Yang vs. Xu

17 25-01521687 Demurrer to Complaint

Yang vs. Xu Defendant Zheyuan Zhu’s Demurrer to the Complaint is SUSTAINED in part with leave to amend as to the 1st-3rd and 7th causes of action and OVERRULED in part as to the remaining causes of action.

Misrepresentation Causes of Action

Plaintiff’s 1st and 3rd causes of action allege Defendants misrepresented.

Plaintiff’s alleges: “Defendants affirmatively represented material facts to Plaintiff, including that: (a) Xu/East Star were licensed California auto dealers operating a stable, compliant dealership; (b) Plaintiff’s funds would be used to purchase specific vehicles free of liens for resale, and original certificates of title would be promptly delivered in Plaintiff’s name; (c) vehicles were being quickly sold at a profit, including a purportedly ‘sold’ Porsche 911 and a pending ‘big order’ that would close and return cash; and (d) a sale ‘on or about June 20, 2025” of a 2025 Porsche 911 Targa GTS (VIN WP0BB2A95SS260073) would fund an ‘August exit.’ ” (Compl., ¶¶ 64, 77.) These allegations lack specificity. Plaintiff lists several statements but fails to attribute them between the Defendants.

Plaintiff also relies upon an allegation that: “Zhu and Xu said they had over two years of joint operations, each holding $1–2 million in inventory, and pitched building a high-end dealership together with Plaintiff. Xu promoted 2–3% per-car margins compounding to ~30% annually, urged Plaintiff to ‘try a few units first,’ and promised clean titles and easy exits.” (Compl., ¶ 26.) Plaintiff does not allege he justifiably relied upon these statements.

Finally, Plaintiff alleges “Zhu echoed the message—“safe,” “quick,” “don’t rock the boat”—and urged Plaintiff to stay cooperative to protect the earlier capital and keep his place in future deals.” To be actionable, a negligent misrepresentation must ordinarily be as to past or existing material facts.” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 158.) Thus, the allegations related to Zhu’s opinion of the Bentley purchase cannot support a misrepresentation claim.

Therefore, the demurrer to the 1st and 3rd causes of action are sustained.

“Unless the complaint shows on its face that it is incapable of amendment, denial of leave to amend constitutes an abuse of discretion, irrespective of whether leave to amend is requested or not.” (McDonald v. Sup.Ct. (1986) 180 Cal.App.3d 297, 303-304.) The Complaint does not show from its face it is incapable of being amended. Thus, leave to amend is granted.

Concealment/Nondisclosure

Plaintiff alleges Defendants concealed “(a) that East Star’s dealer license had expired on or about February 24, 2024; (b) that vehicles were not

held free and clear for Plaintiff and were subject to liens/UCC encumbrances (e.g., floor-plan claims such as the NextGear seizure of the RX350); (c) that Plaintiff’s funds were routed to Xu-controlled conduits (including PingAn International LLC in Oregon) rather than to a licensed California dealer trust/operating account; (d) that Defendants would delete or withhold DocuSign contracts and refuse to provide VIN level purchase orders, floor-plan releases, payoff letters, or original title packets; (e) that Plaintiff-funded vehicles were being rented out without consent; and (f) that the 2025 Porsche 911 Targa was leased, not purchased, rendering the California DMV Vehicle/Vessel Transfer and Reassignment form (REG 262) waved by Xu a sham “proof”; (g) the touted “UCC block” was not an external impediment but, on information and belief, was engineered by Defendants by staging Plaintiff-funded vehicles at the Irvine Coast Motorcars lot to create the appearance of third-party lien issues.”

“A duty to disclose a material fact can arise if (1) it is imposed by statute; (2) the defendant is acting as plaintiff's fiduciary or is in some other confidential relationship with plaintiff that imposes a disclosure duty under the circumstances; (3) the material facts are known or accessible only to defendant, and defendant knows those facts are not known or reasonably discoverable by plaintiff (i.e., exclusive knowledge); (4) the defendant makes representations but fails to disclose other facts that materially qualify the facts disclosed or render the disclosure misleading (i.e., partial concealment); or (5) defendant actively conceals discovery of material fact from plaintiff (i.e., active concealment).” (Rattagan v.

Uber Technologies, Inc. (2024) 17 Cal.5th 1, 40.) “Circumstances (3), (4), and (5) presuppose a preexisting relationship between the parties, such as ‘between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement. [Citation.] All of these relationships are created by transactions between parties from which a duty to disclose facts material to the transaction arises under certain circumstances.’ [Citation.]” (Id. at 40-41.)

Plaintiff relies upon categories 3 and 4 which require a special relationship. However, Plaintiff has not alleged a special relationship between Plaintiff and Zhu. Plaintiff has alleged Zhu participated in conversations regarding Plaintiff’s contractual dealings with Xu and East Star, however, Plaintiff does not allege Zhu was a party to the contract.

Thus, the demurrer to the 2nd cause of action is sustained with leave to amend.

Conversion

The elements of a conversion claim are: (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages.” (Lee v. Hanley (2015) 61 Cal. 4th 1225, 1240 [cleaned up].)

Plaintiff has adequately alleged a claim for conversion of the vehicles listed in paragraph 83(b). Plaintiff alleges Defendants including Zhu wrongfully exercised dominion and control over the vehicles and resulting damages. (Compl., ¶¶ 84, 86.)

