Case Name: QTV Enterprise, LLC v. Nguyen
Case No.: 17CV310864

According to the allegations of the second amended cross-complaint (“SAXC”), on December 1, 2012, cross-defendant Quang Van Luong (“Luong”) loaned to Be Saigon Plaza, LLC—the limited liability company that owned real property at 6720-6820 Stockton Avenue in Sacramento, CA (“mall property”), and managed by defendant and cross-complainant Hieu Minh Nguyen (“Nguyen”)–$2.75 million, secured by the mall property. (See SAXC, ¶¶ 12, 14.) The loan was junior to a separate loan in the amount of $5.5 million. (See SAXC, ¶ 13.) In August 2013, the ownership of the mall property was transferred to Little Saigon Plaza Sacramento, LLC (“Saigon Plaza”)—a limited liability company whose shareholders included Luong and Nguyen, and was managed exclusively by Luong. (See SAXC, ¶¶ 15, 16.) Unbeknownst to Nguyen, Luong transferred the ownership interest in the mall property to the personal trust of Luong and his wife Trang Do (“Do”) without providing payment or any consideration to Nguyen for the transfer, and recorded this transfer on March 25, 2015. (See SAXC, ¶ 17.)

On July 28, 2015, plaintiff and cross-defendant QTV Enterprise, LLC (“QTV”), through its president, Luong, entered into a promissory note with Nguyen in which QTV agreed to loan Nguyen $2,934,809 in exchange for repayment plus 10% interest. (See SAXC, ¶¶ 54-55, exh. 1.) However, QTV failed to provide Nguyen with the full amount of the loan, and, as a result, on April 4, 2017, Nguyen apparently defaulted on obligations, resulting in the repossession of any interest in Saigon Plaza, and on July 24, 2017, QTV filed an application for right to attach order against cross-complainant Hieu Minh Nguyen (“Nguyen”) on certain real property in Granite Bay, California. (See SAXC, ¶ 19.) On August 4, 2017, QTV filed an application for right to attach order against Nguyen on certain real property in Westminster, Colorado. (See SAXC, ¶ 20.) On June 15, 2018, Nguyen filed a second amended cross-complaint against QTV, Saigon Plaza, Luong, Do and Vector Fabrication, Inc. (collectively, “cross-defendants”), asserting causes of action for:

1) Accounting;
2) Breach of fiduciary duty—reasonable care;
3) Breach of fiduciary duty—self dealing;
4) Breach of fiduciary duty—waste;
5) Breach of contract;
6) Fraud—intentional misrepresentation;
7) Unjust enrichment;
8) Conspiracy to defraud;
9) Conversion; and,
10) Wrongful attachment.

Cross-defendants demur to the second through tenth causes of action on the ground that they fail to state facts sufficient to constitute a cause of action.

Demurrer to the second through fourth causes of action on the ground that it must be a derivative cause of action.

Cross-defendants demur to the second through fourth causes of action on the ground that they only allege harm to the company and must therefore be brought as a derivative cause of action. Here, it is alleged that the lone asset of LLC Saigon Plaza is the mall property, originally contributed to Saigon Plaza by Nguyen. Luong is alleged to have converted that asset of the closely held LLC for himself, leaving the LLC insolvent.

As Cross-defendants state, “[a] shareholder’s derivative suit seeks to recover for the benefit of the corporation and its whole body of shareholders when injury is caused to the corporation that may not otherwise be redressed because of failure of the corporation to act.” (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106.) “Thus, ‘the action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock or property without any severance or distribution among individual holders, or if it seeks to recover assets for the corporation or to prevent the dissipation of its assets.’” (Id.) “‘It is a general rule that a corporation which suffers damages through wrongdoing by its officers and directors must itself bring the action to recover the losses thereby occasioned, or if the corporation fails to bring the action, suit may be filed by a stockholder acting derivatively on behalf of the corporation. An individual [stockholder] may not maintain an action in his own right against the directors for destruction of or diminution in the value of the stock….’” (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 124; see also PacLink Communications Intern., Inc. v. Super. Ct. (Yeung) (2001) 90 Cal.App.4th 958, 965 (stating same and also stating that “[a]n individual [stockholder] may not maintain an action in his own right … for destruction of or diminution in the value of the stock”); see also Jones, supra, 1 Cal.3d at p.107 (stating that “‘[a] stockholder’s derivative suit is brought to enforce a cause of action which the corporation itself possesses against some third party, a suit to recompense the corporation for injuries which it has suffered as a result of the acts of third parties”).) “[A]n individual cause of action exists only if the damages were not incidental to an injury to the corporation. (Nelson, supra, 72 Cal.App.4th at p.124, citing Jones, supra, 1 Cal.3d at p.107 (itself stating “[i]f the injury is not incidental to an injury to the corporation, an individual cause of action exists”).) “In other words, it is the gravamen of the wrong alleged in the pleadings, not simply the resulting injury, which determines whether an individual action lies.” (Nelson, supra, 72 Cal.App.4th at p.124 (but also stating that “in some cases, the same facts regarding injury to the corporation may underlie a personal cause of action”).)

