SUPERIOR COURT OF CALIFORNIA
COUNTY OF SANTA CLARA

YI-CHING PAO, an individual,

Plaintiff,

vs.

NINA YUAN, an individual, RICHWAVE TECHNOLOGY, INC., a Taiwan Corporation, and SHYH-CHYI WONG, an individual, and DOES 1 through 20, inclusive,

Defendants.
Case No. 2017-1-CV-311373

TENTATIVE RULING RE: DEMURRERS

The above-entitled action comes on for hearing before the Honorable Thomas E. Kuhnle on January 11, 2019, at 9:00 a.m. in Department 5. The Court now issues its tentative ruling as follows:

I. INTRODUCTION

According to the First Amended Complaint (“FAC”), filed on April 24, 2018, plaintiff Yi-Ching Pao, Ph.D. (“Plaintiff”) is a shareholder and founding CEO of Epic Communication, Inc. (“Epic”), a Taiwan corporation, which has a wholly-owned subsidiary, EpicCom, Inc. (“EpicCom”), for which Plaintiff is also the founding CEO. (FAC, ¶ 5.) Plaintiff is also CEO and shareholder of OEpic Semiconductors, Inc. (“OEpic”), from which Epic was spun off. (FAC, ¶ 5.)

In 2007, Epic sued a Taiwan company, Ali Corporation, and its spinoff company, Richwave, as well as Richwave’s founder and CEO, Shyh-Chyi Wong, for trade secret misappropriation. (FAC, ¶ 6.) In 2009, Epic succeeded in arbitration with Ali. (FAC, ¶ 7.) Litigation with Richwave continued in this Court. (FAC, ¶ 8.)

Due to financial hardship, Epic had to liquidate in Taiwan and appointed Nina Yuan, the wife of Epic’s former Chairman Ken Tai, as the liquidator under Taiwanese law. (FAC, ¶ 9.) Ken Tai and the couple’s daughter, Amy Tai, are members of the Board of Directors of EpicCom. (FAC, ¶ 9.) In 2013, the Tai family asked Plaintiff to resign from his position as CEO and General Manager of Epic and EpicCom. (FAC, ¶ 10.) Chris Kao, counsel for Epic and EpicCom, who Plaintiff had hired in February 2013, sued Plaintiff personally on behalf of Epic. (FAC, ¶ 10.) Epic and Plaintiff settled the case in August 2016. (FAC, ¶ 10.)

In October 2016, after the case with Plaintiff settled, Nina Yuan and Ken Tai asked Plaintiff to help with Epic’s litigation in the Richwave case. (FAC, ¶ 12.) Plaintiff responded that he would do so on the condition that he would be granted an irrevocable Power of Attorney (“POA”) to be in charge of all case-related matters and he would be paid 20% of the recovery in the Richwave case and be compensated for the legal fees and costs he had spent on his earlier case against Epic. (FAC, ¶ 12.)

Kao acted as a liaison between Yuan and Plaintiff in this matter. (FAC, ¶ 13.) Kao stated the POA would not be a problem, but the 20% recovery could only be an oral contract because otherwise Plaintiff’s testimony in deposition and at trial could be impeached as a “paid witness.” (FAC, ¶ 13.) An oral agreement regarding the 20% recovery was confirmed by the Yuan/Tai family. (FAC, ¶ 13.)
About 1-2 months into his management of the case, Plaintiff started to question Kao’s ability as lead trial lawyer. (FAC, ¶ 15.) Sensing Plaintiff’s displeasure with him, Kao started to persuade Yuan to settle the case. (FAC, ¶ 16.) On March 26, Amy Tai called an urgent board meeting to approve a proposed settlement agreement that the Tai family and Kao had secretly negotiated with Richwave without Plaintiff’s knowledge or participation in breach of the POA. (FAC, ¶ 17.) Kao and counsel for Richwave and Wong later filed a dismissal of the case based on a settlement agreement signed presumably by Yuan on behalf of Epic and by Wong on behalf of Richwave and herself. (FAC, ¶ 18.)

The FAC sets forth the following causes of action: (1) Breach of the POA; (2) Breach of Oral Agreement; (3) Fraud; (4) Unfair Competition; and (5) Declaratory Judgment. All causes of action are alleged against Yuan. Only the third, fourth and fifth causes of action are alleged against Richwave and Wong.

There are now demurrers before the Court from Yuan, and from Richwave and Wong.

II. REQUESTS FOR JUDICIAL NOTICE

A. Yuan’s Request for Judicial Notice

Yuan requests judicial notice of the following:

(1) Notice of Settlement of Entire Case filed in the Richwave case on March 31, 2017;

(2) Request for Dismissal entered by the Court on April 3, 2017 in the Richwave case;

(3) Notice of Motion and Motion to Set Aside Dismissal, Nullify Settlement Agreement, and Disqualify Chris Kao as Plaintiffs’ Counsel; Memorandum of Points and Authorities filed in the Richwave case on April 5, 2017;

(4) Ex Parte Application for Temporary Restraining Order filed in the Richwave case on April 20, 2017;

(5) Reporter’s Transcript of Proceedings from April 21, 2017, in the Richwave case; and

(6) The Register of Actions in the Richwave case.

