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DAVID J. MICLEAN (SBN 115098)
FILED
SAN MATEO COUNTY
r
dmiclean@micleangleason.com
DANIELLE M. MIHALKANW (SBN 271442 APR 0 4 2019
dmihalkanin@micleangleason.com .
MICLEAN GLEASON LLP
.bbJN
411 Borel Avenue, Suite 310
San Mateo, CA 94402
Telephone: (650) 684-1 1-‘81 18— GlV—0311D
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Facsimile: (650) 684-1182 A001
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First Amended Cross —‘60mplaint
Attorneys for Defendant and Cross-Complainant 1746768
Solomon Sha
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN MATEO
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SWEET PRODUCTION, INC., a California Case No. 18-CIV-031 10
Corporation,
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SOLOMON SHA’S FIRST AlVIENDED
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Plaintiff, CROSS-COMPLAINT FOR:
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V. 1. Breach of Fiduciary Duty
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2. Accounting
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SOLOMON SHA, an individual; and DOES 1 3. Fraud
to 10, inclusive,
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4. Conversion
17 5. Unjust Enrichment
18 Defendants.
JURY TRIAL DEMANDED
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SOLOMON SHA, Complaint Filed: June 18, 2018
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Trial Date: June l7, 2019
21 Cross—Complainant,
22 v.
23 SWEET PRODUCTION, 1NC., a California
corporation; SWEET EXPRESS; MING CHIN;
24 DOREEN CHIN; and ROES 1through 20,
inclusive,
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Cross-Defendants.
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FAXEB FIRST AMENDED CRoss-COMPLAINT CASE NO. 18-CIV—03 1 10
Pursuant to the California Code of Civil Procedure § 428.10, Cross-Complainant
SOLOMON SHA (“Sha” or “Cross—Complainant”) cross—complains and alleges the following:
PARTIES
1. Cross—Complainant Sha is an individual residing in San Mateo County,
California.
2. Cross-Defendant SWEET PRODUCTION, INC. (“SP1”) isa California
Corporation doing business in San Mateo County, California.
\OOONON
3. Cross—Defcndant SWEET EXPRESS (“Sweet Express”) is believed to be a
business entity operating in San Mateo County, California.
10 4. Cross—Defendant Ming Chin (a.k.a. “Terry” Chin) isan individual residing in
11 San Mateo County, California.
12 5. Cross-Defendant Doreen Chin is an individual residing in San Mateo County,
13 California.
14 6. The true names and capacities of Cross—Defendants Roes 1-20, Whether
15 individual, corporate, or otherwise, are unknown to Cross—Complainant at this time, and Cross-
16 Complainant therefore sues these Cross—Defendants by such fictitious names. When the true
17 names and capacities of the fictitiously named Cross—Defendants are ascertained, Cross-
18 Complainant Will amend the complaint to reflect their true names. Cross—Complainant is
19 .informed and believes and thereon alleges that each of the fictitiously named Cross—Defendants
20 isindebted to Cross—Complainant as hereinafter alleged, as agents of or alter—egos 0f the other
21 Cross—Defendants, and that Cross-C'omplainant’s rights against such fictitiously named
22 defendants arise from such indebtedness.
23 7. A11 Cross-Defendants including ROES 1-20 are referred to herein as “Cross-
24 Defendants.”
25 JURISDICTION AND VENUE
26 8. Sha isa resident of San Mateo County, California.
27 9. Cross—Defendant SPI has filed a Complaint against Sha in San Mateo County.
28 10. Cross-Complainant is informed and believes and, on that basis, alleges that at all
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FIRST AMENDED CROSS— COMPLAINT CASE NO. 18-CIV-03 1 1 0
times referenced in this Cross—Complaint, Cross—Defendants entered into agreements and
conducted business in the County of San Mateo, California.
11. As a result, this Court has jurisdiction over the parties and venue is proper in San
Mateo County pursuant to California Code of Civil Procedure Section 395(a).
FACTUAL ALLEGATIONS
A. Sha and the Chins Form a Long-Term Close Relationship
OOVON
12. Sha met Ming (a.k.a. “Terry”) Chin and Doreen Chin (collectively, the “Chins”)
in 1987 while working at their restaurant in San Francisco. Sha became very close t0, and
\O trusting of, the Chins. Sha eventually leftthe Chins’ restaurant business to begin his career in
10 the bakery industry in 1998 at San Francisco Fine Bakery (“SFFB”). In 2006, the Chins lost
11 their lease in their restaurant and started working at SFFB, but the business relationship between
12 them and SFFB’s owner quickly soured. In late 2007, the Chins leftSFFB. In 2008, the Chins
13 and Sha started SPI. SP1 was initiallybased in South San Francisco, but eventually the bakery
14 business moved to itscurrent location of San Carlos.
15 B. The Establishment of Sweet Production, Inc. and the Start 0f the Chins’
Fraudulent Scheme to Gain Control and Divert Revenues and Profits
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17 13. Sha’s wife, Kitty Sha, began working at SPI in 2009 as an accountant. The
18 initialownership shares for SPI were the Chins (40%), Jenny Chea (30%), and Kitty/Solomon
19 Sha (30%). Kitty Sha worked as an accountant for SPI until she was asked to leave by the
20 Chins. The Chins did not want Kitty Sha to see their financial and accounting records and
21 accordingly asked her to leave. The Chins have improperly tried to take over the SPI Business
22 and freeze out and not pay the other owners of the business.
