Case Name: Elstrom v. Nguyen, et al.
Case No.: 16-CV-301284

Defendant Simpldesk (“Defendant” or “Simpldesk”) demurs to the first amended complaint (“FAC”) filed by plaintiffs John Elstrom, individually and as trustee for S.C. Profit Sharing & Trust, and Quyen Elstrom (collectively, “Plaintiffs”)

This action arises out of the alleged failure of defendant Michael Nguyen (“Nguyen”) to pay back funds borrowed from Plaintiffs. According to the allegations of the FAC, on April 12, 2011, defendant Nuezra Corp. (“Nuezra”), for whom Nguyen served as chief director and officer, borrowed $200,000 from the S.C. Profit Sharing & Trust (the “Trust”). (FAC, ¶ 10.) The Trust was accumulated over many years by plaintiff John Elstrom (“John”) from the proceeds of his practice as a physician. (Id., ¶ 9.) John and his wife, defendant Quyen Elstrom (“Quyen”), are Nguyen’s uncle and aunt, respectively. (Id., ¶¶ 4-5.) The loan terms were set forth in a promissory note signed by Nguyen on behalf of Nuezra. (Id., ¶ 10 and Exhibit 1.) The interest rate on the loan (the “April 2011 Loan”) was 10% per year, but increased to 15% upon default. (Id.) The loan was secured by a Commercial Security Agreement and a personal guarantee by Nguyen. (Id.)

On May 6, 2011, Nuezra borrowed $300,000 from the Trust (the “May 2011 Loan”), the terms of which were set forth in a promissory noted signed by Nguyen on behalf of the company and were the same as the April 2011 Loan. (FAC, ¶ 11 and Exhibit 2.) On October 12, 2011, Nuezra borrowed a further $245,000 from the Trust (the “First October 2011 Loan”) with the same terms as the aforementioned loans. (Id., ¶ 12 and Exhibit 3.) On October 19, 2011, Nuezra borrowed $190,000 from the Trust (the “Second October 2011 Loan”), the terms of which were set forth in a promissory note signed by Nguyen on behalf of Nuezra. (Id., ¶ 13 and Exhibit 4.) The interest rate on the loan was 12% per year, but increased to 15% upon default. The loan was secured by a Commercial Security Agreement and by a personal guarantee by Nguyen. (Id.) On November 9, 2011, Nuezra borrowed a further $127,000 from the Trust (the “November 2011 Loan”) under similar terms as the Second October 2011 Loan. (Id., ¶ 14.)

Finally, from 2007 through 2009, Nguyen personally borrowed approximately $170,000 from Quyen to assist him and his girlfriend Victoria Wei Zhou in purchasing a condo in San Francisco. (FAC, ¶ 15.) The agreement was oral, with no interest attached to the loan and Nguyen promising to repay his aunt when he was financially able to do so. (Id.)

Defendants made payments on the April 2011 Loan until September 2012. Thereafter, defendants made no payments on the April 2011 Loan, but made sporadic payments on that and other loans without designating to which loan the payments were supposed to be credited. (FAC, ¶ 17.) Nguyen repeatedly promised that he would resume payments when his business improved and continued to make such representations until February 2016, when he advised Plaintiffs that he had rejected a proposed lien on the condo and that he would not be making any further payments. (Id.) No further payments were made on the note or the security agreements.

In 2014, Plaintiffs learned that Nguyen’s company had a new name, Simpldesk. (FAC, ¶ 18.) However, Plaintiffs were not told that Nuezra had ceased business as a going concern and that Simpldesk was in fact a new company. (Id.) Nguyen did not inform Plaintiffs that Nuezra was no longer able to pay off the loans it had received in 2011, he and Simpldesk did indicate that they would continue to attempt pay off Nuezra’s debt. (Id.) Plaintiffs accepted Simpldesk’s responsibility for the loan. (Id.)

Defendants made full payments on the May 2011 Loan until December 2011, and made partial payments until March 2012. (FAC, ¶ 23.) Thereafter they made no payments on the loan, although they made sporadic payments on that and other loans without designating to which loan the payments were supposed to be credited. (Id.) As with the April 2011 Loan, Nguyen repeatedly promised that he would resume payments when his business improved and continued to make such representations until February 2016, when he advised Plaintiffs that he had rejected a proposed lien on the condo and that he would not be making any further payments. (Id.) No further payments were made on the note or the security agreements.

Defendant made no payments on the First October 2011 Loan, one full payment and two partial payments on the Second October 2011 Loan, and no payments on the November 2011 Loan. (FAC, ¶¶ 29, 35, 41.) As with the loans discussed in the preceding paragraphs, sporadic payments were made without designating to which loan the payments were to be credited, and Nguyen repeatedly affirmed that he would make payments when his business improved until February 2016, when he explained that he had rejected a proposed lien on the condo and would not be making any further payments. No further payments were made on the notes or the related security agreements. (Id.)

