Preview
ELECTRONICALLY FILED
Superior Court of California
County of Santa Barbara
1 SPERTUS, LANDES & UMHOFER, LLP Darrel E. Parker, Executive Officer
Matthew Donald Umhofer (SBN 206607) 10/1/2021 12:42 PM
2 Diane H. Bang (SBN 271939) By: Terri Chavez, Deputy
1990 South Bundy Dr., Suite 705
3 Los Angeles, California 90025
Telephone: (310) 826-4700
4 Facsimile: (310) 826-4711
mumhofer@spertuslaw.com
5 dbang@spertuslaw.com
6 Attorneys for Mark Schaub and TLG Ltd.
7
SUPERIOR COURT OF THE STATE OF CALIFORNIA
8
FOR THE COUNTY OF SANTA BARBARA
9
10 MARK SCHAUB, an individual; TLG Case No.: 20CV02113
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
LTD., a Hong Kong limited liability
11 company,
1990 SOUTH BUNDY DR., SUITE 705
Hon. Donna D. Geck
LOS ANGELES, CA 90025
12 Plaintiffs,
PLAINTIFFS’ OPPOSITION TO
13 v. DEMURRER TO SECOND AMENDED
COMPLAINT
14 ANDREW WYLES WATERS, an
individual; FCP CORPORATE LTD., a Hearing Date: October 15, 2021
15 Hong Kong limited liability company; Hearing Time: 10:00 a.m.
FCP PRIVATE, LLC, a California Dept.: 4
16 limited liability corporation; and DOES
1 through 10 inclusive,
17
Defendants.
18
19
20
21
22
23
24
25
26
27
28
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 TABLE OF CONTENTS
2 PAGE
3 MEMORANDUM OF POINTS AND AUTHORITIES ................................................. 1
4 I. INTRODUCTION.................................................................................................... 1
5 II. FACTUAL BACKGROUND .................................................................................. 2
6 III. ARGUMENT ........................................................................................................... 3
7 A. Pleadings Are Liberally Construed ............................................................ 3
8 B. Mr. Schaub Has Standing to Pursue All of the Alleged Causes of
Action ......................................................................................................... 4
9
C. Plaintiffs’ Complaint Adequately Pleads Intentional
10 Misrepresentation ....................................................................................... 5
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 1. Misrepresentations that funds will be held in trust ......................... 5
1990 SOUTH BUNDY DR., SUITE 705
12 2. Misrepresentations that funds are frozen ........................................ 6
LOS ANGELES, CA 90025
13 D. Plaintiffs’ Complaint Adequately Pleads Concealment ............................. 7
14 E. Plaintiffs’ $1,940,000 Breach of Contract Claim Is Properly Pleaded ...... 8
15 F. Plaintiffs’ $400,000 Breach of Contract Claim Is Properly Pleaded ....... 10
16 G. Plaintiffs Have Appropriately Pleaded A Claim For Unjust
Enrichment ............................................................................................... 11
17
H. Any Defects Can Be Cured By Amendment............................................ 12
18
IV. CONCLUSION ...................................................................................................... 13
19
20
21
22
23
24
25
26
27
28
i
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 TABLE OF AUTHORITIES
2 CASES PAGE(S)
3 Angelucci v. Century Supper Club,
(2007) 41 Cal. 4th 160 ................................................................................................... 4
4
Beatrice Co. v. State Bd. of Equalization,
5 (1993) 6 Cal. 4th 767 ..................................................................................................... 9
6 Beeler v. City Title Ins. Co.,
(1962) 201 Cal. App. 2d 702 ..................................................................................... 1, 3
7
Blumhorst v. Jewish Family Services of Los Angeles,
8 (2005) 126 Cal. App. 4th 993 ........................................................................................ 4
9 Chrisman v. Southern Cal. Edison Co.,
(1927) 83 Cal. App. 249 ................................................................................................ 9
10
Coffelt v. Coffelt,
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 (1964) 229 Cal. App. 2d 659 ....................................................................................... 12
1990 SOUTH BUNDY DR., SUITE 705
12 Gagne v. Bertran,
LOS ANGELES, CA 90025
(1954) 43 Cal. 2d 481 .................................................................................................... 7
13
Henderson v. Fisher,
14 (1965) 236 Cal. App. 2d 468 ......................................................................................... 9
15 Marketing West, Inc. v. Sanyo Fisher (USA) Corp.,
(1992) 6 Cal. App. 4th 603 ............................................................................................ 7
16
McBride v. Boughton,
17 (2004) 123 Cal. App. 4th 379 ................................................................................ 11, 12
18 Monarco v. Lo Greco,
(1950) 35 Cal. 2d 621 ............................................................................................ 10, 11
19
