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1 ERNEST GALVAN – 196065
HANNAH CHARTOFF – 324529
2 ROSEN BIEN GALVAN & GRUNFELD LLP
101 Mission Street, Sixth Floor
3 San Francisco, California 94105-1738
Telephone: (415) 433-6830
4 Facsimile: (415) 433-7104
Email: egalvan@rbgg.com
5 hchartoff@rbgg.com
6 JEFFREY L. BORNSTEIN – 099358
BOERSCH & ILLOVSKY LLP
7 1611 Telegraph Avenue, Suite 806
Oakland, California 94612-2147
8 Telephone: (415) 500-6651
Facsimile: (415) 967-3062
9 Email: Jeff@boersch-illovsky.com
10 Attorneys for Defendants Kai Hao Robinson
11 and Golden State Regional Center LLC
12 SUPERIOR COURT OF THE STATE OF CALIFORNIA
13 COUNTY OF ALAMEDA – UNLIMITED JURISDICTION
14
15 ZHAORUI WANG; et al. Case No. 21CV004274
16 Plaintiffs, Assigned For All Purposes To:
Hon. Evelio Grillo, Dept. 21
17 v.
DEFENDANTS KAI ROBINSON AND
18 KAI ROBINSON et al., GOLDEN STATE REGIONAL
CENTER, LLC’S MEMORANDUM IN
19 Defendants. SUPPORT OF DEMURRER TO
SECOND AMENDED COMPLAINT
20
Date: April 11, 2023
21 Time: 10:00 a.m.
22
Reservation No.: 751863713690
23
Action Filed: December 17, 2021
24 Trial Date: Not Assigned
25
26
27
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DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN
SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
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1 TABLE OF CONTENTS
Page
2
3 INTRODUCTION ................................................................................................................. 5
4 FACTUAL ALLEGATIONS ................................................................................................ 6
5 LEGAL STANDARD ........................................................................................................... 8
6 ARGUMENT ......................................................................................................................... 9
7 I. Plaintiffs Have Not and Cannot Sufficiently Allege That Ms. Robinson
Controlled Golden State, as Necessary to Sustain Their Alter Ego
8 Allegations. ................................................................................................................. 9
9 II. Plaintiffs’ Second Cause of Action for Breach of Fiduciary Duty Fails to
State a Claim. ............................................................................................................ 11
10
A. Ms. Robinson Did Not Have a Fiduciary Duty to Plaintiffs. ........................ 11
11
B. Plaintiffs Do Not Sufficiently Allege Proximate Causation in Light of
12 the Intervening Force of Alleged Embezzlement by Fremont Hills and
Its Owners. ..................................................................................................... 12
13
C. Ms. Robinson and Golden State Acted Pursuant to the Business
14 Judgment Rule. .............................................................................................. 13
15 D. Plaintiffs’ Specific Breach of Fiduciary Duty Theories Fail for
Additional Reasons. ....................................................................................... 15
16
III. Plaintiffs’ Third Cause of Action for Fraud Fails to State a Claim. ......................... 16
17
A. Plaintiffs’ Fraud Allegations Are Not Plead With Sufficient
18 Particularity to Support an Affirmative Misrepresentation Theory. ............. 17
19 B. The SAC Does Not State a Claim Against Ms. Robinson for Fraud by
Omission. ....................................................................................................... 18
20
C. Plaintiffs Do Not Sufficiently Allege That They Relied on Statements
21 Made by Ms. Robinson or Golden State. ...................................................... 18
22 D. Plaintiffs Do Not Sufficiently Allege Causation or Damages....................... 18
23 CONCLUSION.................................................................................................................... 19
24
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1 TABLE OF AUTHORITIES
2 Page
3
CASES
4
Alliance Mortgage Co. v. Rothwell
5 (1995) 10 Cal.4th 1226 ............................................................................................ 18
6 Banis Restaurant Design, Inc. v. Serrano
(2005) 134 Cal.App.4th 1035 .................................................................................. 10
7
Berg & Berg Enters., LLC v. Boyle
8 (2009) 178 Cal.App.4th 1020 ............................................................................ 13, 14
9 Chen v. PayPal, Inc.
(2021) 61 Cal.App.5th 559 ........................................................................................ 9
10
Evans v. City of Berkeley
11 (2006) 38 Cal.4th 1 .................................................................................................... 8
12 Highland Springs Conf. & Training Ctr. v. City of Banning
(2016) 244 Cal.App.4th 267 ...................................................................................... 9
13
JPV I L.P. v. Koetting
14 (2023) – Cal.Rptr.3d –, 2023 WL 1791966............................................................... 9
15 Lazar v. Superior Court
(1996) 12 Cal.4th 631 ........................................................................................ 16, 17
16
Leek v. Cooper
17 (2011) 194 Cal.App.4th 399 ................................................................................ 9, 10
18 Novak v. Continental Tire N. Am.
(2018) 22 Cal.App.5th 189 ...................................................................................... 12
19
Service by Medallion, Inc. v. Clorox Co.
20 (1996) 44 Cal.App.4th 1807 .............................................................................. 17, 19
21 Slovensky v. Friedman
(2006) 142 Cal.App.4th 1518 .................................................................................. 11
22
Sonora Diamond Corp. v. Superior Court
23 (2000) 83 Cal.App.4th 523 ........................................................................................ 9
24 Wexler v. Cal. Fair Plan Ass’n
(2021) 63 Cal.App.5th 55 .......................................................................................... 8
25
26
STATUTES
27
Civ. Code § 3333 ................................................................................................................. 19
28
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1 Code Civ. Proc. § 430.30 ....................................................................................................... 8
2 Corp. Code § 17704.09 .................................................................................................. 11, 14
3 Corp. Code § 309 ................................................................................................................. 14
4 Evid. Code § 452 ................................................................................................................... 8
5
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1 INTRODUCTION
2 This Court sustained Defendants Golden State Regional Center (“Golden State” or
3 “GSRC”) and Kai Robinson’s demurrer to Plaintiffs’ First Amended Complaint with leave
4 to amend. (Order re: Ruling on Submitted Matter [Sept. 2, 2022].) In its previous order,
5 this Court outlined two fatal flaws that Plaintiffs should have corrected on amendment:
6 First, that any allegation that Ms. Robinson was the alter ego of Golden State
7 “must” be supported by allegations “that Robinson owned and controlled Golden [State]
8 Regional Center.” (Id. at 3.) Moreover, the Court explained that “the claim for breach of
9 fiduciary duty against Robinson presumably rests on the allegation that Robinson is the
10 alter ego of Golden [State] and therefore had the fiduciary duties of” Golden State. (Id. at
11 2.) Similarly, the Court explained that “[t]he merit of a claim for fraud by omission will
12 depend on the existence of a fiduciary duty.” (Id.) In other words, to state a claim against
13 Ms. Robinson for either breach of fiduciary duty or fraud by omission, Plaintiffs were
14 required to amend to specifically allege that Ms. Robinson owned and controlled Golden
15 State Regional Center.
16 Second, that any cause of action for fraud based on affirmative misrepresentations
17 must be amended to include “the required specificity as to the representations made, when
18 made, and to whom made by whom.” (Id.)
19 Plaintiffs’ Second Amended Complaint (“SAC”) cures neither defect. The SAC
20 remains premised on the allegation that Golden State was controlled by two other
21 defendants (Jean Chen and Tony Ye), who lied to investors by saying that Ms. Robinson
22 was in control of Golden State. (See, e.g., SAC ¶¶ 65-71 [“Plaintiffs were misled … about
23 who would be managing their money …. Plaintiffs were advised that ROBINSON …
24 would be managing GSRC and BAIFI … when she [Ms. Robinson] knew she would not be
25 actively managing GSRC and BAIFI…. Had Plaintiffs known the truth about the
26 management scheme for BAIFI, they would not have agreed to invest with GSRC and
27 BAIFI.”].) At the core of the SAC, therefore, is the allegation that Ms. Robinson did not
28 control Golden State. The alter ego allegations, as well as the claims against Ms. Robinson
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1 that are dependent on those allegations, thus fail.
