Case Name: Michelle Wu v. Walnut Media Network, Inc., et al.

Case No.: 17CV321075

Defendants’ Demurrer to Plaintiff’s Complaint

Factual and Procedural Background

On or around May 2008, defendant David Ji (“Ji’), defendant Shoa-Kai Liu (“Liu”), and plaintiff Michelle Wu (“Wu”) founded defendant Walnut Media Network, Inc. (“WMN”). (Complaint, ¶16.) The board of directors of WMN decided (1) plaintiff Wu would lead a team in Shanghai, China to develop new products; (2) WMN would fund the product development project; and (3) WMN would use Shanghai Le Meng Information Technology, LLC (“Le Meng”) and Shanghai Zhuo Zhi Information Technology, LLC (“Zhuo Zhi”), two Chinese companies with which plaintiff Wu had a pre-existing relationship, to host its operations in China including paying for various operation costs and hiring employees. (Complaint, ¶17.) Defendant WMN signed several contracts with Le Meng and Zhuo Zhi to provide services to WMN for the product development project. (Id.)

Defendants WMN, Ji, and Liu agreed plaintiff Wu would receive an annual $120,000 to lead the project in China. (Complaint, ¶18.) Defendants agreed to fund the operation costs of WMN’s China team including employment compensation for plaintiff Wu and her team. (Complaint, ¶20.) On or around August 2008, defendants transferred $70,000 to Zhuo Zhi to fund the initial set up of WMN’s China office. (Id.) Defendants understood $40,000 would be used for plaintiff Wu’s employment compensation from May to August 2008 and the remaining $30,000 for initial operation costs. (Id.)

From October 2008 to July 2010, defendants sent $829,970 to Le Meng to fund WMN’s product development project in China which included $240,000 for plaintiff Wu’s salary from September 2008 to August 2010. (Complaint, ¶21.) From 2008 to 2010, plaintiff Wu provided defendants with monthly and quarterly financial reports summarizing operation costs for WMN’s China operation. (Complaint, ¶22.) During this period, defendants never objected to any expenses incurred by WMN’s China team as reported by plaintiff Wu. (Complaint, ¶26.)

Plaintiff Wu and the WMN team in China completed the development of several new products and provided these new products to defendants. (Complaint, ¶27.) However, defendants notified plaintiff Wu in August 2010 that WMN decided to stop the new product development project in China. (Complaint, ¶28.) Defendants agreed to compensate plaintiff Wu and other members of the China team for their services performed in August 2010 and asked plaintiff Wu to return the remaining funds. (Id.)

Defendants also asked plaintiff Wu to immediately move back to the United States, but did not provide any financial assistance for relocation and did not give plaintiff a reasonable time frame to move back to the United States. (Complaint, ¶29.) Plaintiff Wu resigned shortly thereafter. (Id.)

In 2012, WMN filed a lawsuit against plaintiff Wu in Shanghai Zhabei District People’s Court (“District Court”) alleging plaintiff Wu had breached her fiduciary duties. (Complaint, ¶30.) WMN also named Le Meng and Zhuo Zhi as co-defendants. (Id.) The District Court retained an auditing firm who determined, among other things, plaintiff Wu failed to withdraw a significant portion of her monthly salary. (Complaint, ¶31.) Despite a $10,000/month salary, the auditing firm discovered plaintiff Wu only withdrew approximately $8,199 as employment compensation from May 2008 through August 2010. (Complaint, ¶32.) Plaintiff Wu did not withdraw her monthly employment compensation to ensure WMN had sufficient funds to cover various costs of its China operations. (Id.)

In spite of these findings, the District Court ordered plaintiff Wu, Zhou Zhi, and Le Meng to return a large portion of the funding received from WMN for May 2008 to August 2010 and to pay interest on the amount returned. (Complaint, ¶33.) Plaintiff appealed and on February 28, 2017, the Intermediate Court upheld the District Court’s verdict. (Complaint, ¶34.) In its order, the Intermediate Court noted plaintiff Wu could initiate a separate lawsuit against defendants for her employment compensation between May 2008 and August 2010. (Id.)