Ornbaun v. Main,
20 (1961) 198 Cal. App. 2d 92 ......................................................................................... 10
21 Patrick v. Alacer Corp.,
(2008) 167 Cal. App. 4th 995 ........................................................................................ 8
22
Porten v. University of San Francisco,
23 (1976) 64 Cal. App. 3d 825 ........................................................................................... 4
24 Rutherford Holdings, LLC v. Plaza Del Rey,
(2014) 223 Cal. App. 4th 221 ................................................................................ 11, 12
25
Vaccaro v. Kaiman,
26 (1998) 63 Cal. App. 4th 761 ........................................................................................ 12
27 Winn v. McCulloch Corp.,
(1976) 60 Cal. App. 3d 663 ........................................................................................... 5
28
ii
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 STATUTES
2 Cal. Civ. Code § 1605 ....................................................................................................... 9
3 Cal. Civ. Code § 1624(a)(7) ............................................................................................ 10
4 Code Civ. Proc. § 452........................................................................................................ 3
5
6
7
8
9
10
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11
1990 SOUTH BUNDY DR., SUITE 705
12
LOS ANGELES, CA 90025
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
iii
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 MEMORANDUM OF POINTS AND AUTHORITIES
2 I. INTRODUCTION
3 Defendants stole approximately $2 million from Plaintiff Mark Schaub and his
4 company. Defendant Andrew Waters fraudulently induced Mr. Schaub into sending
5 funds to an account controlled by Waters, and when Mr. Schaub demanded the return of
6 the funds, Waters lied to keep the funds, claiming that the funds had been frozen even as
7 he surreptitiously siphoned all of Plaintiffs’ money out of the accounts. After months of
8 lies and lulling by Waters, Plaintiffs discovered the truth about Waters and were left with
9 no choice but to bring this case in order to hold Waters accountable.
10 These facts, as set forth in Plaintiffs’ Second Amended Complaint (“SAC”),
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 properly plead causes of action for conversion, intentional misrepresentation,
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 concealment, breaches of contract, and unjust enrichment. See Beeler v. City Title Ins.
13 Co. (1962) 201 Cal. App. 2d 702, 705 (“In considering each of the demurrers [courts] are
14 guided by the settled rule that the pleading must be liberally construed and that all facts
15 well pleaded are assumed to be true.”). The SAC specifically alleges that Defendants
16 misrepresented that the funds would be held in trust and lied to keep the funds, and that
17 Plaintiffs have been damaged because Defendants refuse to return those funds which
18 were to be held in trust. Plaintiffs never would have permitted the transfer of the funds,
19 had they known the truth that the funds would not be held in trust and would not be
20 returned to Plaintiffs. Had they known the truth that the funds were not frozen in
21 Defendants’ accounts, Plaintiffs also would have never let months go by, believing that
22 the money would be returned, without taking action to prevent the dissipation of those
23 funds. Defendants have unjustly benefited from having control over Plaintiffs’ funds,
24 and Plaintiffs are entitled to restitution.
25 Because the SAC pleads facts sufficient to set forth claims for conversion,
26 intentional misrepresentation, concealment, breaches of contract, and unjust enrichment,
27 the demurrer should be overruled, and Defendants should be held to answer the
28 allegations in the SAC.
1
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 II. FACTUAL BACKGROUND
2 Defendant Waters is a fraudster. (SAC ¶ 1.) Through his various companies,
3 Waters lured wealthy investors into sending him hundreds of thousands of dollars, which
4 he then misappropriated for his own personal use. (Ibid.) Waters created shell
5 companies to mislead potential investors, conning them into believing that each company
6 would be legitimately operated and profitable. (Ibid.)
7 Defendant Waters targeted Mr. Schaub, befriending him and then ultimately
8 defrauding him. Mr. Schaub and Waters’ relationship began around 2008 when they
9 were both living in Shanghai, China. (SAC ¶ 18.) Waters held himself out as a
10 successful businessman, running successful businesses, and well-connected to major
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 players in China, Hong Kong, and Australia. (Ibid.) Over time, Mr. Schaub, an attorney,
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 came to trust Waters and even agreed to be named as a director or shareholder in several
13 of Waters’ companies. (SAC ¶¶ 19-20.)