2 Moreover, the SAC contains none of the specific allegations about affirmative
3 misrepresentations as required by the Court’s September 2, 2022 order. In particular, there
4 are no allegations regarding when and by whom any alleged misrepresentations were made
5 to each of the specific plaintiffs. Plaintiffs thus should be precluded from proceeding on
6 any fraud claims based on affirmative misrepresentations against either Ms. Robinson or
7 Golden State.
8 Finally, the breach of fiduciary duty and fraud claims—against both Ms. Robinson
9 and Golden State—fail for additional reasons: principally, that the actions alleged to have
10 been taken by Ms. Robinson and Golden State could not have caused Plaintiffs’ loss, in
11 light of the intervening alleged embezzlement by the Fremont Hills defendants.
12 FACTUAL ALLEGATIONS
13 This case is a follow-on lawsuit to a federal civil action brought by the Securities
14 and Exchange Commission (“SEC”). The SEC’s complaint, attached as Exhibit A to the
15 SAC that is the subject of this demurrer, alleges a wide-ranging fraudulent scheme
16 orchestrated by defendants Jean Chen and Tony Ye related to investments in EB-5 investor
17 visa programs, implicating multiple regional centers. 1 (See SAC Ex. A ¶¶ 32-86.)
18 Plaintiffs in this case are a minority of the investors in one of the investment
19 programs in one of the regional centers implicated in Ms. Chen and Mr. Ye’s alleged
20 scheme. The Bay Area Fund I project (“BAIFI”), in which Plaintiffs invested in 2014, was
21 intended to “provide an investment totaling $45,000,000 to the Project Company, Fremont
22 Hills Development Corporation” to develop real and commercial property, at the “sole
23 discretion” of the Manager, Golden State. (SAC Ex. B [BAIFI Operating Agreement] at 8,
24 11-12.) According to the SEC, Ms. Chen and Mr. Ye “secretly” controlled and managed
25 Golden State, though they named a “nominee” or “figurehead” who was supposed to
26
27 1
A “regional center” is an entity approved by the United States Citizenship and
Immigration Service to administer commercial enterprises that receive investments under
28 the EB-5 Immigrant Investment Program. (SAC ¶ 57.)
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1 appear to be in charge of the regional center, in order to make it appear to investors that
2 Golden State was independent of Ms. Chen and Mr. Ye—and thus induce them to invest.
3 (SAC Ex. A ¶¶ 87, 90, 102-03, 119-20, 125.) The SEC further alleges that Ms. Chen and
4 Mr. Ye had a financial interest in the property that was the subject of Fremont Hills’
5 development project. (Id. ¶ 136.)
6 Relying on the SEC’s allegations, Plaintiffs filed this action against not only
7 Ms. Chen and Mr. Ye, but also Golden State and its current manager Kai Robinson,
8 Fremont Hills and its current owners and operators, Nirvana Property Group, and attorney
9 Bruce Kelson and his law firm, some of whom have since been dismissed. (SAC ¶¶ 3-14.)
10 Plaintiff’s SAC asserts that the owners for Fremont Hills (defendants Jae Ryu, Peter
11 Zhong, R. Scott Hanks, and Jian Ping Pan) misused investment funds provided to Fremont
12 Hills; rather than paying the contractors working on the development project, the owners
13 took the funds for their own unjust enrichment. (Id. ¶¶ 125, 130-31, 152.) That alleged
14 theft ultimately led to the bankruptcy of the Fremont Hills project. (Id. ¶¶ 149-52.) The
15 SAC alleges that, as a result, Plaintiffs lost their investments.
16 The SAC further alleges that Ms. Robinson “cooperated” with Ms. Chen and
17 Mr. Ye in their scheme to make Golden State appear independent, either by signing
18 documents on Golden State’s behalf herself or allowing her name to be used by them on
19 Golden State documents. (Id. ¶¶ 72-73.) However, Ms. Robinson “only belatedly began
20 to participate in the management of GSRC and BAIFI … in or around mid-2016.” (Id.
21 ¶ 74.) Notably, the SEC’s allegations (which are incorporated by reference) further
22 explain that Ms. Robinson only “list[ed] herself publicly for the first time as the manager”
23 of Golden State in June 2016; previously (as of April 2016), Ms. Robinson described her
24 role as “Senior Project Financial Analyst” for an employer called “Golden State Regional
25 Center – Law Offices of Jean Chen.” (SAC Ex. A ¶¶ 129-30.)
26 In October 2018, the SEC filed its initial complaint against Ms. Chen, Mr. Ye,
27 Golden State, Ms. Robinson, and others. (SAC ¶ 112.) Ms. Robinson and Golden State
28 retained counsel, former defendant Mr. Kelson and his law firm, to defend against the
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1 federal lawsuit, as well as to represent BAIFI in other cases related to the Fremont Hills
2 property, including a lawsuit filed by BAIFI against Fremont Hills. (Id. ¶¶ 113, 117.) The
3 SAC alleges that Ms. Robinson and Golden State did not inform investors that they had
4 hired a lawyer to defend against the SEC’s lawsuit and that, in any event, Mr. Kelson’s
5 simultaneous representation of BAIFI and its manager in separate lawsuits created a
6 conflict of interest. (Id. ¶¶ 114, 119-24.) However, in one such lawsuit—the Fremont
7 Hills’ bankruptcy—a federal bankruptcy judge rejected Plaintiffs’ conflict argument,
8 explaining that “the fact that Robinson engaged [BAIFI’s] counsel does not inherently
9 create a conflict, if that fact alone could anyway.” (Request for Judicial Notice, Ex. 1, at
10 10, filed herewith.) In the same lawsuit, Mr. Kelson represented BAIFI in a mediation, in
11 which a tentative settlement agreement was under discussion. (SAC ¶¶ 175-79.) Before
12 the settlement agreement could be reached, Plaintiffs—who had expressed objections to
13 the settlement—initiated this lawsuit. (See id. ¶ 184.)
14 This Court sustained Defendants Ms. Robinson and Golden State’s demurrer to the
15 First Amended Complaint on September 2, 2022. Plaintiffs filed the SAC on December 2,
16 2022.
17 As explained below, Plaintiffs’ fraud and breach of fiduciary duty claims are still
18 fatally flawed. The SAC does not include sufficient factual allegations to support any of
19 the causes of action alleged against Ms. Robinson and Golden State. The demurrer should
20 therefore be sustained without leave to amend.
21 LEGAL STANDARD
22 On a demurrer, the Court considers “any ground for objection” that appears “on the
23 face” of the complaint and “any matter of which the court is required to or may take
24 judicial notice” (Code Civ. Proc., § 430.30, subd. (a)), such as records of “any court of
25 record of the United States” (Evid. Code, § 452, subd. (d)). Courts “accept as true the
26 well-pleaded allegations” in the complaint, but disregard “contentions, deductions or
27 conclusions of fact or law.” (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6, citation
28 omitted; see also Wexler v. Cal. Fair Plan Ass’n (2021) 63 Cal.App.5th 55, 70 [courts
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1 “disregard legal conclusions in a complaint,” as “they are just a lawyer’s arguments”].)
2 When a complaint makes both general allegations—such as “an allegation of an
3 ultimate fact”—and specific allegations that add details or explanatory facts, and a conflict
4 or inconsistency exists between them, the specific allegations control over the inconsistent
5 general allegations. (Chen v. PayPal, Inc. (2021) 61 Cal.App.5th 559, 571.) “Under this
6 principle, it is possible that specific allegations will render the complaint defective when
7 the general allegations, standing alone, might have been sufficient.” (Id. at 571-72,
8 citation omitted.)
9 ARGUMENT
10 I. Plaintiffs Have Not and Cannot Sufficiently Allege That Ms. Robinson
Controlled Golden State, as Necessary to Sustain Their Alter Ego Allegations.
11
12 “Alter ego is an extreme remedy, sparingly used.” (Sonora Diamond Corp. v.
13 Superior Court (2000) 83 Cal.App.4th 523, 539.) As such, “[t]he standards for the
14 application of alter ego principles are high, and the imposition of [alter ego] liability … is
15 to be exercised reluctantly and cautiously.” (JPV I L.P. v. Koetting (2023) – Cal.Rptr.3d –,
16 2023 WL 1791966, at *8, quoting Highland Springs Conf. & Training Ctr. v. City of
17 Banning (2016) 244 Cal.App.4th 267, 281, alterations in original.) The mere allegation
18 that a corporation and individual are alter egos is “insufficient to justify the court in
19 disregarding the corporate entity in the absence of allegations of facts from which it
20 appears that justice cannot otherwise be accomplished.” (Leek v. Cooper (2011) 194
21 Cal.App.4th 399, 414.)
22 In sustaining Ms. Robinson and Golden State’s demurrer to Plaintiffs’ First
23 Amended Complaint, this Court explained: if Plaintiffs are asserting that Ms. Robinson is
24 the alter ego of Golden State, “then that must be clear and the complaint must allege that
25 Robinson owned and controlled Golden [State] Regional Center.” (Sept. 2, 2022 Order at
26 3.) Plaintiffs have not and cannot meet that standard, as it is directly contrary to the key
27 allegations underlying the purported fraud in this case.
