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DAVID SASSEEN
LAW OFFICE OF DAVID SASSEEN
2 N. FirstStreet, Suite 301
San Jose, CA 95113
Phone: (408)569-1060
Email: davidsasseen@gmail.com
Attorney for Defendants Da Yong Guan, George Zhuand Xin Liu
SUPERIOR COURT OF CALIFORNIA, COUNTY OF SANTA CLARA
(UNLIMITED JURISDICTION)
PLAINTIFFS AMPRO SYSTEMS AND Case No. CV 311868
CONSOLITECH ELECTRONICS, INC.,
MEMORANDUM OF POINTS AND
Plaintiff s, AUTHORITIES IN SUPPORT OF
vs. DEMURRER TO THIRDAMENDED
COMPLAINT
CHARLENE QIAN, an individual, XIAN LI
aka JAMES LI, an individual, THOMAS
ZDIMAL, an individual, XIAO RONG ZHOU, DATE:October 30, 2018
an individual, RUO (LAURA) LI, an individual, TIME: 9:00 a.m.
KENT WANT, an individual, KATHLEEN DEPT: 19
WANT, an individual, ZHENGMAO ZHU, an
individual, DA YONG GUAN, an individual, HONORABLE PETER KIRWAN
GEORGE ZHU, an individual, XIN LIU, an
individual, LXRZ, INC. a California
corporation, FIRETIDE, a Delaware
corporation, and DOES 1 through 100,
inclusive,
Defendants
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TABLE OF CONTEN
Introduction
II. Statement of Facts
III. Analysis………………………………………………………………………..
A Demurrer should be Sustained Where the Complaint Fails to
State a Cause of Action
The Second, Third, Fourth and Fifth Causes of Action for Breach
of Fiduciary Duty, Intentional Misrepresentation, Concealment and
Negligent Misrepresentation, Respectively, are not pled with the
Particula rity Required for Fraud Claims………………………………...
Fraud Must be Pled with Particularity………………………………
Claims Against the Defendants are Insufficiently Detailed
to Plead Fraud; Indeed the Non Employee Defendants are
Barely Mentioned …………..
Similarly, (1) Conspiracy/Aiding and Abetting and (2)
Tolling of the Statute of Limitations Must be Pled with
Particularity……………………………………………………...
The Conspiracy/Aiding and Abetting Claims Require Plaintiffs
to Plead Detailed Facts Establishing Derivative Liability
Conspiracy Requires Factual Allegations that the
Defendants Knew of and Agreed to Both the Objective
and Course of Action of the Conspiracy, Action and
Resulting Damage……………………………………………
Aiding and Abetting Liability Requires Factual
Allegations that the Accused Knows of the Breach of
Duty Involved and Provides Substantial Assistance to
Accomplish the Primary Tort
If Plaintiffs Fail to Adequately Allege the Underlying
Torts, the Conspiracy Claim Fails as Well…………………..
iv. Derivative Liability Cannot Be Established where the
Alleged Co Conspirator does not Owe the Duty that
Serves as the Basis for the Underlying iability.……………
The Conspiracy/Aiding and Abetting Claims Fail Because
they are Pled in a Series of Loose Generalities………
The Limitations Period for the Acts in the TAC has Passed
Claims Against Dayong Guan are Insufficiently Detailed,
and among the facts left out is that the only allegations
against Guan arise from 2011 through 2013…………………. 7
Plaintiffs’ Claims Against George Zhu are also
Insufficiently Detailed, and Arise from 2013………………... 8
e. Plaintiffs TAC does not Allege Facts Within the Discovery Rule ..
Available Facts Establish the the Discovery Rule Cannot Apply… 10
Over $1 Million in Excess Payroll, and $3.7 Million
Stolen Money, Could not have Gone Unnoticed……………... 10
The TAC’s Allegation that Plaintiffs Merely Assumed
All Facts were Accurately Stated Negates Diligence………… 11
The TAC is a Sham Pleading as it Attempts to Impose Liability
on George Zhu for Acts Previously Attributed to Yun Feng
Chang……………………………………………………………… 11
The Individual Tort Claims are Each Mechanically Defective……….. 12
a. The Demurrer Should be Sustained with Prejudice as to the First
Cause of Action for Conversion and the Sixth Cause of Action
for Violation of Penal Code § 496(a)……………………………... 12
i. Writing Authorized Checks is not Conversion.
The Money in a Corporate Checking Account is not a
Specific Identifiable Sum’ Capable of Being Converted……. 12
A Corporate Actor who Issues Checks does not
Commit Conversion, even if the Corporation
Subsequently Claims the Checks were not
Authorized……………………………… 12
Causing a Corporation to Issue Checks does not Constitute
the Receipt of Stolen Property in Violation of Penal Code §
496(a)…………………………………………………………. 13
The Seventh Cause of Action for Money Had and Received
Does not State a Cause of Action Against any of Defendants
eorge Zhu, Guan or Qian……………………………………....... 14
IV. CONCLUSION……………………………………………………………………
BLE OF AUTHORITIES
California Cases
Applied Equip. Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503………………..
Bell v. Feibush (2014) 212 Cal. App. 4 1041……………………………………
Berg & Berg Enterprises v. Sherwood Partners, Inc. (2005) 131 Cal. App. 4 802…… 5-6
Broberg v. The Guardian Life Ins. Co. of America (2009) 171 Cal. App. 4th 912……..
Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138………………………….
Chazen v. Centennial Bank (1998) 61 Cal. App. 4 532……………………………….
Committee On Children’s Television v. General Foods Corp. (1983) 35 Cal.3d 197….
Czajkowski v. Haskell & White, LLP (2012) 208 Cal. App. 4th 166…………………..
Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal. App. 3
Doctors’ Co. v. Superior Court (1989) 49 Cal.3d 39………………………………………..
Farmers Insur. Exch. v. Ziru (1997) 53 Cal. App. 4 445………………………………
Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318………………………………………….
Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal. 4th 797……………………………..
Fremont Indemnity v. Fremont General Co (2007) 148 Cal. App. 4th 97……………..
Howard v. Superior Court (1992) 2 Cal. App. 4th 745…………………………………
Kim v. Westmoore Partners, Inc.(2011) 201 Cal.App.4th 267………………………….
Lazar v. Superior Court (1996) 12 Cal. 4 631………………………………………… 2-3
Lockton v. O’Rourke (2010) 184 Cal. App. 4 1051…………………………………...
McKelvey v. Boeing North American, Inc 999) 74 Cal. App. 4th 151………………
Mills v. Forestex Co. (2003) 108 Cal. App. 4th 625…………………………………….
Prakashpalan v. Engstrom, Lipscomb and Lack (2017) 223 Cal. App. 4th 1105……….
Rakestraw v. Cal. Physicians’ Service (2000) 81 Cal. App. 4 39……………………...
Schauer v. Mandarin Gems of Cal., Inc. (2005) 125 Cal. App. 4th 949………………...
Stansfield v. Starkey (1990) 220 Cal. App. 3rd 59……………………………………...
Watson v. Stockton Morris Plan Co. (1939) 34 Cal. App. 2nd 393……………………...
Wilner v. Sunset Life Ins. Co. (2000) 78 Cal. App. 4 952…………………………….
Federal Cases
Grouse River Outfitters Ltd v. NetSuite, Inc. (Oct. 12, 2016) 2016 WL 5930273 …….. -14
California Statutes
Code of Civil Procedure § 338(b)……………………………………………………….
Penal Code § 496(a)…………………………………………………………………….. 12-13
Other Authorities
Witkin, California Procedure, “Pleading” § 561, p. 688………………………………...
NTRODUCTION
Defendants Dayong Guan, Xin Liu and George Zhu demur to the Third Amended Complaint
(“TAC”) of plaintiffs Ampro Systems and Consolitech Electronics (“Plaintiffs”) as follow
1. Defendants Guan, Liu and Zhu (“Non-Employee Defendants”) were not employees of the
Plaintiffs, and are not alleged to be the primary actors in anyof the claims herein . Indeed,
they are not alleged to have done anyof the employment based acts alleged against the
Employee Defendants. Accordingly, the demurrer should be sustained for each of the
directclaims herein for conversion, breach of fiduciary duty, fraud, receiving stolen
property and money had and received, the Non Employee Defendants are not alleged to
have committ the predicate acts for these torts.
Whileconspiracy/aiding and abetting claim s may eventually be adequately pled, such is
not the case yet as theTAC’s derivative claims are not pled with specificity , and fail to
make the required factual allegations of knowledge and consent.
3. Inconsistent allegations from the 1 Complaint filed h erein on June 7, 2018, and the three
subsequent pleadings, establish that the TAC is a “sham pleading” subject to demur/motion
to strike based on the previously pled facts regarding (a) remodeling work performed at
Mr.Zhu’s residence; (b ) statute of limitations issues; as well as (c) conversion; and
Finally, Plaintiffs’ substantive claims are each defectively pled as to all defendants on
narrower technical grounds demonstrated below.
II. TATEMENT OF ACTS
Please seeStatement of Facts in accompanyi ng Memorandum of Points and Authorities in
Support of Motion to Strike, etc. filed simultaneously herewith.
III. NALYSIS
EMURRER SHOULD BE USTAINED HERE THE OMPLAINT AILS TO TATE A AUSE OF
CTION
“A demurrer’s function is to test the legal sufficiency of the factual allegations of the
complaint, not to determine the truth of disputed facts.” Boyle v. City of Redondo Beach (1999) 70
Cal. App. 4 1109, 1114, ftnt. 2, 83 Cal. Rptr. 2d 164. To survive a demurrer, the plaintiff must
demonstrate that its factual allegations establish all essential elements of the alleged causes of
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action. Rakestraw v. Cal. Physicians’ Service (2000) 81 Cal. App. 4 39, 43, 96 Cal. Rptr. 2nd
ourt must accept as true all material factual allegations, and it may also draw reasonable
inferences from those claims, but it need not accept contentions, deductions, or conclusions of fact
or law. Wilner v. Sunset Life Ins. Co. (2000) 78 Cal. App. 4 952, 958, 93 Cal. Rptr. 2d 413.