As stated in the Court’s prior order, PacLink Communications Intern., Inc., supra, stated that the fraudulent transfer of assets without any compensation being paid to the LLC “constitutes an injury to the company itself.” (PacLink Communications Intern., Inc., supra, 90 Cal.App.4th at p.964.) There, the court reasoned that “the members cannot be directly injured when the company is improperly deprived of those assets… [because t]he injury was essentially a diminution in the value of their membership interest in the LLC occasioned by the loss of the company’s assets… [c]onsequently, any injury to plaintiffs was incidental to the injury suffered by [the LLC] PacLink-1.” (Id.)

The instant case is distinguishable however. Here, the lone asset of the company was the mall property, and the allegedly fraudulent transfer of that asset resulted in the insolvency of the LLC. The SAXC does not allege a mere diminution in value of Nguyen’s membership interest in the LLC; it alleges the conversion or taking of Nguyen’s entire interest in the mall property. Although Nguyen’s opposition provides no legal authority in support of his position, Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, citing Jones, Nelson and PacLink, noted that an individual action for breach of fiduciary duty is permissible when the corporate entity has only one other shareholder. (Id. at pp.1253-1259 (noting that “the traditional justification for requiring a derivative action is that ‘it is designed to prevent a multiplicity of actions by each individual shareholder and a preference of some more diligent shareholders over others, and to protect the creditors who have first call on the corporate assets… [and t]he objective of preventing a multiplicity of lawsuits and assuring equal treatment for all aggrieved shareholders does not arise at all when there is only one minority shareholder”).) These policy considerations are not present here, where the LLC in question has only two owners. The gravamen of the wrong alleged is not a diminution of the value of the LLC’s stock; and the alleged injury was not incidental to an injury to the LLC. The demurrer to the second through fourth causes of action for breach of fiduciary duty on the ground that they must be pled as derivative causes of action is OVERRULED.

Demurrer to the second through fourth causes of action for failure to state facts sufficient to constitute a cause of action

Cross-defendants argue that Nguyen fails to allege that he was a member of Saigon Plaza at the time of the allegedly improper transaction. However, on demurrer, “in testing a pleading against a demurrer the facts alleged in the pleading are deemed to be true, however improbable they may be.” (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604.) Here, the SAXC alleges that Nguyen was harmed as a result of the fraudulent transfer of the mall property to Luong’s personal trust thereby implying that Nguyen was still a member of Saigon Plaza. Cross-defendants also argue that the deed recorded on March 25, 2015 demonstrates “a transfer from the trust to the LLC.” (Cross-defs.’ memo, pp.8:14-24, 9:1-4.) However, the document on March 25, 2015 does in fact demonstrate a deed transferring the subject property from “Little Saigon Plaza Sacramento, A California Limited Liability Company” to “Quang V. Luong and Trang Thuy Do, as Trustees of the Luong-Do Revocable Trust.” The Court grants Cross-defendants’ request for judicial notice of this document, and the cross-defendants’ argument lacks merit. Accordingly, the demurrer to the second through fourth causes of action on the ground that they fail to state facts sufficient to constitute a cause of action is OVERRULED.

Demurrer to the fifth cause of action for breach of contract

Cross-defendants argue that: the SAXC now attaches the promissory note; the promissory note only requires Nguyen to make payments and does not obligate QTV or Luong to actually provide the principal amount to Nguyen; thus, the Court should disregard the allegations of the fifth cause of action regarding QTV’s obligations to provide the amount listed in the promissory note. This argument, although novel, is devoid of merit. The demurrer to the fifth cause of action is OVERRULED.

Demurrer to the sixth cause of action for fraud and eighth cause of action for conspiracy to defraud.