23 14. In furtherance of their scheme to misappropriate company assets and funds, and
24 gain control over SPI, the Chins opened a bank account at East West Bank where, on
25 information and belief, certain SPI cash funds were continuously deposited but not accounted
26 for on SPI’s accounting books and records. On information and belief, the Chins falsified the
27 accounting records of SPI to avoid paying co-owners, while improperly diverting SPI funds to
28 themselves for personal use.
FIRST AMENDED CRoss—COMPLAINT CASE No. 18—CIV-03 1 10
15. As part of their fraudulent scheme to take full control of SPI for their éwn
personal benefit, the Chins unilaterally and fraudulently reduced Sha’s share ownership and
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increased their own, in attempt to oust Jenny Chea, a 30% shareholder in SPI. The Chins
reduced Sha’s share ownership from 30% to 24.5% in 2011 to 14.5% in 2012. Sha did not
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uncover the Chins’ scheme to falsify books and misappropriate assets until much later. Sha
eventually noticed that his ownership share was decreasing significantly; When he approached
the Chins about this impropriety, they promised to eventually return his shares, which they have
The Chins were company profit distributions to their partners, while taking
\OOONQ
not. also not paying
them for themselves.
10 16. More recently, Sha began noticing that certain invoices for a company called
11 Sweet Express, with the same address as SPI, and ostensibly run by a relative of the Chins, were
12 issued With unusual orders and payments. By this time, Sha was very familiar with SPI’s
13 customers, their orders, the pricing of items, and the general revenue for SPI. On information
14 and belief, the Chins were diverting certain SPI business to Sweet Express, and allowing Sweet
15 Express to use SPI assets (without recompense), so they could divert revenues to themselves
16 and bypass yearly profit distributions to Sha and the other owners of SPI. Due t0 the unusual
17 Sweet Express invoices, coupled with the East West Bank account set-up and controlled by the
18 Chins, Sha began to piece together the financial irregularities and misappropriation of company
19 funds by the Chins to the detriment of SPI’s other shareholders. By this time, Sha had received
20 littleto no ownership profit distributions despite SPI’s financial success. On information and
21 belief, upon inspecting the finances of SP1, SPI has been very profitable, with $1 million in
22 profits each year since at least 201 1.
23 17. Sha then began requesting the return of his ownership shares, an accounting of
24 SPI books and records, and profit distributions. The Chins would respond With excuses as to
25 Why they could not return the shares or pay profit distributions or ignored Sha’s requests
26 altogether. In the last year, Sha sent several emails requesting the return of his shares. Again,
27 the Chins ignored his written requests. Realizing that Sha was not going to back down from
28 requesting the return of his shares and payment of his distributions, and after Sha requested an
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FIRST AMENDED CRoss-COMPLAINT CASE No. 18-CIV-03 1 10
accounting, the Chins began to plot against Sha to remove him as an employee from SPI. While
Sha was on vacation with his family, SPI’s attorney on April 13, 2017, sent a letter
correspondence to Sha stating that he was suspended and could not return t0 SPI’s premises due
to alleged improprieties. Sha knew that the suspension was a pretense and being used to keep
him away from SPI so that the Chins could continue using SPI’s resources for their own
OOQQU‘I-b
personal benefit and avoid the accounting.
18. Sha retained current counsel t0 request an accounting of SPI’s books and records
to determine the distribution amounts owed to Sha. SPI produced a handful of documents that
D included SPI Profit & Loss Statements from 2011 to 2017. These documents in no way
1o provided Sha an accurate financial accounting of SP1, as the Chins were not accurately reporting
11 profits and losses, With financial documents not reflecting accounting principles. On
12 information and belief, as an employee and day—to-day operations manager with access to
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13 financial records at that time, Sha was aware of SPI profiting at least $1 million a year. On
14 information and belief, based 0n Sha’s 30% ownership and fairshare of profits, a reasonable
15 conservative estimate owed t0 Sha but not paid is over $1 .5 million for 7 years.
16 19. The Chins have kept and continue to keep Sha’s shares 0f profit distributions by
17 the continued implementation of their financial and accounting scheme. The Chins are aware
18 they are unjustly enriching themselves and keeping as their own Sha’s shares 0f the profits. Sha
19 was ousted from SPI and the Chins have continued to refuse to provide access to SPI’s financial
20 books and records in furtherance of their fraudulent financial accounting scheme. In retaliation
21 for Sha’s request for his unpaid ownership share distributions, the Chins, using SP1 as their alter
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22 ego, filed a Complaint against Sha.
23 ALTER EGO ALLEGATIONS
24 20. Sha is informed and believes and thereon alleges that the entities named as
25 Cross—Defendants herein, including but not limited t0 SPI and Sweet Express, and Roes 1-20
26 (hereinafter collectively referred to as the “Alter Ego Entities”), and each of them, were at all
27 times relevant the alter ego entities of individual Cross—Defendants Terry and Doreen Chin by
28 reason of the following:
FIRST AMENDED CROSS-COMPLAINT CASE NO. 18-CIV-03 1 10
(a) Sha is informed and believes and thereon alleges that the individual Cross-
Defendants, at alltime herein mentioned, dominated, influenced, and controlled each
of the Alter Ego Entities and the officers thereof, as well as the business, property,
and affairs of each of said entities.