Statements that are vague, conclusory and void of factual specifics are insufficient to survive a
demurrer. Rakestrawsupra , 81 Cal. App. 4 at 44 (“Allegations must be factual and specific .”)
In considering a demurrer, the Court is generally limited to the facts shown in the face of
the complaint. However, the Court may go beyond the bare pleading circumstances involving
judicial notice, allowing facts from prior pleadings or certain other statements by the plaintiffs i
the case to be considered. Thus, items such asadmissions and inconsistent statements by the
plaintiff, as well as evidentiary documents such as exhibits, may be considered by the Court under
Evidence Code §§ 452-453, and if considered should be accepted in preference to the conflicting
factual allegations of the complaint. See, e.g., Del E. Webb Corp. v. Structural Materials Co.
(1981) 123 Cal. App. 3 593, 604, 176 Cal. Rptr. 824, 830. Such inconsistent allegations and
admissions render the operative pleading as “sham” and are ‘read into’ the later inconsistent
complaint, withthe newer allegations disregarded. Lockton v. O’Rourke (2010) 184 Cal. App. 4
1051, 1061, 109 Cal. Rptr. 3 Sham pleadings are analyzed several times in his MPA
with the topic briefed in detail in defendants’ motion to strike, at pp. 11-12.
HE ECOND HIRD OURTH AND IFTH AUSES OF CTION FOR REACH OF IDUCIAR
UTY NTENTIONAL ISREPRESENTATION ONCEALMENT AND EGLIGENT
ISREPRESENTATION RESPECTIVELY ARE NOT PLED WITH TH ARTICULARITY EQUIRED
FOR RAUD LAIMS
1. FRAUD UST BE LED WITH ARTICULARITY
“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation
(false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c)
intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Lazar v.
Superior Court (1996) 12 Cal. 4 631, 638, 49 Cal. Rptr. 2nd ]very element of a cause
of action [for fraud must] be alleged both factually and specifically.” Schauer v. Mandarin Gems
of Cal., Inc. (2005) 125 Cal. App. 4th 949, 961, 23 Cal. Rptr. 3rd 233, 241 (constructive
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fraud)Such claims are “… subject to a heightened pleading standard … that necessitates pleading
facts showing ‘how, when, where, to whom, and by what means the representations were
tendered.” Stansfield v. Starkey (1990) 220 Cal. App. 3rd 59, 73, 269 Cal. Rptr. 337, 345. See
also, Lazar v. Superior Court, supra, 12 Cal. 4 at 645. The pleading of fraud . . . [ ] the last
remaining habitat of the common law notion that a complaint should be sufficiently specific that
the court can weed out nonmeritorious actions on the basis of the pleadings. Thus the pleading
should be sufficient ‘to enable the court to determine whether, on the facts pleaded, there is any
foundation, prima facie at least, for the charge of fraud.’” Committee On Children’s Television,
Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216, 197 Cal. Rptr. 783, 795.
a. CLAIMS GAINST THE EFENDANTS ARE NSUFFICIENTLY ETAILED TO LEAD
RAUD NDEED THE -EMPLOYEE EFENDANTS ARE ARELY ENTIONED
The Non-Employee Defendants make two claims in this regard. First, the TAC generally fails
Lazar’s ‘how, when, where, to whom’ test by failing to identify anyspecific misrepresentation , or
to identify the maker of any specificmisrepresentation Instead, Plaintiffs’ net is generally cast
identifying only unspecified financial reports but not specific statements within any one report.
Second, w regard to the Non-Employee Defendants, the only allegations against themarethe
“false provision of services” and “home remodel” claimsat 33, 41 and of the TAC.
… the Employee Defendants and Mr. G. Zhu and his wife agreed to use Consolitech’s funds
to remodel their private residence for no reason but to benefit Mr. G. Zhu and his wife and
reward them for their participation in the Firetide Scheme. Plaintiffs allege that Mr. G. Zhu
and his wife agreed with the plan and cooperated with it. Furthermore, Plaintiffs allege Mr.
The language of the TAC is not specific at all, as no concrete fraudulent statements are identified. Rather,
Plaintiffs dance around any and all such statements, alleging generally that generic undated monthly financial reports
contained certain vague “rep esentations” that were “overstated” as to expenses and “understated” as to net profit:
Qian] sent regular financial reporting to Plaintiffs’ President, Elliot Wang, that indicated a certain income
being received and certain expenses being paid and certain profit or loss, among other things. These
financial reports were sent by Ms. Qian to Mr. Wang via e mail on an monthly, and in some cases more
frequent, basis…. The inherent implication in the[se reports] was that the representations respecting
income, expenses and profit/loss were genuine.”
TAC, ¶ 63. The TAC alleges that in fact, ‘the representations” in these reports were false, as “money was not being
paid for authorized or legitimate business purposes…. The companies’ actual expenses were overstated and net profit
was understated and [Li and Qian] used the difference to unjustly enrich themselves, their family members and
friends.” TAC, ¶ 64. No individual dollar figures, representations, falsity or correct facts are specifically identified.
The only other specific allegations against Mr. Guan are that he is alleged to have “accepted payment far in
excess of the goods and services rendered, if any” (TAC, ¶ 67a ) and that he is a real estate agent in Los Angeles and
affiliated with a travel agency in Fremont. TAC, ¶ 20. Even less is alleged against George Zhu and Xin Liu, as Mr.
Zhu is alleged only to be an employee of Firetide, and Ms. Liu to be his wife. See, TAC ¶¶ 18 and 19.
3
G. Zhu and his wife, Ms. X Liu, provided substantial assistance to the Employee
Defendants in carrying out the plan by, for example, accepting the free remodel and
working with the contractor to bring it to fruition. (TAC, at
“…[T]he Employee Defendants and the Firetide Conspirators agreed to misappropriate the
companies’ funds in a scheme that involved providing manufacturing service to Firetide at
below market rates and refunding all or substantially all of the amounts paid by Firetide
back to Mr. G. Zhu and Firetide though payments to straw persons Ms. X Liu and Mr. D.
Guan. Plaintiffs are informed and believe that the Firetide Conspirators agreed with the
plan and cooperated with it. Furthermore, Plaintiffs are informed and believe that the
Firetide Conspirators provided substantial assistance to the Employee Defendants in
carrying outthis scheme”. ( TAC, at 42.)
These are the only direct allegations against the Non-Employee Defendants in the TAC, but these
claims do not include the elements necessary to plead fraud against these defendants, particularly
under the plead with particularitystandard . Thus the demurrer to these claims should be sustained.
b. SIMILARLY (1) ONSPIRACY IDING AND BETTING AND (2) OLLING OF TH
TATUTE OF IMITATIONS UST BE LED WITH ARTICULARITY.
Case law extends the plead with-particularity rule from fraud alone into at least two other
octrinal areas, where it is also required. These two areas are, first, where an allegation of fraud is
stretched to encompass a conspiracy to commit that fraud. See, e.g., Prakashpalan v. Engstrom,
Lipscomb and Lack (2017) 223 Cal. App. 4th 1105, 1136, 167 Cal. Rptr 3 8 (“Where
fraud is alleged to be the object of [a] conspiracy, the claim must be pleaded with particularity.”)
Second, pleading with particularity is also requiredwhere a statute of limitations bar is shown
in the facts before the court. In these circumstances, facts that would toll the statute such as
‘delayed-discovery- the face reasonable diligence’ must also be pled with particularity. See,
e.g., Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal. 4th 797, 808, 27 Cal. Rptr. 3rd 661, 668;
Czajkowski v. Haskell & White, LLP (2012) 208 Cal. App. 4th 166, 144 Cal. Rptr. 3rd 522, 528
(“…to overcome an apparent limitations bar, the plaintiff claiming delayed discovery of the facts
…[must plead] facts to show (1) the time and manner of discovery and (2) the inability to have
made earlier discovery despite reasonable diligence. The burden is on the plaintiff… and
conclusory allegations will not withstand demurrer.’”).
c T ONSPIRACY IDING AND BETTING LAIMS EQUIRE LAINTIFFS TO
LEAD ETAILED ACTS STABLISHING ERIVATIVE IABILITY.
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i. CONSPIRACY EQUIRES ACTUAL LLEGATIONS THAT TH
EFENDANTS NEW OF AND GREED TO OTH THE BJECTIVE AN
OURSE OF CTION OF THE ONSPIRACY CTION AND AMAGE.
“Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons
who, although not actually committing a tort themselves, share with the immediate tortfeasors a
common plan or design in its perpetration.Applied Equip. Corp. v. Litton Saudi Arabia Ltd.
(1994) 7 Cal. 4th 503, 510-511, 28 Cal. Rptr. 2nd 475, 478.
In order to maintain an action for conspiracy, a plaintiff must allege that the defendant
had knowledge of and agreed to both the objective and the course of action that
resulted in the injury, that there was a wrongful act committed pursuant to that agreement,
and that there was resulting damage.” (Emphasis added.)
Berg & Berg Enterprises v. Sherwood Partners, Inc. (2005) 131 Cal. App. 4 802, 823, 32 Cal.
Rptr. 3 Because fraud is alleged to be the object of the conspiracy, Defendants submit
thatthese elements must also be pled with particularity.
IDING AND BETTING IABILITY EQUIRES ACTUAL LLEGATIONS THAT
THE CCUSED NOWS OF THE REACH OF UTY NVOLVED AND ROVIDES
UBSTANTIAL SSISTANCE TO CCOMPLISH THE RIMARY ORT.
“‘Liability may . . . be imposed on one who aids and abets the commission of an intentional
tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives
substantial assistance or encouragement to the other to so act or (b) gives substantial
assistance to the other in accomplishing a tortious result and the person’s own conduct,
separately considered, constitutes a breach of duty to the third person.’ [Citations.] Mer
knowledge that a tort is being committed and the failure to prevent it does not constitute
aiding and abetting. [Citation.] ‘As a general rule, one owes no duty to control the conduct
of another . . . .’”