On December 27, 2017, plaintiff Wu filed a complaint against defendants WMN, Liu, and Ji asserting causes of action for:

(1) Breach of Contract [versus WMN]
(2) Violation of Labor Code §204 [versus WMN]
(3) Violation of Labor Code §§202 and 203 [versus WMN]
(4) Intentional Misrepresentation [versus all defendants]

On February 21, 2018, defendants WMN, Liu, and Ji filed the motion now before the court, a demurrer to plaintiff Wu’s complaint.

I. Defendants’ request for judicial notice is DENIED.

In support of their demurrer, defendants request judicial notice of (1) the translated last page of defendant WMN’s lawsuit in China, which reflects the date the lawsuit commenced; and (2) WMN’s articles of incorporation, which reflect that they were filed on July 28, 2008. The court does not find these facts necessary to its ruling. (See Duarte v. Pacific Specialty Insurance Company (2017) 13 Cal.App.5th 45, 51, fn. 6—denying request where judicial notice is not necessary, helpful or relevant.) Accordingly, the request for judicial notice in support of defendants’ demurrer to plaintiff’s complaint is DENIED.

II. Defendant WMN’s demurrer to the first cause of action [breach of contract] is SUSTAINED.

A defendant may raise a general demurrer based on statute of limitations grounds. “Where the dates alleged in the complaint show the action is barred by the statute of limitations, a general demurrer lies.” (Weil & Brown, et al., CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2017) ¶7:50, p. 7(I)-31 citing Saliter v. Pierce Bros. Mortuaries (1978) 81 Cal.App.3d 292, 300, et al.) However, “[t]he running of the statute must appear ‘clearly and affirmatively’ from the dates alleged. It is not sufficient that the complaint might be barred. If the dates establishing the running of the statute of limitations do not clearly appear in the complaint, there is no ground for general demurrer. The proper remedy ‘is to ascertain the factual basis of the contention through discovery and, if necessary, file a motion for summary judgment.’” (Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316, 324 – 325; internal citations omitted.)

For a written contract, the applicable statute of limitations is four years pursuant to Code of Civil Procedure section 337 which applies to “an action upon any contract, obligation or liability founded upon an instrument in writing.” For an action “upon a contract, obligation or liability not founded upon an instrument in writing,” the statute of limitations is two years. (Code Civ. Proc. §339(1).)

Here, plaintiff Wu alleges she “entered into a valid contract with WMN concerning her employment at WMN from May 2008 to August 2010.” (Complaint, ¶38.) “Defendants materially breached the contract by asking Plaintiff to return a significant portion of the WMN fund, which includes unpaid monthly salary for Plaintiff from May 2008 to August 2010.” (Complaint, ¶39.) In August 2010, defendants “asked Plaintiff to return the remaining fund to WMN.” (Complaint, ¶28.)

Based on the allegations of the complaint, defendant WMN contends that a cause of action for breach of contract had to be filed no later than August 2014 and plaintiff did not commence this action until December 2017 so the claim is barred. In opposition, plaintiff Wu contends a breach did not occur until the final judgment of the Chinese court on February 28, 2017.

“The cause of action for breach of contract ordinarily accrues at the time of breach, and the statute begins to run at that time regardless of whether any damage is apparent or whether the injured party is aware of his right to sue.” (3 Witkin, California Procedure (4th ed. 1996) Actions, §486, p. 611; see also Ram’s Gate Winery, LLC v. Roche (2015) 235 Cal.App.4th 1071, 1084.)

An agreement to pay compensation is breached when the defendant fails to pay that compensation. The court is not persuaded by plaintiff Wu’s logic and assertion that a breach did not occur until the Chinese court issued a final judgment ordering plaintiff to return the remaining WMN fund to defendants.

Accordingly, defendant WMN’s demurrer to the first cause of action in plaintiff Wu’s complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action for breach of contract [Code Civ. Proc., §430.10, subd. (e)] is SUSTAINED without leave to amend. Plaintiff has the burden to show in what manner she can amend her complaint and how that amendment will change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Plaintiff has not met this burden.

