Case Name: Xilin Xiang v. Sy Tong, et al.
Case No.: 16-CV-289880

Demurrers by Defendants Sy Tong and Robert Kelly to the First Amended Complaint of Plaintiff Xilin Xiang

This case arises from the alleged breach of a contract to remodel a medical office located at 365 South Redwood Avenue, San Jose, California (the “Property”). (First Amended Complaint (“FAC”), ¶¶ 6-38.) Plaintiff Xilin Xiang, DDS (“Plaintiff”) purchased the Property and “was looking for a general contractor to remodel the Property into a dental office to which he planned to move his dental practice.” (Id., ¶¶ 5-6.) In August 2013, Plaintiff was introduced to defendant Sy Tong (“Tong”), who represented that “he was a general contractor with close to 30 years of construction experience and was very skillful in remodeling old residential and commercial buildings.” (Id., at ¶ 9.) Plaintiff invited Tong to look at the Property and Tong suggested several improvements, such as installing a roof furnace. (Id., at ¶ 10.) However, Tong did not tell Plaintiff that “the roof-installed furnace meant the new office would have a flat roof instead of its original gable roof,” the flat roof would suffer from problems (such as “poor protection from weather elements and difficulty in installing and servicing utility lines and pipes”), and “the flat roof was much cheaper to build than the gable roof.” (Ibid.)

Plaintiff told Tong that he had $200,000 available for the project and asked Tong to “make a proposal.” (FAC, ¶ 11.) Tong told Plaintiff that he “could give [him] a significant discount” and “do the entire remodeling for $200,000.” (Id., at ¶ 12.) He stated that Plaintiff could “pay him $130,000 initially so that he could have funds to buy the dental equipment to install in the remodeled Property” and pay “him the remaining $70,000 when [Plaintiff’s] new dental office started to generate profits.” (Id., at ¶ 13.) Tong further stated that he “would use the best materials, including commercial-grade windows,” and “ask his good friend [defendant Robert Kelly (‘Kelly’)] to design [Plaintiff’s] dental office.” (Id. at ¶ 12.) Tong represented that he had “partnered with [Kelly] on many remodeling projects,” “Kelly was exceptional,” and it was worth it to pay Kelly’s fee of $12,000 even though it was much higher than the fees charged by other architects. (Ibid.)

In September 2013, Plaintiff met with Kelly, who represented that “he had collaborated with Tong on many projects” and “$200,000 for the project was cheaper than the normal price for this kind of project based on his many years of experience in the remodeling industry.” (FAC, ¶ 15.) Plaintiff subsequently provided Tong and Kelly (collectively, “Defendants”) with the connection and installation requirements for the dental equipment to be installed in the office. (Id., at ¶ 16.)

On October 3, 2013, Kelly emailed Plaintiff a formal written proposal for the project, in which he stated that “[Tong] said he would do the work listed on the enclosed document for $200,000.” (FAC, ¶ 17, Ex. A.) Kelly also indicated that the project was a “special discount” for Plaintiff because, in his experience, basic residential and commercial construction costs for a project of the same size were significantly more than $200,000. (FAC, ¶ 18.) The proposal itself indicated that the “contract price … [was] $200,000 including labor and materials, but excluding permit costs,” and the architect fee was $20,000. (Id., at ¶ 17.) Plaintiff alleges that the “proposal presented the project as a partnership between Kelly and Tong, without any segregation of payments between them.” (Ibid.) Plaintiff further alleges that “Kelly acted as the agent of the partnership to made [sic] the proposal to [him] and encourage [him] to hire the partnership for the project.” (Ibid.) Plaintiff was persuaded by Kelly’s representations and “later informed Kelly by telephone to accept [the] proposal and to hire [Defendants] for remodeling the Property.” (Id., at ¶ 19.)