(b) Sha is informed and believes and thereon alleges that, at alltimes herein mentioned,
there existed and now exists a unity of interest and ownership between said
individual Cross—Defendants and each of the Alter Ego Entities; the individuality and
\OOOQON
separateness of said individual Cross-Defendants and each of the Alter Ego Entities
have ceased.
10 (c) Sha isinformed and believes and thereon alleges that, at alltimes since the
11 incorporation of each, each Alter Ego Entity has been and now is a mere shell for
12 each individual Cross—Defendant and used as a conduit for the conduct of their
13 personal business, property, and affairs.
14 (d) Sha isinformed and believes and thereon alleges that, at alltimes herein mentioned,
15 each of the Alter Ego Entities was created and continued pursuant to a fraudulent
16 plan, scheme, and device conceived and operated by the individual Cross-
17 Defendants, Terry and Doreen Chin, whereby the income, revenue, and profits of
18 each of the Alter Ego Entities were diverted by said individuals to themselves.
19 (e) Sha isinformed and believes and thereon alleges that, at alltimes herein mentioned,
20 each of the Alter Ego Entities was organized by said individual Cross—Defendants as
21 a device to avoid individual liabilityand for the purpose of substituting financially
22 irresponsible corporations in the place and stead of said individual Cross—
23 Defendants, and each of them, and accordingly, each Alter Ego Entity was formed
24 With capitalization totally inadequate for the business in which said corporation was
25 engaged.
26 (f) Sha isinformed and believes and thereon alleges that each Alter Ego Entity is
27 insolvent because of Cross—Defendants’ fraudulent handling of the Alter Ego
28 Entities’ finances for each Cross—Defendant’s personal benefit.
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FIRST AMENDED CROSS-COMPLAINT CASE NO. 18-CIV—03 1 10
(g) By Virtue of the foregoing, adherence to the fiction of the separate corporate
existence of each of the Alter Ego Entities would, under the circumstances, sanction
AWN a fraud and promote injustice in that Defendants would be unable to realize upon any
judgment in their favor.
21. Sha is informed and believes and thereon' alleges that, at alltimes relevant
hereto, the individual Cross—Defendants Ming and Doreen Chin and the Alter Ego Entities acted
\OOONONU‘I
for each other in connection with the conduct hereinafter alleged, and that each of them
performed the acts complained 0f herein or breached the duties herein complained of as agents
of each other and each is therefore fully liable for the acts of the other.
10 FIRST CAUSE OF ACTION
11 (Against Cross—Defendants Sweet Production, Inc., Ming Chin, and Doreen Chin for
12 Breach of Fiduciary Duty)
13 22. Sha realleges and incorporates by reference the allegations contained in
14 paragraphs 1 through 21 above.
15 23. As directors of SP1, each of the Defendants owes fiduciary duties of care,
16 loyalty, and good faith to SPI’s stockholders, including Sha. Cross-Defendants’ fiduciary duties
17 include obligations t0 exercise good business judgment, to act prudently in the operation of
18 SPI’s business, to discharge their actions in good faith, to act in the best interests
0f SPI and its
19 stockholders, and to put the interests of SPI before their own.
20 24. SPI owes owners and fellow directors the duty
its topay each its fairshare of
21 profit distributions based on share ownership.
22 25. Cross-Defendants breached their fiduciary duties 0f loyalty and good faith,
23 among other things, by diverting SPI funds and business away from SP1, issuing themselves
24 additional equity in SPI, and failing to pay itsstockholders their ownership share of
25 distributions based on equity share in SPI.
26 26. SP1 has breached itsfiduciary duty to Sha When it failed t0 pay Sha his
27 ownership share of distributions in SPI and cooked the financial books of SPI.
28 27. Sha has been damaged by Cross—Defendants’ breach of their fiduciary duties and
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FIRST AMENDED CRoss-COMPLAINT CASE No. 18-CIV-03 1 10
has suffered monetary loss and damages in an amount 0f at least $1.5 million in profit
distributions for the past 7 years. The filll extent of such monetary loss and damages by Cross-
Defendants’ breach 0f their fiduciary duties Will be ascertained in an amount to be proven at
trial.
SECOND CAUSE OF ACTION
(Against All Cross—Defendants for Accounting)
28. Sha realleges and incorporates by reference the allegations contained in
paragraph 1 through 27 above.
29. California Corporation Code § 1601 (a) provides: “The accounting books and
10 records and minutes of proceedings of the shareholders and the board and committees of the
11 board of any domestic corporation, and any foreign corporation keeping any such records in this
12 state or having its principal executive office in this state, shall be open to inspection on the
13 corporation of any shareholder or holder of a voting trust certificate at any reasonable time
14 during the usual business hours, for a purpose reasonably related to such holder’s interests as a
15 shareholder or as the holder of such voting trust certificate. The right of inspection created by
16 this subdivision shall extend to the records of each subsidiary of a corporation subject to this
17 subdivision.”
18 30. Sha, Who isa shareholder and officer of SPI, requested to review the accounting
19 books and records of SPI. Sha has never received a complete and/or detailed accounting from
20 Cross-Defendants as to Where and how SPI funds 5nd corporate revenues have been spent,
21 despite the accounting request. The sole means 0f ascertaining such information and
22 documentation are Within the control of Cross—Defefidants.
