Case Name: Quadri v. Niazi, et al.
Case No.: 1-13-CV-247275

According to the allegations of the first amended complaint (“FAC”), plaintiff Pasha Quadri (“Plaintiff”) entered into negotiations with defendant Ozkan Niazi (“Ozkan”) for the purchase and sale of Action Computer (“Action”) in the summer of 2011. (See FAC, ¶ 11.) On June 28, 2011, Ozkan provided financial disclosures of Action to Plaintiff. (See FAC, ¶ 12.) On July 7, 2011, Ozkan provided Profit and Loss statements for Action to Plaintiff. (See FAC, ¶ 13.) Ozkan and defendant Cathy Cha (“Cha”) led Plaintiff to believe he was purchasing a business which had high income and provided a high profit margin. (See FAC, ¶ 15.) On November 6, 2011, relying on the representation, disclosures and financial statements prepared by these defendants, Plaintiff made an offer to purchase Action for the sum of $1.9 million. (See FAC, ¶ 16.) The FAC alleges that on November 8, 2011, Ozkan and demurring defendant Swee Chin Niazi (“Swee Chin” or “demurring defendant”) accepted Plaintiff’s offer, agreeing to sell Action for $1.9 million; however, Swee Chin is not a signatory of the agreement and is not otherwise listed on the agreement. (See FAC, ¶ 18, citing to FAC, exh. B; compare with exh. B (not listing Swee Chin as a signatory of the agreement).) Thereafter, Ozkan and Plaintiff executed a series of amendments to the Asset Purchase Agreement. (See FAC, ¶ 19.) On March 4, 2012, Plaintiff and Ozkan executed addendum number 4, valuing Action’s inventory at $643,037. (See FAC, ¶ 23.) On March 27, 2012, the closing for the sale and purchase of Action took place, and Swee Chin signed the bill of sale, purporting that all inventory, stock in trade, good will, furniture, fixtures and equipment were conveyed to Action and covenants to not compete and to defend the title of said property were also included. (See FAC, ¶ 24.)

The FAC alleges that Ozkan and Cha knowingly, willfully and intentionally manipulated the financial data of Action, including but not limited to the inventory numbers and cost of goods sold, in order to artificially increase net profits, so as to induce Plaintiff into purchasing the business at an inflated valuation. (See FAC, ¶ 26.) Cha aided and abetted Ozkan in inducing Plaintiff into purchasing the business at an inflated valuation. (See FAC, ¶ 27.)

On November 22, 2013, Plaintiff filed the FAC, asserting claims for: breach of contract (against Ozkan and Swee Chin); breach of the covenant of good faith and fair dealing (against Ozkan and Swee Chin); fraud—concealment (against Ozkan and Swee Chin); fraud—intentional misrepresentation (against Ozkan, Swee Chin and Cha); conspiracy to defraud (against Ozkan, Swee Chin and Cha); injunctive relief (against Ozkan and Swee Chin); negligence (accounting malpractice) (against Cha); and, negligent misrepresentation (against Cha).

Swee Chin demurs to each of the causes of action alleged against her on the grounds that they are uncertain and fail to state facts sufficient to constitute a cause of action. The demurrer to each of the causes of action on the grounds that they are uncertain is OVERRULED.

The contract claims (first and second causes of action)

The first cause of action alleges that Ozkan and Swee Chin “breached the Asset Purchase Agreement by failing to completely and accurately disclose the financial records of ACTION COMPUTER….” (FAC, ¶ 39; see also FAC, ¶ 37 (alleging that “Plaintiff PASHA QUADRI performed all of the obligations required under the Asset Purchase Agreement”).) Although the complaint alleges that both Ozkan and Swee Chin accepted Plaintiff’s offer, Swee Chin’s name and signature is absent from Exhibit B—the Asset Purchase Agreement. (See FAC, ¶ 18, exh. B.) “If the facts appearing in the attached exhibit contradict those expressly pleaded, those in the exhibit are given precedence.” (Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, 568.) Swee Chin’s name and signature is also absent from amendments and addendums to the Asset Purchase Agreement, attached as exhibits to the FAC. (See FAC, ¶¶ 19, 23, exhs. C, D.) It thus appears that the FAC does not allege the existence of an agreement upon which the first and second causes of action are premised. (See Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913 (stating that the existence of a contract is an element for a breach of contract cause of action); see also Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350 (stating that “[t]he covenant thus cannot ‘be endowed with an existence independent of its contractual underpinnings’… [i]t cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement”).)

In opposition, Plaintiff asserts that she has nevertheless alleged the existence of a contract because the FAC alleges that Swee Chin is a co-owner of Action, and that both Swee Chin and Ozkan accepted Plaintiff’s offer. (See Pl.’s memorandum of points and authorities in opposition to demurrer (“Opposition”), pp.2:25-28, 3:1-3.) Plaintiff contends that “[t]he fact that her signature does not appear on the document is irrelevant at the demurrer stage… [because w]hether SWEE CHIN NIAZI gave proper consent to enter into the contract is a matter to be flushed out in discovery.” (Id. at p.3:3-6.) Plaintiff’s reasoning is defective. As previously stated, the fact that Swee Chin’s name and signature is absent from all four attached exhibits to the FAC—particularly the contract upon which the claim is based—trumps any allegation to the contrary. Swee Chin is not a named party to the agreement. Although Plaintiff contends that it “would be contrary to fact and logic,” Swee Chin’s consent to sell the assets of Action is immaterial as to whether Swee Chin should be individually liable for a breach of the Asset Purchase Agreement between Ozkan and Plaintiff. Plaintiff also notes that the FAC alleges that Swee Chin signed the bill of sale and other documents, asserting that they “were all part of this transaction.” (Opposition, p.3:7-15.) However, the first and second causes of action are not premised on those agreements; rather, they are premised on the Asset Purchase Agreement and related amendments/addendums. Accordingly, Swee Chin’s demurrer to the first and second causes of action on the ground that they fail to state facts sufficient to constitute a cognizable cause of action is SUSTAINED with 10 days leave to amend.