28 Both the SAC and the SEC’s complaint hinge on the following alleged fraud that is
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1 central to this case: Ms. Robinson allegedly did not control Golden State, yet it was
2 represented to Plaintiffs that she did. As the SAC explains, “Plaintiffs were misled …
3 about who would be managing their money.” (SAC ¶ 65.) Although “Plaintiffs were
4 advised that ROBINSON … would be managing GSRC and BAIFI,” Ms. Robinson “knew
5 she would not be actively managing GSRC and BAIFI.” (Id.) Rather, Defendants Jean
6 Chen and Tony Ye “control[led] and manage[d] GSRC and BAIFI.” (Id. ¶ 211.)
7 According to the SAC, “[h]ad Plaintiffs known the truth about the management scheme for
8 BAIFI”—i.e., that Ms. Robinson did not in fact control Golden State—“they would not
9 have agreed to invest with GSRC and BAIFI.” (Id. ¶ 71.) The SEC’s complaint is
10 explicit: Golden State Regional Center “was managed and controlled at all relevant times
11 by Chen and Ye”; “Robinson did not manage or control Golden State.” (SAC Ex. A ¶¶ 15,
12 125, emphasis added.) Indeed, the SEC asserted controlling person liability for Golden
13 State against Chen and Ye, not against Ms. Robinson. (Id. ¶¶ 208-10.) Given the SEC and
14 Plaintiffs’ factual allegations pertaining to fraud, no alter ego assertion can survive. (See
15 Leek, supra, 194 Cal.App.4th at p. 414.)
16 Yet, in attempting to hold Ms. Robinson liable for the acts of Golden State,
17 Plaintiffs have asserted exactly the opposite: that Ms. Robinson “solely managed GSRC
18 and BAIFI.” (SAC ¶ 34.) Plaintiffs cannot have it both ways. Either Ms. Robinson did
19 not control Golden State (consistent with the allegations of the SEC), therefore Golden
20 State was not her alter ego, and it was a misrepresentation to say that she did control
21 Golden State, or Ms. Robinson was in control of Golden State (contrary to what the SEC
22 has alleged), and it was not fraudulent to represent that she did. In other words, if
23 Plaintiffs’ allegation is that Ms. Robinson was in fact in control of Golden State and thus it
24 was her alter ego, then the core of their fraud allegations is implausible.
25 Moreover, Plaintiffs should not be given an opportunity to further amend their alter
26 ego allegation, as any amendment would be futile. (See Banis Restaurant Design, Inc. v.
27 Serrano (2005) 134 Cal.App.4th 1035, 1044 [“[W]hen a complaint contains allegations
28 that are fatal to a cause of action, a plaintiff cannot avoid those defects simply by filing an
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1 amended complaint that omits the problematic facts or pleads facts inconsistent with those
2 alleged earlier.”].) The SEC’s complaint—on which the SAC expressly relies and cites as
3 “highly credible,” “specific and detailed,” “thorough,” and “probative” (see SAC ¶ 55)—
4 plainly states that Golden State Regional Center “was managed and controlled at all
5 relevant times by Chen and Ye” (SAC Ex. A ¶ 15, emphasis added.) It further states that
6 “Robinson did not manage or control Golden State.” (Id. ¶ 125.) In light of those
7 unambiguous statements, no amendment by Plaintiffs could support an alter ego theory
8 against Ms. Robinson.
9 II. Plaintiffs’ Second Cause of Action for Breach of Fiduciary Duty Fails to State
a Claim.
10
11 The elements of a cause of action for breach of fiduciary duty are: (1) existence of a
12 fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the
13 breach. (Slovensky v. Friedman (2006) 142 Cal.App.4th 1518, 1535.) In a member-
14 managed company, the manager’s duty of care is “limited to refraining from engaging in
15 grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of
16 the law.” (Corp. Code § 17704.09, subds. (c), (f).)
17 The SAC asserts a wide variety of factual theories for Ms. Robinson and Golden
18 State’s alleged breach of fiduciary duties. (See SAC ¶ 211.) Each of those theories fails,
19 as explained below.
20 A. Ms. Robinson Did Not Have a Fiduciary Duty to Plaintiffs.
21 Absent the existence of a fiduciary duty between plaintiff and defendant, there can
22 be no claim for breach of fiduciary duty. (See Slovensky, supra, 142 Cal.App.4th at
23 p. 1535.) As this Court explained when sustaining the demurrer to the breach of fiduciary
24 duty claim in the First Amended Complaint, any breach of fiduciary duty claim against
25 Ms. Robinson “rests on the allegation that Robinson is the alter ego” of Golden State and
26 therefore had its fiduciary duties. (Sept. 2, 2022 Order at 2.) Therefore, Plaintiffs’ breach
27 of fiduciary duty claim against Ms. Robinson requires the SAC to allege that Ms. Robinson
28 is Golden State’s alter ego. As explained above, Plaintiffs have not and cannot so allege.
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1 (See Part I, supra.) The breach of fiduciary duty claim against Ms. Robinson therefore
2 fails.
3 B. Plaintiffs Do Not Sufficiently Allege Proximate Causation in Light of the
Intervening Force of Alleged Embezzlement by Fremont Hills and Its
4 Owners.
5 Proximate causation, as required for a breach of fiduciary duty claim, “limits
6 liability; i.e., in certain situations where the defendant’s conduct is an actual cause of the
7 harm, the defendant will nevertheless be absolved because of the manner in which the
8 injury occurred.” (Novak v. Continental Tire N. Am. (2018) 22 Cal.App.5th 189, 196,
9 citation omitted.) When an “intervening force is a superseding cause of harm to the
10 plaintiff,” a defendant is absolved from liability. (Id. at 197.) To determine whether an
11 intervening force is a superseding cause, courts consider whether: the intervening force is
12 independent of any situation created by the defendant; the intervening force is due to a
13 third person’s act or failure to act, the intervening force is due to an act of a third person
14 which is wrongful toward the other and as such subject the third person to liability; the
15 degree of culpability of a wrongful act of a third person; the harm caused by the
16 intervening force is different in kind from that which would otherwise have resulted; and
17 the operation of the intervening force appears after the event to be extraordinary. (Id.)
18 There is such an intervening force here, breaking the causal chain between any
19 actions allegedly taken by Ms. Robinson and Golden State and the ultimate failure of the
20 BAIFI project, i.e., the loss sustained by Plaintiffs: the alleged embezzlement scheme of
21 the owners and operators of Fremont Hills (also defendants in this case). In particular, the
22 SAC alleges that Messrs. Ryu, Hanks, Zhong, and Pan had not been paying the contractors
23 developing the project for “an extensive period of time” (SAC ¶ 143; see also id. ¶ 145),
24 and that, “[d]uring the term of the BAIFI LOAN,” development of the project “was subject
25 to a series of setbacks and delays” (id. ¶ 132). The SAC further alleges that, in light of
26 those delays, Fremont Hills negotiated an additional loan from third parties, but “used the
27 money received … to unjustly enrich themselves.” (Id. ¶ 143.)
28 The SAC does not claim that the above misconduct on behalf of Fremont Hills and
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1 its owners was foreseeable. Indeed, there is no allegation that Ms. Robinson and Golden
2 State knew or should have known that Messrs. Ryu, Hanks, Zhong, and Pan were failing to
3 pay the contractors hired to develop the Fremont Hills project or unjustly enriching
4 themselves through the project. Although the SAC asserts “[o]n information and belief”
5 that Ms. Robinson and Golden State did not inspect Fremont Hills’ books and records
6 during the term of the loan, it does not claim that any such diligence, even if reasonable,
7 would have stopped the alleged embezzlement by Fremont Hills’ owners. (See id. ¶ 109.)