14 Mr. Schaub also made an occasional loan to Waters, but not all of them were
15 repaid. (SAC ¶ 21.) One particular loan was made in May 2010 in the amount of
16 $400,000. (Ibid.) In exchange for the $400,000 loan, Mr. Schaub was told he would
17 receive a 25% interest in Waters’ business, China Network Logistics. (Ibid.) In 2016,
18 however, Mr. Schaub and Waters agreed that in exchange for the $400,000 loan, Mr.
19 Schaub would receive shares in a different company owned by Waters, the Food Box
20 Network. (SAC ¶ 24.) The $400,000 was to be repaid when the company went public on
21 the Australian Stock Exchange via a backdoor listing, which never materialized. (Ibid.)
22 The Food Box Network is now no longer a viable business, and Mr. Schaub has yet to be
23 repaid the $400,00 he loaned to Waters. (SAC ¶ 25.)
24 In 2019, Mr. Schaub was informed that HSBC in Hong Kong was planning to
25 close his TLG company account. (SAC ¶ 26.) Defendant Waters misled Mr. Schaub into
26 believing that HSBC was closing the account because the bank believed it to contain
27 tainted funds. (SAC ¶ 27.) Unfamiliar with Hong Kong banking regulations and trusting
28 in Waters’ apparent expertise, Mr. Schaub believed Defendant Waters’
2
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 misrepresentations and transferred his funds to the FCP Corporate account controlled by
2 Waters, who promised Mr. Schaub that the money was going to a client account and that
3 the funds would be held in trust. (Ibid.)
4 Unfortunately for Mr. Schaub, in July 2019, a bank error led to the transfer of
5 approximately $1,940,000 (instead of the intended $50,000) from Mr. Schaub’s TLG
6 account to the Waters-controlled FCP Corporate account. (SAC ¶ 32.) When Mr.
7 Schaub inquired about the money, rather than returning the funds to Mr. Schaub,
8 Defendant Waters proceeded to drain FCP Corporate’s account of the entire $1.9 million.
9 (SAC ¶ 41.) Meanwhile, Waters repeatedly and falsely told Mr. Schaub that the bank had
10 frozen the accounts where Plaintiffs’ funds were transferred to, that the bank believed the
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 funds were from an illegitimate source, and that he would have to go to Hong Kong to
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 resolve the situation with the frozen accounts. (SAC ¶¶ 35-40.) For months, Waters
13 proceeded to use lies to delay the return of Mr. Schaub’s money and facilitate his
14 movement of the money out of the FCP account. (Ibid.)
15 The fraud scheme succeeded until early 2020, when Mr. Schaub learned that
16 Waters had been lying to him the whole time—not just about the frozen accounts, but
17 about Waters’ business dealings as well. (See SAC ¶¶ 44-48.) When Mr. Schaub
18 demanded the immediate return of his funds, Waters refused, and he continues to refuse
19 to this day. In an effort to conceal and complete the fraud, Waters has threatened
20 litigation against Mr. Schaub based on entirely false allegations concerning business
21 transactions, including a purported deal with Hearst Communications--a deal that appears
22 to be as fake as Waters’ many other fraudulent claims to Mr. Schaub and others. (SAC
23 ¶ 54.)
24 III. ARGUMENT
25 A. Pleadings Are Liberally Construed
26 In considering demurrers, courts “are guided by the settled rule that the pleading
27 must be liberally construed and that all facts well pleaded are assumed to be true.”
28 Beeler v. City Title Ins. Co. (1962) 201 Cal. App. 2d 702, 705 (citations omitted); Code
3
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Civ. Proc. § 452 (“In the construction of a pleading, for the purpose of determining its
2 effect, its allegations must be liberally construed, with a view to substantial justice
3 between the parties.”). “Although the complaint may not be a model pleading, the policy
4 of the law is to construe pleadings liberally to the end that cases will be tried on their
5 merits rather than disposed of on technicalities of pleadings.” Porten v. University of San
6 Francisco (1976) 64 Cal. App. 3d 825, 833. “Mistaken labels and confusion of legal
7 theory are not fatal; if appellant’s complaint states a cause of action on any theory, he is
8 entitled to introduce evidence thereon.” Ibid.
9 Applying the standards above, Defendants’ demurrer must be overruled.
10 B. Mr. Schaub Has Standing to Pursue All of the Alleged Causes of
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 Action
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 As an initial matter, Mr. Schaub has standing to bring all the claims alleged in the
13 SAC as a real party in interest. “In general terms, in order to have standing, the plaintiff
14 must be able to allege injury—that is, some ‘invasion of the plaintiff’s legally protected
15 interests.’” Angelucci v. Century Supper Club (2007) 41 Cal. 4th 160, 175 (citations
16 omitted). “A person who invokes the judicial process lacks standing if he, or those whom
17 he properly represents, ‘does not have a real interest in the ultimate adjudication because
18 [he] has neither suffered nor is about to suffer any injury of sufficient magnitude
19 reasonably to assure that all of the relevant facts and issues will be adequately
20 presented.’” Blumhorst v. Jewish Family Servs. of L.A. (2005) 126 Cal. App. 4th 993,
21 1001.