Cross-defendants demur to the sixth cause of action for fraud and the eighth cause of action for conspiracy to defraud, asserting that they are not pled with the requisite particularity. “[F]raud actions are subject to strict requirements of particularity in pleading.” (Furia v. Helm (2003) 111 Cal.App.4th 945, 956; see also Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1268 (stating same); see also Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184 (stating that “[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice”).) The specificity requirement has two purposes: to apprise the defendant of certain definite accusations against him so that he can intelligently respond to them, and also to weed out nonmeritorious actions on the basis of the pleadings. (See Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 838.) Minimally, a fraud cause of action must “allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Lazar v. Super. Ct. (Rykoff-Sexton, Inc.) (1996) 12 Cal. 4th 631, 645; see also Tenet Healthsystem Desert, supra, 245 Cal.App.4th at p.838 (stating same).) Here, the sixth and eighth causes of action do not identify the person who made the alleged misrepresentation and when it was said or written. This must be alleged. The demurrer to the sixth and eighth causes of action is SUSTAINED with 10 days leave to amend after notice of this signed order.

Demurrer to the seventh cause of action for unjust enrichment

Cross-defendants demur to the seventh cause of action on the ground that it fails to state facts sufficient to constitute a cause of action because it is duplicative, the SAXC does not seek restitution as a remedy and judicially noticeable facts demonstrate that the property was eventually transferred back to the LLC. That a cause of action is duplicative of another is not a valid basis for demurrer on the ground that it fails to state facts sufficient to constitute a cause of action. The fact that the mall property was eventually transferred back to the LLC does not demonstrate that Nguyen was not harmed, particularly because cross-defendants also contend that Nguyen was not a member of the LLC when the mall property was transferred back to the LLC. The demurrer to the seventh cause of action is OVERRULED.

Demurrer to the ninth cause of action

Cross-defendants demur to the ninth cause of action on the ground that it fails to state facts sufficient to constitute a cause of action because real property may not be the subject of a conversion cause of action. Although true, “[i]f the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 (also stating that the court is “not limited to plaintiffs’ theory of recovery in testing the sufficiency of their complaint against a demurrer, but instead must determine if the factual allegations of the complaint are adequate to state a cause of action under any legal theory”).) Here, the ninth cause of action sufficiently alleges trespass—an unlawful interference with possession of property. (See Staples v. Hoefke (1987) 189 Cal.App.3d 1397, 1406.) The demurrer to the ninth cause of action is OVERRULED.

Demurrer to the tenth cause of action

Cross-defendants demur to the tenth cause of action for wrongful attachment asserting that the assets that are the subject of the tenth cause of action were never attached. Cross-defendants present documents demonstrating that the assets were not attached. Cross-defendants’ request for judicial notice of these documents is GRANTED. (Evid. Code § 452, subd. (d), (h).) In opposition, Nguyen acknowledges that the assets were, in fact, not attached, but instead asserts that “the underlying attachment action was brought by Cross-Defendants and required that NGUYEN defend against the wrongful attachment action and incur legal fees and costs… [and t]he fact that Cross-Defendants failed in accomplishing the attachment action or dismissed it after it was filed does not eliminate the fact that NGUYEN incurred damages from said wrongful attachment.” (Opposition to demurrer, p.8:14-19.) Both parties cite to Code of Civil Procedure section 490.010, which states:

A wrongful attachment consists of any of the following:
(a) The levy under a writ of attachment or the service of a temporary protective order in an action in which attachment is not authorized, except that it is not a wrongful attachment if both of the following are established:
(1) The levy was not authorized solely because of the prohibition of subdivision (c) of Section 483.010.
(2) The person who sold or leased, or licensed for use, the property, furnished the services, or loaned the money reasonably believed that it would not be used primarily for personal, family, or household purposes.
(b) The levy under a writ of attachment or the service of a temporary protective order in an action in which the plaintiff does not recover judgment.
(c) The levy under writ of attachment obtained pursuant to Article 3 (commencing with Section 484.510) of Chapter 4 or Chapter 5 (commencing with Section 485.010) on property exempt from attachment except where the plaintiff shows that the plaintiff reasonably believed that the property attached was not exempt from attachment.

(Code Civ. Proc. § 490.010.)

Section 490.010 clearly requires that an actual levy under a writ of attachment or service of a temporary protective order occur in order to subject one to liability for wrongful attachment. The demurrer to the tenth cause of action is SUSTAINED without leave to amend.

The Court will prepare the Order.