Fiol v. Doellstedt (1996) 50 Cal. App. 4th 1318, 1325-1326, 58 Cal. Rptr. 2nd“[W]hile
aiding and abetting may not require a defendant to agree to join the wrongful conduct, it 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. Thus, in sustaining a demurrer to the trustee’s
complaint, the court in Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal. App. 4th 1138, 1145, 26
Cal. Rptr. 3 401, 406 and 412 indicated that a plaintiff must plead facts showing “actual
knowledge of the specific primary wrong the defendant substantially assisted.This is
because aiding and abetting liability “necessarily requires a defendant to reach a conscious decision
5
to participate in tortious activity for the purpose of assisting another in performing a wrongful act.”
Howard v. Superior Court (1992) 2 Cal.App.4th 745, 749, 3 Cal. Rptr. 2nd 575, 577.
. I LAINTIFFS AIL TO DEQUATELY LLEGE THE NDERLYI
ORTS THE ONSPIRACY LAIM AILS AS ELL
Conspiracy/aiding and abetting claimswill also be dismissed where the underlying cause of
action is defective or not shown. Stansfeld v. Starkey (1990) 220 Cal. App. 3 59, 75-76, 269 Cal.
Rptr 337 (conspiracy claim dismissed due to dismissal of underlying fraud claim).
. DERIVATIVE IABILITY ANNOT STABLISHED WHERE THE
LLEGED -CONSPIRATOR DOES NOT WE THE UTY THAT ERVES
AS THE ASIS FOR THE NDERLYING IABILITY
inally, California law is clear that derivative liability cannot attach where the accused
conspirator does not owe the duty that serves as the basis of liability for the primary actor.
“A cause of action for civil conspiracy may not arise . . . if the alleged conspirator, though a
participant in the agreement underlying the injury, was not personally bound by the duty
violated by the wrongdoing . . . .”
Doctors’ Co. v. Superior Court (1989) 49 Cal.3d 39, 44, 260 Cal. Rptr. 183, 186 Although the
Doctors’ Cocase was decided in the context of a duty of good faith and fair dealing, its holding applies
equally to the fiduciary duty claim alleged by Plaintiffs here.
ONSPIRACY IDING AND BETTING LAIMS AIL ECAUSE
THEY ARE LED IN ERIES OF OOSE ENERALITIES
Although the obligation to plead with particularity is clear, Plaintiffs have failed to meet
that obligation. Rather, the TAC is couched in the ‘everyone did everything’ language that the
foregoing case authority was intended to forestall. Hence conspiracy/aiding and abetting are only
vaguely alleged, with no detail provided, and no allegations separately made againstany one
defendant that do not apply to all defendants:
Plaintiffs are informed and believe that the Firetide Conspirators agreed with the plan and
cooperated with it. Furthermore, Plaintiffs are informed and believe that the Firetide
Conspirators provided substantial assistance to the Employee Defendants in carrying out
this scheme”.
TAC, ¶ 33. See also, ¶¶ 41, 42, quoted above. to conspiracy, this means that o facts are
alleged showing that the Non-Employee Defendants ‘knew of and agreed to both the objective of
the agreement and the course of action that resulted in the injury. Berg & Berg Enterprises v.
6
Sherwood Partners, Inc., supra. Similarly, with regard to aiding and abetting, no facts are pled
showing that the Non-Employee Defendants had ‘actual knowledge of the specific primary wrong
they substantially assisted.’ Casey v. U.S. Bank, supra
Indeed, the TAC does not describe what any individual defendant actually did to
conspire/aiding and abetting, or distinguish any one defendant from all defendants with regard to
those claims. Accordingly, the Non-Employee Defendants’ demurrer should be sustained on
multiple grounds, as (1) the basis for derivative liability has not been pled with adequate
specificity, (2) the Non-Employee Defendants did not owe Plaintiffs the duty of loyalty allegedly
owed by the employee defendants, and (3), the pleading of the underlying torts remains defective.
d. THE IMITATIONS ERIOD FOR THE CTS LLEGED IN THE TAC HAS PASSED
The default limitations statute (or statute of repose) is Code of Civil Procedure § 338(b)
providing a three year limitations period for fraud. As noted above, the facts alleged in the TAC
against the Non-Employee Defendants are de minimus, but include general allegations that
“systematic theft began” in “2008.” TAC, ¶ 24. Accordingly, the three year limitations period
would run three years later in 2011 unless the discovery rule is applied
i. C AIMS GAINST AYONG UAN ARE NSUFFICIENTLY ETAILED
MONG THE ACTS FT UT IS THAT THE NLY LLEGATIONS GAINST
UAN RISE FROM THROUGH 2013.
Although the TAC is sparsely pled, Plaintiffs’ three earlier pleadings, available through
judicial notice, contain much more detail about the alleged wrongdoings of defendants, including
Mr. Guan. Thus the 1 Complaint and the FAC allege that Mr. Guan was paid for work that was
not performed, and further that Guan’sinvolvement in these matters was complete by 2013
“In the years 2011, 2012, and 2013, GUAN co conspired … to fraudulently pose … as a
contractor of AMPRO and CEI, for which GUAN was paid compensation from one of
AMPRO’s general checking accounts and CEI’s payroll account for work and services that
were charged but never actually performed by GUAN for AMPRO and CEI, in the amount
The systematic theft claims alleged in the TAC encompass seven different types of embezzlement; i.e., (1)
Payments by Ampro to Qian and Li as salary (TAC ¶ 28); (2) Payments by Ampro to Qian and Li as personal expenses
(TAC ¶ 29); (3) Payments by Ampro to Qian and Li as benefits (TAC ¶ 30); (4) Payments by Ampro to Qian and Li as
manufacturing bonuses (TAC ¶ 31); (5) Payments by Ampro to the family members of Qian and Li (TAC ¶ 32); (6)
Payments by Ampro to friends and Firetide (TAC ¶ 33); (7) Payments by Ampro for unemployment insurance for one
of Mr. Li’s family members (TAC ¶ 34). However, only of these schemes (i.e., no. 6, incorporating TAC ¶ 33
even mentions the Non Employee Defendants.
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of $249,592.30, thereby converting said funds from AMPRO…”
1st Complaint, ¶ 14. Accord, FAC, ¶ 17. The individual payments allegedly made to Guan
between the beginning of 2011 and the end of 2013 that total to $249,592.30, are listed by check
number and amount, shortly after these allegations, again all from 2011, 2012 and 2013. Initial
Complaint, ¶ 14a; FAC, ¶ 69. In all three of the initial pleadings, this sum of $249,592.30 is the
sum total of what is sought fromGua n. 1st Complaint, Prayer, ¶ 1; FAC, Prayer, ¶ 9; SAC, Prayer,
¶ 13. Thus it is clear that the acts alleged against Guan took place between 2011 and 2013, and
were complete by the end of 2013.
. P LAINTIFFS LAIMS GAINST EORGE HU ARE IMILARLY NSUFFICIENTLY
ETAILED AND RISE FROM
Similarly, with regard to the alleged “home remodeling issue” described at paragraphs 33
and 41 of the TAC, all of the dates have been removed from the TAC to gloss over the fact that
these events took place in 2013 or earlier. Thus the TAC states:
… the Employee Defendants and Mr. G. Zhu and his wife agreed to use Consolitech’s funds
to remodel their private residence for no reason but to benefit Mr. G. Zhu and his wife and
reward them for their participation in the Firetide Scheme. Plaintiffs allege that Mr. G. Zhu
and his wife agreed with the plan and cooperated with it. Furthermore, Plaintiffs allege Mr.
G. Zhu and his wife, Ms. X Liu, provided substantial assistance to the Employee
Defendants in carrying out the plan by, for example, accepting the free remodel and
working with the contractor to bring it to fruition.
wever,when these claims are supplemented with allegations from the Plaintiffs 1
Complaint, FAC and SAC, Mr. Zhu is alleged to have “conspire[ed] with [co-defendants Charlene
Qian and Xian “James” Li to pay a contractor of Ampro and C.E.I. in the amount of at least
$111,065.80 for home improvements on GZHU’s … personal residence, located at 1457 Shaffer
Drive, San Jose, CA 95132 ” FAC at ¶ 18c. See also, ¶ 19 (amount is corrected to
$111,674.60) Again, the details of individual checks paid and amounts of each check paid
to reach this sum are listed in the FAC, at ¶ 70a. See also, SAC at ¶ 111.
LAINTIFFS TAC DID NOT LLEGE ACTS ITHIN THE ISCOVERY ULE
Having alleged a fraudulent scheme that began in 2008 and was completed as to defendants
Guan and George Zhu in 2013, plaintiffs must pleadfacts that bring the matter within the discovery
rule; i.e., show they could not reasonably have discovered the fraud within the 3 year limitations
8
period. “A plaintiff whose complaint shows on its face that his claim would be barred without the
benefit of the discovery rule must specifically plead facts to show (1) the time and manner of
discovery and (2) the inability to have made earlier discovery despite reasonable diligence.”
McKelvey v. Boeing North American, Inc (1999) 74 Cal. App. 4th 151, 160, 86 Cal. Rptr. 2 nd
Czajkowski, supra. In assessing the sufficiency of the allegations of delayed discovery, the court
places the burden on the plaintiff to “show diligence” as “conclusory allegations will not withstand
demurrer.” .; Fox v. Ethicon-Endo Surgery (2005) 35 Cal. 4 Cal. Rptr. 3
Thus, where plaintiff relies on a theory of fraudulent concealment, delayed accrual, equitable
tolling or estoppel to save a cause of action that otherwise appears on its face to be time-barred, he
or she must specifically plead facts that, if proved, would support the theory. Mills v. Forestex Co.
(2003) 108 Cal. App. 4th 625, 641, 134 Cal. Rptr. 2nd 273. Moreover, in evaluating the
reasonableness of a plaintiff’s reliance on alleged misrepresentations, the courts will consider what
is apparent from the pleadings about the plaintiff’s knowledge and experience. Broberg v. The
Guardian Life Ins. Co. of America (2009) 171 Cal. App. 4th 912, 921, 90 Cal. Rptr. 3
recovery deniedif plaintiff’s acts “manifestly unreasonable” in light of intelligence/information).