22 As alleged in the SAC, Mr. Schaub is the 100% beneficial owner of TLG. (SAC
23 ¶ 10 (“Plaintiff TLG, Ltd. is a Hong Kong limited liability company, owned by Mr.
24 Schaub.”).) The TLG bank account was used as a savings account for employment
25 bonuses received by Mr. Schaub. Whatever injury TLG suffers is consequently suffered
26 by Mr. Schaub—the money was his money. (See SAC ¶ 4 (stating that Mr. Schaub has
27 pleaded with “Defendants to return the funds that rightfully belong to him”).)
28 Additionally, Waters cannot make a good faith argument that Mr. Schaub is not a proper
4
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 party to any of the causes of action, because Waters is well aware that the funds he stole
2 were Mr. Schaub’s personal funds, as he later “returned” $750,000 to Mr. Schaub’s
3 personal bank account (see SAC ¶ 42).
4 Because the money stolen by Defendants is Mr. Schaub’s money over which he
5 has a legally protected interest, Mr. Schaub has standing to bring the First Cause of
6 Action for Conversion. Mr. Schaub also has standing to bring the Second and Third
7 Causes of Action for Intentional Misrepresentation and Concealment because he was lied
8 to, he ultimately relied on the lies to his detriment, and his money has been stolen as a
9 result. Finally, Mr. Schaub has standing to bring the Fourth, Fifth and Sixth Causes of
10 Action for Breaches of Contract and Unjust Enrichment because both he and TLG are
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 parties to the contracts at issue, and these were his funds that were borrowed and never
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 returned.
13 C. Plaintiffs’ Complaint Adequately Pleads Intentional Misrepresentation
14 “A complaint alleging fraud must plead with particularity ultimate facts showing
15 representation, falsity of representation, knowledge of falsity, intent to deceive and
16 reliance with resulting damage.” Winn v. McCulloch Corp. (1976) 60 Cal. App. 3d 663,
17 670. “Negligence in reliance upon a misrepresentation is not a defense where the
18 misrepresentation was intentionally made to induce reliance upon it.” Id. at 671.
19 Plaintiffs have properly pleaded a claim for intentional misrepresentation against
20 Defendant Waters.
21 1. Misrepresentations that funds will be held in trust
22 The first misrepresentation alleged by Plaintiffs is the misrepresentation that their
23 funds would be held in trust. On May 14, 2018, Waters wrote to Mr. Schaub in a Wechat
24 text exchange that the FCP Corporate (HK) account is “a client trust typ[e] account for
25 corporate services.” (SAC ¶¶ 29, 66.) Around June 2019, Waters verbally told Mr.
26 Schaub again that the FCP Corporate (HK) account was a client trust account and that
27 Plaintiffs’ funds would be held in trust. (SAC ¶ 66.) Around June 2019, Waters also
28 verbally told Mr. Schaub that the funds would be transferred back to him upon request.
5
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 (SAC ¶ 81.) Plaintiffs relied on these representations to their detriment and allowed for
2 their funds to be transferred to FCP Corporate (HK)’s Citibank account. (SAC ¶ 30.)
3 Reliance on these representations were to Plaintiffs’ detriment because Defendants then
4 took those funds and misappropriated them to their own use. (SAC ¶ 41.)
5 Defendants attempt to skirt around the claim for intentional misrepresentation by
6 arguing that the alleged misrepresentations were made to induce Plaintiffs to send
7 $50,000, not $1,940,000. The SAC alleges no such thing.
8 The SAC states that “Waters induced Plaintiffs into sending funds to the accounts
9 under his control.” (SAC ¶ 66 (emphasis added).) The amount of funds Plaintiffs were
10 induced into sending was not specified and did not play a part in Plaintiffs’ inducement.
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 Nowhere does the SAC state that Waters induced Plaintiffs into sending just $50,000.
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 Whether $50,000 or $1,940,000, Plaintiffs transferred the funds because they thought the
13 funds would be held in trust. (Ibid.) Plaintiffs justifiably relied on Waters’
14 representations because of “Waters’ status as a business associate and years of
15 maintaining a personal relationship with Mr. Schaub.” (SAC ¶ 72.) Plaintiffs have been
16 damaged as a result of their reliance on Waters’ misrepresentations because the funds still
17 have not been returned to them. (SAC ¶ 74.)