In November 2013, Kelly submitted architectural designs for the Property to the City of San Jose. (FAC, ¶ 20.) The designs were rejected and Plaintiff was forced to pay an additional $7,100 to cover engineering design costs. (Ibid.) One month later, the designs were approved and a building permit was obtained. (Id., at ¶ 21.)
Construction on the project began in January 2014. (FAC, ¶¶ 22.) During the construction, Tong made several false representations about the progress of the construction, the outcome of inspections performed by the City of San Jose, and the quality of materials used on the project. (Id., at ¶¶ 22-27.) Plaintiff became concerned about the progress of the project and was informed by “a friend” and “another contractor” that the construction suffered from several defects. (Id., at ¶¶ 28-29.) After Plaintiff asked Tong to provide him with the permit inspection record, Tong stopped working on the project and removed all of his construction tools and unused materials. (Id., at ¶ 30.) Plaintiff attempted to convince Tong to resume work on the project, but Tong refused. (Id., at ¶ 31.)
Subsequently, Plaintiff interviewed other contractors and learned that the entire project needed to be redone because of numerous construction defects. (FAC, ¶¶ 32, 34, 36-37.) Plaintiff also learned that the construction performed by Tong “failed most of the inspections,” Tong “had to take much time to redo many parts of the project,” “many major items still had not passed inspection,” and Defendants significantly inflated the price of many items such as windows, doors, and furnaces. (Id., at ¶¶ 33, 35.) Additionally, Plaintiff learned that “[c]ontrary to [Defendants’] representation that they would use the best materials …, Tong used many old materials, including termite-damaged wood studs and even studs with live terminate [sic] infections,” the electric wiring was defective, the front door was not code compliant, and the furnace and plumbing were old and improperly installed. (Id., at ¶ 34.) Plaintiff eventually hired a new contractor and spent approximately $250,000 to fix the problems caused by Tong. (Id., at ¶ 37.) Nonetheless, several structural problems remain as Plaintiff did not have sufficient funds to redo the entire project. (Ibid.)

Based on the foregoing, Plaintiff filed the operative FAC against Defendants, alleging causes of action for: (1) intentional misrepresentation and concealment; (2) breach of covenant of good faith and fair dealing; (3) intentional infliction of emotional distress (“IIED”); (4) breach of contract; and (5) negligence.
Currently before the Court are: (1) the demurrer by Tong to the FAC; and (2) the demurrer by Kelly to the FAC. Plaintiff filed papers in opposition to the demurrers on April 20, 2016. Tong filed a reply on April 26, 2016.

I. Legal Standard

“In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.’ ” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

II. Demurrer by Tong

Tong demurs to the second and fourth causes of action of the FAC on the ground of failure to allege facts sufficient to constitute a causes of action. (Ntc. Mtn., p. 2:5-16; see Code Civ. Proc., § 430.10 (e).) Tong also demurs to the first and third causes of action of the FAC on the ground of uncertainty. (Ntc. Mtn., p. 2:5-16; see Code Civ. Proc., § 430.10 (f).)

A. Second and Fourth Causes of Action

Tong argues that the fourth cause of action for breach of contract fails to state a claim because “there is no allegation of an actual contract existing between plaintiff and [him].” (Mem. Ps. & As., p. 2:16-19.) Tong contends that, at best, Plaintiff alleges that Kelly sent him a proposal to enter into a contract. (See Mem. Ps. & As., pp. 2-3.) Similarly, Tong argues that the second cause of action for breach of covenant of good faith and fair dealing fails to state a claim because there is no contract between him and Plaintiff. (See Mem. Ps. & As., p. 3:9-21.)

To establish a right to recovery under a claim for breach of contract or breach of implied covenant of good faith and fair dealing, a plaintiff must plead facts showing the existence of a contract. (See Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913 [providing that an element of a claim for breach of contract is the existence of a contract]; see also Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36 [“Absent that contractual right, however, the implied covenant has nothing upon which to act as a supplement, and ‘should not be endowed with an existence independent of its contractual underpinnings.’ [Citation.]”].)

Here, Plaintiff pleads sufficient facts to establish the existence of a contract between him and Tong. Plaintiff alleges that Tong offered to remodel the Property for $200,000, with $130,000 paid upfront and the remaining $70,000 paid once Plaintiff’s “dental office started to generate profits;” Tong’s agent, Kelly, sent him a formal written proposal for the project on Tong’s behalf, indicating that Tong would perform the remodel for $200,000; Plaintiff accepted the proposal and hired Defendants to remodel the Property; Tong performed construction work pursuant to their agreement; and he paid Tong $130,000. (FAC, ¶¶ 11-13, 17, 19, 22-30, 41, 56-57.) These allegations are sufficient to establish the existence of a contract between Plaintiff and Tong, providing that Tong would remodel the Property for $200,000.

