent, Shelby Tsai Luan Ho, a family friend of Tsang.  (Complaint, ¶14.)  LAMC is owned and operated by defendants Benny Ko aka Benn Ko aka Benny T. Ko aka Tzu Ping Ko aka Benny Kirk aka Benjamin J. Kirk (“Ko”) and Lucy Gao aka Xiangxin Gao.  (Complaint, ¶5.)  At the time, LAMC sold non-performing loans secured by real estate properties in the Bay Area.  (Complaint, ¶14.)  Tsang’s daughter purchased one such loan from Ho and successfully foreclosed upon the real estate securing the loan.  (Complaint, ¶14.)

 

Ho solicited Plaintiff’s business promising to find properties for Plaintiff’s portfolio at discounted prices.  (Complaint, ¶15.)  Ho introduced Plaintiff to defendant Ko, and on June 2, 2010, LAMC and Plaintiff entered into a Distressed Real Estate Assets Management Agreement (“Agreement”).  (Complaint, ¶15 and Exhibit A.)  Pursuant to the Agreement, Plaintiff agreed to provide LAMC with $5,000,000 for the acquisition of majority interests in a number of distressed real estate assets which LAMC agreed to manage and sell for a profit on Plaintiff’s behalf.  (Complaint, ¶16.)  Of the approximately $5,000,000 Plaintiff provided to LAMC, Plaintiff has not received an accounting for, profit from, or return of any principal for approximately $2,500,000.  (Complaint, ¶17.)

 

Defendant Ko and Ho formed defendant North American Capital, LLC (“NAC”) to serve as buyer, manager, and/or broker of properties procured by LAMC for Plaintiff.  (Complaint, ¶18.)  Defendant Ko and Ho formed North America Asset Management Corporation (“NAAMC”) and North America Asset Management LLC (“NAAM LLC”) as the management companies for NAC’s properties.  (Complaint, ¶19.)

 

Ko asked Plaintiff to lend NAC money so Ko could purchase a bank and initiate a bank holding business for NAC.  (Complaint, ¶21.)  Based on this request, Plaintiff loaned approximately $5,500,000 to NAC (“Bank Holding Loan”), although, at Ko’s instruction, Plaintiff sent those funds to LAMC and/or defendant Liberty Capital Management, Inc. (“LCM”).  (Complaint, ¶21.)  Plaintiff has not received the returns promised under the Bank Holding Loan.  (Complaint, ¶21.)

 

Defendants LAMC, LCM, and/or NAC persuaded Plaintiff to invest in real property located at 100 S. 2nd Street in San Jose (“Safeway”).  (Complaint, ¶22.)  In connection with the Safeway transaction and other outstanding obligations, LAMC and NAC agreed to transfer title to two unoccupied spaces at Safeway to Plaintiff, but Plaintiff has not yet received title to those two properties.  (Complaint, ¶22.)

 

In a letter of intent (“LOI”), defendants LAMC, NAC, and Sunshine Valley, LLC (“Sunshine”) memorialized their promises relating to the Bank Holding Loan and Safeway transaction, among other things.  (Complaint, ¶23 and Exhibit B.)  Pursuant to the LOI, LAMC promised to provide returns and an accounting to Plaintiff for property located at 650 – 652 S. Lake Avenue in Pasadena.  (Complaint, ¶23.)  Defendants LAMC, NAC, and Sunshine failed to fulfill their obligations to Plaintiff under the LOI.  (Complaint, ¶23.)

 

Plaintiff provided money to LAMC and/or LCM to acquire a 90% ownership interest in property located at 165 – 167 O’Farrell Street in San Francisco.  (Complaint, ¶24.)  Defendants LAMC and/or LCM subsequently encumbered the property with a loan in the amount of $4.8 million, but have not accounted to Plaintiff for the loan proceeds.  (Complaint, ¶24.)  Defendant Sunshine acquired the remaining 10% ownership interest in the O’Farrell property, but did not provide an accounting to Plaintiff for its acquisition.  (Complaint, ¶24.)

 

Based on promises and representations made by the defendants, Plaintiff has provided in excess of $15,500,000 to defendants for various transactions.  (Complaint, ¶26.)  Plaintiff alleges defendants Ko and Gao fraudulently induced Plaintiff to transfer money with a promise to obtain real estate, but instead diverted the money for their own personal use.  (Complaint, ¶28.)

 

On October 18, 2013, Plaintiff commenced this action by filing a complaint against defendants Ko, Gao, LCM, LAMC, NAC, NAMC, NAAM LLC, and Sunshine asserting causes of action for:

 

(1)            Breach of Contract

(2)            Breach of Fiduciary Duty

(3)            Negligence

(4)            Conversion

(5)            Fraud

(6)            Violation of Penal Code §496 – Receiving Stolen Property

(7)            Unjust Enrichment

(8)            Unfair Business Practices

(9)            Interference with Prospective Economic Advantage

(10)         Fraudulent Transfer

(11)         Constructive Trust

(12)         Injunctive Relief

(13)         Violation of State Securities Law

(14)         Violation of Federal Securities Law

(15)         Slander of Title

(16)         Declaratory Relief

 

On January 10, 2014, Gao, through counsel Grant Y. Chien of the Continental Law Firm, filed an answer to the complaint.  On June 9, 2014, without filing an association or a substitution of counsel, counsel Charles L. Kreindler and Anthony N. Moshirnia of Sheppard, Mullin, Richter & Hampton LLP, filed a demurrer on behalf of Gao.