8 To the contrary, the SAC depicts Fremont Hills as a sophisticated entity intent on covering
9 its tracks by changing its ownership structure. (See id. ¶ 108.) Nor is the allegation that
10 Fremont Hills defaulted on interest payments (id. ¶ 147) sufficient to put Ms. Robinson or
11 Golden State on notice that Fremont Hills’ owners were embezzling from it; indeed, the
12 SAC does not so allege. Moreover, although there are general allegations that
13 Ms. Robinson “knew or should have known” that there was an alleged “fraudulent
14 scheme,” those allegations relate exclusively to Ms. Chen and Mr. Ye’s alleged control and
15 management of BAIFI—not to any plans by Ms. Ryu, Hanks, Zhong, and Pan to enrich
16 themselves. (See id. ¶ 73.)
17 In light of Fremont Hills’ alleged misconduct, no action or inaction allegedly taken
18 by Ms. Robinson or Golden State proximately caused damages to Plaintiffs.
19 C. Ms. Robinson and Golden State Acted Pursuant to the Business
Judgment Rule.
20
21 A defendant cannot be held liable for breach of fiduciary duty if her actions were
22 consistent with the business judgment rule. (Berg & Berg Enters., LLC v. Boyle (2009)
23 178 Cal.App.4th 1020, 1044 [affirming trial court sustaining of demurrer on basis of
24 business judgment rule].) The business judgment rule applies when a manager “rel[ies] on
25 information [and] opinions” of “[c]ounsel . . . as to matters which the [manager] believes
26 to be within such person’s professional or expert competence,” so long as the manager
27 “acts in good faith, after reasonable inquiry when the need therefor is indicated by the
28 circumstances and without knowledge that would cause such reliance to be unwarranted.”
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1 (Corp. Code § 309, subd. (b)(2).) “In most cases, the presumption created by the business
2 judgment rule can be rebutted only by affirmative allegations of facts which, if proven,
3 would establish fraud, bad faith, overreaching or an unreasonable failure to investigate
4 material facts.” (Berg & Berg Enters., supra, 178 Cal.App.4th at p. 1046, citation and
5 internal quotation marks omitted.)
6 The business judgment rule applies here and defeats Plaintiffs’ arguments that
7 Ms. Robinson and Golden State breached fiduciary duties. As the SAC makes clear,
8 Ms. Robinson and Golden State acted on the advice of counsel. (See, e.g., SAC ¶ 155.)
9 Ms. Robinson and Golden State therefore reasonably relied on counsel, placing their
10 conduct squarely inside the business judgment rule.
11 Plaintiffs have not reached the high bar required to rebut the presumption of the
12 business judgment rule. Although Plaintiffs have alleged that Ms. Robinson was engaged
13 in fraud, those allegations are not pled with the requisite particularity, as outlined in more
14 detail below. Nor is this a clear case of a conflict of interest, despite Plaintiffs’ allegations
15 that the representation of Mr. Kelson and Schnader Harrison Segal & Lewis LLP was
16 conflicted. (See, e.g., id. ¶¶ 123-24.) Critically, a federal bankruptcy judge previously
17 determined that there was no conflict of interest in that representation. (See Request for
18 Judicial Notice, Ex. 1, at 10, filed herewith.) In light of the bankruptcy judge’s affirmative
19 statement that the representation was not conflicted, it was reasonable for Ms. Robinson—
20 who is not an attorney—to rely on the representation of Mr. Kelson and the Schnader law
21 firm in regard to her conduct toward Golden State and BAIFI. (See id.)
22 Similarly, in light of the bankruptcy court’s ruling on the conflict issue, no breach
23 of fiduciary duty claim predicated on Ms. Robinson’s act of hiring Mr. Kelson can lie.
24 Given that at least one federal court has determined that a conflict of interest did not exist,
25 it cannot be gross negligence for Ms. Robinson to have believed the same. (See Corp.
26 Code § 17704.09, subds. (c), (f).)
27
28
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DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN
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1 D. Plaintiffs’ Specific Breach of Fiduciary Duty Theories Fail for
Additional Reasons.
2
3 The SAC asserts a wide-range of Golden State and Ms. Robinson’s alleged conduct
4 that is purportedly the basis for the breach of fiduciary duty claim, without engaging with
5 how each action proximately caused harm to Plaintiffs or falls outside the business
6 judgment rule. (See SAC ¶ 211.) Every one of those purported “breaches” therefore fails
7 to support Plaintiffs’ second cause of action for the reasons explained above.
8 In addition, the following allegations in Paragraph 211 cannot support a breach of
9 fiduciary duty claim:
10 (1) “[S]igned (or allowed their names/signatures to be inputted on) the
11 OPERATING AGREEMENT as manager of BAIFI and held themselves out to be
12 actively managing BAIFI . . . .” This allegation should be disregarded in light of more
13 specific allegations in the SAC and the SEC’s complaint. In particular, the SAC
14 specifically states that Ms. Robinson “only belatedly began to participate in the
15 management of GSRC and BAIFI . . . in or around mid-2016.” (SAC ¶ 74, emphasis in
16 original.) The SEC further alleges in its complaint that Ms. Robinson identified herself
17 publicly as the manager of Golden State “for the first time” in June 2016. (SAC Ex. A
18 ¶ 130.) Thus, the Court should disregard the allegations that Ms. Robinson herself signed
19 or otherwise allowed her signature to be used on documents prior to 2016.
20 (2) “[C]ooperated in the mismanagement of the BAIFI and allowed for the
21 fraudulently orchestrated BAIFI LOAN of $40 million from BAIFI to FREMONT
22 HILLS to occur.” As noted above, the SAC alleges that Ms. Robinson did not participate
23 in the management of BAIFI prior to 2016, so she cannot have been involved in the
24 January 1, 2015 loan agreement. In addition, to the extent Plaintiffs are claiming that they
25 did not know that a loan would be made to Fremont Hills at all, that is squarely
26 contradicted by the Operating Agreement, incorporated by reference into the SAC:
27 “Project Company” is defined as “Fremont Hills Development Corporation, the entity
28 receiving funds from the Company” (SAC Ex. B at 9), and the Operating Agreement
[4239395.3] 15 Case No. 21CV004274
DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN
SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
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1 further explains that BAIFI’s “business and purpose are to provide an investment totaling
2 $45,000,000 to the Project Company, Fremont Hills Development Corporation” (id. at 12).
3 (3) “[F]ailed to record a security interest in the PROJECT PROPERTY pursuant
4 to the BAIFI LOAN DOCUMENTS.” As noted above, the SAC alleges that
5 Ms. Robinson was not participating in the management of BAIFI in January 2015—the
6 time the loan documents were signed. This allegation should therefore be disregarded.
7 (4) “[F]ailed to timely take legal action against CHEN, YE, FREMONT HILLS,
8 RYU, ZHONG, HANKS and PAN.” This assertion is contradicted by the factual
9 allegations in the SAC, which state that such legal action was taken on behalf of BAIFI.
10 (See, e.g., SAC ¶ 117.)
11 (5) “[C]alled for BAIFI meetings and votes without allowing the investors of the
12 BAIFI to inspect the books and records of the BAIFI first so they could make informed
13 decisions.” The Operating Agreement explicitly states that the Manager is not required to
14 consider members’ opinions in making decisions regarding the functioning of the fund,
15 though the Manager may receive such advice in her discretion. (SAC Ex. B § 7.03 [advice
16 of members “not required”].) Given that such advice is discretionary, this assertion cannot
17 support a breach of fiduciary duty.
18 (6) “[R]efused to allow BAIFI investors to attend and/or observe their mediation
19 discussions with FREMONT HILLS.” As noted above, the Operating Agreement does
20 not require the Manager to consider members’ advice in making decisions, so investors’
21 attendance at any mediation discussions (or lack thereof) could not be a breach of fiduciary
22 duty.