18 2. Misrepresentations that funds are frozen
19 In addition to the misrepresentation that Plaintiffs’ funds would be held in trust,
20 the SAC specifically states how Defendant Waters also made the following additional
21 misrepresentations after the funds were transferred over email and Wechat: (1) that the
22 bank had frozen the accounts where Plaintiffs’ funds were transferred to (SAC ¶ 40); and
23 (2) that the bank believed the funds were from an illegitimate source (SAC ¶¶ 36-39).
24 Waters knew these representations were false when he made them because around the
25 same time he made these false representations, he drained the FCP Citibank accounts of
26 all funds. (SAC ¶ 41.)
27 Plaintiffs were induced not to act, or to alter their position, based on Waters’ false
28 representations that the funds were frozen in the FCP Corporate (HK) accounts. Rather
6
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 than immediately go to the authorities, or take some other type of legal action to prevent
2 the dissipation of the funds, to their detriment, Plaintiffs relied upon Waters’ assertions
3 that the funds were locked in the account and could not be moved. See Gagne v. Bertran
4 (1954) 43 Cal. 2d 481, 487-88 (“[T]o be actionable deceit, the representation . . . need
5 only be an assertion, as a fact, of that which is not true, by one who has no reasonable
6 ground for believing it to be true, and made with intent to induce (the recipient) to alter
7 his position to his injury or his risk.” (internal citations and quotation marks omitted)).
8 Waters made these misrepresentations to Plaintiffs in order to buy time so that he could
9 withdraw all of Plaintiffs’ funds and transfer the funds to other accounts for his own
10 personal use, and now Plaintiffs’ money is gone.
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 As the SAC alleges all elements of a cause of action for intentional
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 misrepresentation, Defendants’ demurrer to this cause of action should be overruled.
13 D. Plaintiffs’ Complaint Adequately Pleads Concealment
14 An action for concealment has five elements: (1) concealment of a material fact,
15 (2) a duty to disclose the fact, (3) intentional concealment of the fact with the intent to
16 defraud, (4) the plaintiff was unaware of the fact and would not have acted as he did if he
17 had known of the concealed fact, and (5) damage as a result of the concealment.
18 Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal. App. 4th 603, 612-13.
19 The same allegations for misrepresentation also properly allege a cause of action
20 for concealment. The material fact concealed by Defendants was that the accounts were
21 not frozen, and Plaintiffs’ funds could have been returned to them at any time. Waters
22 intentionally concealed this material fact by lying about the following: (1) that the funds
23 transferred by Plaintiffs would be held in trust, (2) that the funds were frozen by the bank,
24 (3) that Citibank wanted to close the accounts because something was wrong with the
25 money, (4) that Defendant Waters had to go to Hong Kong in order for the money to be
26 released, (5) that the bank had locked Defendants’ accounts, and (6) that the $750,000
27 repaid to Plaintiffs is Defendant Waters’ own personal funds. (SAC ¶¶ 35-42.) All of
28 these statements were made in furtherance of the fraud.
7
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Defendants had a duty to disclose the truth about Plaintiffs’ funds, that the funds
2 were not frozen and could be withdrawn, and that funds had been withdrawn by Waters.
3 (SAC ¶ 76.) Plaintiffs were unaware that the funds were not frozen in the FCP Corporate
4 (HK) accounts, and that Waters had withdrawn all of Plaintiffs’ funds with no intention
5 of returning them. Had Plaintiffs known the truth, they would have immediately gone to
6 the authorities or taken some other legal action to prevent the dissipation of funds;
7 instead, Plaintiffs were strung along for months, believing Defendants’ lies about the
8 accounts being frozen, while Waters drained the accounts. (SAC ¶ 77.) Plaintiffs have
9 been damaged as a result of not being told the truth about the accounts not being frozen,
10 because the funds have been transferred to other third parties, making it extremely
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 difficult to retrieve those funds and be made whole. (SAC ¶¶ 41, 78.)
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 Therefore, Plaintiffs’ SAC alleges all elements of a cause of action for
13 concealment.
