Star Union Technology et al vs Capital Asset Exchange and Trading LLC

Case No. 24CV450570 Demurer Before the court is defendant Capital Asset Exchange and Trading, LLC’s demurrer. Pursuant to California Rule of Court 3.1308, the court issues its tentative ruling as follows.

I. BACKGROUND On or about March 18, 2024, plaintiff Star Union Technology (“Star Union”) entered into a written invoice order (“Invoice”) with defendant Capital Asset Exchange and Trading, LLC (“CAET”) for plaintiff Star Union to purchase from defendant CAET certain equipment, namely seven (7) disco grinders (“Equipment”). (Second Amended Complaint (SAC), ¶13). Pursuant to the terms of the Invoice, the purchase price for the Equipment was $1,750,000 to be paid within five business days of the signing of the Invoice. (SAC, ¶14).

Defendant CAET did not personally manufacture, hold, or possess the Equipment. (SAC, ¶15). Defendant CAET’s role was that of an intermediary, procuring the contracted Equipment from its supplier and then delivering the Equipment to its buyer. (Id.). Plaintiff agreed not to circumvent defendant CAET by purchasing Equipment directly from defendant CAET’s suppliers. (SAC, ¶16).

Plaintiff Star Union paid defendant CAET the contracted price within the time limitation imposed by the Invoice. (SAC, ¶17). Defendant CAET was required to arrange shipment of the Equipment from the United States to the port of Shanghai, China. (Id.). On July 29, 2024, defendant CAET emailed plaintiff Star Union requesting an address to process shipment of the Equipment. (SAC, ¶18). Plaintiff Star Union provided all requested information. (Id.). Defendant failed to initiate or complete shipment. (Id.). On September 3, 2024, plaintiff Star Union requested a status update and was told “some confirmation of information is needed.” (Id.). Despite repeated communications, no shipment of Equipment occurred. (Id.).

Contrary to defendant’s prior representations, defendant CAET never paid its supplier for the Equipment and was not in a position to procure or deliver the Equipment to plaintiff Star Union. (SAC, ¶20). Defendant CAET admitted in a related legal proceeding that it received payment from another buyer for the same Equipment on March 8, 2024 and approximately 10 days later, defendant CAET sold the same Equipment to plaintiff Star Union. (SAC, ¶21). Defendant CAET did not disclose this prior sale to plaintiff Star Union at the time it entered into the transaction with plaintiff. (SAC, ¶23).

Defendant CAET, through its Managing Director Shuo Li (“Li”), during pre-contract communications, represented to plaintiff that defendant CAET had the ability to procure and deliver the Equipment. (SAC, ¶24). Plaintiff relied upon these representations in entering into the Invoice and paying the purchase price. (Id.).

On or about November 6, 202[4] and December 10, 202[4], Li communicated with plaintiff via WeChat stating that if plaintiff agreed to proceed with additional transactions, the Equipment would be released; otherwise, plaintiff would “get nothing back.” (SAC, ¶¶25 – 26).

Plaintiff Star Union had a contract with a third party pursuant to which plaintiff would transfer the Equipment to that third party for a price. (SAC, ¶27). Defendant CAET was aware of this contract and failed to deliver the Equipment. (Id.).

As of April 20, 2026, defendant CAET has not delivered the Equipment to plaintiff Star Union. (SAC, ¶20).

On October 29, 2024, plaintiff Star Union filed a complaint against defendant CAET asserting causes of action for: (1) Breach of Contract (2) Fraud (3) Violation of the Uniform Commercial Code (4) Unjust Enrichment

On December 2, 2024, plaintiff Star Union filed a FAC against defendant CAET asserting the same four causes of action asserted in the original complaint and adding a fifth cause of action for rescission of contract.

On January 3, 2025, defendant CAET filed an answer to plaintiff Star Union’s FAC and also filed a cross-complaint against Star Union asserting the breach of two separate contracts.

On February 3, 2025, plaintiff/ cross-defendant Star Union filed an answer to defendant/ cross-complainant CAET’s cross-complaint.

On February 11, 2026, defendant CAET filed a motion for judgment on the pleadings as to plaintiff Star Union’s FAC. On April 9, 2026, the court issued an order granting, in part, defendant CAET’s motion for judgment on the pleadings.

On April 20, 2026, plaintiff Star Union filed the now operative SAC which asserts causes of action for: (1) Breach of Contract (2) Fraud – Promissory Fraud / Fraudulent Inducement (3) Restitution (4) Rescission

On May 11, 2026, defendant CAET filed the motion now before the court, a demurrer to the second through fourth causes of action of plaintiff Star Union’s SAC.