Nguyen repaid $20,000 of the $170,000 that he borrowed from his aunt for the condo purchase but at present has failed to pay anything more despite affirming up until earlier this year that he was indebted to her and would repay her. (FAC, ¶ 66.) In February 2016, Nguyen executed a declaration under penalty of perjury in which he claimed that the $150,000 had been a gift to him and not a loan. (Id.) Without disclosing this fact to his aunt, Nguyen and his girlfriend sold the condo for approximately $1.4 million, and gave none of the proceeds to her. (Id., ¶ 68.)

Based on the foregoing, Plaintiffs filed the FAC on March 10, 2017, asserting claims for: (1) breach of contract (the April 2011 Loan) (against Nuezra and Simpldesk); (2) breach of contract (the May 2011 Loan) (against Nuezra and Simpldesk); (3) breach of contract (the First October 2011 Loan) (against Nuezra and Simpldesk); (4) breach of contract (the Second October 2011 Loan) (against Nuezra and Simpldesk); (5) breach of contract (the November 2011 Loan) (against Nuezra and Simpldesk); (6) breach of written contract (Personal Guaranty) (against Nguyen); (7) breach of written contract (Personal Guaranty- May 2011 loan) (against Nguyen); (8) breach of written contract (Personal Guaranty- October 2011) (against Nguyen); (9) breach of oral contract (against Nguyen); (10) promissory estoppel (against Nguyen); (11) unjust enrichment (against all defendants); (12) conversion (against Nguyen); and (13) elder abuse (against all defendants).

On April 7, 2017, Simpldesk filed the instant demurrer to each of the seven causes of action asserted against it in the FAC on the grounds of uncertainty and failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., 430.10, subds. (e) and (f).) Plaintiffs oppose the motion.

Simpldesk’s request for judicial notice is GRANTED. (Evid. Code, § 452, subd. (c) and (d).)

As an initial matter, Simpldesk’s demurrer to the first, second, third, fourth, fifth, eleventh and thirteenth causes of action on the ground of uncertainty is easily disposed of. Uncertainty is a disfavored ground for demurrer and will be sustained only where the pleading is so unintelligible that the responding party cannot reasonably respond to it. (See Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616 [“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures].) The allegations of the FAC as they pertain to Simpldesk fall well short of “unintelligible”; it is clear that Plaintiffs are alleging that the company is responsible for the outstanding loan amounts that have purportedly not been paid. Accordingly, Simpldesk’s demurrer to these claims on the ground of uncertainty is OVERRULED.

The bulk of Simpldesk’s supporting memorandum is aimed at the five breach of contract claims asserted against it, with Simpldesk asserting that no claim for breach of contract has been stated against it in particular, nor can it be, because it was not a party to the agreements upon which these causes of action are predicated.

In order to state a claim for breach of contract, a plaintiff must plead the following elements: (1) the existence of a contract between the plaintiff and the defendant; (2) the plaintiff’s performance or excuse for nonperformance; (3) the defendant’s breach; and (4) damage to the plaintiff resulting from that breach. (Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913.) Simpldesk notes that Plaintiffs do not allege at any point in the FAC that it entered into any of the loan agreements with Plaintiffs or the Trust, and also the terms of those agreements themselves, which are attached to the FAC as Exhibits 1-5, establish that Simpldesk is not a party to them and thus cannot be liable for the underlying debts.

Indeed, pursuant to their express terms, the loan agreements were entered into only by Nuezra, as “borrower,” and John Elstrom, in his capacity as trustee of the Trust, as “lender.” (See Exhibits 1-5 at p. 1.) There is no mention of Simpldesk in any portion of these contracts, which also provide that:

The written loan agreement may not be contradicted by evidence of any prior, contemporaneous, or subsequent oral agreements or understandings of the parties.

(FAC, Exhibits 1-5.)

Generally, facts appearing in exhibits attached to a complaint, if contrary to the allegations contained in that pleading, are given precedence. (Holland v. Morse Diesal Internet., Inc. (2001) 86 Cal.App.4th 1443, 1447; see also Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1626-1627.) When a written instrument that is the foundation of a cause of action is attached to a pleading as an exhibit and incorporated into it by proper reference, the court may, on demurer, examine the exhibit and treat the pleader’s allegations of its legal effect as surplusage. (Hill v. City of Santa Barbara (1961) 196 Cal.App.3d 580, 586.) Thus, by their own terms, the 2011 loan agreements, i.e., Exhibits 1-5, clearly establish that Simpldesk was not a party to them, and there are not allegations that the written loan agreement was properly modified.

Plaintiffs attempt to get around this hurdle by alleging that Simpldesk “did take on responsibility” for “Nuezra’s debt” and also that “[w]hether as a new company or in the guise of a renamed Nuezra, Simpldesk agreed to and did take on the responsibility of repaying Nuezra’s debts to plaintiff.” (FAC, ¶ 8.) However, as Simpldesk notes in its papers, there are no factual allegations as to how it “did take on responsibility” or assumed Nuezra’s debt obligations. For example, was there an (enforceable) agreement by Simpldesk to answer for Nuezra’s debt or some other type of permissible arrangement? Left unpleaded is the exact mechanism of Simpldesk’s alleged assumption of the debts owed under the 2011 loan agreements; consequently, there are insufficient facts pleaded as to the first element of the breach of contract claims relative to Simpldesk.