14 E. Plaintiffs’ $1,940,000 Breach of Contract Claim Is Properly Pleaded
15 Defendants argue that Plaintiffs were not permitted to add the Fourth and Fifth
16 Causes of Action for breaches of contract based on the Court’s ruling on the prior
17 demurrer. This is incorrect. The pleadings can be amended to address the Court’s reason
18 for sustaining a demurrer, which is what Plaintiffs have done here. Patrick v. Alacer
19 Corp. (2008) 167 Cal. App. 4th 995, 1015 (holding that the rule preventing a plaintiff
20 from adding entirely new causes of action without permission does not apply where “the
21 new cause of action directly responds to the court’s reason for sustaining the earlier
22 demurrer”). The breach of contract causes of action were added to address the issue that
23 “plaintiffs have not asserted a contract or implied contract claim.” 1 (Min. Order on
24 Demurrer and Mot. to Strike, June 4, 2021.)
25
26
27
1
For the sake of brevity, Plaintiffs will not repeat the arguments made in Plaintiffs’
Opposition to Motion to Strike the SAC regarding the adding of new claims in response to
28 a ruling on a demurrer here, but instead, fully incorporate Plaintiffs’ Opposition to Motion
to Strike, filed concurrently herewith.
8
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Plaintiffs have properly alleged a breach of contract cause of action for the
2 $1,940,000. Mr. Schaub and TLG entered into an oral contract with Defendants in or
3 around June 2019. (SAC ¶ 81.) The terms of the contract were that Defendants would
4 hold Plaintiffs’ funds in trust and return the funds upon request. (Ibid.) Plaintiffs
5 performed by transferring approximately $1,940,000 to Defendant FCP Corporate (HK).
6 (SAC ¶ 83.) Defendants are in breach of the contract because they refuse to return
7 Plaintiffs’ funds even upon request, damaging Plaintiffs. (SAC ¶¶ 84-85.)
8 Defendants’ argument that the contract lacks consideration because they received
9 no benefit is wrong. Good consideration is defined as “[a]ny benefit conferred, or agreed
10 to be conferred, upon the promisor, by any other person, to which the promisor is not
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person,
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 other than such as he is at the time of consent lawfully bound to suffer . . . .” Civ. Code
13 § 1605. “[I]t is not necessary [] that there be both a benefit to the transferor and a
14 detriment to the transferee for consideration to be found.” Beatrice Co. v. State Bd. of
15 Equalization (1993) 6 Cal. 4th 767, 783. “It is sufficient under Civil Code section 1605
16 that the transferee of assets suffer prejudice or agree to do so.” Ibid.; see also Chrisman
17 v. S. Cal. Edison Co. (1927) 83 Cal. App. 249, 254. (“The benefit may be trifling, but if
18 the promisor is not otherwise lawfully entitled to it, it is sufficient to sustain the contract
19 as a matter of law.”). When considering the adequacy of consideration, “the court may
20 consider such factors as the relationship of the parties, their friendship, love, affection,
21 and regard for each other, and the object to be obtained by the contract.” Henderson v.
22 Fisher (1965) 236 Cal. App. 2d 468, 474.
23 Here, there was adequate consideration between the parties, who were long-time
24 friends. As the promisor, Defendants were not entitled to Plaintiffs’ funds, and obtained
25 a benefit by receiving the funds. By agreeing to hold the funds, Defendants also suffered
26 whatever obligations come with that responsibility. There is a goodwill element to the
27 agreement, as this was Waters’ opportunity to return a favor to an old friend, who had
28 made occasional loans to Waters in the past. By agreeing to hold the funds, Waters was
9
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 able to ingratiate himself to a past and potentially future investor, Mr. Schaub. Thus,
2 there is adequate consideration here. See Ornbaun v. Main (1961) 198 Cal. App. 2d 92,
3 97 (holding that the relationship of the parties may be considered in determining the
4 adequacy of consideration).
5 F. Plaintiffs’ $400,000 Breach of Contract Claim Is Properly Pleaded
6 Plaintiffs have also properly alleged a breach of contract cause of action for the
7 $400,000. In 2010, Plaintiffs and Waters agreed that Mr. Schaub would loan Waters
8 $400,000 to provide liquidity for Waters’ company, China Network Logistics. (SAC
9 ¶ 87.) Plaintiffs performed by providing the funds. (Ibid.) The terms were altered in
10 2016 when the parties agreed that the funds would be invested in a different company
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 controlled by Waters, the Food Box Network. (Ibid.) Believing he would be repaid
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 when the company went public on the Australian Stock Exchange via a backdoor listing,
13 Mr. Schaub accepted shares of Food Box Network in exchange for the $400,000 loan.
14 (Ibid.) The Food Box Network was never listed on the Australian Stock Exchange and is
15 now not operational, but Mr. Schaub has not been repaid. (SAC ¶¶ 89-90.)
