Cheng Yuan Lu v. Xifan Tu, et al.

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF SAN BERNARDINO

CHENG YUAN LU, Case No.: CIVSB2518789 Plaintiff, [TENTATIVE] ORDER SUSTAINING DEMURRER TO v. DEFENDANTS’ CROSS COMPLAINT, FILED BY XIFAN TU, et al., PLAINTIFF, WITH LEAVE TO AMEND Defendants.

I. INTRODUCTION Motion: Demurrer to Cross-Complaint

This case concerns a corporate dispute. On June 30, 2025, Plaintiff Cheng Yuan Lu filed

a Complaint against Defendants Xifan Tu, Jiansu Liu, and Frank Zheng aka Weifang Zheng,

alleging a single cause of action for Breach of Fiduciary Duty.

Plaintiff alleges that US Skywater Inc. (“Company”) was a California corporation

incorporated around January 3, 2020 and was subsequently dissolved on September 30, 2021.

Plaintiff was a 25% shareholder of the Company and Defendants were officers and/or directors

of the Company. Before its dissolution, the Company’s general business was to cultivate and sell

marijuana. (Compl. ¶¶ 8-12.)

On March 9, 2020, the City of Adelanto (“City”) issued a one-year Medical Marijuana

Cultivation permit (MCC 18-16) (“Cultivation Permit”) to the Company, which expired on

March 9, 2021. However, Defendants failed to renew the lapsed Cultivation Permit and took at

least 50 bags of the Company’s cultivated marijuana weighing at least 50 pounds, to sell and

dispose of for Defendants’ own personal benefit. Plaintiff alleges that due to Defendants’ failure

to renew the Cultivation Permit, in or around September 23, 2021, the City ordered the Company

to immediately cease business operations and shut down. Subsequently, the City sealed the doors

of the Company and disconnected the Company’s power and water to compel and ensure the

Company’s shutdown. As such, Plaintiff alleges that the Company’s shutdown was caused by

Defendants’ negligence. (Compl. ¶¶ 13-15, 18-21.)

On December 30, 2025, Defendant Liu filed a Cross-Complaint against Plaintiff and the

Company, alleging the following causes of action:

(1) Involuntary Dissolution, against the Company;

(2) Fraud, against Plaintiff;

(3) Negligent Misrepresentation, against Plaintiff;

(4) Fraud, against Plaintiff;

(5) Breach of Fiduciary Duty, against Plaintiff;

(6) Declaratory Relief, against Plaintiff; and

(7) Unjust Enrichment, against all.

Defendant Liu alleges that he invested in and contributed $150,000.00 to the Company

during its inception and is one of the shareholders. The Company had its principal place of

business located at 10150 Apache Road in the City of Adelanto (“Subject Property”) and

shareholder investment funds were used to pay for construction work and all necessary

equipment, including fixtures, air conditioners, fire safety system, surveillance systems. (Cross-

Compl. ¶¶ 9-10.)

Defendant Liu alleges that Plaintiff served as CEO of the Company during two separate

terms. Prior to his first term, Plaintiff represented to all shareholders and the Board of Directors

that he could and would obtain a California state cannabis license for the Company. Plaintiff also

served his second term as CEO after conducting a corporate coup d’état in August 2021.

However, during both of his terms as the CEO, Plaintiff failed to obtain a California state

cannabis license for the Company, resulting in the shutdown of the Company. Furthermore,

Plaintiff closed the Company without the approval of the shareholders or the Board of Directors.

After the Company was closed, all shareholders invested funds in the Company were not

properly accounted for. The Company’s inventory and equipment, including but not limited to

fixtures, air conditioners, fire safety system, and surveillance systems installed on the Subject

Property, went missing. (Cross-Compl. ¶¶ 11-19.)

On March 4, 2026, Plaintiff filed a general demurrer to the first through fifth causes of

action asserted in the Cross-Complaint. On April 20, 2026, Defendant Liu filed an opposition.