23 III. Plaintiffs’ Third Cause of Action for Fraud Fails to State a Claim.
24 The elements of fraud are: (1) misrepresentation (including false representation or
25 concealment), (2) knowledge of falsity, (3) intent to induce reliance, (4) justifiable
26 reliance, and (5) causation and resulting damages. (Lazar v. Superior Court (1996) 12
27 Cal.4th 631, 638.) “[F]raud must be plead specifically; general and conclusory allegations
28 do not suffice.” Id. at 645. “Thus, the policy of liberal construction of the pleadings” is
[4239395.3] 16
Preview
1 ERNEST GALVAN – 196065 HANNAH CHARTOFF – 324529 2 ROSEN BIEN GALVAN & GRUNFELD LLP 101 Mission Street, Sixth Floor 3 San Francisco, California 94105-1738 Telephone: (415) 433-6830 4 Facsimile: (415) 433-7104 Email: egalvan@rbgg.com 5 hchartoff@rbgg.com 6 JEFFREY L. BORNSTEIN – 099358 BOERSCH & ILLOVSKY LLP 7 1611 Telegraph Avenue, Suite 806 Oakland, California 94612-2147 8 Telephone: (415) 500-6651 Facsimile: (415) 967-3062 9 Email: Jeff@boersch-illovsky.com 10 Attorneys for Defendants Kai Hao Robinson 11 and Golden State Regional Center LLC 12 SUPERIOR COURT OF THE STATE OF CALIFORNIA 13 COUNTY OF ALAMEDA – UNLIMITED JURISDICTION 14 15 ZHAORUI WANG; et al. Case No. 21CV004274 16 Plaintiffs, Assigned For All Purposes To: Hon. Evelio Grillo, Dept. 21 17 v. DEFENDANTS KAI ROBINSON AND 18 KAI ROBINSON et al., GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN 19 Defendants. SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT 20 Date: April 11, 2023 21 Time: 10:00 a.m. 22 Reservation No.: 751863713690 23 Action Filed: December 17, 2021 24 Trial Date: Not Assigned 25 26 27 28 [4239395.3] Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 TABLE OF CONTENTS Page 2 3 INTRODUCTION ................................................................................................................. 5 4 FACTUAL ALLEGATIONS ................................................................................................ 6 5 LEGAL STANDARD ........................................................................................................... 8 6 ARGUMENT ......................................................................................................................... 9 7 I. Plaintiffs Have Not and Cannot Sufficiently Allege That Ms. Robinson Controlled Golden State, as Necessary to Sustain Their Alter Ego 8 Allegations. ................................................................................................................. 9 9 II. Plaintiffs’ Second Cause of Action for Breach of Fiduciary Duty Fails to State a Claim. ............................................................................................................ 11 10 A. Ms. Robinson Did Not Have a Fiduciary Duty to Plaintiffs. ........................ 11 11 B. Plaintiffs Do Not Sufficiently Allege Proximate Causation in Light of 12 the Intervening Force of Alleged Embezzlement by Fremont Hills and Its Owners. ..................................................................................................... 12 13 C. Ms. Robinson and Golden State Acted Pursuant to the Business 14 Judgment Rule. .............................................................................................. 13 15 D. Plaintiffs’ Specific Breach of Fiduciary Duty Theories Fail for Additional Reasons. ....................................................................................... 15 16 III. Plaintiffs’ Third Cause of Action for Fraud Fails to State a Claim. ......................... 16 17 A. Plaintiffs’ Fraud Allegations Are Not Plead With Sufficient 18 Particularity to Support an Affirmative Misrepresentation Theory. ............. 17 19 B. The SAC Does Not State a Claim Against Ms. Robinson for Fraud by Omission. ....................................................................................................... 18 20 C. Plaintiffs Do Not Sufficiently Allege That They Relied on Statements 21 Made by Ms. Robinson or Golden State. ...................................................... 18 22 D. Plaintiffs Do Not Sufficiently Allege Causation or Damages....................... 18 23 CONCLUSION.................................................................................................................... 19 24 25 26 27 28 [4239395.3] Case No. 21CV004274 2 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 TABLE OF AUTHORITIES 2 Page 3 CASES 4 Alliance Mortgage Co. v. Rothwell 5 (1995) 10 Cal.4th 1226 ............................................................................................ 18 6 Banis Restaurant Design, Inc. v. Serrano (2005) 134 Cal.App.4th 1035 .................................................................................. 10 7 Berg & Berg Enters., LLC v. Boyle 8 (2009) 178 Cal.App.4th 1020 ............................................................................ 13, 14 9 Chen v. PayPal, Inc. (2021) 61 Cal.App.5th 559 ........................................................................................ 9 10 Evans v. City of Berkeley 11 (2006) 38 Cal.4th 1 .................................................................................................... 8 12 Highland Springs Conf. & Training Ctr. v. City of Banning (2016) 244 Cal.App.4th 267 ...................................................................................... 9 13 JPV I L.P. v. Koetting 14 (2023) – Cal.Rptr.3d –, 2023 WL 1791966............................................................... 9 15 Lazar v. Superior Court (1996) 12 Cal.4th 631 ........................................................................................ 16, 17 16 Leek v. Cooper 17 (2011) 194 Cal.App.4th 399 ................................................................................ 9, 10 18 Novak v. Continental Tire N. Am. (2018) 22 Cal.App.5th 189 ...................................................................................... 12 19 Service by Medallion, Inc. v. Clorox Co. 20 (1996) 44 Cal.App.4th 1807 .............................................................................. 17, 19 21 Slovensky v. Friedman (2006) 142 Cal.App.4th 1518 .................................................................................. 11 22 Sonora Diamond Corp. v. Superior Court 23 (2000) 83 Cal.App.4th 523 ........................................................................................ 9 24 Wexler v. Cal. Fair Plan Ass’n (2021) 63 Cal.App.5th 55 .......................................................................................... 8 25 26 STATUTES 27 Civ. Code § 3333 ................................................................................................................. 19 28 [4239395.3] Case No. 21CV004274 3 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 Code Civ. Proc. § 430.30 ....................................................................................................... 8 2 Corp. Code § 17704.09 .................................................................................................. 11, 14 3 Corp. Code § 309 ................................................................................................................. 14 4 Evid. Code § 452 ................................................................................................................... 8 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 [4239395.3] 4 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 INTRODUCTION 2 This Court sustained Defendants Golden State Regional Center (“Golden State” or 3 “GSRC”) and Kai Robinson’s demurrer to Plaintiffs’ First Amended Complaint with leave 4 to amend. (Order re: Ruling on Submitted Matter [Sept. 2, 2022].) In its previous order, 5 this Court outlined two fatal flaws that Plaintiffs should have corrected on amendment: 6 First, that any allegation that Ms. Robinson was the alter ego of Golden State 7 “must” be supported by allegations “that Robinson owned and controlled Golden [State] 8 Regional Center.” (Id. at 3.) Moreover, the Court explained that “the claim for breach of 9 fiduciary duty against Robinson presumably rests on the allegation that Robinson is the 10 alter ego of Golden [State] and therefore had the fiduciary duties of” Golden State. (Id. at 11 2.) Similarly, the Court explained that “[t]he merit of a claim for fraud by omission will 12 depend on the existence of a fiduciary duty.” (Id.) In other words, to state a claim against 13 Ms. Robinson for either breach of fiduciary duty or fraud by omission, Plaintiffs were 14 required to amend to specifically allege that Ms. Robinson owned and controlled Golden 15 State Regional Center. 