23 31 . Sha cannot determine the amount of money due him Without a full and complete
24 accounting from Cross—Defendants, and each of them. But, based on review of Profit & Loss
25 Statements from 2011 to 2017 and Sha’s knowledge of the business when he worked at SPI,
26 Sha has been damaged in an amount of at least $1.5 million in prpfit distributions for the past 7
27 years.
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FIRST AMENDED CROSS-COMPLAINT CASE NO. 18-CIV-03 1 10
THIRD CAUSE OF ACTION
(Against Cross-Defendants Ming Chin and Doreen Chin for Fraud)
32. Sha realleges and incorporates by references the allegations contained in
paragraphs 1 through 31 above.
OONQU‘l-PWN
33. Sha has personally known Cross-Defendants the Chins for over twenty years and
wholly trusted them as family. The Chins embarked on a schéme to take full control of SPI for
their own personal benefit. The Chins represented to Sha that they needed t0 reduce his
ownership share and increase their own in an attempt‘to oust Jenny Chea, a 30% shareholder in
\O SPI. They promised to return his ownership percentage share after they ousted Chea. The
10 Chins were not able to oust Chea and never returned Sha’s ownership percentage. The Chins
11 made such a plan to take full control of SPI for their own personal financial benefit.
12 34. In reliance on the representations, Sha agreed to slightly reduce his ownership
13 share With the agreement that it would be returned t0.him.
14 35. Unbeknownst to Sha, the Chins reduced Sha’s share ownership from 30% to
15 24.5% in 2011 to 14.5% in 2012.
1'6 36. At the time of the misrepresentations and omissions referenced herein, Cross-
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Defendants were aware that such misrepresentations and omissions were taking place and
18 allowed them to take place because, as directors and alter—egos 0f SPI, the Chins benefited from
19 the misrepresentations and omissions set forth herein.
20 37. The Chins also intentionally misrepresented that SPI was not making enough
21 profit to provide owner profit distributions to their fellow owners, while, on information and
22 belief, paying themselves distributions from SP1 revenue, and siphoning off SPI business and
23 revenues to their separate corporation Sweet Express.
24‘ 38. By reason of said misrepresentations and fraudulent concealment as alleged
25 hereiné Sha has been damaged in an amount of at least $1 .5 million in profit distributions for the
26 past 7 years due to Cross-Defendants’ misdeeds in management of SPI and diversion of
27 revenuc. The extent 0f the actual damages will be ascertained at trial.
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FIRST ANEENDED CROSS-COMPLAINT CASE NO. 18-CIV-03 1 10
FOURTH CAUSE OF ACTION
(Against All Defendants for Conversion)
39. Sha realleges and incorporates by references the allegations contained in
paragraphs 1 through 38 above.
QONUI-PUJN
40. Sha isentitled to his ownership share of SPI revenues and profits. On
information and belief, through the Chins" unlawful efforts to seize control of SP1, unilaterally
and fraudulently changing ownership percentages, falsifying SPI’s financial records and books,
paying themselves profit distributions but not their co—owncrs, siphoning off SPI business to
their separate entity Sweet Express, allowing Sweet Express t0 utilize SPI assets Without
10 payment to SP1, and controlling bank accounts to hide SPI revenues and profits, the Cross—
11 Defendants have wrongfully converted the assets 0f SPI and the profits that are owned by and
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12 should have been paid to Sha.
13 41. By reason of said conversion and fraud as alleged herein, Sha has been damaged
14 in an amount of at least $1 .5 million in profit distributions for the past 7 years due to Cross-
15 Defendants’ misdeeds in management 0f SPI and diversion of revenue. The extent 0f the actual
16 damages Will be ascertained at trial.
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17 FIFTH CAUSE 0F ACTION
18 (Against All Defendants for Unjust Enrichment)
1‘9 42. Sha realleg_es and incorporates by references the allegations contained in
20 paragraphs 1 through 41 above.
21 43. By reason of the acts claimed herein, and the misappropriation of SPI assets and
22 profits to themselves in breach of their fiduciary duties to their co-owners, the Cross—Defendants
23 were unjustly enriched at the expense of Sha and the other owner of SPI.
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25 PRAYER FOR RELIEF
26 WHEREAS, Cross-Complainant prays that judgment be entered against Cross-
27 Defendants as follows:
28 a. Judgment be entered in favor of Mr. Sha;
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FIRST AMENDED CRoss-COMPLAINT CASE No. 18-CIV-03 1 1 0
b. Mr. Sha be awarded his costs of suit, including reasonable attorney’s fees;
c. For damages in an amount of at least $1 .5 million in profit distributions to be
fully determined at trial,but no less than the jurisdictional amount of this Court;
d. For an accounting of SPI financial records, assets and profits;
e. For disgorgement of profits and revenues unlawfully misappropriated by
defendants; and
f. For such other relief as the Court may deem just and proper.
\OOONQ
JURY DEMAND
Cross-Complainant Solomon Sha, by and through his undersigned counsel, hereby
10 requests a trialby jury on all above claims triable to a jury.