Plaintiffs allege in the TAC, at ¶¶ 43-45, that “Mr. Wang had no reason to question [Qian]’s
loyalty or genuineness” and add that they discovered the “theft” in “2015,” but omit the exact date
of this event. This discovery date is quitefluid ; however, as previous pleadings allege five other
discovery dates encompassing “April 2017” (Initial Complaint under penalty of perjury, at ¶¶ 5, 45,
52), “February, 2016” (FAC, under penalty of perjury, at ¶¶ 82, 94, 102 and SAC, ¶ 7), “May
2017” (SAC, ¶ 8), “June 29, 2017” (SAC, ¶ 9), and “February 23, 2018” (SAC, ¶ 10).
In fact, the TAC fails to show (1) any actualdate of discovery or (2)(a) the inability to have
made earlier discovery (b) despite reasonable diligence, as required by McKelvey, supra74 Cal.
App. 4th 160. ‘Inability’ is only pled as a inferable conclusion (TAC ¶ 43), and no effort to
show diligence by such normal business processes as audits or other regular third party review of
Plaintiffs’ records is pledBecausethe discovery rule is the only lifeline available to assist
As to alleged payments to family members .
As to Yun Feng Chang.
As to Firetide.
9
Plaintiffs’ claims in surviving after their accrual in 2008, Plaintiffs failure to plead these facts with
specificity dooms the TAC. The demurrer should be sustained on this ground alone.
VAILABLE ACTS STABLISH THAT THE ISCOVERY ULE ANNOT PPLY
However, if Plaintiffs dispute this conclusion, other facts that arepled, or are otherwise
available through judicial notice, will render it difficult for Plaintiffs’ to fit within the safe harborof
the discovery rule. These facts include (a) the scale of the discrepancy between what CEO Wang
asserts should have been paid to Ms. Qian and Mr. Li, and what was actually paid them, as well as
of the other alleged defalcations, and (b) Plaintiffs admission that they were not diligent in their
review of the books and records of Plaintiffs, but merely ‘assumed’ that these items were
accurately kept. In light of the admissible evidence establishing these factsand because Plaintiffs
have not alleged facts within the discovery rule, the Court should sustain the demurrer because
Plaintiffs should, in the exercise of reasonable diligence,have been aware of such embezzlement.
i. Over $1 Million in Excess Payroll, and $3.7 Million in Stolen Money, Could not have
Gone Unnoticed. As to the former, Plaintiffs have alleged that CEO Wang received and reviewed
financial reports on a “monthly … [or] more frequent, basis.” TAC, ¶ 63. Defendant Qian’s
analysis on demurrer that Plaintiffs’ payroll rec ords between 2008 and 2016 show payroll
payments of $837,576 to Qian, when she was only authorized to draw $56,000 per year or a total of
over this time period . Similarly, defendant Li’s payroll draw was authorized at $306,560
during this time, but in fact the payroll records reviewed every month by CEO Wang show that Mr.
Li actually received $987,067.96 in salary, more than triple what he should have received. The
aggregate of the payroll records for both shows that Plaintiffs claim that Li and Qian were
authorized to receive $754,560 between 2008 and 2016, but instead received $1,824,643, or over
$1 million more than was allegedly authorized. This is more than double what Plaintiffs allege
should have been paid to Li and Qian over this period, during which time CEO Wang reviewed the
records at least every month. Indeed, Mr. Wang’s declaration adds that over $3.7 million was
stolen in total by Li and Qian. As Plaintiffs’ CEO and the person reviewing the books on a
monthly basis for accuracy, Mr. Wang’s failure to make the ‘discovery’ of a theft of this magnitude
Defendants incorporate these facts analysis from p. 7 of defendant Qian’s MPA supporting this demurrer
prior to 2015 (or the later dates alleged) when it is discernable from a review of the company’s
records (and was in fact so discerned Wang Decl., ¶ 11 is manifest unreasonable. ” Broberg
v. The Guardian Life Ins. Co. of America, supra
The TAC’s Allegation that Plaintiffs Merely Assumed All Facts were Accurately Stated
Negates Diligence. In fact, the only discernable factual allegations regarding Plaintiffs’ diligence
are at ¶ 74 of the TAC to the effectthat “ Plaintiffs received the Financial Reporting and assumed
the representations therein with respect to expenses and net profit were accurate.” This admitted
inaction by Plaintiffs runs against all accounting standards, as well as the duty to show reasonable
diligence embedded in the discovery rule.
In light of (1) Plaintiffs’ no diligent ‘assumption’ that its books and records were
compliant with CEO Wang’s understanding on the payments in question, (2) the scale of the
alleged embezzlements, including the actual difference of more than double between the payments
to Qian and Li shown in Plaintiffs’ books and records versus CEO Wang’s account of these
payments, the demurrer must be sustained. The TAC simply does not establish Plaintiffs inability
to learn of these facts earlier or diligence in seeking them under the discovery rule.
HE TAC IS A HAM LEADING AS IT TTEMPTS TO MPOSE IABILITY O
EORGE HU FOR CTS REVIOUSLY TTRIBUTED TO UN HANG.
n the verified 1 Complaint, CEO Wang swore under penalty of perjury that the ‘home
remodeling’ incident was specifically the work of Yun Feng Chang, undertaken by Mr. Chang for
his own account. George Zhu was not named in this initial pleading. The history of this claim then
encompasses an apparent settlement between Plaintiffs and Mr. Chang in exchange for Mr.
Chang’s execution of a declaration favoring Plaintiffs, then a 180 degree turn in the story through
the FAC, the SAC and now the TAC, to where Plaintiffs nowseek to place liability for this event
on George Zhu. Rather than allow this sham pleading by Plaintiffs to succeed, the Court should
read the prior inconsistent allegations of the 1 Complaint into the TAC and sustain the demurrer as
to George Zhu, or strike the home remodel allegations. See Motion to Strike MPA, pp. 11-14.
CEO Wang’s declaration from Plaintiffs’ writ application is attached to the Sasseen Decl , at Ex. 4.
Mr. Chang has since disappeared, although he was initially named and served as a defendant. No
settlement agreement has been identified, nor has a good faith settlement motion been made. Mr. Chang has simply
been dropped, sub silencio, from the pleadings.
HE EMURRER HOULD BE USTAINED WITH REJUDICE AS TO THE IRST AUSE OF
CTION FOR ONVERSION AND THE IXTH AUSE OF CTION FOR IOLATION OF
ENAL ODE a).
RITING HECKS IS NOT ONVERSION OTH ECAUSE THE ANK HOLDS THE
OSSESSORY IGHT TO ONEY O EPOSIT AND ECAUSE ONEY ANNOT
BE ONVERTED UTSIDE OF A PECIFIC SOLATED UND THAT IS NOT RESEN
HERE
“The basic elements of the tort of conversion are (1) the plaintiff’s ownership or right to
possession of personal property, (2) the defendant’s disposition of the property in a manner that is
inconsistent with the plaintiff’s property rights, and (3) resulting damages. Fremont Indemnity v.
Fremont General Co (2007) 148 Cal. App. 4th 97, 104, 55 Cal. Rptr. 3d 621. The TAC describes
only one item of Plaintiffs’ property that was taken: “money from business operations.” TAC, ¶ 48
In fact, this vague asset descriptionis an attempt to plead around the allegations from earlier
pleadings that the property in question, money, was taken from Plaintiffs’ bank account, and the
method by which that property wastaken was the writing of authorized mpany checksSasseen
Decl, at 3-5. Prior pleadings, incorporated by judicial notice, show that damage claims from
Plaintiffs’ earlier pleadingswere for sums included in written company checks. Sasseen Decl., ¶ 5.
aa. THE ONEY IN A ORPORATE HECKING CCOUNT IS NOT A PECIFIC
DENTIFIABLE APABLE OF EING ONVERTED
However, Plaintiffs’ cash held by the bank, jointly with all of the bank’s other account holders,
in a general accountwith the sum of plaintiffs deposits allocated to the name of the Plaintiffs is not
susceptible of the “specific identifiable sum” exception to the general rule that the taking of money
does not establish a conversion claim. “A cause of action for conversion of money can be stated
only where a defendant interferes with the plaintiff's sessory interestin a specific, identifiable
sum, such as when a trustee or agent misappropriates the money entrusted to him.Kim v.
Westmoore Partners, Inc. (2011) 201 Cal. App. 4th 267, 284, 133 Cal. Rptr. 3d 774, 789. Plaintiffs
fail to allege any such status that would get them around the general rule that money cannot be the
subject of a conversion claim, and so the demurrer should be sustained on this ground.
bb. A ORPORATE CTOR WHO TTERS UTHORIZED HECKS DOES NOT
OMMIT ONVERSION EVEN IF THE ORPORATION UBSEQUENTLY
LAIMS THE HECKS WERE NOT UTHORIZED.
In addition, California law is clear that a depositor in a bank account is a mere creditor in a
contractual relationship with the bank. “[T]he relationship between the depositor in a savings and
loan association and the institution with which the money is deposited, is usually and primarily that
of debtor and creditor, similar to the deposits of funds in a savings bank. Watson v. Stockton
Morris Plan Co. (1939) 34 Cal. App. 2nd 393, 402-403, 93 P. 2nd 855, 860. Indeed, the signature
card for a bank account has come to be defined as the contract that defines the debtor-creditor
relationship. Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 537, 71 Cal.Rptr.2d 462
It is also well established that such a contractual debtor-creditor posture is not a sufficient
interest to support a conversion claim. Such a “…mere contractual right to payment, without more,
will not suffice” to support a conversion claim. Farmers InsurExch v. Ziru (1997) 53 Cal. App.
445, 452, 61 Cal. Rptr. 2ndBecause (1) the bank holds the money in its general funds,
with no specific pile of cash earmarked as belonging to Plaintiffs, and (2) the bank is obligated to
pay money to its creditor/depositor only by contract, it is the bank, and not the depositor, which has
the right of immediate possession to that money. Lacking an immediate right to possession, a
depositor like Plaintiffs cannot state a conversion claim, and so the demurrer must be sustained.
AUSING A ORPORATION TO SSUE HECKS DOES NOT
ONSTITUTE A VIOLATION OF ENAL ODE a).
Similarly, these allegations are not covered by Penal Code § 496(a), which applies to the receipt
of stolen goods. Defendants’ argument was best made by the court in Grouse River Outfitters Ltd v.