Zhu’s request for heightened specificity in pleading the remaninig causes of action are not supported by law. “A cardinal rule of pleading is that only the ultimate facts need be alleged.” (Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 606.) Plaintiff has pled sufficient ultimate facts.

Thus, the demurrer to the 4th cause of action is overruled.

Breach of Contract

Zhu’s demurrer to the breach of contract is disregarded because the breach of contract cause of action is against Xu and East Star only.

Money Had and Received

“A cause of action is stated for money had and received if the defendant is indebted to the plaintiff in a certain sum ‘for money had and received by the defendant for the use of the plaintiff.’ ” (Schultz v. Harney (1994) 27 Cal.App.4th 1611, 1623.)

Plaintiff has adequately alleged ultimate facts to support his sixth cause of action for money had and received. Plaintiff alleges Defendants including Zhu are indebted to Plaintiff for $999,447 for funds to be used for Plaintiff. (Compl., ¶¶ 98-101.)

Thus, the demurrer to the 6th cause of action is overruled.

Unfair Competition

“The scope of section 17200 is broad, encompassing anything that can properly be called a business practice and that at the same time is forbidden by law.” (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 133 (cleaned up).) “As a result, to state a claim under the [UCL] one need not plead and prove the elements of a tort. Instead, one need only show that ‘members of the public are likely to be deceived.’ ” (Ibid.) “Actions under the UCL are not meant to be substitutes for tort or contract actions. [Citation.] ‘Instead, the act provides an equitable means through which both public prosecutors and private individuals can bring suit to prevent unfair business practices and restore money or property to victims of these practices.’” (Marsh v. Anesthesia Services Medical Group, Inc. (2011) 200 Cal.App.4th 480, 502.)

Plaintiff has failed to allege members of the public would be deceived.

Thus, the demurrer to the 7th cause of action is sustained with leave to amend.

Aiding and Abetting

California courts have long held that liability for aiding and abetting depends on proof the defendant had actual knowledge of the specific primary wrong the defendant substantially assisted. In Lomita Land Water Co. v. Robinson (1908) 154 Cal. 36, (Lomita), the California Supreme Court explained this requirement in the course of affirming a judgment against two defendants for aiding and abetting a fraudulent land sale scheme engineered by two others. The court stated, “The words ‘aid and abet’ as thus used have a well understood meaning, and may fairly be construed to imply an intentional participation with knowledge of the object to be attained.” Finding the defendants had “actual knowledge of all the facts relative to” the scheme and “knowingly” assisted in its “consummation,” the court concluded they were rightly held liable for aiding and abetting the fraud.

In Howard v. Superior Court (1992) 2 Cal.App.4th 745, the court stated that “ ‘[a]iding-abetting focuses on whether a defendant knowingly gave “substantial assistance” to someone who performed wrongful conduct....’ [Citation.] [¶] ... [A]iding and abetting ... necessarily requires a defendant to reach a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act.”

Likewise, Gerard v. Ross (1988) 204 Cal.App.3d 968, articulated the knowledge required for aiding and abetting as follows: “In the civil arena, an aider and abettor is called a cotortfeasor. To be held liable as a cotortfeasor, a defendant must have knowledge and intent.... A defendant can be held liable as a cotortfeasor on the basis of acting in concert only if he or she knew that a tort had been, or was to be, committed, and acted with the intent of facilitating the commission of that tort.” Of course, a defendant can only aid and abet another's tort if the defendant knows what “that tort” is. As the Supreme Court put it in Lomita, the defendant must have acted to aid the primary tortfeasor “with knowledge of the object to be attained.”

(Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1145– 1146.)

Plaintiff’s allegations are sufficient to allege a claim for aiding and abetting Xu and East Star. Plaintiff alleges Zhu knew of Xu and East Star’s fraud and participated in meetings regarding the business, was aware the original titles to vehicles were not being delivered, pressured Plaintiff to continue investing, helped present pitches, and discouraged Plaintiff from divesting. (Compl., ¶ 115.)

Thus, the demurrer to the 8th cause of action is overruled.

Conspiracy

A claim for conspiracy requires “ ‘(1) the formation and operation of the conspiracy, (2) the wrongful act or acts done pursuant thereto, and (3) the damage resulting from such act or acts.’ ” (H & M Associates v. City of El Centro (1980) 109 Cal.App.3d 399, 413.)

Plaintiff alleges Zhu joined with Xu and East Star to defraud Plaintiff. (Compl., ¶ 121.) As stated above, Zhu participated in the conspiracy. (Compl., ¶¶ 115, 123.) Finally, the acts resulted in Plaintiff being damaged. (Compl., ¶ 125.) Thus, Plaintiff has adequately alleged a conspiracy claim.

Thus, the demurrer to the 9th cause of action is overruled.

Accounting

"[A] cause of action for accounting need only state facts showing the existence of the relationship which requires an accounting and the statement that some balance is due the plaintiff." (Brea v. McGlashan (1934) 3 Cal.App.2d 454, 460.)

Plaintiff alleges a sufficient relationship which requires an accounting between Defendants, including Zhu and Plaintiff. (Compl., ¶¶ 129-130.) Plaintiff also alleges some balance is due to himself. (Compl., ¶ 134.)

Thus, the demurrer to the 10th cause of action is overruled.