2012-00133622-CU-CO

Pengjen Chen vs. Kevin Chang

Nature of Proceeding: Hearing on Demurrer

Filed By: Wayland, Gregory P.

*** If oral argument is requested, the parties must at the time oral argument is
requested notify the clerk and opposing counsel of the causes of action that will
be addressed at the hearing. Counsel are also reminded that pursuant to local
court rules, only limited oral argument is permitted on law and motion matters.
***

Defendant Chang’s demurrer to plaintiff Chen’s First Amended Complaint (“1AC”) is
SUSTAINED in part and OVERRULED in part, with leave to amend, as follows.

Plaintiff’s counsel is admonished for failing to comply with CRC Rule 3.1113(f).

Defendant’s request for judicial notice is granted.

Defendant’s objections to (1) the declaration submitted by plaintiff in opposition to this demurrer and (2) the exhibits attached to the opposition are sustained since such
evidence may not be considered by the Court in ruling on a demurrer and since
plaintiff made no proper request for judicial notice for any of the exhibits. (See, CRC
Rules 3.1113(l), 3.1306(c).)

This is action arises out of the purchase of land. Plaintiff and defendant were close
friends. Plaintiff alleges that in 2006, defendant approached him because he needed
funds to prevent losing an option to purchase approximately 247 acres of land in Elko,
Nevada. On 9/13/2006, defendant drafted an option agreement for purchasing an
option of 80 acres of land for $370,000. Plaintiff and defendant signed the option
agreement. On 2/8/2007, the parties entered into a revised option agreement for the
purchase of 80 acres of land. Defendant allegedly told plaintiff that he did not own the
property and plaintiff delivered approximately $138,400 to defendant.

The 1AC alleges that plaintiff thereafter discovered various misrepresentations and/or
omissions of fact by defendant: (1) The subject property had been purchased in May
2005 by defendant and his wife for $370,000 from KRL Partnership; (2) the subject
real property was recorded under a trust named Change Trust, which is owned by
defendant; and (3) the subject property had unsafe levels of arsenic which would need
costly clean-up to comply with EPA requirements. (1AC, ¶¶24-27.)

The 1AC now purports to assert causes of action (“COA”) for (1) “Fraud and
Misrepresentation,” (2) “Omission of Material Facts,” (3) “Deception,” (4) “Breach of
Contract,” (5) “Option Agreements Should be Cancelled Because They Are Voided for
Fraud and Misrepresentations and Omissions of Material Facts,” (6) “Option
Agreements Should Be Rescinded Because Defendant Dr. Kevin Allegedly Defrauded
The Plaintiff,” (7) “Option Agreements Should Be Rescinded Because of Mistake,” (8)
“Option Agreements Are Invalid and Unenforceable Because There is a Lack of Mutual
Assent,” and (9) “Option Agreements Are Invalid and Unenforceable Because The
Option Agreements Fail for Lack of Certainty.”

Defendant now demurs to several the COA on various grounds discussed below.
Plaintiff opposes, relying in part on allegations relating to the discovery of defendant’s
fraudulent conduct in July 2012 which were included in the original complaint but now
(inexplicably) omitted from the 1AC.

First Three COA for Fraud, Omission of Material Facts and Deception. Defendant
demurs to these COA on the ground that each is barred by the three year statute of
limitations for fraud found in Code of Civil Procedure §338 in that the 1AC plainly
alleges that the fraudulent conduct occurred, if at all, in 2006 and 2007, whereas this
action was not commenced until 10/12/2012.

In opposition, plaintiff asserts that the original complaint clearly alleged the fraudulent
conduct was not discovered until July 2012 and the Court expressly relied on these
allegations in overruling the previous demurrer on this same ground. The opposition
further suggests that the omission from the 1AC of allegations relating to the discovery
of fraud in July 2012 is of no consequence but regardless, plaintiff submits a
declaration which avers the discovery did in fact occur in July 2012, such that the
Court should consider this action timely.

The Court sustains the demurrer to these three fraud COA on the statute of limitations
ground. Plaintiff’s (inexplicable) omission from the 1AC of those facts indicating the fraudulent conduct was discovered in July 2012 is fatal to these three fraud COA and
plaintiff’s reliance on allegations found only in the original complaint (Compl., ¶¶25-28)
which is no longer operative as a result of being superseded by the 1AC, is misplaced.

st
1 COA for Fraud and Misrepresentation. Defendant demurs to this COA because
plaintiff failed to plead the alleged misrepresentations with the requisite specificity
including facts which show exactly how, when, where, to whom and by what means
the (mis)representations were tendered.

The Court agrees that this COA lacks the factual specificity essential to a
misrepresentation theory of liability and therefore, the demurrer to this COA is
sustained on this ground as well.

2nd COA for Omission of Material Facts. Defendant contends that this fails to plead
“when” the alleged omissions occurred and “how” defendant omitted anything. (Dem.,
p.6:19-20.)

The Court overrules the demurrer to this 2nd COA on this ground. There is no
requirement for plaintiff to plead “when” an omission of fact occurred because by
definition, an omission is an ongoing event. This is in contrast to an affirmative (mis)
representation which occurs at a specific time. Similarly, plaintiff need not identify
“how” defendant omitted any material fact but instead, the complaint merely needs to
allege that material facts were not disclosed and that had plaintiff known those facts,
he would have acted differently.

3rd COA for Deception. Defendant demurs to this COA which appears to assert
liability on a negligent misrepresentation theory on the ground that it fails to identify
clearly the alleged misrepresentations on which this COA is based and specifically
when those alleged misrepresentations occurred. (1AC, ¶¶56-57.) Defendant also
contends that Paragraph 55’s allegations are unintelligible.

The Court agrees on both counts and thus, the demurrer to this COA is sustained.

4th COA for Breach of Contract. Defendant maintains that this COA is barred by the
four year statute of limitations since plaintiff contends the contract was breached by
conduct occurring no later than 2007 and this action was not commenced until 2012.

The opposition asserts that plaintiff did timely amend the complaint and that plaintiff
did not discover the alleged fraud until July 2012.

Because the 1AC does not actually allege discovery of the fraud until July 2012 and
th
because the 4 COA fails to plead facts demonstrating compliance with the four year
statute of limitations applicable to breach of written contract claims, the Court sustains
th
the demurrer to the 4 COA.

5th and 6th COA for Cancellation and Rescission of the Option Agreements.
Defendant contends these two COA are “derivative” of the first three fraud-based COA
and are therefore deficient for the same reasons the first three COA are deficient.

th th
According to the opposition, neither the 5 nor the 6 COA is “derivative” of the first
three COA. The Court finds that the 5 and 6 COA, which are essentially duplicative of one
another, merely seek equitable relief on the grounds of fraudulent inducement and
thus, neither defendant’s statute of limitations argument nor the lack of heightened
th th
specificity argument is applicable to the 5 and 6 COA. Accordingly, the demurrer to
these two COA is overruled.

Where the demurrer was sustained, leave to amend is granted and plaintiff may file
and serve an amended complaint no later than 11/18/2013. Although not required
by court rule or statute, plaintiff is directed to present a copy of this order when
the amended complaint is presented for filing.

Defendant to respond within 10 days if the amended complaint is personally served,
15 days if served by mail. If the response is either a demurrer or motion to strike, a
copy of the new amended complaint must be included with the moving papers.

This minute order is effective immediately. No formal order or other notice is required.
(Code Civ. Proc. §1019.5; CRC Rule 3.1312.)