NetSuite, Inc. (Oct. 12, 2016) 2016 WL 5930273 (copy at Sasseen Decl., Ex. 5), at p. 14
he property in question ([Plaintiff’s] money) was not “stolen” when [Defendant] allegedly
defrauded [Plaintiff] of it. Section 496(a) aims at the receipt of stolen goods: “The
Legislature’s goal in enacting Section 496 was to ‘eliminat[e] markets for stolen property.’ ”
[Citation.]Which is to say, when the property in question comes into the defendant’s hands,
must already have the character of having been stolen. [Citation.]The first sentence of §
496 thus refers to “property that has been stolen or that has been obtained in any manner
constituting theft.” § 496(a) (emphases added).
he problem is thus plain enough. The property in question is [Plaintiff’s] money.
[Defendant] allegedly defrauded [Plaintiff] of that money.… [M[aybe it can be said that
[Defendant] committed theft by false pretense. But it cannot be said that [Defendant] thereby
received stolen goods in violation of § 496(a).
48-49, alleges that "money from
writing checks;
stolen property,
received the requisite
money from
indicated herein.
present here.
Preview
DAVID SASSEEN LAW OFFICE OF DAVID SASSEEN 2 N. FirstStreet, Suite 301 San Jose, CA 95113 Phone: (408)569-1060 Email: davidsasseen@gmail.com Attorney for Defendants Da Yong Guan, George Zhuand Xin Liu SUPERIOR COURT OF CALIFORNIA, COUNTY OF SANTA CLARA (UNLIMITED JURISDICTION) PLAINTIFFS AMPRO SYSTEMS AND Case No. CV 311868 CONSOLITECH ELECTRONICS, INC., MEMORANDUM OF POINTS AND Plaintiff s, AUTHORITIES IN SUPPORT OF vs. DEMURRER TO THIRDAMENDED COMPLAINT CHARLENE QIAN, an individual, XIAN LI aka JAMES LI, an individual, THOMAS ZDIMAL, an individual, XIAO RONG ZHOU, DATE:October 30, 2018 an individual, RUO (LAURA) LI, an individual, TIME: 9:00 a.m. KENT WANT, an individual, KATHLEEN DEPT: 19 WANT, an individual, ZHENGMAO ZHU, an individual, DA YONG GUAN, an individual, HONORABLE PETER KIRWAN GEORGE ZHU, an individual, XIN LIU, an individual, LXRZ, INC. a California corporation, FIRETIDE, a Delaware corporation, and DOES 1 through 100, inclusive, Defendants 0 TABLE OF CONTEN Introduction II. Statement of Facts III. Analysis……………………………………………………………………….. A Demurrer should be Sustained Where the Complaint Fails to State a Cause of Action The Second, Third, Fourth and Fifth Causes of Action for Breach of Fiduciary Duty, Intentional Misrepresentation, Concealment and Negligent Misrepresentation, Respectively, are not pled with the Particula rity Required for Fraud Claims………………………………... Fraud Must be Pled with Particularity……………………………… Claims Against the Defendants are Insufficiently Detailed to Plead Fraud; Indeed the Non Employee Defendants are Barely Mentioned ………….. Similarly, (1) Conspiracy/Aiding and Abetting and (2) Tolling of the Statute of Limitations Must be Pled with Particularity……………………………………………………... The Conspiracy/Aiding and Abetting Claims Require Plaintiffs to Plead Detailed Facts Establishing Derivative Liability Conspiracy Requires Factual Allegations that the Defendants Knew of and Agreed to Both the Objective and Course of Action of the Conspiracy, Action and Resulting Damage…………………………………………… Aiding and Abetting Liability Requires Factual Allegations that the Accused Knows of the Breach of Duty Involved and Provides Substantial Assistance to Accomplish the Primary Tort If Plaintiffs Fail to Adequately Allege the Underlying Torts, the Conspiracy Claim Fails as Well………………….. iv. Derivative Liability Cannot Be Established where the Alleged Co Conspirator does not Owe the Duty that Serves as the Basis for the Underlying iability.…………… The Conspiracy/Aiding and Abetting Claims Fail Because they are Pled in a Series of Loose Generalities……… The Limitations Period for the Acts in the TAC has Passed Claims Against Dayong Guan are Insufficiently Detailed, and among the facts left out is that the only allegations against Guan arise from 2011 through 2013…………………. 7 Plaintiffs’ Claims Against George Zhu are also Insufficiently Detailed, and Arise from 2013………………... 8 e. Plaintiffs TAC does not Allege Facts Within the Discovery Rule .. Available Facts Establish the the Discovery Rule Cannot Apply… 10 Over $1 Million in Excess Payroll, and $3.7 Million Stolen Money, Could not have Gone Unnoticed……………... 10 The TAC’s Allegation that Plaintiffs Merely Assumed All Facts were Accurately Stated Negates Diligence………… 11 The TAC is a Sham Pleading as it Attempts to Impose Liability on George Zhu for Acts Previously Attributed to Yun Feng Chang……………………………………………………………… 11 The Individual Tort Claims are Each Mechanically Defective……….. 12 a. The Demurrer Should be Sustained with Prejudice as to the First Cause of Action for Conversion and the Sixth Cause of Action for Violation of Penal Code § 496(a)……………………………... 12 i. Writing Authorized Checks is not Conversion. The Money in a Corporate Checking Account is not a Specific Identifiable Sum’ Capable of Being Converted……. 12 A Corporate Actor who Issues Checks does not Commit Conversion, even if the Corporation Subsequently Claims the Checks were not Authorized……………………………… 12 Causing a Corporation to Issue Checks does not Constitute the Receipt of Stolen Property in Violation of Penal Code § 496(a)…………………………………………………………. 13 The Seventh Cause of Action for Money Had and Received Does not State a Cause of Action Against any of Defendants eorge Zhu, Guan or Qian……………………………………....... 14 IV. CONCLUSION…………………………………………………………………… BLE OF AUTHORITIES California Cases Applied Equip. Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503……………….. Bell v. Feibush (2014) 212 Cal. App. 4 1041…………………………………… Berg & Berg Enterprises v. Sherwood Partners, Inc. (2005) 131 Cal. App. 4 802…… 5-6 Broberg v. The Guardian Life Ins. Co. of America (2009) 171 Cal. App. 4th 912…….. Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138…………………………. Chazen v. Centennial Bank (1998) 61 Cal. App. 4 532………………………………. Committee On Children’s Television v. General Foods Corp. (1983) 35 Cal.3d 197…. Czajkowski v. Haskell & White, LLP (2012) 208 Cal. App. 4th 166………………….. Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal. App. 3 Doctors’ Co. v. Superior Court (1989) 49 Cal.3d 39……………………………………….. Farmers Insur. Exch. v. Ziru (1997) 53 Cal. App. 4 445……………………………… Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318…………………………………………. Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal. 4th 797…………………………….. Fremont Indemnity v. Fremont General Co (2007) 148 Cal. App. 4th 97…………….. Howard v. Superior Court (1992) 2 Cal. App. 4th 745………………………………… Kim v. Westmoore Partners, Inc.(2011) 201 Cal.App.4th 267…………………………. Lazar v. Superior Court (1996) 12 Cal. 4 631………………………………………… 2-3 Lockton v. O’Rourke (2010) 184 Cal. App. 4 1051…………………………………... McKelvey v. Boeing North American, Inc 999) 74 Cal. App. 4th 151……………… Mills v. Forestex Co. (2003) 108 Cal. App. 4th 625……………………………………. Prakashpalan v. Engstrom, Lipscomb and Lack (2017) 223 Cal. App. 4th 1105………. Rakestraw v. Cal. Physicians’ Service (2000) 81 Cal. App. 4 39……………………... Schauer v. Mandarin Gems of Cal., Inc. (2005) 125 Cal. App. 4th 949………………... Stansfield v. Starkey (1990) 220 Cal. App. 3rd 59……………………………………... Watson v. Stockton Morris Plan Co. (1939) 34 Cal. App. 2nd 393……………………... Wilner v. Sunset Life Ins. Co. (2000) 78 Cal. App. 4 952……………………………. Federal Cases Grouse River Outfitters Ltd v. NetSuite, Inc. (Oct. 12, 2016) 2016 WL 5930273 …….. -14 California Statutes Code of Civil Procedure § 338(b)………………………………………………………. Penal Code § 496(a)…………………………………………………………………….. 12-13 Other Authorities Witkin, California Procedure, “Pleading” § 561, p. 688………………………………... NTRODUCTION Defendants Dayong Guan, Xin Liu and George Zhu demur to the Third Amended Complaint (“TAC”) of plaintiffs Ampro Systems and Consolitech Electronics (“Plaintiffs”) as follow 1. Defendants Guan, Liu and Zhu (“Non-Employee Defendants”) were not employees of the Plaintiffs, and are not alleged to be the primary actors in anyof the claims herein . Indeed, they are not alleged to have done anyof the employment based acts alleged against the Employee Defendants. Accordingly, the demurrer should be sustained for each of the directclaims herein for conversion, breach of fiduciary duty, fraud, receiving stolen property and money had and received, the Non Employee Defendants are not alleged to have committ the predicate acts for these torts. Whileconspiracy/aiding and abetting claim s may eventually be adequately pled, such is not the case yet as theTAC’s derivative claims are not pled with specificity , and fail to make the required factual allegations of knowledge and consent. 