III. Defendant WMN’s demurrer to the second and third causes of action [Labor Code violations] is SUSTAINED.

Defendant WMN demurs to the second and third causes of action for Labor Code violations on the ground that they are barred by the three year statute of limitations for “an action upon a liability created by statute, other than a penalty or forfeiture.” (Code Civ. Proc., §338, subd. (a); see also Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1109—“suit seeking to enforce the section 203 penalty would be subject to the same three-year statute of limitations as an action to recover wages.”)

The Labor Code violations at issue in the second and third causes of action concern the payment of wages. By her own allegation, defendant WMN decided to stop the new product development project in China in August 2010. (Complaint, ¶28.) In August 2010, defendants “asked Plaintiff to return the remaining fund to WMN.” (Id.) “Defendant WMN unilaterally stopped the Company’s China operation in August 2010 and forced Plaintiff to resign shortly after.” (Complaint, ¶49.) The statute of limitation for the Labor Code violations expired no later than August 2013.

“With respect to torts, generally speaking, a claim accrues and the statute of limitations begins to run upon the occurrence of the last event essential to the cause of action, even if the plaintiff is unaware that a cause of action exists. The infliction of actual and appreciable harm will commence the limitations period.” (Shamsian v. Atlantic Richfield Co. (2003) 107 Cal.App.4th 967, 979 – 980; internal citations and punctuation omitted.)

Just as with the breach of contract, plaintiff Wu’s claims for Labor Code violations relating to the payment of wages accrued in August 2010 when defendant WMN stopped funding the project (including compensation) and asked for a return of any remaining funds. Plaintiff is not saved by her allegations that the Chinese litigation “takes away Plaintiff’s employment compensation seven years after Plaintiff provide the employment services to WMN.” (Complaint, ¶¶44 and 49.)

Accordingly, defendant WMN’s demurrer to the second and third causes of action in plaintiff Wu’s complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action for violation of Labor Code sections 202 – 204 [Code Civ. Proc., §430.10, subd. (e)] is SUSTAINED without leave to amend. Plaintiff has the burden to show in what manner she can amend her complaint and how that amendment will change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Plaintiff has not met this burden.

IV. Defendants Ji and Liu’s demurrer to the fourth cause of action [intentional misrepresentation] is SUSTAINED.

In the fourth cause of action, plaintiff Wu alleges defendants Ji and Liu “represented to Plaintiff that WMN would pay an annual salary of $120,000 if Plaintiff went to China in May 2008 and led [sic] WMN’s China team to develop new products for the Company.” (Complaint, ¶53.) “Defendants’ such representation was false as they asked Plaintiff to return the WMN fund, knowing that it includes salary for Plaintiff, more than seven years after Plaintiff performed the employment services.” (Complaint, ¶54.)

Defendants Ji and Liu demur to the fourth cause of action on the ground that it is barred by Code of Civil Procedure section 338, subdivision (d) which specifies a three year statute of limitations for actions grounded in fraud or mistake. Code of Civil Procedure section 338, subdivision (d) specifically states, “The cause of action … is not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” (Code Civ. Proc. §338, subd. (d).)

In essence, plaintiff Wu alleges defendants Ji and Liu made a promise to pay her $120,000. This representation was false because Ji and Liu stopped paying plaintiff and asked plaintiff Wu to return the WMN funds. The payments were stopped and the request to return funds was made in August 2010 concurrent with the time WMN stopped funding the project in China. (Complaint, ¶¶28 and 49.) It is clear from the allegations that the falsity of the representation was made apparent to plaintiff and, therefore, the claim for fraud accrued in August 2010. Since plaintiff Wu did not commence this action until December 2017, the claim for fraud is barred.

Accordingly, defendants Ji and Liu’s demurrer to the fourth cause of action in plaintiff Wu’s complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action for intentional misrepresentation [Code Civ. Proc., §430.10, subd. (e)] is SUSTAINED without leave to amend. Plaintiff has the burden to show in what manner she can amend her complaint and how that amendment will change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Plaintiff has not met this burden.