II. LEGAL STANDARD Pursuant to Code of Civil Procedure section 430.10, a party may demur to a complaint on the grounds that it “does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e)). A demurrer tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747 (Hahn)). When considering demurrers, courts accept all well pleaded facts as true. (Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1078). In ruling on a demurrer, the Court treats it “as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Piccinini v. Cal. Emergency Management Agency (2014) 226 Cal.App.4th 685, 688, citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank)).

III. ANALYSIS A. FRAUD Plaintiff Star Union’s second cause of action for fraud alleges, in relevant part: Prior to entering into the contract, Defendant, through its Managing Director Shuo Li, made representations to Plaintiff during pre-contract communications via WeChat that Defendant would procure and deliver the Equipment within a short period of time following payment, including representations that delivery could occur within approximately ten days.

Defendant further represented that the Equipment was available and that Defendant had the ability to complete the transaction and deliver the Equipment to Plaintiff. (SAC, ¶¶37 – 38).

“‘Promissory fraud’ is a subspecies of fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract.” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 973 – 974; see also CACI, No. 1902).

“A promise of future conduct is actionable as fraud only if made without a present intent to perform. (Civ. Code, §1710, subd. 4; [Citation omitted.]). “ ‘A declaration of intention, although in the nature of a promise, made in good faith, without intention to deceive, and in the honest expectation that it will be fulfilled, even though it is not carried out, does not constitute a fraud. [Citation.]’ ” [Citation omitted]. Moreover, “ ‘something more than nonperformance is required to prove the defendant’s intent not to perform his promise.’ [Citations.] . . . [I]f plaintiff adduces no further evidence of fraudulent intent than proof of nonperformance of an oral promise, he will never reach a jury.” (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 481).

“Fraud actions are subject to strict requirements of particularity in pleading. . . . Accordingly, the rule is everywhere followed that fraud must be specifically pleaded.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216 (Committee)). In Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, the court stated that “this particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ A plaintiff’s burden in asserting a claim against a corporate employer is even greater. In such a case, the plaintiff 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, supra, 12 Cal.4th at 645).

The court previously granted defendant CAET’s motion for judgment on the pleadings to the fraud cause of action on the ground that plaintiff Star Union had not alleged fraud with the requisite specificity. Defendant CAET again demurs to this second cause of action on the same basis. Specifically, defendant CAET contends plaintiff Star Union has not alleged when the representations occurred, to whom the alleged representations were made and what was said.

The SAC does allege the representations occurred “prior to entering into the contract” and, as plaintiff Star Union points out in opposition, the second cause of action incorporates earlier allegations, including the allegation that the contract/ Invoice was entered into on or about March 18, 2024. The timing of the representations is alleged with sufficient precision.

As to what was said, the court finds the allegations identified above sufficient as to the substance of the purported representations.

The court agrees, however, that the SAC continues to lack any allegation as to whom the alleged representations were made. In opposition, plaintiff addresses this point only by suggesting that it can amend to name David Zhu as the recipient of the alleged representations.

Defendant CAET contends further that the same details are lacking with regard to paragraph 38 of the SAC. Although the court would reasonably infer that the same specifics found in paragraph 37 also apply to paragraph 38, the court will give plaintiff Star Union leave to amend to make those specifics explicitly.

The court, however, does not agree with defendant CAET’s contention that plaintiff Star Union has not alleged facts to support the falsity of the representations. Defendant CAET acknowledges the allegations found at paragraph 40, but contends those allegations don’t necessarily lead to the conclusion that the representations were false. To the

extent that the allegations at paragraph 40 are subject to inferences both for and against falsity, the court finds it reasonable to infer such allegations support falsity for purposes of pleading.

Insofar as defendant CAET contends the second cause of action for fraud is barred by the economic loss rule, this court has already indicated in its earlier ruling that the economic loss rule does not bar a plaintiff’s claim for fraudulent inducement. (See Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 843—“Fraudulent inducement claims fall within an exception to the economic loss rule recognized by our Supreme Court (Robinson, supra, 34 Cal.4th at pp. 989–990.”). Thus, application of the economic loss rule will hinge on whether plaintiff Star Union can adequately plead fraud.

Accordingly, defendant CAET’s demurrer to the second cause of action of plaintiff Star Union’s SAC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for fraud is SUSTAINED with 10 days’ leave to amend.