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12 DATED: April 4, 2019
Respectfully submitted,
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MICLEAN GLEASON LLP
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By:
16 David J.Miclean
Danielle M. Mihalkanin
17 Attorneys for Defendant and Cross-Complainant
Solomon Sha
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FIRST AMENDED CRoss-COMPLAINT CASE No. 18-CIV—03 1 10
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DAVID J. MICLEAN (SBN 115098) FILED SAN MATEO COUNTY r dmiclean@micleangleason.com DANIELLE M. MIHALKANW (SBN 271442 APR 0 4 2019 dmihalkanin@micleangleason.com . MICLEAN GLEASON LLP .bbJN 411 Borel Avenue, Suite 310 San Mateo, CA 94402 Telephone: (650) 684-1 1-‘81 18— GlV—0311D ' Facsimile: (650) 684-1182 A001 QQUI First Amended Cross —‘60mplaint Attorneys for Defendant and Cross-Complainant 1746768 Solomon Sha z SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN MATEO 10 11 12 SWEET PRODUCTION, INC., a California Case No. 18-CIV-031 10 Corporation, 13 SOLOMON SHA’S FIRST AlVIENDED 14 Plaintiff, CROSS-COMPLAINT FOR: 15 V. 1. Breach of Fiduciary Duty ‘ 2. Accounting 16 SOLOMON SHA, an individual; and DOES 1 3. Fraud to 10, inclusive, ' 4. Conversion 17 5. Unjust Enrichment 18 Defendants. JURY TRIAL DEMANDED 19 SOLOMON SHA, Complaint Filed: June 18, 2018 20 Trial Date: June l7, 2019 21 Cross—Complainant, 22 v. 23 SWEET PRODUCTION, 1NC., a California corporation; SWEET EXPRESS; MING CHIN; 24 DOREEN CHIN; and ROES 1through 20, inclusive, g 25' 26 Cross-Defendants. 3 mi: 27 28‘ FAXEB FIRST AMENDED CRoss-COMPLAINT CASE NO. 18-CIV—03 1 10 Pursuant to the California Code of Civil Procedure § 428.10, Cross-Complainant SOLOMON SHA (“Sha” or “Cross—Complainant”) cross—complains and alleges the following: PARTIES 1. Cross—Complainant Sha is an individual residing in San Mateo County, California. 2. Cross-Defendant SWEET PRODUCTION, INC. (“SP1”) isa California Corporation doing business in San Mateo County, California. \OOONON 3. Cross—Defcndant SWEET EXPRESS (“Sweet Express”) is believed to be a business entity operating in San Mateo County, California. 10 4. Cross—Defendant Ming Chin (a.k.a. “Terry” Chin) isan individual residing in 11 San Mateo County, California. 12 5. Cross-Defendant Doreen Chin is an individual residing in San Mateo County, 13 California. 14 6. The true names and capacities of Cross—Defendants Roes 1-20, Whether 15 individual, corporate, or otherwise, are unknown to Cross—Complainant at this time, and Cross- 16 Complainant therefore sues these Cross—Defendants by such fictitious names. When the true 17 names and capacities of the fictitiously named Cross—Defendants are ascertained, Cross- 18 Complainant Will amend the complaint to reflect their true names. Cross—Complainant is 19 .informed and believes and thereon alleges that each of the fictitiously named Cross—Defendants 20 isindebted to Cross—Complainant as hereinafter alleged, as agents of or alter—egos 0f the other 21 Cross—Defendants, and that Cross-C'omplainant’s rights against such fictitiously named 22 defendants arise from such indebtedness. 23 7. A11 Cross-Defendants including ROES 1-20 are referred to herein as “Cross- 24 Defendants.” 25 JURISDICTION AND VENUE 26 8. Sha isa resident of San Mateo County, California. 27 9. Cross—Defendant SPI has filed a Complaint against Sha in San Mateo County. 28 10. Cross-Complainant is informed and believes and, on that basis, alleges that at all 1 FIRST AMENDED CROSS— COMPLAINT CASE NO. 18-CIV-03 1 1 0 times referenced in this Cross—Complaint, Cross—Defendants entered into agreements and conducted business in the County of San Mateo, California. 11. As a result, this Court has jurisdiction over the parties and venue is proper in San Mateo County pursuant to California Code of Civil Procedure Section 395(a). FACTUAL ALLEGATIONS A. Sha and the Chins Form a Long-Term Close Relationship OOVON 12. Sha met Ming (a.k.a. “Terry”) Chin and Doreen Chin (collectively, the “Chins”) in 1987 while working at their restaurant in San Francisco. Sha became very close t0, and \O trusting of, the Chins. Sha eventually leftthe Chins’ restaurant business to begin his career in 10 the bakery industry in 1998 at San Francisco Fine Bakery (“SFFB”). In 2006, the Chins lost 11 their lease in their restaurant and started working at SFFB, but the business relationship between 12 them and SFFB’s owner quickly soured. In late 2007, the Chins leftSFFB. In 2008, the Chins 13 and Sha started SPI. SP1 was initiallybased in South San Francisco, but eventually the bakery 14 business moved to itscurrent location of San Carlos. 15 B. The Establishment of Sweet Production, Inc. and the Start 0f the Chins’ Fraudulent Scheme to Gain Control and Divert Revenues and Profits 16 17 13. Sha’s wife, Kitty Sha, began working at SPI in 2009 as an accountant. The 18 initialownership shares for SPI were the Chins (40%), Jenny Chea (30%), and Kitty/Solomon 19 Sha (30%). Kitty Sha worked as an accountant for SPI until she was asked to leave by the 20 Chins. The Chins did not want Kitty Sha to see their financial and accounting records and 21 accordingly asked her to leave. The Chins have improperly tried to take over the SPI Business 22 and freeze out and not pay the other owners of the business. 