16 Second, that any cause of action for fraud based on affirmative misrepresentations 17 must be amended to include “the required specificity as to the representations made, when 18 made, and to whom made by whom.” (Id.) 19 Plaintiffs’ Second Amended Complaint (“SAC”) cures neither defect. The SAC 20 remains premised on the allegation that Golden State was controlled by two other 21 defendants (Jean Chen and Tony Ye), who lied to investors by saying that Ms. Robinson 22 was in control of Golden State. (See, e.g., SAC ¶¶ 65-71 [“Plaintiffs were misled … about 23 who would be managing their money …. Plaintiffs were advised that ROBINSON … 24 would be managing GSRC and BAIFI … when she [Ms. Robinson] knew she would not be 25 actively managing GSRC and BAIFI…. Had Plaintiffs known the truth about the 26 management scheme for BAIFI, they would not have agreed to invest with GSRC and 27 BAIFI.”].) At the core of the SAC, therefore, is the allegation that Ms. Robinson did not 28 control Golden State. The alter ego allegations, as well as the claims against Ms. Robinson [4239395.3] 5 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 that are dependent on those allegations, thus fail. 2 Moreover, the SAC contains none of the specific allegations about affirmative 3 misrepresentations as required by the Court’s September 2, 2022 order. In particular, there 4 are no allegations regarding when and by whom any alleged misrepresentations were made 5 to each of the specific plaintiffs. Plaintiffs thus should be precluded from proceeding on 6 any fraud claims based on affirmative misrepresentations against either Ms. Robinson or 7 Golden State. 8 Finally, the breach of fiduciary duty and fraud claims—against both Ms. Robinson 9 and Golden State—fail for additional reasons: principally, that the actions alleged to have 10 been taken by Ms. Robinson and Golden State could not have caused Plaintiffs’ loss, in 11 light of the intervening alleged embezzlement by the Fremont Hills defendants. 12 FACTUAL ALLEGATIONS 13 This case is a follow-on lawsuit to a federal civil action brought by the Securities 14 and Exchange Commission (“SEC”). The SEC’s complaint, attached as Exhibit A to the 15 SAC that is the subject of this demurrer, alleges a wide-ranging fraudulent scheme 16 orchestrated by defendants Jean Chen and Tony Ye related to investments in EB-5 investor 17 visa programs, implicating multiple regional centers. 1 (See SAC Ex. A ¶¶ 32-86.) 18 Plaintiffs in this case are a minority of the investors in one of the investment 19 programs in one of the regional centers implicated in Ms. Chen and Mr. Ye’s alleged 20 scheme. The Bay Area Fund I project (“BAIFI”), in which Plaintiffs invested in 2014, was 21 intended to “provide an investment totaling $45,000,000 to the Project Company, Fremont 22 Hills Development Corporation” to develop real and commercial property, at the “sole 23 discretion” of the Manager, Golden State. (SAC Ex. B [BAIFI Operating Agreement] at 8, 24 11-12.) According to the SEC, Ms. Chen and Mr. Ye “secretly” controlled and managed 25 Golden State, though they named a “nominee” or “figurehead” who was supposed to 26 27 1 A “regional center” is an entity approved by the United States Citizenship and Immigration Service to administer commercial enterprises that receive investments under 28 the EB-5 Immigrant Investment Program. (SAC ¶ 57.) [4239395.3] 6 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 appear to be in charge of the regional center, in order to make it appear to investors that 2 Golden State was independent of Ms. Chen and Mr. Ye—and thus induce them to invest. 3 (SAC Ex. A ¶¶ 87, 90, 102-03, 119-20, 125.) The SEC further alleges that Ms. Chen and 4 Mr. Ye had a financial interest in the property that was the subject of Fremont Hills’ 5 development project. (Id. ¶ 136.) 6 Relying on the SEC’s allegations, Plaintiffs filed this action against not only 7 Ms. Chen and Mr. Ye, but also Golden State and its current manager Kai Robinson, 8 Fremont Hills and its current owners and operators, Nirvana Property Group, and attorney 9 Bruce Kelson and his law firm, some of whom have since been dismissed. (SAC ¶¶ 3-14.) 10 Plaintiff’s SAC asserts that the owners for Fremont Hills (defendants Jae Ryu, Peter 11 Zhong, R. Scott Hanks, and Jian Ping Pan) misused investment funds provided to Fremont 12 Hills; rather than paying the contractors working on the development project, the owners 13 took the funds for their own unjust enrichment. (Id. ¶¶ 125, 130-31, 152.) That alleged 14 theft ultimately led to the bankruptcy of the Fremont Hills project. (Id. ¶¶ 149-52.) The 15 SAC alleges that, as a result, Plaintiffs lost their investments. 16 The SAC further alleges that Ms. Robinson “cooperated” with Ms. Chen and 17 Mr. Ye in their scheme to make Golden State appear independent, either by signing 18 documents on Golden State’s behalf herself or allowing her name to be used by them on 19 Golden State documents. (Id. ¶¶ 72-73.) However, Ms. Robinson “only belatedly began 20 to participate in the management of GSRC and BAIFI … in or around mid-2016.” (Id. 21 ¶ 74.) Notably, the SEC’s allegations (which are incorporated by reference) further 22 explain that Ms. Robinson only “list[ed] herself publicly for the first time as the manager” 23 of Golden State in June 2016; previously (as of April 2016), Ms. Robinson described her 24 role as “Senior Project Financial Analyst” for an employer called “Golden State Regional 25 Center – Law Offices of Jean Chen.” (SAC Ex. A ¶¶ 129-30.) 26 In October 2018, the SEC filed its initial complaint against Ms. Chen, Mr. Ye, 27 Golden State, Ms. Robinson, and others. (SAC ¶ 112.) Ms. Robinson and Golden State 28 retained counsel, former defendant Mr. Kelson and his law firm, to defend against the [4239395.3] 7 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 federal lawsuit, as well as to represent BAIFI in other cases related to the Fremont Hills 2 property, including a lawsuit filed by BAIFI against Fremont Hills. (Id. ¶¶ 113, 117.) The 3 SAC alleges that Ms. Robinson and Golden State did not inform investors that they had 4 hired a lawyer to defend against the SEC’s lawsuit and that, in any event, Mr. Kelson’s 5 simultaneous representation of BAIFI and its manager in separate lawsuits created a 6 conflict of interest. (Id. ¶¶ 114, 119-24.) However, in one such lawsuit—the Fremont 7 Hills’ bankruptcy—a federal bankruptcy judge rejected Plaintiffs’ conflict argument, 8 explaining that “the fact that Robinson engaged [BAIFI’s] counsel does not inherently 9 create a conflict, if that fact alone could anyway.” (Request for Judicial Notice, Ex. 1, at 10 10, filed herewith.) In the same lawsuit, Mr. Kelson represented BAIFI in a mediation, in 11 which a tentative settlement agreement was under discussion. (SAC ¶¶ 175-79.) Before 12 the settlement agreement could be reached, Plaintiffs—who had expressed objections to 13 the settlement—initiated this lawsuit. (See id. ¶ 184.) 14 This Court sustained Defendants Ms. Robinson and Golden State’s demurrer to the 15 First Amended Complaint on September 2, 2022. Plaintiffs filed the SAC on December 2, 16 2022. 17 As explained below, Plaintiffs’ fraud and breach of fiduciary duty claims are still 18 fatally flawed. The SAC does not include sufficient factual allegations to support any of 19 the causes of action alleged against Ms. Robinson and Golden State. The demurrer should 20 therefore be sustained without leave to amend. 21 LEGAL STANDARD 22 On a demurrer, the Court considers “any ground for objection” that appears “on the 23 face” of the complaint and “any matter of which the court is required to or may take 24 judicial notice” (Code Civ. Proc., § 430.30, subd. (a)), such as records of “any court of 25 record of the United States” (Evid. Code, § 452, subd. (d)). Courts “accept as true the 26 well-pleaded allegations” in the complaint, but disregard “contentions, deductions or 27 conclusions of fact or law.” (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6, citation 28 omitted; see also Wexler v. Cal. Fair Plan Ass’n (2021) 63 Cal.App.5th 55, 70 [courts [4239395.3] 8 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 “disregard legal conclusions in a complaint,” as “they are just a lawyer’s arguments”].) 2 When a complaint makes both general allegations—such as “an allegation of an 3 ultimate fact”—and specific allegations that add details or explanatory facts, and a conflict 4 or inconsistency exists between them, the specific allegations control over the inconsistent 5 general allegations. (Chen v. PayPal, Inc. (2021) 61 Cal.App.5th 559, 571.) “Under this 6 principle, it is possible that specific allegations will render the complaint defective when 7 the general allegations, standing alone, might have been sufficient.” (Id. at 571-72, 8 citation omitted.) 9 ARGUMENT 10 I. Plaintiffs Have Not and Cannot Sufficiently Allege That Ms. Robinson Controlled Golden State, as Necessary to Sustain Their Alter Ego Allegations. 