Accordingly, the demurrer to the second and fourth causes of action is OVERRULED.

B. First Cause of Action

Tong argues that the first cause of action for intentional misrepresentation and concealment is uncertain because Plaintiff “does not identify with specificity the statements or misrepresentations allegedly made by [him]” and “fails to allege facts setting forth each of [the] elements of a cause of action for fraud.” (Mem. Ps. & As., pp. 3-4.) While Tong is correct that each element of a claim for fraud must be pled with particularity (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184; Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 645 (“Lazar”)), the failure to do so does not make the claim so uncertain that he cannot reasonably respond (see Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616 (“Khoury”) [demurrers for uncertainty are disfavored and will only be sustained where the pleading is so bad that the defendant cannot reasonably respond]). Rather, the purported failure to include particularized allegations of fraud goes to whether Plaintiff alleged sufficient facts to constitute a cause of action. Notably, a “demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading but is directed at the uncertainty existing in the allegations actually made.” (Butler v. Sequeira (1950) 100 Cal.App.2d 143, 145-146 (“Butler”).) Consequently, Tong’s demurrer on the ground of uncertainty is not well-taken.

Accordingly, the demurrer to the first cause of action is OVERRULED.

C. Third Cause of Action

Tong argues that the third cause of action for IIED is uncertain because Plaintiff “states very little by way of facts to support this cause of action;” “[t]he claim is based on a conclusionary [sic] statement that the ‘Defendants’ conduct was extreme and outrageous’, without actually alleging action by [Tong] that fulfills the required elements;” and “courts have held that construction contract disputes do not rise to the level or outrageous behavior.” (See Mem. Ps. & As., pp. 4-5.) None of these arguments show that the third cause of action is so unintelligible that Tong cannot reasonable respond. (See Khoury, supra, 14 Cal.App.4th at p. 616.) Rather, the arguments go to whether Plaintiff alleged sufficient facts to state a claim. As articulated above with respect to the first cause of action, a demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading. (See Butler, supra, 100 Cal.App.2d at pp. 145-146.) Consequently, Tong’s demurrer on the ground of uncertainty is not well-taken.
Accordingly, the demurrer to the third cause of action is OVERRULED.

III. Demurrer by Kelly

Kelly demurs to each and every cause of action of the FAC on the grounds of uncertainty and failure to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10 (e), (f).) Kelly also demurs to the fifth cause of action on the ground of failure to file a certificate as required by Code of Civil Procedure section 411.35. (See Code Civ. Proc., § 430.10 (h).)

A. Second and Fourth Cause of Action

Kelly argues that the second and fourth causes of action for breach of contract and breach of implied covenant of good faith and fair dealing fail to state a claim because there is no contract between him and Plaintiff. Kelly contends that the only agreement alleged is between Tong and Plaintiff. Kelly also suggests that the partnership allegations are insufficient because the email referenced in the FAC, in which he allegedly forward the written proposal to Plaintiff, states that Tong would perform the work listed in the proposal.

In opposition, Plaintiff asserts that he adequately states a claim for breach of contract against Kelly because he alleges that Kelly and Tong were partners and the proposal was submitted on behalf of the partnership.

A partnership is an “association of two or more persons to carry on as co-owners a business for profit, whether or not the persons intend to form a partnership.” (Corp. Code, § 16202, subd. (a).) The primary element of a partnership is “some degree of participation in management and control of the business.” (Greene v. Brooks (1965) 235 Cal.App.2d 161, 166.) “The ultimate test of the existence of a partnership is the intention of the parties to carry on a definite business as co-owners.” (Ibid.)

Here, Plaintiff fails to allege facts demonstrating that Kelly and Wong were partners such that Kelly should be considered a party to the alleged contract. Plaintiff does not allege sufficient facts showing that Kelly and Wong intended to carry on a definite business as co-owners or that Kelly participated in any degree in the management or control of the alleged business.

Accordingly, the demurrer to the second and fourth causes of action is SUSTAINED, with 10 days’ leave to amend.

