Case Number: BC494420 Hearing Date: July 03, 2014 Dept: 56

Case Name: New Peking Buffet, et al. v. Chen, et al.
Case No.: BC494420
Matter: Demurrer and Motion to Strike
Moving Party: Defendants Sheng Li Lin, Jin Xing Yang, Kiat Yeung, Xue Hua Zheng, and Xiao Xia Ling
Responding Party: Plaintiff

Tentative Ruling: Demurrer is sustained; Motion to strike is moot.

Sheng Li Lin, Jin Xing Yang, Kiat Yeung, Xue Hua Zheng, and Xiao Xia Ling (collectively “Moving Defendants”) demur and move to strike the Second Amended Complaint by Plaintiff New Peking Buffet Inc. The SAC asserts causes of action for (1) declaratory relief, (2) accounting, (3) breach of contract and the covenant of good faith and fair dealing, and (4) violation of BPC §17200.

Act of State Doctrine –
Moving Defendants argue that all causes of action within the FAC are barred by the Act of State doctrine, because they necessarily concern the validity of actions by the government of the People’s Republic of China. Under the Act of State doctrine, “Every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.” In re Philippine Nat’l Bank (9th Cir. 2005) 397 F.3d 768, 772. The Act of State doctrine applies whenever a court must determine the validity of an official act by a foreign government. E.g. WS Kirkpatrick v. Envtl. Tectonics Corp. (1990) 493 US 400, 404.

The Court previously sustained a demurrer to the FAC on this ground. Like the FAC, the SAC alleges that Plaintiff and co-defendants Ding He Chen and Jin Bin Chen entered into a joint venture agreement to invest in a development in the PRC, through the PRC’s laws on wholly foreign owned enterprises (“WFOE”); to implement their agreement, the parties established a PRC corporation named Jinagxi Shengdu Zhi Yei Company Limited (“Shengdu”); Shengdu was wholly owned by Plaintiff; a WFOE certificate was issued by the PRC government naming Tony Chen as Shengdu’s legal representative; the parties disagreed regarding the operation of Shengdu and its earnings; all of the defendants planned and carried out a scheme in which Ding He Chin took Plaintiff’s corporate book and seal; all defendants created false documents and presented them to the PRC government; the ownership of Shengdu was transferred from Plaintiff to all defendants; and by engaging in this conduct all defendants have deprived Plaintiff of its ownership interest in Shengdu, preventing Plaintiff from recouping its initial investment and depriving Plaintiff of its profit from the joint venture.

While the two pleadings have this much in common, the SAC omits some allegations concerning the PRC that were alleged in the FAC. Although Plaintiff now alleges that the PRC issued a “stock certificate” naming Tony Chen as Shengdu’s legal representative (SAC ¶20, Ex. B), Plaintiff omits the allegations concerning the role of the PRC in transferring ownership of Shengdu (compare SAC ¶26 with FAC ¶¶25-28 & 31). The previous demurrer established that the “stock certificate” and transfer concerned a business certificate/license issued by the PRC through its WFOE laws and procedures (see RJN filed 11/8/13 Ex. B & C; RJN Ex. D). These omitted allegations are properly considered by the Court. E.g. Vallejo Development v. Beck Development (1994) 24 Cal.App.4th 929, 946.

The 1st COA requests the Court to confirm Plaintiff’s 100% ownership of Shengdu (SAC ¶¶34-36) and the 2nd COA requests an accounting of Shengdu’s financial records and assets (SAC ¶41). The 3rd COA alleges breach of the joint venture agreement by “wrongfully usurping the interest previously held by [Plaintiff] in Shengdu” (SAC ¶45). The 4th COA is based in part on the transfer of Shengdu’s ownership (SAC ¶¶51-52). All of these causes of action improperly require the Court to review and invalidate the PRC government’s transfer of Shengdu’s ownership from Plaintiff. This implicates the Act of State doctrine. WS Kirkpatrick, 493 U.S. at 405; Banco Nacional de Cuba v. Sabbatino (1964) 376 U.S. 398, 410; Oetjen v. Central Leather (1918) 246 U.S. 297, 303.

Commercial Dispute –
The 3rd and 4th COAs also include allegations of damages based on preventing Plaintiff from recouping its initial investment and depriving Plaintiff of its profit from the joint venture (SAC ¶¶45 & 51-52). Plaintiff argues that the Act of State doctrine does not apply, based on private commercial disputes. But these claims do not concern purely commercial operations; they all are based in part on the transfer of Shengdu’s ownership by the PRC, which implicates the Act of State doctrine. E.g. WS Kirkpatrick, 493 U.S. at 407; Alfred Dunhill of London v. Republic of Cuba (1976) 425 U.S. 682, 705-6.

Moreover, the 3rd and 4th COAs do not allege facts which support a legal claim against Moving Defendants. The SAC alleges that the joint venture agreement was formed by Plaintiff, Ding He Chen and Jin Bin Chen; there are no allegations that any of the Moving Defendants were parties to that agreement or even had knowledge of its terms (see SAC ¶¶18 & 43). Plaintiff has argued that the Moving Defendants ratified the joint venture agreement by later representations, but the SAC fails to allege compliance with the statute of frauds in this real property transaction; see Civ. Code §§1624(a) & 2309. In other words, no contractual relationship is alleged between Plaintiff and Moving Defendants, which is fatal for the 3rd and 4th COAs. See Digerati Holdings v. Young Money (2011) 194 Cal.App.4th 873, 885; Racine & Laramie v. Dept. of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-32.

Ruling –
The demurrer is sustained for all causes of action. Plaintiff has had three opportunities to allege sufficient causes of action, and there appears to be no reasonable probability that Plaintiff can do so. Eg, Sprinkles v. Associated Indemnity (2010) 188 Cal.App.4th 69, 76. Leave to amend should not be granted when amendment of the complaint would be futile. Long v. Century Indemnity (2008) 163 Cal.App.4th 1460, 1468; Vaillette v. Fireman’s Fund (1993) 18 Cal.App.4th 680, 685.

Accordingly, the demurrer is sustained without leave to amend, and a judgment of dismissal will be entered for Moving Defendants. The motion to strike is moot.

Counsel should submit a judgment of dismissal.