23 14. In furtherance of their scheme to misappropriate company assets and funds, and 24 gain control over SPI, the Chins opened a bank account at East West Bank where, on 25 information and belief, certain SPI cash funds were continuously deposited but not accounted 26 for on SPI’s accounting books and records. On information and belief, the Chins falsified the 27 accounting records of SPI to avoid paying co-owners, while improperly diverting SPI funds to 28 themselves for personal use. FIRST AMENDED CRoss—COMPLAINT CASE No. 18—CIV-03 1 10 15. As part of their fraudulent scheme to take full control of SPI for their éwn personal benefit, the Chins unilaterally and fraudulently reduced Sha’s share ownership and U) increased their own, in attempt to oust Jenny Chea, a 30% shareholder in SPI. The Chins reduced Sha’s share ownership from 30% to 24.5% in 2011 to 14.5% in 2012. Sha did not {J1 uncover the Chins’ scheme to falsify books and misappropriate assets until much later. Sha eventually noticed that his ownership share was decreasing significantly; When he approached the Chins about this impropriety, they promised to eventually return his shares, which they have The Chins were company profit distributions to their partners, while taking \OOONQ not. also not paying them for themselves. 10 16. More recently, Sha began noticing that certain invoices for a company called 11 Sweet Express, with the same address as SPI, and ostensibly run by a relative of the Chins, were 12 issued With unusual orders and payments. By this time, Sha was very familiar with SPI’s 13 customers, their orders, the pricing of items, and the general revenue for SPI. On information 14 and belief, the Chins were diverting certain SPI business to Sweet Express, and allowing Sweet 15 Express to use SPI assets (without recompense), so they could divert revenues to themselves 16 and bypass yearly profit distributions to Sha and the other owners of SPI. Due t0 the unusual 17 Sweet Express invoices, coupled with the East West Bank account set-up and controlled by the 18 Chins, Sha began to piece together the financial irregularities and misappropriation of company 19 funds by the Chins to the detriment of SPI’s other shareholders. By this time, Sha had received 20 littleto no ownership profit distributions despite SPI’s financial success. On information and 21 belief, upon inspecting the finances of SP1, SPI has been very profitable, with $1 million in 22 profits each year since at least 201 1. 23 17. Sha then began requesting the return of his ownership shares, an accounting of 24 SPI books and records, and profit distributions. The Chins would respond With excuses as to 25 Why they could not return the shares or pay profit distributions or ignored Sha’s requests 26 altogether. In the last year, Sha sent several emails requesting the return of his shares. Again, 27 the Chins ignored his written requests. Realizing that Sha was not going to back down from 28 requesting the return of his shares and payment of his distributions, and after Sha requested an 3 FIRST AMENDED CRoss-COMPLAINT CASE No. 18-CIV-03 1 10 accounting, the Chins began to plot against Sha to remove him as an employee from SPI. While Sha was on vacation with his family, SPI’s attorney on April 13, 2017, sent a letter correspondence to Sha stating that he was suspended and could not return t0 SPI’s premises due to alleged improprieties. Sha knew that the suspension was a pretense and being used to keep him away from SPI so that the Chins could continue using SPI’s resources for their own OOQQU‘I-b personal benefit and avoid the accounting. 18. Sha retained current counsel t0 request an accounting of SPI’s books and records to determine the distribution amounts owed to Sha. SPI produced a handful of documents that D included SPI Profit & Loss Statements from 2011 to 2017. These documents in no way 1o provided Sha an accurate financial accounting of SP1, as the Chins were not accurately reporting 11 profits and losses, With financial documents not reflecting accounting principles. On 12 information and belief, as an employee and day—to-day operations manager with access to ' 13 financial records at that time, Sha was aware of SPI profiting at least $1 million a year. On 14 information and belief, based 0n Sha’s 30% ownership and fairshare of profits, a reasonable 15 conservative estimate owed t0 Sha but not paid is over $1 .5 million for 7 years. 16 19. The Chins have kept and continue to keep Sha’s shares 0f profit distributions by 17 the continued implementation of their financial and accounting scheme. The Chins are aware 18 they are unjustly enriching themselves and keeping as their own Sha’s shares 0f the profits. Sha 19 was ousted from SPI and the Chins have continued to refuse to provide access to SPI’s financial 20 books and records in furtherance of their fraudulent financial accounting scheme. In retaliation 21 for Sha’s request for his unpaid ownership share distributions, the Chins, using SP1 as their alter ‘ 22 ego, filed a Complaint against Sha. 23 ALTER EGO ALLEGATIONS 24 20. Sha is informed and believes and thereon alleges that the entities named as 25 Cross—Defendants herein, including but not limited t0 SPI and Sweet Express, and Roes 1-20 26 (hereinafter collectively referred to as the “Alter Ego Entities”), and each of them, were at all 27 times relevant the alter ego entities of individual Cross—Defendants Terry and Doreen Chin by 28 reason of the following: FIRST AMENDED CROSS-COMPLAINT CASE NO. 18-CIV-03 1 10 (a) Sha is informed and believes and thereon alleges that the individual Cross- Defendants, at alltime herein mentioned, dominated, influenced, and controlled each of the Alter Ego Entities and the officers thereof, as well as the business, property, and affairs of each of said entities. (b) Sha is informed and believes and thereon alleges that, at alltimes herein mentioned, there existed and now exists a unity of interest and ownership between said individual Cross—Defendants and each of the Alter Ego Entities; the individuality and \OOOQON separateness of said individual Cross-Defendants and each of the Alter Ego Entities have ceased. 