Case Number: KC062856    Hearing Date: April 28, 2014    Dept: O

Private Label PC, Inc. v. PQI Corporation, et al. (KC062856)

1. Cross-Defendant Sinofreight Logistics, Inc.’s DEMURRER TO PQI CORPORATION’S VERIFIED SECOND AMENDED CROSS-COMPLAINT

Respondent: Cross-Complainant PQI Corporation

2-3. Specially Appearing Defendants Power Quotient International (HK) Co., Ltd. and Power Quotient International Co. (Taiwan) Ltd.’s MOTIONS TO QUASH SERVICE OF SUMMONS ON SECOND AMENDED COMPLAINT

Respondent: Plaintiff Private Label PC, Inc.

TENTATIVE RULING

1. Demurrer

Cross-Defendant Sinofreight Logistics, Inc.’s demurrer to PQI Corporation’s verified second amended cross-complaint demurrer is SUSTAINED with 10 days leave to amend as to the 1st cause of action, and OVERRULED as to the 2nd – 6th causes of action.

JUDICIAL NOTICE is taken of Cross-Defendant Sinofreight Logistics, Inc. (SB Freight)’s Exhibits A-C, and Cross-Complainant PQI Corporation (PQI)’s Exhibits 1, 2 & 4. The court declines to take judicial notice of PQI’s Exhibits 3 & 5. (Ev. Code 452.)

1st CAUSE OF ACTION: BREACH OF FIDUCIARY DUTY/CONSTRUCTIVE FRAUD:
The elements for a cause of action for Breach of Fiduciary Duty are: 1) fiduciary duty; 2) breach of the duty; and 3) damage caused by the breach. (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 182; Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.) Constructive fraud arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice. (Tyler v. Children’s Home Society (1994) 29 Cal. App. 4th 511, 548.) Constructive fraud is found: (1) in any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or (2) in any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud. (CC 1573.) As a general principle constructive fraud comprises any act, omission or concealment involving a breach of legal or equitable duty, trust or confidence which results in damage to another even though the conduct is not otherwise fraudulent. (Salahutdin v. Valley of Calif., Inc. (1994) 24 Cal. App. 4th 555, 562.) The failure of the fiduciary to disclose a material fact to his principal which might affect the fiduciary’s motives or the principal’s decision, which is known (or should be known) to the fiduciary, may constitute constructive fraud. (Id.) A careless misstatement may constitute constructive fraud even though there is no fraudulent intent. (Id.) A fiduciary or confidential relationship can arise when confidence is reposed by persons in the integrity of others, and if the latter voluntarily accepts or assumes to accept the confidence, he or she may not act so as to take advantage of the other’s interest without that person’s knowledge or consent. (Pierce v. Lyman (1991) 1 Cal. App. 4th 1093, 1101-02.)

Par. 24 alleges that PQI and SB Freight had a fiduciary relationship because SB Freight served as a bailee. SB Freight accepted and/or received PQI products pursuant to typed Bills of Lading (BOL) instructing SB Freight to handle/transport/or arrange to transport PQI products. Par. 19 alleges that after checks bounced, PQI went directly to SB Freight to inquire about the “typed” BOLs and discovered that SB Freight consented and ratified Chao’s “handwritten” modifications to the “typed” BOLs, and redirected PQI products, as well as who would actually be paid for the PQI products.

The court finds the allegations do not sufficiently describe the formation of a confidential or fiduciary relationship. Here, PQI instructed SB Freight to deliver certain goods to specific entities, which it allegedly failed to do. However, the mere placing of a trust in another person does not create a fiduciary relationship. (Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 586 – “Higashi did nothing more than make a calculation as instructed… Plaintiff shared no confidences with Higashi.”)

PQI relies on Brown v. Wells Fargo Bank, NA (2008) 168 Cal.App.4th 938 and Byron Culver & Associates v. Ajaoudi Industrial & Trading Corp. (1991) 1 Cal.App.4th 300, 304 to contend that a “broker” relationship was established between PQI and SB Freight. However, Brown dealt with stockbrokers, and Byron Culver & Associates dealt with real estate brokers. PQI failed to cite any case authority holding that a bailee of goods possesses the same fiduciary obligations. Accordingly, demurrer is SUSTAINED with 10 days leave to amend.

5th CAUSE OF ACTION: FRAUD/CONSPIRACY:
The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (See CC 1709.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197, 216.) A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation. (See Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.)