The Court can take judicial notice of these documents as court records. (Evid. Code, § 452, subd. (d).) Accordingly, the request for judicial notice is GRANTED.

B. Plaintiff’s Request for Judicial Notice

Plaintiff requests judicial notice of the following:

(1) Declaration of Viviane H.C. Liu in Support of Defendant Nina Yuan’s Motion to Quash Service of Summons for Failure to Properly Serve the Summons and Lack of Personal Jurisdiction; Or, in the Alternative to Stay or Dismiss Action for Forum Non Conveniens, filed on July 24, 2017;

(2) Hearing Transcript of Temporary Restraining Order hearing held on April 21, 2017 in the case of Epic Communications, Inc. v. Ali Corporations, et al., Case No. 2006-1-CV-076689;

(3) Yuan’s Memorandum of Points and Authorities in Support of Motion to Disqualify Epic’s Former Counsel, James Li, and His Firm, Lilaw, Inc. From Representing Yi-Chng [sic] Pao in This Action, filed on July 27, 2018; and

(4) Plaintiff’s Opposition to Nina Yuan’s Motion to Quash, filed on September 20, 2017.

The request for judicial notice is GRANTED. (Evid. Code, § 452, subd. (d).)

III. YUAN’S DEMURRER

Yuan demurs to each cause of action in the FAC on the ground that they fail to state facts sufficient to constitute a cause of action against Yuan. Yuan also demurs to the fifth cause of action on the ground that there is a defect of parties.

A. First Cause of Action

The first cause of action is for breach of the POA. Plaintiff alleges Yuan breached the POA by authorizing the secret settlement negotiation between Epic and Richwave behind Plaintiff’s back. (FAC, ¶ 23.)

Yuan argues the plain language of the POA does not prevent Yuan from authorizing other individuals to conduct Epic’s settlement negotiations. The POA states Epic and EpicCom authorize Plaintiff to be in charge of all matters relating to the Richwave case. (FAC, Ex. A.) Plaintiff argues this means Plaintiff had to be involved in the settlement negotiations. Plaintiff asserts the POA is irrevocable and therefore Yuan was bound by it. Yuan states in reply that there is nothing in the POA divesting Epic of the authority to negotiate a settlement on its own behalf.

As stated in a case cited by Yuan: “Powers of attorney are strictly construed. Authority never is extended beyond that which is directly given or necessary and proper to carry the authority into full effect.” (Jay v. Dollarhide (1970) 3 Cal.App.3d 1001, 1020.) The POA, which is attached to the FAC, authorizes Plaintiff to negotiate settlement, but does not expressly prohibit Epic from negotiating as well. Further, the POA does not give Plaintiff the exclusive authority to settle the case, but in fact states “a final settlement must be approved by Epic Communications, Inc’s Shareholder Meeting regarding the final settlement terms, conditions, and potential proceed distribution, which Dr. Pao will report to.” (FAC, Ex. A.) This demonstrates that although Plaintiff had the ability to control the litigation and negotiate settlement, Plaintiff was still under the authority and control of Epic.

Therefore, Plaintiff has not shown any breach of the POA by Yuan. The demurrer is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND as to the first cause of action.

B. Second Cause of Action

The second cause of action is for breach of oral agreement. Plaintiff alleges there was an oral agreement between Yuan and Plaintiff that Plaintiff would receive 20% of the recovery from the Richwave case if Plaintiff agreed to manage the Richwave case for Epic. (FAC, ¶ 28.) Plaintiff alleges Yuan breached the agreement by authorizing distribution of the funds from the settlement in the Richwave case without dispensing 20% to Plaintiff. (FAC, ¶ 31.)

Yuan argues the FAC shows she acted on behalf of Epic when she allegedly made the oral promise because she acted in her capacity as Epic’s liquidator. Yuan contends therefore that Epic and not Yuan is a party to the alleged oral agreement.

Yuan’s argument has merit. To the extent there was any agreement for Plaintiff to be paid out of the settlement, the payment could only come from Epic, the party receiving the money in the settlement. Yuan did not settle the Richwave case on behalf of herself personally, but on behalf of Epic, as Plaintiff appears to acknowledge in the FAC. (See FAC, ¶ 18 [“a settlement agreement signed presumably by Yuan on behalf of Epic. . . .”].) Therefore, the allegations of the FAC do not demonstrate the existence of any oral contract between Plaintiff and Yuan. The demurrer is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND as to the second cause of action.

C. Third Cause of Action

The third cause of action is for fraud. Yuan argues Plaintiff has not pleaded fraud with the requisite particularity. “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.) The general rule is that every element necessary to state a cause of action for fraud must be specifically pleaded. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216-217.)