In their opposition Plaintiffs, citing to Corporations Code section 1905, assert that when Nuezra ceased operations, it had the responsibility to arrange for another entity or person to be responsible for its debt to Plaintiffs. Although it is true that pursuant to this code section once a corporation has been completely (non-judicially) wound up it must sign a certificate of dissolution stating that its known debts and liabilities have been provided for and identifying those people or entities that have assumed or guaranteed the payments (see Corp. Code, § 1905, subd. (a)(2)), there are no facts pleaded in the FAC which establish that Simpldesk was so named upon Nuezra winding up. Additionally, while successor liability could also potentially serve as a basis for the assumption of Nuezra’s debt by Simpldesk if the latter is in actuality a continuation of the former (see, e.g., Rosales v. Thermex-Thermatron, Inc. (1998) 61 Cal.App.4th 1091, 1094-1099), there are insufficient facts pleaded to establish this connection between Nuezra and Simpldesk. Simply put, Plaintiffs have not pleaded sufficient facts to state a claim for breach of contract against Simpldesk in particular. Consequently, Simpldesk’s demurrer to the first through fifth causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

In the eleventh cause of action for unjust enrichment, Plaintiffs allege that “defendants” unjustly enriched themselves at Plaintiffs’ expense by “receiving money in the form of loans and then failing to repay, and then refusing to repay, the loans.” (FAC, ¶ 77.) Plaintiffs request that the Court impose a constructive trust on all of the defendants’ assets, including proceeds from the sale of the San Francisco condo, the assets of Nuezra, the assets of Simpldesk, and any other assets or proceeds from sales or the recovery of debt by these parties. (FAC, ¶ 79.) Simpldesk contends that no claim for unjust enrichment has been or can be stated against it because it was not involved in any of the transactions giving rise to this cause of action.

A constructive trust is an equitable remedy designed to prevent unjust enrichment and to enforce restitution. (Haskel Engineering & Supply Co. v. Hardford Acc. & Indem. Co. (1978) 78 Cal.App.3d 371, 375.) The remedy requires that the defendant actually received something of value: “[O]ne cannot be held to be a constructive trustee of something he has not acquired. One must have acquired some money which in equity and good conscience belongs to the plaintiff or the defendant must be under a contract obligation with nothing remaining to be performed except the payment of a sum certain in money.” (Zumbrum v. University of Southern California (1972) 25 Cal.App.3d 1, 14-15 internal citation and quotations omitted].) Here, there are no facts pleaded which establish that Simpldesk received anything of value from Plaintiffs- particularly the loan proceeds- and thus has been unjustly enriched at their expense. In their opposition, Plaintiffs do not address this cause of action and therefore impliedly concede the merits of Simpldesk’s argument. Consequently, Simpldesk’s demurrer to the eleventh cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND .

In the final cause of action, Plaintiffs allege that with the aforementioned acts, e.g., the refusal to repay loan amounts, Simpldesk is liable for elder abuse. “The substantive law of elder abuse provides that financial abuse of an elder occurs when a person or entity takes, secretes, appropriates, or retains real or personal property of an elder adult to a wrongful use or with an intent to defraud, or both. A wrongful use is defined as taking, secreting, appropriating, or retaining property in bad faith. Bad faith occurs where the person or entity knew or should have known that the elder had the right to have the property transferred or made readily available to the elder or to his or her representative.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 174; Welf. & Inst. Code, § 15610.30.)

In order to state a claim for financial elder abuse, a plaintiff must plead and prove the following: (1) the plaintiff was “elderly” within the meaning of the Elder Abuse Act (Welfare & Institutions Code § 15600 et seq.), i.e., 65 years of age or older, (2) the defendant took or retained the plaintiff’s property with the intent to defraud the plaintiff or by undue influence, (3) the plaintiff was harmed, and (4) the defendant’s conduct was a substantial factor in causing in the plaintiff’s harm. (Knox v. Dean (2012) 205 Cal.App.4th 417; see Wel. & Inst. Code, § 15610.30; see also CACI No. 3100.)

Simpldesk asserts that no claim for elder abuse has been stated against it because nowhere in the FAC are there allegations about it specifically in connection with the required elements of the cause of action. More particularly, it explains, the other defendants, Nguyen and Nuezra, are the parties who are alleged to have actually taken or retained Plaintiffs’ property with the intent to defraud them, and Plaintiffs fail to plead conduct on the part of Simpldesk that was a substantial factor in causing them harm.

Simpldesk’s contentions are well taken. As it asserts, Plaintiffs do not allege that Simpldesk itself actually took or retained Plaintiffs’ property with fraudulent intent. Although there are allegations that Nguyen transfered Nuezra’s remaining assets to Simpldesk, this is not equivalent to pleading that Simpldesk took or retained Plaintiffs’ property, i.e., the funds. In their opposition, Plaintiffs do not address this cause of action and therefore impliedly concede the merits of Simpldesk’s argument. Consequently, no claim for elder abuse has been stated against Simpldesk, and therefore its demurrer to the thirteenth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.