16 Defendants argue incorrectly that the contract violates the statute of frauds under
17 California Civil Code section 1624(a)(7). Section 1624 pertains to contracts “made by a
18 person engaged in the business of lending or arranging for the lending of money or
19 extending credit.” Civ. Code § 1624(a)(7). Neither party to this agreement was “in the
20 business of lending or arranging for the lending of money or extending credit.” Mr.
21 Schaub was, and is, a practicing attorney, and Waters was supposedly in the e-commerce
22 business.
23 Even if the statute of frauds applies here, which Plaintiffs believe it does not,
24 Defendants will be estopped from asserting this defense. “The doctrine of estoppel to
25 assert the statute of frauds has been consistently applied by the courts of this state to
26 prevent fraud that would result from refusal to enforce oral contracts in certain
27 circumstances.” Monarco v. Lo Greco (1950) 35 Cal. 2d 621, 623. “Such fraud may
28 inhere in the unconscionable injury that would result from denying enforcement of the
10
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 contract after one party has been induced by the other seriously to change his position in
2 reliance on the contract, or in the unjust enrichment that would result if a party who has
3 received the benefits of the other’s performance were allowed to rely upon the statute.”
4 Ibid. at 623-24 (internal citations omitted).
5 Here, the presence of both elements prevents Waters from using this defense to
6 escape liability. Mr. Schaub gave up an enormous amount of savings, $400,000, which
7 could have been placed in real investments that appreciated over time. On the other
8 hand, Waters would be unjustly enriched in the amount of $400,000 were he permitted to
9 rely on the statute of frauds. Waters should not, therefore, be permitted to assert the
10 statute of frauds defense against this breach of contract claim.
Spertus, Landes & Umhofer, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
11 G. Plaintiffs Have Appropriately Pleaded A Claim For Unjust
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 Enrichment
13 Although California courts do not recognize a standalone cause of action for
14 unjust enrichment, “a party to an express contract can assert a claim for restitution based
15 on unjust enrichment by alleging in that cause of action that the express contract is void
16 or was rescinded.” Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal. App. 4th
17 221, 231. Unjust enrichment is characterized as “a general principle, underlying various
18 legal doctrines and remedies . . . [and] is synonymous with restitution.” Ibid. Courts
19 have construed “the cause of action as a quasi-contract claim seeking restitution.” Ibid.
20 “[R]estitution may be awarded where the defendant obtained a benefit from the
21 plaintiff by fraud, duress, conversion, or similar conduct. In such cases, the plaintiff may
22 choose not to sue in tort, but instead to seek restitution on a quasi-contract theo
Preview
ELECTRONICALLY FILED Superior Court of California County of Santa Barbara 1 SPERTUS, LANDES & UMHOFER, LLP Darrel E. Parker, Executive Officer Matthew Donald Umhofer (SBN 206607) 10/1/2021 12:42 PM 2 Diane H. Bang (SBN 271939) By: Terri Chavez, Deputy 1990 South Bundy Dr., Suite 705 3 Los Angeles, California 90025 Telephone: (310) 826-4700 4 Facsimile: (310) 826-4711 mumhofer@spertuslaw.com 5 dbang@spertuslaw.com 6 Attorneys for Mark Schaub and TLG Ltd. 7 SUPERIOR COURT OF THE STATE OF CALIFORNIA 8 FOR THE COUNTY OF SANTA BARBARA 9 10 MARK SCHAUB, an individual; TLG Case No.: 20CV02113 Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 LTD., a Hong Kong limited liability 11 company, 1990 SOUTH BUNDY DR., SUITE 705 Hon. Donna D. Geck LOS ANGELES, CA 90025 12 Plaintiffs, PLAINTIFFS’ OPPOSITION TO 13 v. DEMURRER TO SECOND AMENDED COMPLAINT 14 ANDREW WYLES WATERS, an individual; FCP CORPORATE LTD., a Hearing Date: October 15, 2021 15 Hong Kong limited liability company; Hearing Time: 10:00 a.m. FCP PRIVATE, LLC, a California Dept.: 4 16 limited liability corporation; and DOES 1 through 10 inclusive, 17 Defendants. 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 TABLE OF CONTENTS 2 PAGE 3 MEMORANDUM OF POINTS AND AUTHORITIES ................................................. 1 4 I. INTRODUCTION.................................................................................................... 1 5 II. FACTUAL BACKGROUND .................................................................................. 2 6 III. ARGUMENT ........................................................................................................... 3 7 A. Pleadings Are Liberally Construed ............................................................ 3 8 B. Mr. Schaub Has Standing to Pursue All of the Alleged Causes of Action ......................................................................................................... 4 9 C. Plaintiffs’ Complaint Adequately Pleads Intentional 10 Misrepresentation ....................................................................................... 