B. RESTITUTION In the FAC, plaintiff Star Union previously asserted a cause of action entitled, “unjust enrichment.” Plaintiff Star Union’s SAC now asserts a cause of action entitled, “Restitution,” premised on the allegation, in relevant part, that, “Defendant’s retention of Plaintiff’s funds [$1,750,000] is unjust and inequitable because it was obtained through fraud and wrongful conduct . . . Plaintiff is entitled to restitution.” (SAC, ¶¶54 – 55).

In McBride v. Houghton (2004) 123 Cal.App.4th 379 (McBride), the court wrote, “Unjust enrichment is not a cause of action, however, or even a remedy, but rather a general principle, underlying various legal doctrines and remedies. It is synonymous with restitution. Unjust enrichment has also been characterized as describing the result of a failure to make restitution. [¶] In reviewing a judgment of dismissal following the sustaining of a general demurrer, we ignore erroneous or confusing labels if the complaint pleads facts which would entitle the plaintiff to relief.

Thus, we must look to the actual gravamen of [plaintiff’s] complaint to determine what cause of action, if any, he stated, or could have stated if given leave to amend. In accordance with this principle, we construe [plaintiff’s] purported cause of action for unjust enrichment as an attempt to plead a cause of action giving rise to a right to restitution.”

There are several potential bases for a cause of action seeking restitution. For example, restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason. [Citations.] Alternatively, restitution may be awarded where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct. In such cases, the plaintiff may choose not to sue in tort, but instead to seek restitution on a quasi-contract theory (an election referred to at common law as “waiving the tort and suing in assumpsit”). [Citation.]

In such cases, where appropriate, the law will imply a contract (or rather, a quasi-contract), without regard to the parties’ intent, in order to avoid unjust enrichment. [Citation]. (McBride, supra, 123 Cal.App.4th at pp. 387 – 388; internal citations and punctuation omitted).

Since this third cause of action for restitution is premised on fraud, defendant CAET contends it fails for the reasons discussed above as to the fraud cause of action. Accordingly, defendant CAET’s demurrer to the third cause of action of plaintiff Star Union’s SAC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for restitution is SUSTAINED with 10 days’ leave to amend.

C. RESCISSION “Rescission is not a cause of action; it is a remedy.” (Nakash v. Superior Court (1987) 196 Cal.App.3d 59, 70). “The

traditional equitable action to have the rescission of a contract adjudged was recognized in former Civil Code 3406. [However,] the equitable action was abolished in 1961, and the remedy is now a legal action for restitution based on a completed unilateral rescission.” (4 Witkin, California Procedure (4th ed. 1997) §502, p. 590 – 591). “The following need to be alleged in an action for restitution after completed unilateral rescission: (1) the contract or other contractual instrument; (2) the grounds for rescission; (3) if the ground is breach of contract, plaintiff’s own performance.” (4 Witkin, California Procedure (4th ed. 1997) §503, p. 591; see also Runyan v. Pacific Air Industries, Inc. (1970) 2 Cal.3d 304 (Runyan)). “Relief given in rescission cases—restitution and in some cases consequential damages—puts the rescinding party in the status quo ante, returning him to his economic position before he entered the contract.” (Runyan, supra, 2 Cal.3d at p. 316, fn. 15).

Here, plaintiff Star Union’s fourth cause of action for rescission is specifically premised upon defendant CAET’s fraud. (SAC, ¶58—“Defendant’s fraud constitutes grounds for rescission under California Civil Code section 1689.”). In light of the court’s ruling above, defendant CAET’s demurrer to the fourth cause of action of plaintiff Star Union’s SAC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for rescission is SUSTAINED with 10 days’ leave to amend.

IV. CONCLUSION Based on the foregoing, the Court ORDERS as follows:

Defendant CAET’s demurrer to the second cause of action of plaintiff Star Union’s SAC on the ground that the pleading does not state facts sufficient to constitute a cause of action for fraud is SUSTAINED with 10 days’ leave to amend.

Defendant CAET’s demurrer to the third cause of action of plaintiff Star Union’s SAC on the ground that the pleading does not state facts sufficient to constitute a cause of action for restitution is SUSTAINED with 10 days’ leave to amend.

In light of the court’s ruling above, defendant CAET’s demurrer to the fourth cause of action of plaintiff Star Union’s SAC on the ground that the pleading does not state facts sufficient to constitute a cause of action for rescission is SUSTAINED with 10 days’ leave to amend.

The Court will prepare the formal Order.

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