 

According to the hearing notice, the demurrer addresses the first through fourteenth causes of action.  As Plaintiff acknowledges in opposition, the demurrer itself appears to be to all sixteen causes of action. Gao clarifies in reply that her demurrer addressses all sixteen causes of action.  The court will regard the demurrer as addressing all causes of action, there being no prejudice to Plaintiff which acknowledges its opposition applies to all causes of action.

 

Request for Judicial Notice

 

According to Gao, Plaintiff’s counsel conceded at a case management conference on May 6, 2014, that the Lucy Gao who filed an answer on January 10, 2014 is not the Lucy Gao named in the complaint and who now demurs.  Gao contends this concession is a fact of which this court can take judicial notice.  To the extent Gao asks the court to take judicial notice, her request is defective in at least two respects.

 

First, Rule of Court 3.1306(c) states: “A party requesting judicial notice of material under Evidence Code section 452 or 453 must provide the court and each party with a copy of the material.”  The minute order from the May 6, 2014 case management conference reflects a hearing before Department 13, the Honorable James L. Stoelker.  There is no indication on the minute order itself that Plaintiff’s counsel made any such concession.  Plaintiff’s concession, if it exists, would be contained a transcript which Gao fails to provide.

 

Second, Gao also fails to comply with Rules of Court 3.1112(l) which requires: “Any request for judicial notice must be made in a separate document listing the specific items for which notice is requested and must comply with rule 3.1306(c).”

 

Even if Gao had filed an earlier answer, she could file a motion for judgment on the pleadings after the time for demurrer has expired.  (See Code of Civil Procedure section 438(f).) Here, Plaintiff does not challenge the timeliness of the demurrer, so the court will address the merits.

 

The court requests that the parties meet and confer to discuss a stipulation to address the circumstance of service of two individuals named Lucy Gao.

 

Demurrer

 

Gao demurs on the ground that the complaint does not state any factual basis for liability against her.  The complaint alleges that Gao is an owner and operator of LCM, LAMC, and Sunshine.  (Complaint, ¶¶4, 5, and 7.)  Gao did not provide an accounting to Plaintiff for proceeds of a loan taken against property located at 165 – 167 O’Farrell Street in San Francisco. (Complaint, ¶24.)  Gao, along with Ko, devised a Ponzi scheme to fraudulently induce investors to transfer large sums of money to defendants and then diverted money for her and Ko’s own use, including to acquire and/or maintain real estate investments for themselves or other entities they own.  (Complaint, ¶¶28 – 29.)  Gao aided and abetted and conspired with defendant Ko. (Complaint, ¶30.)  Gao entered into personal and business relationship with Ko enabling her to assist Ko in engaging in the wrongful acts alleged.  (Complaint, ¶30.)  “Plaintiff will seek leave to amend this complaint to precisely allege the assistance of Gao when ascertained.”  (Complaint, ¶30.)

 

In opposition, Plaintiff contends the allegations are sufficient to hold Gao liable under a conspiracy theory.  In Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510 – 511, the court wrote, “Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.”  “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 California Physicians Insurance Exchange (1998) 63 Cal.App.4th 1022, 1048; see also CACI, No. 3600.)  “The sine qua non of a conspiratorial agreement is the knowledge on the part of the alleged conspirators of its unlawful objective and their intent to aid in achieving that objective.”  (Schick v. Lerner (1987) 193 Cal.App.3d 1321, 1328.)

 

Plaintiff contends the allegations found at paragraph 28 – 29 are sufficient to support a claim for liability under a conspiracy theory.  There, Plaintiff alleges Gao and Ko devised a Ponzi scheme to fraudulently induce Plaintiff to transfer large sums of money and then diverted the money for their own use.  In reply, Gao contends this allegation is conclusory and lacks any factual specificity.  However, the word “devise” means to plan or invent by careful thought. Thus, to “devise” necessarily requires knowledge and intent.  This is a factual assertion and not just a conclusion.  Paragraphs 28 and 29 are sufficient to allege the formation and operation of a conspiracy.  “Because civil conspiracy is so easy to allege, plaintiffs have a weighty burden to prove it.”  (Choate v. County of Orange (2000) 86 Cal.App.4th 312, 333.)  However, at the pleading stage, “the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.”   (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213 – 214.)

 

In reply, Gao also argues there are no allegations that she personally acted in furtherance of the conspiracy.  However, Gao’s liability under a conspiracy theory does not require her to personally engage in the wrongful act.  “The essence of the claim is that it is merely a mechanism for imposing vicarious liability; it is not itself a substantive basis for liability. Each member of the conspiracy becomes liable for all acts done by others pursuant to the conspiracy, and for all damages caused thereby.”  (Berg & Berg Enterprises, LLC v. Sherwood Partners, Inc. (2005) 131 Cal.App.4th 802, 823.)

 

Since Plaintiff has adequately alleged Gao’s liability under a conspiracy theory, the court need not address Gao’s liability under an aider and abetter theory.

 

Gao’s demurrer to the complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action is OVERRULED.