No reply has been filed. After issuing a tentative ruling and holding a hearing on the motion, the

Court now issues its final ruling.1

1 The Court finds that the moving party has complied with its meet-and-confer obligation.

II. EXPLANATION OF THE COURT’S RULING

A. First Cause of Action – Involuntary Dissolution

Corporations Code section 1800, subdivision (a), provides that “a verified complaint for

involuntary dissolution of a corporation” on the grounds defined in subsection (b) may be filed in

the superior court by a shareholder who holds shares representing not less than 33 1/3 percent of

the total number of outstanding shares, the outstanding common shares, or the equity of the

corporation. (Corp. Code, § 1800, subd. (a).)

Plaintiff argues that Defendant Liu’s involuntary dissolution claim is improperly pled

because the Cross-Complaint is not verified in accordance with Corporations Code section 1800,

subdivision (a), and because Defendant Liu is impermissibly seeking to “re-dissolve” the

Company as the Company has already been formally dissolved.

In opposition, Defendant Liu does not address the Plaintiff’s lack of verification

argument but points out that his claim for involuntary dissolution encompasses Corporations

Code sections 1800 through 1809. Defendant Liu argues that a dissolved corporation continues

to exist after dissolution for the purpose of winding up its affairs (see Corp. Code, § 2010, subd.

(a)), and as such, the allegations that Plaintiff shut down the Company without shareholder

approval and failed to properly account for corporate assets (Cross-Compl. ¶¶ 18-19), are subject

to the Court’s review under Corporations Code sections 1800 through 1809.

Because the Cross-Complaint is undisputedly unverified, the Court SUSTAINS

Plaintiff’s demurrer to the First Cause of Action for Involuntary Dissolution, with leave to

amend.

B. Second, Third, and Fourth Causes of Action – Fraud/Negligent Misrepresentation

The elements of fraud are (1) the defendant made a false representation as to a past or

existing material fact; (2) the defendant knew the representation was false at the time it was

made; (3) in making the representation, the defendant intended to deceive the plaintiff; (4) the

plaintiff justifiably relied on the representation; and (5) the plaintiff suffered resulting damages.

(Lazar v. Superior Court (1996) 12 Cal.4th 631, 638 (Lazar).) The elements of negligent

misrepresentation are the same except for the second element, which for negligent

misrepresentation is the defendant made the representation without reasonable ground for

believing it to be true. (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 792.)

In California, fraud must be pleaded with specificity rather than with “general and

conclusory allegations.” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) The

specificity requirement means a plaintiff must allege facts showing how, when, where, to whom,

and by what means the representations were made, and, in the case of a corporate defendant, the

plaintiff must allege the names of the persons who made the representations, their authority to

speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the

representation was made. (Lazar, supra, 12 Cal.4th at p. 645.)

Courts enforce the specificity requirement in consideration of its two purposes. The first

purpose is to give notice to the defendant with sufficiently definite charges that the defendant can

meet them. (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.) The second

is to permit a court to weed out meritless fraud claims on the basis of the pleadings; thus, “the

pleading should be sufficient ‘“to enable the court to determine whether, on the facts pleaded,

there is any foundation, prima facie at least, for the charge of fraud.”’” (Ibid.)

Plaintiff argues that Defendant Liu’s Fraud and Negligent Misrepresentation claims are

insufficiently pled.

First, regarding Plaintiff’s first count for fraud and negligent misrepresentation in the

Second and Third Causes of Action, Plaintiff points out that although Defendant Liu has

identified a specific misrepresentation consisting of Plaintiff’s representation that he “could and

would obtain a California state cannabis license for the Company” (see Cross-Compl. ¶¶ 13, 27),

Defendant Liu does not specifically identify how, when, where, to whom, and by what means

this purported misrepresentation was made. Plaintiff argues that the failure to plead the exact

timing of events is critical, because Defendant Liu admits that Plaintiff served two separate terms

as CEO of the Company. Given this, there would logically be an intervening period in which the

responsibility of obtaining a cannabis license for the Company would have fallen on others.

