Case Number: KC069873 Hearing Date: October 19, 2018 Dept: J

Re: Yan Li, et al. v. April Lin, et al. (KC069873)

DEMURRER TO FIRST AMENDED CROSS-COMPLAINT

Moving Party: Cross-Defendant Lili Young

Respondents: Cross-Complainants April Lin, Han International Group, Inc. dba Han Realty, Shigang Li, Jui Yuan Cheng and Moon Management Consulting, LLC

POS: Moving OK; Opposing OK; Reply served by regular mail contrary to CCP § 1005(c)

Plaintiff Yan Li (“Yan”) owns the property located at 20711 E. Mesarica Road in San Dimas (“subject property”) and manages same through Plaintiff Mesarica Management, LLC. On or about 4/5/16, Yan entered into a “Lease Listing Agreement—Exclusive Authorization to Lease or Rent” with Han International Group Inc. dba Han Realty (“Han”). Yan alleges that Han’s supervising broker, April Lin (“A. Lin”), represented to Yan that her friend Shigang Li (“S. Li”) was interested in leasing the subject property for himself and his son to use when they visited from overseas, and that S. Li was also looking to operate a consulting business on the subject property. When Yan objected to S. Li as a tenant for his lack of credit history in the United States, A. Lin promised she would also be a tenant on the lease. Yan contends that A. Lin, S. Lim Jui Yuan Cheng (“Cheng”) and Moon Management Consulting, LLC (“Moon”) failed to disclose their intent to operate short-term rentals and use the subject property to operate businesses for a profit, including social events such as parties and weddings. Yan alleges that the subject property was severely damaged during a 3/25/17 social event. The complaint, filed 12/12/17, asserts causes of action against Defendants A. Lin, Han, S. Li, Cheng, Moon and Does 1-10 for:

Fraud
Breach of Contract—Listing Agreement;
Breach of Fiduciary Duty
Professional Negligence
Breach of Contract—Lease Agreement
Negligence

On 3/15/18, the court sustained plaintiff’s demurrer to A. Lin, et al.’s cross-complaint, without leave to amend. On 8/6/18, S. Li, Cheng and Moon filed their First Amended Cross-Complaint, asserting causes of action therein against Lili Young and Does 1-10 for:

Fraud
Fraud and Deceit by Intentional Misrepresentation
Fraud and Deceit by Concealment and Nondisclosure of Known Facts
Negligent Misrepresentation
Breach of Fiduciary Duty
Equitable Indemnity
Contribution

A Case Management Conference is set for 10/19/18.

Cross-Defendant Lili Young (“Young”) demurs, per CCP § 430.10(e), to the first through seventh causes of action in Defendants/Cross-Complainants Shigang Li’s (“S. Li”), Jui Yuan Cheng’s (“Cheng”) and Moon Management Consulting, LLC’s (“Moon”) (collectively, “cross-complainants”) First Amended Cross-Complaint (“FACC”), on the basis that they each fail to state facts sufficient to constitute causes of action.

SIXTH AND SEVENTH CAUSES OF ACTION:

: At the outset, the court notes that the seventh cause of action (i.e., for Contribution) was added without leave of court; accordingly, it is stricken.

Additionally, the court notes that the equitable indemnity cause of action set forth in the original cross-complaint was brought by Cross-Complainants April Lin (“A. Lin”) and Han International Group, Inc. (“Han”) only. The FACC, however, identifies only S. Li, Cheng and Moon as cross-complainants; A. Lin and Han have apparently been omitted therefrom. The sixth cause of action, then, has likewise been added by S. Li, Cheng and Moon without leave of court and, as such, is stricken.