11 12 “Alter ego is an extreme remedy, sparingly used.” (Sonora Diamond Corp. v. 13 Superior Court (2000) 83 Cal.App.4th 523, 539.) As such, “[t]he standards for the 14 application of alter ego principles are high, and the imposition of [alter ego] liability … is 15 to be exercised reluctantly and cautiously.” (JPV I L.P. v. Koetting (2023) – Cal.Rptr.3d –, 16 2023 WL 1791966, at *8, quoting Highland Springs Conf. & Training Ctr. v. City of 17 Banning (2016) 244 Cal.App.4th 267, 281, alterations in original.) The mere allegation 18 that a corporation and individual are alter egos is “insufficient to justify the court in 19 disregarding the corporate entity in the absence of allegations of facts from which it 20 appears that justice cannot otherwise be accomplished.” (Leek v. Cooper (2011) 194 21 Cal.App.4th 399, 414.) 22 In sustaining Ms. Robinson and Golden State’s demurrer to Plaintiffs’ First 23 Amended Complaint, this Court explained: if Plaintiffs are asserting that Ms. Robinson is 24 the alter ego of Golden State, “then that must be clear and the complaint must allege that 25 Robinson owned and controlled Golden [State] Regional Center.” (Sept. 2, 2022 Order at 26 3.) Plaintiffs have not and cannot meet that standard, as it is directly contrary to the key 27 allegations underlying the purported fraud in this case. 28 Both the SAC and the SEC’s complaint hinge on the following alleged fraud that is [4239395.3] 9 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 central to this case: Ms. Robinson allegedly did not control Golden State, yet it was 2 represented to Plaintiffs that she did. As the SAC explains, “Plaintiffs were misled … 3 about who would be managing their money.” (SAC ¶ 65.) Although “Plaintiffs were 4 advised that ROBINSON … would be managing GSRC and BAIFI,” Ms. Robinson “knew 5 she would not be actively managing GSRC and BAIFI.” (Id.) Rather, Defendants Jean 6 Chen and Tony Ye “control[led] and manage[d] GSRC and BAIFI.” (Id. ¶ 211.) 7 According to the SAC, “[h]ad Plaintiffs known the truth about the management scheme for 8 BAIFI”—i.e., that Ms. Robinson did not in fact control Golden State—“they would not 9 have agreed to invest with GSRC and BAIFI.” (Id. ¶ 71.) The SEC’s complaint is 10 explicit: Golden State Regional Center “was managed and controlled at all relevant times 11 by Chen and Ye”; “Robinson did not manage or control Golden State.” (SAC Ex. A ¶¶ 15, 12 125, emphasis added.) Indeed, the SEC asserted controlling person liability for Golden 13 State against Chen and Ye, not against Ms. Robinson. (Id. ¶¶ 208-10.) Given the SEC and 14 Plaintiffs’ factual allegations pertaining to fraud, no alter ego assertion can survive. (See 15 Leek, supra, 194 Cal.App.4th at p. 414.) 16 Yet, in attempting to hold Ms. Robinson liable for the acts of Golden State, 17 Plaintiffs have asserted exactly the opposite: that Ms. Robinson “solely managed GSRC 18 and BAIFI.” (SAC ¶ 34.) Plaintiffs cannot have it both ways. Either Ms. Robinson did 19 not control Golden State (consistent with the allegations of the SEC), therefore Golden 20 State was not her alter ego, and it was a misrepresentation to say that she did control 21 Golden State, or Ms. Robinson was in control of Golden State (contrary to what the SEC 22 has alleged), and it was not fraudulent to represent that she did. In other words, if 23 Plaintiffs’ allegation is that Ms. Robinson was in fact in control of Golden State and thus it 24 was her alter ego, then the core of their fraud allegations is implausible. 25 Moreover, Plaintiffs should not be given an opportunity to further amend their alter 26 ego allegation, as any amendment would be futile. (See Banis Restaurant Design, Inc. v. 27 Serrano (2005) 134 Cal.App.4th 1035, 1044 [“[W]hen a complaint contains allegations 28 that are fatal to a cause of action, a plaintiff cannot avoid those defects simply by filing an [4239395.3] 10 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 amended complaint that omits the problematic facts or pleads facts inconsistent with those 2 alleged earlier.”].) The SEC’s complaint—on which the SAC expressly relies and cites as 3 “highly credible,” “specific and detailed,” “thorough,” and “probative” (see SAC ¶ 55)— 4 plainly states that Golden State Regional Center “was managed and controlled at all 5 relevant times by Chen and Ye” (SAC Ex. A ¶ 15, emphasis added.) It further states that 6 “Robinson did not manage or control Golden State.” (Id. ¶ 125.) In light of those 7 unambiguous statements, no amendment by Plaintiffs could support an alter ego theory 8 against Ms. Robinson. 9 II. Plaintiffs’ Second Cause of Action for Breach of Fiduciary Duty Fails to State a Claim. 10 11 The elements of a cause of action for breach of fiduciary duty are: (1) existence of a 12 fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the 13 breach. (Slovensky v. Friedman (2006) 142 Cal.App.4th 1518, 1535.) In a member- 14 managed company, the manager’s duty of care is “limited to refraining from engaging in 15 grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of 16 the law.” (Corp. Code § 17704.09, subds. (c), (f).) 17 The SAC asserts a wide variety of factual theories for Ms. Robinson and Golden 18 State’s alleged breach of fiduciary duties. (See SAC ¶ 211.) Each of those theories fails, 19 as explained below. 20 A. Ms. Robinson Did Not Have a Fiduciary Duty to Plaintiffs. 21 Absent the existence of a fiduciary duty between plaintiff and defendant, there can 22 be no claim for breach of fiduciary duty. (See Slovensky, supra, 142 Cal.App.4th at 23 p. 1535.) As this Court explained when sustaining the demurrer to the breach of fiduciary 24 duty claim in the First Amended Complaint, any breach of fiduciary duty claim against 25 Ms. Robinson “rests on the allegation that Robinson is the alter ego” of Golden State and 26 therefore had its fiduciary duties. (Sept. 2, 2022 Order at 2.) Therefore, Plaintiffs’ breach 27 of fiduciary duty claim against Ms. Robinson requires the SAC to allege that Ms. Robinson 28 is Golden State’s alter ego. As explained above, Plaintiffs have not and cannot so allege. [4239395.3] 11 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 (See Part I, supra.) The breach of fiduciary duty claim against Ms. Robinson therefore 2 fails. 3 B. Plaintiffs Do Not Sufficiently Allege Proximate Causation in Light of the Intervening Force of Alleged Embezzlement by Fremont Hills and Its 4 Owners. 5 Proximate causation, as required for a breach of fiduciary duty claim, “limits 6 liability; i.e., in certain situations where the defendant’s conduct is an actual cause of the 7 harm, the defendant will nevertheless be absolved because of the manner in which the 8 injury occurred.” (Novak v. Continental Tire N. Am. (2018) 22 Cal.App.5th 189, 196, 9 citation omitted.) When an “intervening force is a superseding cause of harm to the 10 plaintiff,” a defendant is absolved from liability. (Id. at 197.) To determine whether an 11 intervening force is a superseding cause, courts consider whether: the intervening force is 12 independent of any situation created by the defendant; the intervening force is due to a 13 third person’s act or failure to act, the intervening force is due to an act of a third person 14 which is wrongful toward the other and as such subject the third person to liability; the 15 degree of culpability of a wrongful act of a third person; the harm caused by the 16 intervening force is different in kind from that which would otherwise have resulted; and 17 the operation of the intervening force appears after the event to be extraordinary. (Id.) 18 There is such an intervening force here, breaking the causal chain between any 19 actions allegedly taken by Ms. Robinson and Golden State and the ultimate failure of the 20 BAIFI project, i.e., the loss sustained by Plaintiffs: the alleged embezzlement scheme of 21 the owners and operators of Fremont Hills (also defendants in this case). In particular, the 22 SAC alleges that Messrs. Ryu, Hanks, Zhong, and Pan had not been paying the contractors 23 developing the project for “an extensive period of time” (SAC ¶ 143; see also id. ¶ 145), 24 and that, “[d]uring the term of the BAIFI LOAN,” development of the project “was subject 25 to a series of setbacks and delays” (id. ¶ 132). The SAC further alleges that, in light of 26 those delays, Fremont Hills negotiated an additional loan from third parties, but “used the 27 money received … to unjustly enrich themselves.” (Id. ¶ 143.) 28 The SAC does not claim that the above misconduct on behalf of Fremont Hills and [4239395.3] 12 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 its owners was foreseeable. Indeed, there is no allegation that Ms. Robinson and Golden 2 State knew or should have known that Messrs. Ryu, Hanks, Zhong, and Pan were failing to 3 pay the contractors hired to develop the Fremont Hills project or unjustly enriching 4 themselves through the project. Although the SAC asserts “[o]n information and belief” 5 that Ms. Robinson and Golden State did not inspect Fremont Hills’ books and records 6 during the term of the loan, it does not claim that any such diligence, even if reasonable, 7 would have stopped the alleged embezzlement by Fremont Hills’ owners. (See id. ¶ 109.) 