Without this chronological explanation, Defendant Liu cannot demonstrate that Plaintiff’s

representation was false.

Next, regarding Plaintiff’s second count for fraud in the Fourth Cause of Action,

Defendant Liu merely alleged that Plaintiff closed the Company without the approval of the

shareholders of directors. (Cross-Compl. ¶ 42.) Plaintiff argues that just like above, there is no

specific facts indicating how, when, where, to whom, and by what means any representation, if

any, was made.

In opposition, Defendant Liu argues that he should be exempt from the general fraud

specificity pleading requirements because the facts lie more in the knowledge of Plaintiff, as the

CEO of the Company.

In general, the requirement of specificity is relaxed when the allegations indicate that “the

defendant must necessarily possess full information concerning the facts of the controversy”

(Bradley v. Hartford Acc. & Indem. Co. (1973) 30 Cal.App.3d 818, 825, disapproved on another

ground in Silberg v. Anderson (1990) 50 Cal.3d 205, 212-13), or alternatively, “when the facts

lie more in the knowledge of the opposite party[.]” (Turner v. Milstein (1951) 103 Cal.App.2d

651, 658.)

However, Defendant Liu alleges that the misrepresentation regarding the cannabis license

was made “to all shareholders” (Cross-Compl. ¶ 13), including Defendant Liu himself.

Therefore, it is not sufficiently demonstrated that Plaintiff had superior knowledge regarding the

timing, location, manner of communication, etc., of this misrepresentation. Furthermore,

Defendant Liu also fails to specify how, when, where, to whom, and by what means any

representation regarding the unauthorized dissolution was made.

Therefore, the Court SUSTAINS Plaintiff’s demurrer to the Second, Third, and Fourth

Cause of Action for Fraud and Negligent Misrepresentation, with leave to amend.

C. Fifth Cause of Action – Breach of Fiduciary Duty

“The elements of a claim for breach of fiduciary duty are (1) the existence of a fiduciary

relationship, (2) its breach, and (3) damage proximately caused by that breach.” (O’Neal v.

Stanislaus County Employees’ Retirement Assn. (2017) 8 Cal.App.5th 1184, 1215.)

Plaintiff argues that Defendant Liu’s breach of fiduciary duty claim is also insufficiently

pled for the same reason as discussed above in Defendant Liu’s fraud claims. Specifically,

without a specific chronology of events, it cannot be determined whether Plaintiff committed a

breach of fiduciary duty. Without any allegations as to when the cannabis license renewal

application was due, whether Plaintiff was responsible for submitting it at the time, whether an

application was in fact submitted, or when any permit expired, there is no basis to establish that

Plaintiff committed any breach.

In opposition, Defendant Liu argues that the mere allegation that Plaintiff unilaterally

shut down the business without board approval and failed to properly account for corporate

assets is sufficient to state a claim for breach of fiduciary duty. While these allegations are

sufficient in respect to the corporate dissolution allegations, this argument does not address

Plaintiff’s arguments that the separate breach alleged in the Cross-Complaint pertaining to the

cannabis license renewal is insufficiently pled.

Therefore, the Court SUSTAINS Plaintiff’s demurrer to the Fifth Cause of Action for

Breach of Fiduciary Duty, with leave to amend.

III. CONCLUSION Plaintiff’s demurrer to the First Cause of Action for Involuntary Dissolution, the Second,

Third, and Fourth Causes of Action for Fraud and Negligent Misrepresentation, and the Fifth

Cause of Action for Breach of Fiduciary Duty, is SUSTAINED WITH LEAVE TO AMEND.

IT IS SO ORDERED.

Dated: [TENTATIVE – NOT FINAL] Hon. Joseph B. Widman Judge of the Superior Court