Par. 24 alleges that SB Freight accepted and/or received PQI products pursuant to typed Bills of Lading (BOL) instructing SB Freight to handle/transport/or arrange to transport PQI products. Par. 19 alleges that after checks bounced, PQI went directly to SB Freight to inquire about the “typed” BOLs and discovered that SB Freight consented and ratified Chao’s “handwritten” modifications to the “typed” BOLs, and redirected PQI products, as well as who would actually be paid for the PQI products. Pars. 45-46 allege that SB Freight participated and conspired in the fraud from August 2011- December 12, 2011. The court finds the allegations sufficiently describe fraud by concealment with sufficient particularity. Demurrer is OVERRULED.

6TH CAUSE OF ACTION: BREACH OF CONTRACT:
The elements for a breach of contract cause of action are: (1) the contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) resulting damages. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830.) In alleging a breach of contract cause of action, it is necessary to specify whether the contract is written, oral or implied by conduct. (CCP 430.10(g).) In order to plead a written contract (the first element listed above), a plaintiff must, in addition to alleging the making of the contract, do one of the following: (1) set forth the contract in haec verba; or (2) plead the contract’s legal effect by alleging the substance of its relevant terms. (4 Witkin, California Procedure 4th Edition, ¿¿479-481.) In order to plead an oral contract, a plaintiff must plead its legal effect, i.e., allege the substance of the contractual terms. (Id., at 483.)

Par. 51 alleges both written and oral contracts by which PQI delivered PQI products to SB Freight for warehousing and/or handling. The written portion initially arose because PQI believed that its typed BOLs were going to be processed and honored by SB Freight, but SB Freight did not actually process or follow them. Par. 52 alleges that the oral contract arose between PQI and SB Freight in that SB Freight would not take actions related to the delivered PQI products without the actual knowledge and consent of PQI. Instead, SB Freight allowed Chao to make handwritten BOLs and never confirming or approving them with PQI. It is further alleged that PQI has performed or it’s performance was excused. Par. 53 alleges resulting damages. The court finds PQI adequately alleged both written and oral contracts, breach, and resulting damages.

2ND – 4th CAUSES OF ACTION: NEGLIGENCE/NEGLIGENCE PER SE, CONVERSION, and UNFAIR BUSINESS PRACTICES:

SB Freight asserts that the 2nd – 4th causes of action are based on the defective Breach of Contract claim and therefore must fail. These causes of action survive demurrer.

NEGLIGENCE:
In order to prevail in a negligence action, plaintiffs must show that defendants owed them a legal duty, that defendants breached that duty, and that the breach proximately caused their injuries. (Wiener v. south Coast Child Care Centers, Inc. (2004) 32 Cal.4th 1138, 1142.)

Par. 31 alleges SB Freight’s duty; Pars. 19 and 24 allege SB Freight’s breach; Par. 32-33 allege resulting damages.

CONVERSION:
The elements are: 1) Plaintiff’s ownership or right to possession of personal property; 2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and 3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119; PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, *5 – money cannot be the subject of a cause of action for conversion unless there is an identifiable sum; Fischer v. Machado (1996) 50 Cal.App.4th 1069, 1072; Farmers Ins. Exchange v. Zerin (1997) 53 Cal. App. 4th 445, 451.)

Par. 34 alleges PQI’s ownership rights; Par. 36 alleges SB Freight’s disposition of the property inconsistent with PQI’s rights; and Par. 35 alleges resulting damages.

UNFAIR BUSINESS PRACTICES:
The Unfair Business Practices Act shall include “any unlawful, unfair or fraudulent business act or practice.” (B&P Code 17200.) A plaintiff alleging unfair business practices under these statutes must state with reasonable particularity the facts supporting the statutory elements of the violation. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619.) Even a single incident – a one-time act that is unfair, unlawful or fraudulent – is sufficient to state a claim under 17200. (Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969 fn. 3.)

PQI’s Unfair Business Practices claim is based on its fraud allegations, as well as the unfair business practice of conversion of property.

Demurrer is OVERRULED.

2-3. Motions to Quash

On 2/24/14, this court continued the motions to allow Plaintiff an opportunity to conduct discovery on jurisdictional issues. No additional documents have been filed since the last hearing.

Movant informed court staff that the parties will enter into a stipulation to continue the motions to mediate the matter, and will file the stipulation at the hearing.