8 To the contrary, the SAC depicts Fremont Hills as a sophisticated entity intent on covering 9 its tracks by changing its ownership structure. (See id. ¶ 108.) Nor is the allegation that 10 Fremont Hills defaulted on interest payments (id. ¶ 147) sufficient to put Ms. Robinson or 11 Golden State on notice that Fremont Hills’ owners were embezzling from it; indeed, the 12 SAC does not so allege. Moreover, although there are general allegations that 13 Ms. Robinson “knew or should have known” that there was an alleged “fraudulent 14 scheme,” those allegations relate exclusively to Ms. Chen and Mr. Ye’s alleged control and 15 management of BAIFI—not to any plans by Ms. Ryu, Hanks, Zhong, and Pan to enrich 16 themselves. (See id. ¶ 73.) 17 In light of Fremont Hills’ alleged misconduct, no action or inaction allegedly taken 18 by Ms. Robinson or Golden State proximately caused damages to Plaintiffs. 19 C. Ms. Robinson and Golden State Acted Pursuant to the Business Judgment Rule. 20 21 A defendant cannot be held liable for breach of fiduciary duty if her actions were 22 consistent with the business judgment rule. (Berg & Berg Enters., LLC v. Boyle (2009) 23 178 Cal.App.4th 1020, 1044 [affirming trial court sustaining of demurrer on basis of 24 business judgment rule].) The business judgment rule applies when a manager “rel[ies] on 25 information [and] opinions” of “[c]ounsel . . . as to matters which the [manager] believes 26 to be within such person’s professional or expert competence,” so long as the manager 27 “acts in good faith, after reasonable inquiry when the need therefor is indicated by the 28 circumstances and without knowledge that would cause such reliance to be unwarranted.” [4239395.3] 13 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 (Corp. Code § 309, subd. (b)(2).) “In most cases, the presumption created by the business 2 judgment rule can be rebutted only by affirmative allegations of facts which, if proven, 3 would establish fraud, bad faith, overreaching or an unreasonable failure to investigate 4 material facts.” (Berg & Berg Enters., supra, 178 Cal.App.4th at p. 1046, citation and 5 internal quotation marks omitted.) 6 The business judgment rule applies here and defeats Plaintiffs’ arguments that 7 Ms. Robinson and Golden State breached fiduciary duties. As the SAC makes clear, 8 Ms. Robinson and Golden State acted on the advice of counsel. (See, e.g., SAC ¶ 155.) 9 Ms. Robinson and Golden State therefore reasonably relied on counsel, placing their 10 conduct squarely inside the business judgment rule. 11 Plaintiffs have not reached the high bar required to rebut the presumption of the 12 business judgment rule. Although Plaintiffs have alleged that Ms. Robinson was engaged 13 in fraud, those allegations are not pled with the requisite particularity, as outlined in more 14 detail below. Nor is this a clear case of a conflict of interest, despite Plaintiffs’ allegations 15 that the representation of Mr. Kelson and Schnader Harrison Segal & Lewis LLP was 16 conflicted. (See, e.g., id. ¶¶ 123-24.) Critically, a federal bankruptcy judge previously 17 determined that there was no conflict of interest in that representation. (See Request for 18 Judicial Notice, Ex. 1, at 10, filed herewith.) In light of the bankruptcy judge’s affirmative 19 statement that the representation was not conflicted, it was reasonable for Ms. Robinson— 20 who is not an attorney—to rely on the representation of Mr. Kelson and the Schnader law 21 firm in regard to her conduct toward Golden State and BAIFI. (See id.) 22 Similarly, in light of the bankruptcy court’s ruling on the conflict issue, no breach 23 of fiduciary duty claim predicated on Ms. Robinson’s act of hiring Mr. Kelson can lie. 24 Given that at least one federal court has determined that a conflict of interest did not exist, 25 it cannot be gross negligence for Ms. Robinson to have believed the same. (See Corp. 26 Code § 17704.09, subds. (c), (f).) 27 28 [4239395.3] Case No. 21CV004274 14 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 D. Plaintiffs’ Specific Breach of Fiduciary Duty Theories Fail for Additional Reasons. 2 3 The SAC asserts a wide-range of Golden State and Ms. Robinson’s alleged conduct 4 that is purportedly the basis for the breach of fiduciary duty claim, without engaging with 5 how each action proximately caused harm to Plaintiffs or falls outside the business 6 judgment rule. (See SAC ¶ 211.) Every one of those purported “breaches” therefore fails 7 to support Plaintiffs’ second cause of action for the reasons explained above. 8 In addition, the following allegations in Paragraph 211 cannot support a breach of 9 fiduciary duty claim: 10 (1) “[S]igned (or allowed their names/signatures to be inputted on) the 11 OPERATING AGREEMENT as manager of BAIFI and held themselves out to be 12 actively managing BAIFI . . . .” This allegation should be disregarded in light of more 13 specific allegations in the SAC and the SEC’s complaint. In particular, the SAC 14 specifically states that Ms. Robinson “only belatedly began to participate in the 15 management of GSRC and BAIFI . . . in or around mid-2016.” (SAC ¶ 74, emphasis in 16 original.) The SEC further alleges in its complaint that Ms. Robinson identified herself 17 publicly as the manager of Golden State “for the first time” in June 2016. (SAC Ex. A 18 ¶ 130.) Thus, the Court should disregard the allegations that Ms. Robinson herself signed 19 or otherwise allowed her signature to be used on documents prior to 2016. 20 (2) “[C]ooperated in the mismanagement of the BAIFI and allowed for the 21 fraudulently orchestrated BAIFI LOAN of $40 million from BAIFI to FREMONT 22 HILLS to occur.” As noted above, the SAC alleges that Ms. Robinson did not participate 23 in the management of BAIFI prior to 2016, so she cannot have been involved in the 24 January 1, 2015 loan agreement. In addition, to the extent Plaintiffs are claiming that they 25 did not know that a loan would be made to Fremont Hills at all, that is squarely 26 contradicted by the Operating Agreement, incorporated by reference into the SAC: 27 “Project Company” is defined as “Fremont Hills Development Corporation, the entity 28 receiving funds from the Company” (SAC Ex. B at 9), and the Operating Agreement [4239395.3] 15 Case No. 21CV004274 DEFENDANTS KAI ROBINSON AND GOLDEN STATE REGIONAL CENTER, LLC’S MEMORANDUM IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT #4239395 v3 - 20 23-03-03 Robin son + G SRC M PA is o Demurrer to SE COND A mended...docx 1 further explains that BAIFI’s “business and purpose are to provide an investment totaling 2 $45,000,000 to the Project Company, Fremont Hills Development Corporation” (id. at 12). 3 (3) “[F]ailed to record a security interest in the PROJECT PROPERTY pursuant 4 to the BAIFI LOAN DOCUMENTS.” As noted above, the SAC alleges that 5 Ms. Robinson was not participating in the management of BAIFI in January 2015—the 6 time the loan documents were signed. This allegation should therefore be disregarded. 7 (4) “[F]ailed to timely take legal action against CHEN, YE, FREMONT HILLS, 8 RYU, ZHONG, HANKS and PAN.” This assertion is contradicted by the factual 9 allegations in the SAC, which state that such legal action was taken on behalf of BAIFI. 10 (See, e.g., SAC ¶ 117.) 11 (5) “[C]alled for BAIFI meetings and votes without allowing the investors of the 12 BAIFI to inspect the books and records of the BAIFI first so they could make informed 13 decisions.” The Operating Agreement explicitly states that the Manager is not required to 14 consider members’ opinions in making decisions regarding the functioning of the fund, 15 though the Manager may receive such advice in her discretion. (SAC Ex. B § 7.03 [advice 16 of members “not required”].) Given that such advice is discretionary, this assertion cannot 17 support a breach of fiduciary duty. 18 (6) “[R]efused to allow BAIFI investors to attend and/or observe their mediation 19 discussions with FREMONT HILLS.” As noted above, the Operating Agreement does 20 not require the Manager to consider members’ advice in making decisions, so investors’ 21 attendance at any mediation discussions (or lack thereof) could not be a breach of fiduciary 22 duty. 23 III. Plaintiffs’ Third Cause of Action for Fraud Fails to State a Claim. 24 The elements of fraud are: (1) misrepresentation (including false representation or 25 concealment), (2) knowledge of falsity, (3) intent to induce reliance, (4) justifiable 26 reliance, and (5) causation and resulting damages. (Lazar v. Superior Court (1996) 12 27 Cal.4th 631, 638.) “[F]raud must be plead specifically; general and conclusory allegations 28 do not suffice.” Id. at 645. “Thus, the policy of liberal construction of the pleadings” is [4239395.3] 16