10 (c) Sha isinformed and believes and thereon alleges that, at alltimes since the 11 incorporation of each, each Alter Ego Entity has been and now is a mere shell for 12 each individual Cross—Defendant and used as a conduit for the conduct of their 13 personal business, property, and affairs. 14 (d) Sha isinformed and believes and thereon alleges that, at alltimes herein mentioned, 15 each of the Alter Ego Entities was created and continued pursuant to a fraudulent 16 plan, scheme, and device conceived and operated by the individual Cross- 17 Defendants, Terry and Doreen Chin, whereby the income, revenue, and profits of 18 each of the Alter Ego Entities were diverted by said individuals to themselves. 19 (e) Sha isinformed and believes and thereon alleges that, at alltimes herein mentioned, 20 each of the Alter Ego Entities was organized by said individual Cross—Defendants as 21 a device to avoid individual liabilityand for the purpose of substituting financially 22 irresponsible corporations in the place and stead of said individual Cross— 23 Defendants, and each of them, and accordingly, each Alter Ego Entity was formed 24 With capitalization totally inadequate for the business in which said corporation was 25 engaged. 26 (f) Sha isinformed and believes and thereon alleges that each Alter Ego Entity is 27 insolvent because of Cross—Defendants’ fraudulent handling of the Alter Ego 28 Entities’ finances for each Cross—Defendant’s personal benefit. 5 FIRST AMENDED CROSS-COMPLAINT CASE NO. 18-CIV—03 1 10 (g) By Virtue of the foregoing, adherence to the fiction of the separate corporate existence of each of the Alter Ego Entities would, under the circumstances, sanction AWN a fraud and promote injustice in that Defendants would be unable to realize upon any judgment in their favor. 21. Sha is informed and believes and thereon' alleges that, at alltimes relevant hereto, the individual Cross—Defendants Ming and Doreen Chin and the Alter Ego Entities acted \OOONONU‘I for each other in connection with the conduct hereinafter alleged, and that each of them performed the acts complained 0f herein or breached the duties herein complained of as agents of each other and each is therefore fully liable for the acts of the other. 10 FIRST CAUSE OF ACTION 11 (Against Cross—Defendants Sweet Production, Inc., Ming Chin, and Doreen Chin for 12 Breach of Fiduciary Duty) 13 22. Sha realleges and incorporates by reference the allegations contained in 14 paragraphs 1 through 21 above. 15 23. As directors of SP1, each of the Defendants owes fiduciary duties of care, 16 loyalty, and good faith to SPI’s stockholders, including Sha. Cross-Defendants’ fiduciary duties 17 include obligations t0 exercise good business judgment, to act prudently in the operation of 18 SPI’s business, to discharge their actions in good faith, to act in the best interests 0f SPI and its 19 stockholders, and to put the interests of SPI before their own. 20 24. SPI owes owners and fellow directors the duty its topay each its fairshare of 21 profit distributions based on share ownership. 22 25. Cross-Defendants breached their fiduciary duties 0f loyalty and good faith, 23 among other things, by diverting SPI funds and business away from SP1, issuing themselves 24 additional equity in SPI, and failing to pay itsstockholders their ownership share of 25 distributions based on equity share in SPI. 26 26. SP1 has breached itsfiduciary duty to Sha When it failed t0 pay Sha his 27 ownership share of distributions in SPI and cooked the financial books of SPI. 28 27. Sha has been damaged by Cross—Defendants’ breach of their fiduciary duties and 6 FIRST AMENDED CRoss-COMPLAINT CASE No. 18-CIV-03 1 10 has suffered monetary loss and damages in an amount 0f at least $1.5 million in profit distributions for the past 7 years. The filll extent of such monetary loss and damages by Cross- Defendants’ breach 0f their fiduciary duties Will be ascertained in an amount to be proven at trial. SECOND CAUSE OF ACTION (Against All Cross—Defendants for Accounting) 28. Sha realleges and incorporates by reference the allegations contained in paragraph 1 through 27 above. 29. California Corporation Code § 1601 (a) provides: “The accounting books and 10 records and minutes of proceedings of the shareholders and the board and committees of the 11 board of any domestic corporation, and any foreign corporation keeping any such records in this 12 state or having its principal executive office in this state, shall be open to inspection on the 13 corporation of any shareholder or holder of a voting trust certificate at any reasonable time 14 during the usual business hours, for a purpose reasonably related to such holder’s interests as a 15 shareholder or as the holder of such voting trust certificate. The right of inspection created by 16 this subdivision shall extend to the records of each subsidiary of a corporation subject to this 17 subdivision.” 18 30. Sha, Who isa shareholder and officer of SPI, requested to review the accounting 19 books and records of SPI. Sha has never received a complete and/or detailed accounting from 20 Cross-Defendants as to Where and how SPI funds 5nd corporate revenues have been spent, 21 despite the accounting request. The sole means 0f ascertaining such information and 22 documentation are Within the control of Cross—Defefidants. 