Demurrer
Based on information and belief, Evergreen is and was wholly owned and controlled by Whelan and there is and was a unity of interest and ownership which existed between Whelan and Evergreen, such that the separateness of the individual and the entity never existed. Further, based on information and belief, denying the unity of interest between Whalen and Evergreen will result in fraud and inequity for Plaintiff. This alter ego should result in piercing the corporate veil because the corporate veil of Evergreen should be set aside so that Whelan may be held personally responsible and accountable for all acts and transactions of Evergreen. (FAC, ¶ 4.)
Merits
Although Plaintiff alleges, on information and belief, that Whalen wholly owned and controlled Evergreen and that recognizing the corporate form would result in fraud and inequity, the FAC does not allege supporting facts such as commingling of assets, misuse of corporate funds, undercapitalization, disregard of corporate formalities, or other conduct demonstrating that no meaningful separation existed between Whalen and Evergreen. Instead, the FAC essentially recites the elements of alter ego liability in conclusory fashion. The FAC likewise does not allege facts showing that the corporate form was used to perpetrate fraud or accomplish another inequitable purpose sufficient to justify piercing the corporate veil.
Accordingly, the demurrer is sustained with leave to amend.
In light of the Court’s ruling on the demurrer, the motion to strike is denied as moot.
Should Plaintiff wish to file an amended complaint that addresses the issues in this ruling, Plaintiff must file and serve it within 30 days of service of notice of ruling.
Defendant to give notice.
3 Shy Enterprises, TENTATIVE RULING: Inc. vs. Chung Defendants In Joo Chung, James Chung, and Defendant 121 Company, Inc., demur to the Complaint of Plaintiff Shy Enterprises, Inc. For the following reasons, the demurrer is SUSTAINED with leave to amend.
Standard on Demurrer
In ruling on a demurrer, a court must accept as true all allegations of fact contained in the complaint. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer challenges only the legal sufficiency of the affected pleading, not the truth of the factual allegations in the pleading or the pleader’s ability to prove those allegations. (Cundiff v. GTE Cal., Inc. (2002) 101 Cal.App.4th 1395, 1404-1405
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Although courts should take a liberal view of inartfully drawn complaints (see Code Civ. Proc., § 452), it remains essential that a complaint set forth the actionable facts relied upon with sufficient precision to inform the defendant of what plaintiff is complaining, and what remedies are being sought. (Leek v. Cooper (2011) 194 Cal.App.4th 399, 413.) Bare conclusions of law devoid of any facts are insufficient to withstand demurrer. (Schmid v. City and County of San Francisco (2021) 60 Cal.App.5th 470, 481; see Code Civ. Proc., § 425.10(a).)
First Cause of Action (Concealment)
The first cause of action alleges Defendants concealed and suppressed material facts relating to the ventilation system at the restaurant and citations by county authorities. (FAC ¶ 48.)
Active concealment or suppression of facts is the equivalent of actual fraud. (Civ. Code, § 1572(3).) The elements of a cause of action for fraudulent concealment are: (i) concealment or suppression of a material fact; (ii) by a defendant with a duty to disclose the fact to the plaintiff; (iii) defendant’s intent to defraud plaintiff by intentionally concealing or suppressing the fact; (iv) plaintiff was unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact; and (v) as a result, the plaintiff sustained damage. (Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162; see also Civ. Code, § 1573.)
“A duty to speak may arise in four ways: it may be directly imposed by statute or other prescriptive law; it may be voluntarily assumed by contractual undertaking; it may arise as an incident of a relationship between the defendant and the plaintiff; and it may arise as a result of other conduct by the defendant that makes it wrongful for him to remain silent.” (SCC Acquisitions, Inc. v. Central Pac. Bank (2012) 207 Cal.App.4th 859, 860.)
There are “four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts. [Citation.]” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.)
“If the duty allegedly arose by virtue of the parties’ relationship and defendant’s exclusive knowledge or access to certain facts, . . . the complaint must also include specific allegations establishing all the required elements, including (1) the content of the omitted facts, (2) defendant’s awareness of the materiality of those facts, (3) the inaccessibility of the facts to plaintiff, (4) the general point at which the omitted facts should or could have been revealed, and (5) justifiable and actual reliance, either through action or forbearance, based on the defendant's omission. ‘[M]ere conclusionary allegations that the omissions were intentional and for the purpose of defrauding and deceiving plaintiff[] . . . are insufficient for the foregoing purposes.’ (Goodman [v. Kennedy (1976) 18 Cal.3d 335,] 347.)” (Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 43–44.)
Here, the FAC alleges facts supporting a duty to disclose by Defendants; the FAC alleges Defendants made partial representations (i.e., that the restaurant could continue operations seamlessly) while suppressing material facts (i.e., that the restaurant had no codecompliant ventilation system). The FAC, however, does not allege facts showing that concealment caused Plaintiff damage, as the alleged partial representations took place during a meeting in mid- April 2023—after Plaintiff had purchased the restaurant. (See FAC ¶¶ 13, 21.) In other words, the FAC does not allege sufficient facts to support a duty to disclose prior to sale.
Second and Third Causes of Action (Intentional and Negligent Misrepresentation)
The second and third causes of action allege that, prior to the sale, Defendants In Joo Chung and James Chung (collectively, the “Chung Defendants”) orally misrepresented that the Restaurant’s existing hood system was adequate and lawful for grilling meats and other grease-laden foods; that the Restaurant was fully compliant with all health and safety regulations; that the business as operated could continue without interruption or modification; and that the equipment listed in the Bill of Sale, including two photo booths, was functional and included in the purchase. (FAC ¶¶ 58-59, 76-77.) The third cause of action alleges the Chung Defendants had no reasonable grounds to believe these representations to be true. (FAC ¶ 78.)
The elements of a cause of action for fraud are: (i) misrepresentation; (ii) defendant’s knowledge of the statement’s falsity; (iii) defendant’s intent to defraud; (iv) plaintiff’s justifiable reliance; and (v) resulting damage. (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230- 231; Witkin Summary of Cal Law, Torts § 676.) Fraud must be pleaded with specificity. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216, superseded by statute on another ground as stated in California for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 227.) California’s heightened pleading rule serves two purposes: (1) to put the defendant on notice, to “furnish [it] with certain definite charges which can be intelligently met”; and (2) to weed out nonmeritorious actions. (Id.)
The elements of a cause of action for negligent misrepresentation are: (i) A false statement of material fact that the defendant honestly believes to be true, but made without reasonable grounds for such belief; (ii) made with the intent to induce reliance; (iii) plaintiff’s reasonable reliance on the statement; and (iv) damages. (Century Surety Co. v. Crosby Ins. (2004) 124 Cal.App.4th 116, 129.) Negligent misrepresentation must be alleged with the same particularity required to plead fraud. (Small v. Fritz Cos Inc. (2003) 30 Cal.4th 167, 184.) The pleading must allege how, when, where, to whom and by what means the representations were tendered. (Id. at 184.)
Here, the FAC does not allege with sufficient specificity which defendant made the alleged misrepresentations, where, and when.