3. Inconsistent allegations from the 1 Complaint filed h erein on June 7, 2018, and the three subsequent pleadings, establish that the TAC is a “sham pleading” subject to demur/motion to strike based on the previously pled facts regarding (a) remodeling work performed at Mr.Zhu’s residence; (b ) statute of limitations issues; as well as (c) conversion; and Finally, Plaintiffs’ substantive claims are each defectively pled as to all defendants on narrower technical grounds demonstrated below. II. TATEMENT OF ACTS Please seeStatement of Facts in accompanyi ng Memorandum of Points and Authorities in Support of Motion to Strike, etc. filed simultaneously herewith. III. NALYSIS EMURRER SHOULD BE USTAINED HERE THE OMPLAINT AILS TO TATE A AUSE OF CTION “A demurrer’s function is to test the legal sufficiency of the factual allegations of the complaint, not to determine the truth of disputed facts.” Boyle v. City of Redondo Beach (1999) 70 Cal. App. 4 1109, 1114, ftnt. 2, 83 Cal. Rptr. 2d 164. To survive a demurrer, the plaintiff must demonstrate that its factual allegations establish all essential elements of the alleged causes of 1 action. Rakestraw v. Cal. Physicians’ Service (2000) 81 Cal. App. 4 39, 43, 96 Cal. Rptr. 2nd ourt must accept as true all material factual allegations, and it may also draw reasonable inferences from those claims, but it need not accept contentions, deductions, or conclusions of fact or law. Wilner v. Sunset Life Ins. Co. (2000) 78 Cal. App. 4 952, 958, 93 Cal. Rptr. 2d 413. Statements that are vague, conclusory and void of factual specifics are insufficient to survive a demurrer. Rakestrawsupra , 81 Cal. App. 4 at 44 (“Allegations must be factual and specific .”) In considering a demurrer, the Court is generally limited to the facts shown in the face of the complaint. However, the Court may go beyond the bare pleading circumstances involving judicial notice, allowing facts from prior pleadings or certain other statements by the plaintiffs i the case to be considered. Thus, items such asadmissions and inconsistent statements by the plaintiff, as well as evidentiary documents such as exhibits, may be considered by the Court under Evidence Code §§ 452-453, and if considered should be accepted in preference to the conflicting factual allegations of the complaint. See, e.g., Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal. App. 3 593, 604, 176 Cal. Rptr. 824, 830. Such inconsistent allegations and admissions render the operative pleading as “sham” and are ‘read into’ the later inconsistent complaint, withthe newer allegations disregarded. Lockton v. O’Rourke (2010) 184 Cal. App. 4 1051, 1061, 109 Cal. Rptr. 3 Sham pleadings are analyzed several times in his MPA with the topic briefed in detail in defendants’ motion to strike, at pp. 11-12. HE ECOND HIRD OURTH AND IFTH AUSES OF CTION FOR REACH OF IDUCIAR UTY NTENTIONAL ISREPRESENTATION ONCEALMENT AND EGLIGENT ISREPRESENTATION RESPECTIVELY ARE NOT PLED WITH TH ARTICULARITY EQUIRED FOR RAUD LAIMS 1. FRAUD UST BE LED WITH ARTICULARITY “The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Lazar v. Superior Court (1996) 12 Cal. 4 631, 638, 49 Cal. Rptr. 2nd ]very element of a cause of action [for fraud must] be alleged both factually and specifically.” Schauer v. Mandarin Gems of Cal., Inc. (2005) 125 Cal. App. 4th 949, 961, 23 Cal. Rptr. 3rd 233, 241 (constructive 2 fraud)Such claims are “… subject to a heightened pleading standard … that necessitates pleading facts showing ‘how, when, where, to whom, and by what means the representations were tendered.” Stansfield v. Starkey (1990) 220 Cal. App. 3rd 59, 73, 269 Cal. Rptr. 337, 345. See also, Lazar v. Superior Court, supra, 12 Cal. 4 at 645. The pleading of fraud . . . [ ] the last remaining habitat of the common law notion that a complaint should be sufficiently specific that the court can weed out nonmeritorious actions on the basis of the pleadings. Thus the pleading should be sufficient ‘to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud.’” Committee On Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216, 197 Cal. Rptr. 783, 795. a. CLAIMS GAINST THE EFENDANTS ARE NSUFFICIENTLY ETAILED TO LEAD RAUD NDEED THE -EMPLOYEE EFENDANTS ARE ARELY ENTIONED The Non-Employee Defendants make two claims in this regard. First, the TAC generally fails Lazar’s ‘how, when, where, to whom’ test by failing to identify anyspecific misrepresentation , or to identify the maker of any specificmisrepresentation Instead, Plaintiffs’ net is generally cast identifying only unspecified financial reports but not specific statements within any one report. Second, w regard to the Non-Employee Defendants, the only allegations against themarethe “false provision of services” and “home remodel” claimsat 33, 41 and of the TAC. … the Employee Defendants and Mr. G. Zhu and his wife agreed to use Consolitech’s funds to remodel their private residence for no reason but to benefit Mr. G. Zhu and his wife and reward them for their participation in the Firetide Scheme. Plaintiffs allege that Mr. G. Zhu and his wife agreed with the plan and cooperated with it. Furthermore, Plaintiffs allege Mr. The language of the TAC is not specific at all, as no concrete fraudulent statements are identified. Rather, Plaintiffs dance around any and all such statements, alleging generally that generic undated monthly financial reports contained certain vague “rep esentations” that were “overstated” as to expenses and “understated” as to net profit: Qian] sent regular financial reporting to Plaintiffs’ President, Elliot Wang, that indicated a certain income being received and certain expenses being paid and certain profit or loss, among other things. These financial reports were sent by Ms. Qian to Mr. Wang via e mail on an monthly, and in some cases more frequent, basis…. The inherent implication in the[se reports] was that the representations respecting income, expenses and profit/loss were genuine.” TAC, ¶ 63. The TAC alleges that in fact, ‘the representations” in these reports were false, as “money was not being paid for authorized or legitimate business purposes…. The companies’ actual expenses were overstated and net profit was understated and [Li and Qian] used the difference to unjustly enrich themselves, their family members and friends.” TAC, ¶ 64. No individual dollar figures, representations, falsity or correct facts are specifically identified. The only other specific allegations against Mr. Guan are that he is alleged to have “accepted payment far in excess of the goods and services rendered, if any” (TAC, ¶ 67a ) and that he is a real estate agent in Los Angeles and affiliated with a travel agency in Fremont. TAC, ¶ 20. Even less is alleged against George Zhu and Xin Liu, as Mr. Zhu is alleged only to be an employee of Firetide, and Ms. Liu to be his wife. See, TAC ¶¶ 18 and 19. 3 G. Zhu and his wife, Ms. X Liu, provided substantial assistance to the Employee Defendants in carrying out the plan by, for example, accepting the free remodel and working with the contractor to bring it to fruition. (TAC, at “…[T]he Employee Defendants and the Firetide Conspirators agreed to misappropriate the companies’ funds in a scheme that involved providing manufacturing service to Firetide at below market rates and refunding all or substantially all of the amounts paid by Firetide back to Mr. G. Zhu and Firetide though payments to straw persons Ms. X Liu and Mr. D. Guan. Plaintiffs are informed and believe that the Firetide Conspirators agreed with the plan and cooperated with it. Furthermore, Plaintiffs are informed and believe that the Firetide Conspirators provided substantial assistance to the Employee Defendants in carrying outthis scheme”. ( TAC, at 42.) These are the only direct allegations against the Non-Employee Defendants in the TAC, but these claims do not include the elements necessary to plead fraud against these defendants, particularly under the plead with particularitystandard . Thus the demurrer to these claims should be sustained. b. SIMILARLY (1) ONSPIRACY IDING AND BETTING AND (2) OLLING OF TH TATUTE OF IMITATIONS UST BE LED WITH ARTICULARITY. Case law extends the plead with-particularity rule from fraud alone into at least two other octrinal areas, where it is also required. These two areas are, first, where an allegation of fraud is stretched to encompass a conspiracy to commit that fraud. See, e.g., Prakashpalan v. Engstrom, Lipscomb and Lack (2017) 223 Cal. App. 4th 1105, 1136, 167 Cal. Rptr 3 8 (“Where fraud is alleged to be the object of [a] conspiracy, the claim must be pleaded with particularity.”) Second, pleading with particularity is also requiredwhere a statute of limitations bar is shown in the facts before the court. In these circumstances, facts that would toll the statute such as ‘delayed-discovery- the face reasonable diligence’ must also be pled with particularity. See, e.g., Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal. 4th 797, 808, 27 Cal. Rptr. 3rd 661, 668; Czajkowski v. Haskell & White, LLP (2012) 208 Cal. App. 4th 166, 144 Cal. Rptr. 3rd 522, 528 (“…to overcome an apparent limitations bar, the plaintiff claiming delayed discovery of the facts …[must plead] facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. The burden is on the plaintiff… and conclusory allegations will not withstand demurrer.’”). c T ONSPIRACY IDING AND BETTING LAIMS EQUIRE LAINTIFFS TO LEAD ETAILED ACTS STABLISHING ERIVATIVE IABILITY. 4 i. CONSPIRACY EQUIRES ACTUAL LLEGATIONS THAT TH EFENDANTS NEW OF AND GREED TO OTH THE BJECTIVE AN OURSE OF CTION OF THE ONSPIRACY CTION AND AMAGE. “Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.Applied Equip. Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal. 4th 503, 510-511, 28 Cal. Rptr. 2nd 475, 478. In order to maintain an action for conspiracy, a plaintiff must allege that the defendant had knowledge of and agreed to both the objective and the course of action that resulted in the injury, that there was a wrongful act committed pursuant to that agreement, and that there was resulting damage.” (Emphasis added.) Berg & Berg Enterprises v. Sherwood Partners, Inc. (2005) 131 Cal. App. 4 802, 823, 32 Cal. Rptr. 3 Because fraud is alleged to be the object of the conspiracy, Defendants submit thatthese elements must also be pled with particularity. IDING AND BETTING IABILITY EQUIRES ACTUAL LLEGATIONS THAT THE CCUSED NOWS OF THE REACH OF UTY NVOLVED AND ROVIDES UBSTANTIAL SSISTANCE TO CCOMPLISH THE RIMARY ORT. “‘Liability may . . . be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.’ [Citations.] Mer knowledge that a tort is being committed and the failure to prevent it does not constitute aiding and abetting. [Citation.] ‘As a general rule, one owes no duty to control the conduct of another . . . .’” Fiol v. Doellstedt (1996) 50 Cal. App. 4th 1318, 1325-1326, 58 Cal. Rptr. 2nd“[W]hile aiding and abetting may not require a defendant to agree to join the wrongful conduct, it 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. Thus, in sustaining a demurrer to the trustee’s complaint, the court in Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal. App. 4th 1138, 1145, 26 Cal. Rptr. 3 401, 406 and 412 indicated that a plaintiff must plead facts showing “actual knowledge of the specific primary wrong the defendant substantially assisted.This is because aiding and abetting liability “necessarily requires a defendant to reach a conscious decision 5 to participate in tortious activity for the purpose of assisting another in performing a wrongful act.” Howard v. Superior Court (1992) 2 Cal.App.4th 745, 749, 3 Cal. Rptr. 2nd 575, 577. . I LAINTIFFS AIL TO DEQUATELY LLEGE THE NDERLYI ORTS THE ONSPIRACY LAIM AILS AS ELL Conspiracy/aiding and abetting claimswill also be dismissed where the underlying cause of action is defective or not shown. Stansfeld v. Starkey (1990) 220 Cal. App. 3 59, 75-76, 269 Cal. Rptr 337 (conspiracy claim dismissed due to dismissal of underlying fraud claim). . DERIVATIVE IABILITY ANNOT STABLISHED WHERE THE LLEGED -CONSPIRATOR DOES NOT WE THE UTY THAT ERVES AS THE ASIS FOR THE NDERLYING IABILITY inally, California law is clear that derivative liability cannot attach where the accused conspirator does not owe the duty that serves as the basis of liability for the primary actor. “A cause of action for civil conspiracy may not arise . . . if the alleged conspirator, though a participant in the agreement underlying the injury, was not personally bound by the duty violated by the wrongdoing . . . .” Doctors’ Co. v. Superior Court (1989) 49 Cal.3d 39, 44, 260 Cal. Rptr. 183, 186 Although the Doctors’ Cocase was decided in the context of a duty of good faith and fair dealing, its holding applies equally to the fiduciary duty claim alleged by Plaintiffs here. ONSPIRACY IDING AND BETTING LAIMS AIL ECAUSE THEY ARE LED IN ERIES OF OOSE ENERALITIES Although the obligation to plead with particularity is clear, Plaintiffs have failed to meet that obligation. Rather, the TAC is couched in the ‘everyone did everything’ language that the foregoing case authority was intended to forestall. Hence conspiracy/aiding and abetting are only vaguely alleged, with no detail provided, and no allegations separately made againstany one defendant that do not apply to all defendants: Plaintiffs are informed and believe that the Firetide Conspirators agreed with the plan and cooperated with it. Furthermore, Plaintiffs are informed and believe that the Firetide Conspirators provided substantial assistance to the Employee Defendants in carrying out this scheme”. TAC, ¶ 33. See also, ¶¶ 41, 42, quoted above. to conspiracy, this means that o facts are alleged showing that the Non-Employee Defendants ‘knew of and agreed to both the objective of the agreement and the course of action that resulted in the injury. Berg & Berg Enterprises v. 6 Sherwood Partners, Inc., supra. Similarly, with regard to aiding and abetting, no facts are pled showing that the Non-Employee Defendants had ‘actual knowledge of the specific primary wrong they substantially assisted.’ Casey v. U.S. Bank, supra Indeed, the TAC does not describe what any individual defendant actually did to conspire/aiding and abetting, or distinguish any one defendant from all defendants with regard to those claims. Accordingly, the Non-Employee Defendants’ demurrer should be sustained on multiple grounds, as (1) the basis for derivative liability has not been pled with adequate specificity, (2) the Non-Employee Defendants did not owe Plaintiffs the duty of loyalty allegedly owed by the employee defendants, and (3), the pleading of the underlying torts remains defective. d. THE IMITATIONS ERIOD FOR THE CTS LLEGED IN THE TAC HAS PASSED The default limitations statute (or statute of repose) is Code of Civil Procedure § 338(b) providing a three year limitations period for fraud. As noted above, the facts alleged in the TAC against the Non-Employee Defendants are de minimus, but include general allegations that “systematic theft began” in “2008.” TAC, ¶ 24. Accordingly, the three year limitations period would run three years later in 2011 unless the discovery rule is applied i. C AIMS GAINST AYONG UAN ARE NSUFFICIENTLY ETAILED MONG THE ACTS FT UT IS THAT THE NLY LLEGATIONS GAINST UAN RISE FROM THROUGH 2013. Although the TAC is sparsely pled, Plaintiffs’ three earlier pleadings, available through judicial notice, contain much more detail about the alleged wrongdoings of defendants, including Mr. Guan. Thus the 1 Complaint and the FAC allege that Mr. Guan was paid for work that was not performed, and further that Guan’sinvolvement in these matters was complete by 2013 “In the years 2011, 2012, and 2013, GUAN co conspired … to fraudulently pose … as a contractor of AMPRO and CEI, for which GUAN was paid compensation from one of AMPRO’s general checking accounts and CEI’s payroll account for work and services that were charged but never actually performed by GUAN for AMPRO and CEI, in the amount The systematic theft claims alleged in the TAC encompass seven different types of embezzlement; i.e., (1) Payments by Ampro to Qian and Li as salary (TAC ¶ 28); (2) Payments by Ampro to Qian and Li as personal expenses (TAC ¶ 29); (3) Payments by Ampro to Qian and Li as benefits (TAC ¶ 30); (4) Payments by Ampro to Qian and Li as manufacturing bonuses (TAC ¶ 31); (5) Payments by Ampro to the family members of Qian and Li (TAC ¶ 32); (6) Payments by Ampro to friends and Firetide (TAC ¶ 33); (7) Payments by Ampro for unemployment insurance for one of Mr. Li’s family members (TAC ¶ 34). However, only of these schemes (i.e., no. 6, incorporating TAC ¶ 33 even mentions the Non Employee Defendants. 7 of $249,592.30, thereby converting said funds from AMPRO…” 1st Complaint, ¶ 14. Accord, FAC, ¶ 17. The individual payments allegedly made to Guan between the beginning of 2011 and the end of 2013 that total to $249,592.30, are listed by check number and amount, shortly after these allegations, again all from 2011, 2012 and 2013. Initial Complaint, ¶ 14a; FAC, ¶ 69. In all three of the initial pleadings, this sum of $249,592.30 is the sum total of what is sought fromGua n. 1st Complaint, Prayer, ¶ 1; FAC, Prayer, ¶ 9; SAC, Prayer, ¶ 13. Thus it is clear that the acts alleged against Guan took place between 2011 and 2013, and were complete by the end of 2013. . P LAINTIFFS LAIMS GAINST EORGE HU ARE IMILARLY NSUFFICIENTLY ETAILED AND RISE FROM Similarly, with regard to the alleged “home remodeling issue” described at paragraphs 33 and 41 of the TAC, all of the dates have been removed from the TAC to gloss over the fact that these events took place in 2013 or earlier. Thus the TAC states: … the Employee Defendants and Mr. G. Zhu and his wife agreed to use Consolitech’s funds to remodel their private residence for no reason but to benefit Mr. G. Zhu and his wife and reward them for their participation in the Firetide Scheme. Plaintiffs allege that Mr. G. Zhu and his wife agreed with the plan and cooperated with it. Furthermore, Plaintiffs allege Mr. G. Zhu and his wife, Ms. X Liu, provided substantial assistance to the Employee Defendants in carrying out the plan by, for example, accepting the free remodel and working with the contractor to bring it to fruition. wever,when these claims are supplemented with allegations from the Plaintiffs 1 Complaint, FAC and SAC, Mr. Zhu is alleged to have “conspire[ed] with [co-defendants Charlene Qian and Xian “James” Li to pay a contractor of Ampro and C.E.I. in the amount of at least $111,065.80 for home improvements on GZHU’s … personal residence, located at 1457 Shaffer Drive, San Jose, CA 95132 ” FAC at ¶ 18c. See also, ¶ 19 (amount is corrected to $111,674.60) Again, the details of individual checks paid and amounts of each check paid to reach this sum are listed in the FAC, at ¶ 70a. See also, SAC at ¶ 111. LAINTIFFS TAC DID NOT LLEGE ACTS ITHIN THE ISCOVERY ULE Having alleged a fraudulent scheme that began in 2008 and was completed as to defendants Guan and George Zhu in 2013, plaintiffs must pleadfacts that bring the matter within the discovery rule; i.e., show they could not reasonably have discovered the fraud within the 3 year limitations 8 period. “A plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” McKelvey v. Boeing North American, Inc (1999) 74 Cal. App. 4th 151, 160, 86 Cal. Rptr. 2 nd Czajkowski, supra. In assessing the sufficiency of the allegations of delayed discovery, the court places the burden on the plaintiff to “show diligence” as “conclusory allegations will not withstand demurrer.” .; Fox v. Ethicon-Endo Surgery (2005) 35 Cal. 4 Cal. Rptr. 3 Thus, where plaintiff relies on a theory of fraudulent concealment, delayed accrual, equitable tolling or estoppel to save a cause of action that otherwise appears on its face to be time-barred, he or she must specifically plead facts that, if proved, would support the theory. Mills v. Forestex Co. (2003) 108 Cal. App. 4th 625, 641, 134 Cal. Rptr. 2nd 273. Moreover, in evaluating the reasonableness of a plaintiff’s reliance on alleged misrepresentations, the courts will consider what is apparent from the pleadings about the plaintiff’s knowledge and experience. Broberg v. The Guardian Life Ins. Co. of America (2009) 171 Cal. App. 4th 912, 921, 90 Cal. Rptr. 3 recovery deniedif plaintiff’s acts “manifestly unreasonable” in light of intelligence/information). Plaintiffs allege in the TAC, at ¶¶ 43-45, that “Mr. Wang had no reason to question [Qian]’s loyalty or genuineness” and add that they discovered the “theft” in “2015,” but omit the exact date of this event. This discovery date is quitefluid ; however, as previous pleadings allege five other discovery dates encompassing “April 2017” (Initial Complaint under penalty of perjury, at ¶¶ 5, 45, 52), “February, 2016” (FAC, under penalty of perjury, at ¶¶ 82, 94, 102 and SAC, ¶ 7), “May 2017” (SAC, ¶ 8), “June 29, 2017” (SAC, ¶ 9), and “February 23, 2018” (SAC, ¶ 10). In fact, the TAC fails to show (1) any actualdate of discovery or (2)(a) the inability to have made earlier discovery (b) despite reasonable diligence, as required by McKelvey, supra74 Cal. App. 4th 160. ‘Inability’ is only pled as a inferable conclusion (TAC ¶ 43), and no effort to show diligence by such normal business processes as audits or other regular third party review of Plaintiffs’ records is pledBecausethe discovery rule is the only lifeline available to assist As to alleged payments to family members . As to Yun Feng Chang. As to Firetide. 