23 31 . Sha cannot determine the amount of money due him Without a full and complete 24 accounting from Cross—Defendants, and each of them. But, based on review of Profit & Loss 25 Statements from 2011 to 2017 and Sha’s knowledge of the business when he worked at SPI, 26 Sha has been damaged in an amount of at least $1.5 million in prpfit distributions for the past 7 27 years. 28 FIRST AMENDED CROSS-COMPLAINT CASE NO. 18-CIV-03 1 10 THIRD CAUSE OF ACTION (Against Cross-Defendants Ming Chin and Doreen Chin for Fraud) 32. Sha realleges and incorporates by references the allegations contained in paragraphs 1 through 31 above. OONQU‘l-PWN 33. Sha has personally known Cross-Defendants the Chins for over twenty years and wholly trusted them as family. The Chins embarked on a schéme to take full control of SPI for their own personal benefit. The Chins represented to Sha that they needed t0 reduce his ownership share and increase their own in an attempt‘to oust Jenny Chea, a 30% shareholder in \O SPI. They promised to return his ownership percentage share after they ousted Chea. The 10 Chins were not able to oust Chea and never returned Sha’s ownership percentage. The Chins 11 made such a plan to take full control of SPI for their own personal financial benefit. 12 34. In reliance on the representations, Sha agreed to slightly reduce his ownership 13 share With the agreement that it would be returned t0.him. 14 35. Unbeknownst to Sha, the Chins reduced Sha’s share ownership from 30% to 15 24.5% in 2011 to 14.5% in 2012. 1'6 36. At the time of the misrepresentations and omissions referenced herein, Cross- 17‘ Defendants were aware that such misrepresentations and omissions were taking place and 18 allowed them to take place because, as directors and alter—egos 0f SPI, the Chins benefited from 19 the misrepresentations and omissions set forth herein. 20 37. The Chins also intentionally misrepresented that SPI was not making enough 21 profit to provide owner profit distributions to their fellow owners, while, on information and 22 belief, paying themselves distributions from SP1 revenue, and siphoning off SPI business and 23 revenues to their separate corporation Sweet Express. 24‘ 38. By reason of said misrepresentations and fraudulent concealment as alleged 25 hereiné Sha has been damaged in an amount of at least $1 .5 million in profit distributions for the 26 past 7 years due to Cross-Defendants’ misdeeds in management of SPI and diversion of 27 revenuc. The extent 0f the actual damages will be ascertained at trial. 28 " 8 FIRST ANEENDED CROSS-COMPLAINT CASE NO. 18-CIV-03 1 10 FOURTH CAUSE OF ACTION (Against All Defendants for Conversion) 39. Sha realleges and incorporates by references the allegations contained in paragraphs 1 through 38 above. QONUI-PUJN 40. Sha isentitled to his ownership share of SPI revenues and profits. On information and belief, through the Chins" unlawful efforts to seize control of SP1, unilaterally and fraudulently changing ownership percentages, falsifying SPI’s financial records and books, paying themselves profit distributions but not their co—owncrs, siphoning off SPI business to their separate entity Sweet Express, allowing Sweet Express t0 utilize SPI assets Without 10 payment to SP1, and controlling bank accounts to hide SPI revenues and profits, the Cross— 11 Defendants have wrongfully converted the assets 0f SPI and the profits that are owned by and i V 12 should have been paid to Sha. 13 41. By reason of said conversion and fraud as alleged herein, Sha has been damaged 14 in an amount of at least $1 .5 million in profit distributions for the past 7 years due to Cross- 15 Defendants’ misdeeds in management 0f SPI and diversion of revenue. The extent 0f the actual 16 damages Will be ascertained at trial. I 17 FIFTH CAUSE 0F ACTION 18 (Against All Defendants for Unjust Enrichment) 1‘9 42. Sha realleg_es and incorporates by references the allegations contained in 20 paragraphs 1 through 41 above. 21 43. By reason of the acts claimed herein, and the misappropriation of SPI assets and 22 profits to themselves in breach of their fiduciary duties to their co-owners, the Cross—Defendants 23 were unjustly enriched at the expense of Sha and the other owner of SPI. 24 25 PRAYER FOR RELIEF 26 WHEREAS, Cross-Complainant prays that judgment be entered against Cross- 27 Defendants as follows: 28 a. Judgment be entered in favor of Mr. Sha; 9 FIRST AMENDED CRoss-COMPLAINT CASE No. 18-CIV-03 1 1 0 b. Mr. Sha be awarded his costs of suit, including reasonable attorney’s fees; c. For damages in an amount of at least $1 .5 million in profit distributions to be fully determined at trial,but no less than the jurisdictional amount of this Court; d. For an accounting of SPI financial records, assets and profits; e. For disgorgement of profits and revenues unlawfully misappropriated by defendants; and f. For such other relief as the Court may deem just and proper. \OOONQ JURY DEMAND Cross-Complainant Solomon Sha, by and through his undersigned counsel, hereby 10 requests a trialby jury on all above claims triable to a jury. 11 12 DATED: April 4, 2019 Respectfully submitted, 13 MICLEAN GLEASON LLP 14 15 By: 16 David J.Miclean Danielle M. Mihalkanin 17 Attorneys for Defendant and Cross-Complainant Solomon Sha 18 19 20 21 22 23 24’ 25 26 27 28 10 FIRST AMENDED CRoss-COMPLAINT CASE No. 18-CIV—03 1 10