FIRST THROUGH FIFTH CAUSES OF ACTION (i.e., FRAUD, FRAUD AND DECEIT BY INTENTIONAL MISREPRESENTATION, FRAUD AND DECEIT BY CONCEALMENT AND NONDISCLOSURE OF KNOWN FACTS, NEGLIGENT MISREPRESENTATION AND BREACH OF FIDUCIARY DUTY, RESPECTIVELY):

“Generally, after an amended pleading has been filed, courts will disregard the original pleading.” Kenworthy v. Brown (1967) 248 Cal.App.2d 298, 302. However, “[u]nder the sham pleading doctrine, allegations in an original pleading that rendered it vulnerable to demurrer or other attack cannot be simply omitted without explanation. (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425-426.) The purpose of the doctrine is to enable the courts to prevent an abuse of process. (Id. at p. 426.) The doctrine is not intended to prevent honest complainants from correcting erroneous allegations or to prevent the correction of ambiguous facts. (Ibid.)” Hahn v. Mirda (2007) 147 Cal.App.4th 740, 751.

Here, the operative FACC alleges that “Young told Shigang Li that he would need to find American citizens to sign the lease as guarantors. Accordingly, Shigang Li asked Cross-Complainant April Lin and Cheng to sign the lease” and that “[c]ross-complainant April Lin and Han Realty were not and are not members of cross-complainant Moon, as reflected in the corporate records and filings for Moon.” (FACC, ¶ 20 and ¶ 22). The FACC also appears to omit the cross-complaint’s prior allegation that “[d]uring all relevant times described in this Cross-complaint, Young was a sales agent at Han Realty.” (Cross-Complaint, ¶ 2). The cross-complaint previously alleged that “Young told Shigang Li that he would need to find American citizens to sign the lease as guarantors. Accordingly, Shigang Li asked Cross-Complainant April Lin and Cheng to sign the lease, in exchange for part ownership in Moon, which was formed on September 1, 2016 to engage in short-term rentals.” (Cross-Complaint, ¶ 11 [emphasis added]). Young previously successfully demurred to Moon and S. Li’s first through fourth causes of action (i.e., for fraud, fraud and deceit by intentional misrepresentation, fraud and deceit by concealment and nondisclosure of known facts and fraud and deceit by negligent misrepresentation, respectively) on the basis that the element of justifiable reliance was lacking, as A. Lin, the employing broker and Han’s principal officer, was a co-tenant on the Residential Lease and alleged to have received part ownership in Moon. The court further determined, in connection with Young’s demurrer to the fifth cause of action for breach of fiduciary duty, that cross-complainants’ imputed knowledge regarding the permissible use of the premises and lack of proximate damages was fatal to their claim.

S. Li, Cheng and Moon are bound by the allegations of their cross-complaint because they have contradicted facts the court relied on in sustaining Young’s earlier demurrer without providing an adequate explanation for same. S. Li’s, Cheng’s and Moon’s mere reference to the fact that “corporate records and filings for Moon” do not reflect any membership interest held by A. Lin and/or Han is insufficient. S. Li, Cheng and Moon, moreover, do not explain why they omitted their agency allegation in ¶ 2 of their cross-complaint. The court, then, considers the allegations from the cross-complaint in ruling on the demurrer to the FACC.

’”The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.”’ (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638). ‘”Every element of the cause of action for fraud must be alleged in the proper manner (i.e., factually and specifically), and the policy of liberal construction of the pleadings … will not ordinarily be invoked to sustain a pleading defective in any material respect.”’ (Committee On Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216).” Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 234.

“Reliance exists when the misrepresentation or nondisclosure was an immediate cause of the plaintiff’s conduct which altered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or other transaction. (Spinks v. Clark (1905) 147 Cal. 439, 444; 5 Witkin Summary of Cal. Law (9th ed. 1988) Torts, § 711, p. 810). ‘Except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff’s reliance is reasonable is a question of fact.’ (Blankenheim v. E.F. Hutton & Co., Inc. (1990) 217 Cal.App.3d 1463, 1475…). ‘However, whether a party’s reliance was justified may be decided as a matter of law if reasonable minds can come to only one conclusion based on the facts.’ (Guido v. Koopman [(1991)] 1 Cal.App.4th [837,] at p. 843).” Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239.