Plaintiff alleges Yuan made two false representations: (1) Yuan made a false representation to Plaintiff about Epic’s purported determination to carry the Richwave case to a mutually beneficial conclusion, including trial and appeal; and (2) Yuan falsely represented the resources she and Epic had “to carry the Richwave case to a mutually beneficial solution.” (FAC, ¶ 35.) These allegations regarding false representations are not specific enough. Plaintiff provides no facts or details regarding the representations such as what specific words were used and where and when the statements were made. Further, Plaintiff does not allege Yuan had an intent to defraud. The demurrer is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND as to the third cause of action.

D. Fourth Cause of Action

The fourth cause of action is for unfair competition. Business and Professions Code section 17200 prohibits any unlawful, unfair, or fraudulent business act or practice. (Shvarts v. Budget Group, Inc. (2000) 81 Cal.App.4th 1153, 1157.) Because section 17200 is written in the disjunctive, it establishes three actionable types of unfair competition, namely acts or practices which are unlawful, or unfair, or fraudulent. (Ibid.) Section 17200 “borrows” violations of other laws and treats them as unlawful practices independently actionable under section 17200. (South Bay Chevrolet v. General Motors Acceptance Corp. (1999) 72 Cal.App.4th 861, 880.)

Plaintiff alleges Yuan’s conduct was fraudulent and also unlawful (based on breach of contract). (FAC, ¶ 42.) As discussed previously, Plaintiff has not adequately alleged causes of action for fraud or breach of contract. Consequently, Plaintiff’s fourth cause of action also cannot be maintained. The demurrer is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND as to the fourth cause of action.

E. Fifth Cause of Action

The fifth cause of action is for declaratory judgment. In an action for declaratory relief, the complaint is sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the respective parties under a contract and requests the rights and duties be adjudged. If these requirements are met, the court must declare the rights of the parties whether or not the facts alleged establish the plaintiff is entitled to a favorable declaration. (Condor Ins. Co. v. Williamsburg Nat. Ins. Co. (1996) 49 Cal.App.4th 554, 565.)
Plaintiff alleges the settlement agreement from the Richwave case is null and void based on Yuan’s violation of the POA. (FAC, ¶ 46.) Yuan argues the fifth cause of action is defective because declaratory relief is inapplicable to the future conduct of the parties and because Epic and EpicCom are necessary parties.

[T]he declaratory procedure operates prospectively, and not merely for the redress of past wrongs. It serves to set controversies at rest before they lead to repudiation of obligations, invasion of rights or commission of wrongs; in short, the remedy is to be used in the interests of preventive justice, to declare rights rather than execute them.

(Travers v. Louden (1967) 254 Cal. App. 2d 926, 931.)

Yuan contends the fifth cause of action only concerns past wrongs because the POA expired when the Richwave case settled. Plaintiff’s cause of action, however, seeks a declaration of rights not with regard to the POA, but with regard to the settlement agreement in the Richwave case. In other words, this cause of action is not an alternative to a breach of contract cause of action for a past breach, but relates to the ongoing effect of the settlement agreement.

Yuan argues in the reply papers that Plaintiff is not a party to the settlement agreement. This is essentially a standing argument. While there may be an issue with Plaintiff’s standing to challenge the settlement agreement, Yuan’s argument was raised for the first time on reply and is not properly before the Court.

Nevertheless, to the extent Plaintiff is challenging the viability of the settlement agreement, Yuan is correct that Epic and EpicCom are indispensable parties. As stated in a case cited by Yuan, “[o]rdinarily where the rights involved in litigation arise upon a contract, courts refuse to adjudicate the rights of some of the parties to the contract if the others are not before it.”
(Deltakeeper v. Oakdale Irrigation Dist. (2001) 94 Cal.App.4th 1092, 1106, quoting Nat. Licorice Co. v. Labor Board (1940) 309 U.S. 350, 363 [60 S.Ct. 569, 577].) Plaintiff alleges the settlement agreement was between Epic and Richwave and Wong. (See FAC, ¶ 18.) Therefore, the Court cannot make a determination regarding the settlement agreement without Epic’s involvement in this case. Accordingly, the demurrer is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND as to the fifth cause of action.

IV. RICHWAVE AND WONG’S DEMURRER

Richwave and Wong demur to the third, fourth, and fifth causes of action on the ground that they fail to state facts sufficient to constitute a cause of action against Richwave and Wong. Richwave and Wong also demur to the fifth cause of action on the ground that there is a defect of parties.

The third and fourth causes of action are alleged against Richwave and Wong only on the basis of aiding and abetting Yuan. (FAC, ¶¶ 38 and 45.) Aiding and abetting liability may be imposed on a person who “(a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.” (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846.) In light of the fact that no cause of action has been properly stated against Yuan, Richwave and Wong could not have known of any breach or tortious conduct by Yuan – i.e. there was no underlying wrongful conduct for Richwave and Wong to aid and abet.

With regard to the fifth cause of action, as already discussed, Epic and EpicCom are indispensable parties and they are not currently parties to the case.

Accordingly, Richwave and Wong’s demurrer to the third, fourth, and fifth causes of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

The Court will prepare the final order if this tentative ruling is not contested.