B. First Cause of Action

Kelly argues that the first cause of action for intentional misrepresentation and concealment fails to state a claim because: all of the representations allegedly made by him are non-actionable opinion; Plaintiff fails to allege that the representations were false; Plaintiff fails to allege that he knew the representations were false at the time they were made; and the representations allegedly made in September 2014 did not cause Plaintiff’s harm and/or Plaintiff did not justifiable rely on those representations.

In opposition, Plaintiff argues that Kelly’s argument improperly ignores misrepresentations and concealments made by Tong on behalf of the partnership.

As an initial matter, Plaintiff’s argument lacks merit because, as articulated above, Plaintiff does not allege sufficient facts establishing that any such partnership existed.

Furthermore, Plaintiff fails to state a claim for fraud against Kelly based on misrepresentations that were allegedly made by Kelly himself. The first cause of action is based on misrepresentations made by Kelly “about Tong’s experience and qualification[s],” “the reasonableness of the project price”, and “the progress of the project.” (FAC, ¶ 41.) Plaintiff alleges that “[i]n reliance on the misrepresentations …, [he] entrusted the remodeling project to Tong and Kelly, and continued to entrust them much longer.” (Id., ¶ 42.) However, each of the alleged misrepresentations fails to support the claim for fraud. First, the alleged misrepresentations made by Kelly about the progress of the project were made after Tong had already stopped work on the project and Plaintiff had begun to look for another contractor to finish the job. (See id., at ¶¶ 33-38.) Thus, the alleged misrepresentations about the progress of the project did not cause Plaintiff to entrust the remodeling project to Defendants.

Second, Plaintiff fails to allege facts demonstrating that the alleged misrepresentations about Tong’s experience and qualifications (i.e., that Kelly “had collaborated with Tong on many projects and gave Tong high praises for his 30 years of experience in construction in general and his experience in office remodeling in particular” (see FAC, ¶ 15)) were false and Kelly knew the representations were false at the time they were made (see Lazar, supra, 12 Cal.4th at p. 638 [the elements of fraud include falsity and knowledge of falsity]). Moreover, the general statement that Kelly highly praised Tong for his experience does not meet the specificity requirement. (See West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)

Third, Plaintiff fails to allege that the statements made by Kelly about the price of the project—that “$200,000 for the project was cheaper than the normal price for this kind of project,” in his experience “basic residential construction costs range from $200 a square foot ($297,000) to $250 a square foot ($375,000),” and “[c]ommercial work has more requirements and generally costs more” (see FAC, ¶¶ 15, 18)—were false and Kelly knew the representations were false at the time they were made (see Lazar, supra, 12 Cal.4th at p. 638).

Accordingly, the demurrer to the first cause of action is SUSTAINED, with 10 days’ leave to amend.

C. Third Cause of Action

Kelly argues that the claim for negligence fails because Plaintiff did not provide a certificate of merit as required by Code of Civil Procedure section 411.35 and it is unclear from the pleading how his designs or conduct were deficient as Plaintiff alleges the that designs were eventually approved.

In opposition, Plaintiff argues that he may properly assert a claim for negligence against Kelly for the alleged construction defects on the project given Kelly’s partnership with Tong.

As an initial matter, Plaintiff’s argument based on the existence of a partnership between Kelly and Tong lacks merit because Plaintiff does not allege sufficient facts establishing that any such partnership existed.

Additionally, Plaintiff did not file a certificate of merit in compliance with Code of Civil Procedure section 411.35. That statute provides that before serving a professional negligence complaint against a licensed architect “the plaintiff’s attorney must file a certificate of merit declaring that ‘there is reasonable and meritorious cause’ for filing the action. The declaration must be based on the attorney’s consultation with a licensed engineer who is not a party, whom the attorney ‘reasonably believes is knowledgeable in the relevant issues,’ and who renders an opinion on the defendant’s negligence. [Citation.] Failure to file a certificate is a ground for demurrer. [Citation.]” (Price v. Dames & Moore (2001) 92 Cal.App.4th 355, 357.) Since Plaintiff alleges that Kelly is an architect, he must file the requisite certificate of merit. (FAC, ¶¶ 12, 17.)

Accordingly, the demurrer to the third cause of action is SUSTAINED, with 10 days’ leave to amend.