Cross-Complainants allege that Young, a licensed real estate salesperson and “sales agent at Han,” represented to S. Li that the premises would be ideal for S. Li’s intended business purpose of operating a birthing center for Chinese tourists. (Cross-complaint, ¶2; FACC, ¶ 7 and 16). They further allege that Young represented to S. Li that Yan Li had actually purchased the premises for the purpose of making short term rentals through Airbnb and that a license for short term rentals could be easily obtained. (FACC, ¶¶ 16 and 17). S. Li asked A. Lin, who was Han’s “principal officer,” and Cheng to sign the lease for the premises as guarantors, in exchange for part ownership in Moon, which was subsequently formed to engage in short-term rentals. (Id., ¶ 1; Cross-Complaint, ¶ 11). Cross-complainants allege that Young told S. Li that the Residential Lease was a standard form and a mere formality and “wished Moon’s success in the Airbnb business.” (FACC, ¶ 23). They allege that Young failed to provide S. Li or Moon with a Chinese translation of the Residential Lease, that the Residential Lease falsely represented that Mesarica was the owner of the premises, and that the Residential Lease prohibited subletting. (Id., ¶ 24).

Cross-Complainants allege that, as a result of a 3/25/17 police visit to the premises, Moon was notified by the City of San Dimas that short term rentals such as Airbnb were not permitted. (Id., ¶ 27). They allege that, in reliance upon Young’s misrepresentations, Moon and S. Li had a professional video produced, and had purchased furnishings and furniture for the use of the Airbnb business. (Id., ¶ 28).

The element of justifiable reliance appears to be lacking here, as A. Lin, the employing broker and Han’s principal officer, was a co-tenant on the Residential Lease. She is also alleged to have received part ownership in Moon. (Complaint, ¶ 11). Han and A. Lin had a duty to supervise their sales agent, Young. A broker licensee has an obligation to exercise reasonable supervision over the activities of his or her salespersons and the officer designated by a corporate broker license is obligated to exercise reasonable supervision and control of the activities of the corporation for which a real estate license is required. Business and Professions Code § 10177(h). The knowledge that Young had as Han’s sales agent would appear to be equally attributable to A. Lin as Han’s designated officer. “It was the duty of the agent to communicate to his principal all knowledge which he had received respecting the subject matter of the agency and the presumption is that he performed that duty. Notice given to or possessed by an agent within the scope of his employment is notice to the principal. Civil Code, sec. 2332; Shamlian v. Wells [(1925)] 197 Cal. 716, 720; Early v. Owens [(1930)] 109 Cal.App. 489, 494; Waldeck v. Hedden [(1928)] 89 Cal.App. 485, 491. One who acts through an agent will be presumed to know all that the latter learns concerning the transaction, whether it is actually communicated to the principal or not.” Shapiro v. Equitable Life Assur. Soc. of U.S. (1946) 76 Cal.App.2d 75, 87. “[T]he right to rely upon…representations, of course, does not exist where [the plaintiff] learns the true facts, for the obvious reason that he has not been defrauded unless he has been misled, and he has not been misled where he has acted with actual or imputed knowledge of the true facts.” Carpenter v. Hamilton (1936) 18 Cal.App.2d 69, 71.

A. Li, in turn, is alleged to have received an ownership interest in Moon, a limited liability company, and thus was its agent pursuant to Corporations Code § 17703.01(a) (i.e., “…every member is an agent of the limited liability company for the purpose of its business or affairs, and the act of any member, including, but not limited to, the execution in the name of the limited liability company of any instrument, for the apparent purpose of carrying on in the usual way the business or affairs of the limited liability company of which that person is a member, binds the limited liability company in the particular matter…”).

S. Li, Cheng and Moon provide the court with no authority for their position that since A. Lin and Han have now been omitted as cross-complainants from the FACC, “knowledge of Young attributable to April Lin or Han cannot be applied to bar the FAC [sic].” (Opposition, 2:27-28).

Young’s demurrer to the first through fourth causes of action, then, is sustained.

“The elements of a cause of action for breach of fiduciary duty are: (1) the existence of a fiduciary duty; (2) the breach of that duty; and (3) damage proximately caused by that breach.” Mosier v. Southern California Physicians Ins. Exchange (1998) 63 Cal.App.4th 1022, 1044.

Again, cross-complainants’ imputed knowledge regarding the permissible use of the premises and lack of proximate damages is fatal to their claim.

Young’s demurrer to the fifth cause of action is sustained.

The court will require an offer of proof if cross-complainants request additional leave to amend.