9 Plaintiffs’ claims in surviving after their accrual in 2008, Plaintiffs failure to plead these facts with specificity dooms the TAC. The demurrer should be sustained on this ground alone. VAILABLE ACTS STABLISH THAT THE ISCOVERY ULE ANNOT PPLY However, if Plaintiffs dispute this conclusion, other facts that arepled, or are otherwise available through judicial notice, will render it difficult for Plaintiffs’ to fit within the safe harborof the discovery rule. These facts include (a) the scale of the discrepancy between what CEO Wang asserts should have been paid to Ms. Qian and Mr. Li, and what was actually paid them, as well as of the other alleged defalcations, and (b) Plaintiffs admission that they were not diligent in their review of the books and records of Plaintiffs, but merely ‘assumed’ that these items were accurately kept. In light of the admissible evidence establishing these factsand because Plaintiffs have not alleged facts within the discovery rule, the Court should sustain the demurrer because Plaintiffs should, in the exercise of reasonable diligence,have been aware of such embezzlement. i. Over $1 Million in Excess Payroll, and $3.7 Million in Stolen Money, Could not have Gone Unnoticed. As to the former, Plaintiffs have alleged that CEO Wang received and reviewed financial reports on a “monthly … [or] more frequent, basis.” TAC, ¶ 63. Defendant Qian’s analysis on demurrer that Plaintiffs’ payroll rec ords between 2008 and 2016 show payroll payments of $837,576 to Qian, when she was only authorized to draw $56,000 per year or a total of over this time period . Similarly, defendant Li’s payroll draw was authorized at $306,560 during this time, but in fact the payroll records reviewed every month by CEO Wang show that Mr. Li actually received $987,067.96 in salary, more than triple what he should have received. The aggregate of the payroll records for both shows that Plaintiffs claim that Li and Qian were authorized to receive $754,560 between 2008 and 2016, but instead received $1,824,643, or over $1 million more than was allegedly authorized. This is more than double what Plaintiffs allege should have been paid to Li and Qian over this period, during which time CEO Wang reviewed the records at least every month. Indeed, Mr. Wang’s declaration adds that over $3.7 million was stolen in total by Li and Qian. As Plaintiffs’ CEO and the person reviewing the books on a monthly basis for accuracy, Mr. Wang’s failure to make the ‘discovery’ of a theft of this magnitude Defendants incorporate these facts analysis from p. 7 of defendant Qian’s MPA supporting this demurrer prior to 2015 (or the later dates alleged) when it is discernable from a review of the company’s records (and was in fact so discerned Wang Decl., ¶ 11 is manifest unreasonable. ” Broberg v. The Guardian Life Ins. Co. of America, supra The TAC’s Allegation that Plaintiffs Merely Assumed All Facts were Accurately Stated Negates Diligence. In fact, the only discernable factual allegations regarding Plaintiffs’ diligence are at ¶ 74 of the TAC to the effectthat “ Plaintiffs received the Financial Reporting and assumed the representations therein with respect to expenses and net profit were accurate.” This admitted inaction by Plaintiffs runs against all accounting standards, as well as the duty to show reasonable diligence embedded in the discovery rule. In light of (1) Plaintiffs’ no diligent ‘assumption’ that its books and records were compliant with CEO Wang’s understanding on the payments in question, (2) the scale of the alleged embezzlements, including the actual difference of more than double between the payments to Qian and Li shown in Plaintiffs’ books and records versus CEO Wang’s account of these payments, the demurrer must be sustained. The TAC simply does not establish Plaintiffs inability to learn of these facts earlier or diligence in seeking them under the discovery rule. HE TAC IS A HAM LEADING AS IT TTEMPTS TO MPOSE IABILITY O EORGE HU FOR CTS REVIOUSLY TTRIBUTED TO UN HANG. n the verified 1 Complaint, CEO Wang swore under penalty of perjury that the ‘home remodeling’ incident was specifically the work of Yun Feng Chang, undertaken by Mr. Chang for his own account. George Zhu was not named in this initial pleading. The history of this claim then encompasses an apparent settlement between Plaintiffs and Mr. Chang in exchange for Mr. Chang’s execution of a declaration favoring Plaintiffs, then a 180 degree turn in the story through the FAC, the SAC and now the TAC, to where Plaintiffs nowseek to place liability for this event on George Zhu. Rather than allow this sham pleading by Plaintiffs to succeed, the Court should read the prior inconsistent allegations of the 1 Complaint into the TAC and sustain the demurrer as to George Zhu, or strike the home remodel allegations. See Motion to Strike MPA, pp. 11-14. CEO Wang’s declaration from Plaintiffs’ writ application is attached to the Sasseen Decl , at Ex. 4. Mr. Chang has since disappeared, although he was initially named and served as a defendant. No settlement agreement has been identified, nor has a good faith settlement motion been made. Mr. Chang has simply been dropped, sub silencio, from the pleadings. HE EMURRER HOULD BE USTAINED WITH REJUDICE AS TO THE IRST AUSE OF CTION FOR ONVERSION AND THE IXTH AUSE OF CTION FOR IOLATION OF ENAL ODE a). RITING HECKS IS NOT ONVERSION OTH ECAUSE THE ANK HOLDS THE OSSESSORY IGHT TO ONEY O EPOSIT AND ECAUSE ONEY ANNOT BE ONVERTED UTSIDE OF A PECIFIC SOLATED UND THAT IS NOT RESEN HERE “The basic elements of the tort of conversion are (1) the plaintiff’s ownership or right to possession of personal property, (2) the defendant’s disposition of the property in a manner that is inconsistent with the plaintiff’s property rights, and (3) resulting damages. Fremont Indemnity v. Fremont General Co (2007) 148 Cal. App. 4th 97, 104, 55 Cal. Rptr. 3d 621. The TAC describes only one item of Plaintiffs’ property that was taken: “money from business operations.” TAC, ¶ 48 In fact, this vague asset descriptionis an attempt to plead around the allegations from earlier pleadings that the property in question, money, was taken from Plaintiffs’ bank account, and the method by which that property wastaken was the writing of authorized mpany checksSasseen Decl, at 3-5. Prior pleadings, incorporated by judicial notice, show that damage claims from Plaintiffs’ earlier pleadingswere for sums included in written company checks. Sasseen Decl., ¶ 5. aa. THE ONEY IN A ORPORATE HECKING CCOUNT IS NOT A PECIFIC DENTIFIABLE APABLE OF EING ONVERTED However, Plaintiffs’ cash held by the bank, jointly with all of the bank’s other account holders, in a general accountwith the sum of plaintiffs deposits allocated to the name of the Plaintiffs is not susceptible of the “specific identifiable sum” exception to the general rule that the taking of money does not establish a conversion claim. “A cause of action for conversion of money can be stated only where a defendant interferes with the plaintiff's sessory interestin a specific, identifiable sum, such as when a trustee or agent misappropriates the money entrusted to him.Kim v. Westmoore Partners, Inc. (2011) 201 Cal. App. 4th 267, 284, 133 Cal. Rptr. 3d 774, 789. Plaintiffs fail to allege any such status that would get them around the general rule that money cannot be the subject of a conversion claim, and so the demurrer should be sustained on this ground. bb. A ORPORATE CTOR WHO TTERS UTHORIZED HECKS DOES NOT OMMIT ONVERSION EVEN IF THE ORPORATION UBSEQUENTLY LAIMS THE HECKS WERE NOT UTHORIZED. In addition, California law is clear that a depositor in a bank account is a mere creditor in a contractual relationship with the bank. “[T]he relationship between the depositor in a savings and loan association and the institution with which the money is deposited, is usually and primarily that of debtor and creditor, similar to the deposits of funds in a savings bank. Watson v. Stockton Morris Plan Co. (1939) 34 Cal. App. 2nd 393, 402-403, 93 P. 2nd 855, 860. Indeed, the signature card for a bank account has come to be defined as the contract that defines the debtor-creditor relationship. Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 537, 71 Cal.Rptr.2d 462 It is also well established that such a contractual debtor-creditor posture is not a sufficient interest to support a conversion claim. Such a “…mere contractual right to payment, without more, will not suffice” to support a conversion claim. Farmers InsurExch v. Ziru (1997) 53 Cal. App. 445, 452, 61 Cal. Rptr. 2ndBecause (1) the bank holds the money in its general funds, with no specific pile of cash earmarked as belonging to Plaintiffs, and (2) the bank is obligated to pay money to its creditor/depositor only by contract, it is the bank, and not the depositor, which has the right of immediate possession to that money. Lacking an immediate right to possession, a depositor like Plaintiffs cannot state a conversion claim, and so the demurrer must be sustained. AUSING A ORPORATION TO SSUE HECKS DOES NOT ONSTITUTE A VIOLATION OF ENAL ODE a). Similarly, these allegations are not covered by Penal Code § 496(a), which applies to the receipt of stolen goods. Defendants’ argument was best made by the court in Grouse River Outfitters Ltd v. NetSuite, Inc. (Oct. 12, 2016) 2016 WL 5930273 (copy at Sasseen Decl., Ex. 5), at p. 14 he property in question ([Plaintiff’s] money) was not “stolen” when [Defendant] allegedly defrauded [Plaintiff] of it. Section 496(a) aims at the receipt of stolen goods: “The Legislature’s goal in enacting Section 496 was to ‘eliminat[e] markets for stolen property.’ ” [Citation.]Which is to say, when the property in question comes into the defendant’s hands, must already have the character of having been stolen. [Citation.]The first sentence of § 496 thus refers to “property that has been stolen or that has been obtained in any manner constituting theft.” § 496(a) (emphases added). he problem is thus plain enough. The property in question is [Plaintiff’s] money. [Defendant] allegedly defrauded [Plaintiff] of that money.… [M[aybe it can be said that [Defendant] committed theft by false pretense. But it cannot be said that [Defendant] thereby received stolen goods in violation of § 496(a). 48-49, alleges that "money from writing checks; stolen property, received the requisite money from indicated herein. present here.