The fraud claims (third through fifth causes of action)

Defendants demur to the third cause of action for fraud—concealment on the ground that it is not pled with particularity. Indeed, “[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184, quoting Lazar v. Super. Ct. (Rykoff-Sexton, Inc.) (1996) 12 Cal. 4th 631, 645.) “This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’” (Id.) Here, the third cause of action alleges that “Defendants… failed to timely and completely disclose… the true value of the cost of goods sold of ACTION COMPUTER… intentionally misrepresented the value of the inventory of ACTION COMPUTER with the intention to defraud the Plaintiff… intentionally concealed the fact that OZKAN NIAZI’s son was a salaried employee of ACTION COMPUTER… knowingly failed to disclose all liens and encumbrances on ACTION COMPUTER… intentionally and knowingly misrepresented the value of standing purchase orders for goods sold by ACTION COMPUTER… and intentionally and knowingly failed to disclose all pending litigation against ACTION COMPUTER.” (FAC, ¶ 46.)

Without citation to any legal authority, Plaintiff baldly asserts that “[a]s Mr. NIAZI’s wife and as a co-owner of the business, Mrs. SWEE CHIN NIAZI would necessarily have a duty to disclose certain information relating to the business if she participated in the sale in any way.” (Opposition, p.5: 24-28.) However, the FAC merely alleges that Swee Chin signed the bill of sale. This is insufficient to state a concealment claim with particularity.

Moreover, the Asset Purchase Agreement and subsequent amendments/addendums signed only by Ozkan state that “[a]ll the financial information and statements furnished or to be furnished to Buyer are complete, accurate, prepared in a manner consistent with prior statements and fairly present the financial condition of the business,” “there are no claims or investigations pending which would affect the Business or Assets being sold,” and, “all assets currently used in the Business are owned by Seller free from liens and encumbrances, and they are in good working condition.” (FAC, exh. A, ¶ 9, subparas. (b), (d), (g); FAC exh. B, ¶ 9, subparas. (b), (d), (g).) The concealments and misrepresentations upon which the third cause of action relies (see FAC, ¶ 46) are those representations and warranties made by Ozkan in November 2011, and, on March 4, 2012. In opposition, Plaintiff attaches the referenced Bill of Sale, but it does not contain any such warranties or representations. Regardless, it is unclear as to: whether Swee Chin had knowledge of the falsity of the misrepresentation; whether Swee Chin intended to induce reliance on the misrepresentation; how Plaintiff justifiably relied on any concealment or misrepresentation by Swee Chin in the signing of a bill of sale; how Plaintiff was damaged by any concealment or misrepresentation by Swee Chin in the signing of a bill of sale; and, how Swee Chin had a duty to disclose any concealed information to Plaintiff. (See Superior Dispatch, Inc. v. Insurance Corp. of New York (2010) 181 Cal.App.4th 175, 187 (stating that “[a] nondisclosure is a cause of injury if the plaintiff would have acted so as to avoid injury had the plaintiff known the concealed fact”); see also Curcini v. County of Alameda (2008) 164 Cal.App.4th 629, 650 (stating that “[c]onclusory allegations such as these [regarding intent and malice] are insufficient to survive a demurrer”).) T Swee Chin’s demurrer to the third cause of action is SUSTAINED with 10 days leave to amend. (See Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 878 (stating that “[c]oncealment is a species of fraud, and ‘fraud must be pleaded with specificity’”).)

The fourth cause of action for fraud—intentional misrepresentation is premised on “the various financial documents” including “the U.S. Income Tax Return for calendar year 2011, Financial Disclosures, and Profit and Loss Statements”, and Ozkan’s oral representations. However, the fourth cause of action is completely devoid of any allegations supporting liability as to Swee Chin for fraud based on these misrepresentations. Swee Chin’s demurrer to the fourth cause of action is SUSTAINED with 10 days leave to amend. (See Lazar, supra, 12 Cal.4th at p.645.)

The fifth cause of action is dependent on the third and fourth causes of action. In light of the Court’s above rulings regarding these causes of action, Swee Chin’s demurrer to the fifth cause of action is SUSTAINED with 10 days leave to amend.

The sixth cause of action for injunctive relief

The sixth cause of action for injunctive relief is premised on the alleged breach of a non-compete agreement. The non-compete agreement is alleged to be a part of the bill of sale, which Swee Chin signed. (See FAC, ¶ 24.) The sixth cause of action alleges that Swee Chin directly competes with Action, in breach of the non-compete agreement, causing irreparable injury to Plaintiff. (See FAC, ¶¶ 65-67.) Here, the sixth cause of action alleges facts sufficient to constitute a claim for injunctive relief. (See Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal.App.3d 405, 410 (stating that “[t]he elements of a cause of action for injunctive relief are (1) a tort or other wrongful act constituting a cause of action; and (2) irreparable injury, i.e., a factual showing that the wrongful act constitutes an actual or threatened injury to property or personal rights which cannot be compensated by an ordinary damage award”).) Accordingly, the demurrer to the sixth cause of action is OVERRULED.