5 Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 1. Misrepresentations that funds will be held in trust ......................... 5 1990 SOUTH BUNDY DR., SUITE 705 12 2. Misrepresentations that funds are frozen ........................................ 6 LOS ANGELES, CA 90025 13 D. Plaintiffs’ Complaint Adequately Pleads Concealment ............................. 7 14 E. Plaintiffs’ $1,940,000 Breach of Contract Claim Is Properly Pleaded ...... 8 15 F. Plaintiffs’ $400,000 Breach of Contract Claim Is Properly Pleaded ....... 10 16 G. Plaintiffs Have Appropriately Pleaded A Claim For Unjust Enrichment ............................................................................................... 11 17 H. Any Defects Can Be Cured By Amendment............................................ 12 18 IV. CONCLUSION ...................................................................................................... 13 19 20 21 22 23 24 25 26 27 28 i PLAINTIFFS’ OPPOSITION TO DEMURRER 1 TABLE OF AUTHORITIES 2 CASES PAGE(S) 3 Angelucci v. Century Supper Club, (2007) 41 Cal. 4th 160 ................................................................................................... 4 4 Beatrice Co. v. State Bd. of Equalization, 5 (1993) 6 Cal. 4th 767 ..................................................................................................... 9 6 Beeler v. City Title Ins. Co., (1962) 201 Cal. App. 2d 702 ..................................................................................... 1, 3 7 Blumhorst v. Jewish Family Services of Los Angeles, 8 (2005) 126 Cal. App. 4th 993 ........................................................................................ 4 9 Chrisman v. Southern Cal. Edison Co., (1927) 83 Cal. App. 249 ................................................................................................ 9 10 Coffelt v. Coffelt, Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 (1964) 229 Cal. App. 2d 659 ....................................................................................... 12 1990 SOUTH BUNDY DR., SUITE 705 12 Gagne v. Bertran, LOS ANGELES, CA 90025 (1954) 43 Cal. 2d 481 .................................................................................................... 7 13 Henderson v. Fisher, 14 (1965) 236 Cal. App. 2d 468 ......................................................................................... 9 15 Marketing West, Inc. v. Sanyo Fisher (USA) Corp., (1992) 6 Cal. App. 4th 603 ............................................................................................ 7 16 McBride v. Boughton, 17 (2004) 123 Cal. App. 4th 379 ................................................................................ 11, 12 18 Monarco v. Lo Greco, (1950) 35 Cal. 2d 621 ............................................................................................ 10, 11 19 Ornbaun v. Main, 20 (1961) 198 Cal. App. 2d 92 ......................................................................................... 10 21 Patrick v. Alacer Corp., (2008) 167 Cal. App. 4th 995 ........................................................................................ 8 22 Porten v. University of San Francisco, 23 (1976) 64 Cal. App. 3d 825 ........................................................................................... 4 24 Rutherford Holdings, LLC v. Plaza Del Rey, (2014) 223 Cal. App. 4th 221 ................................................................................ 11, 12 25 Vaccaro v. Kaiman, 26 (1998) 63 Cal. App. 4th 761 ........................................................................................ 12 27 Winn v. McCulloch Corp., (1976) 60 Cal. App. 3d 663 ........................................................................................... 5 28 ii PLAINTIFFS’ OPPOSITION TO DEMURRER 1 STATUTES 2 Cal. Civ. Code § 1605 ....................................................................................................... 9 3 Cal. Civ. Code § 1624(a)(7) ............................................................................................ 10 4 Code Civ. Proc. § 452........................................................................................................ 3 5 6 7 8 9 10 Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 1990 SOUTH BUNDY DR., SUITE 705 12 LOS ANGELES, CA 90025 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iii PLAINTIFFS’ OPPOSITION TO DEMURRER 1 MEMORANDUM OF POINTS AND AUTHORITIES 2 I. INTRODUCTION 3 Defendants stole approximately $2 million from Plaintiff Mark Schaub and his 4 company. Defendant Andrew Waters fraudulently induced Mr. Schaub into sending 5 funds to an account controlled by Waters, and when Mr. Schaub demanded the return of 6 the funds, Waters lied to keep the funds, claiming that the funds had been frozen even as 7 he surreptitiously siphoned all of Plaintiffs’ money out of the accounts. After months of 8 lies and lulling by Waters, Plaintiffs discovered the truth about Waters and were left with 9 no choice but to bring this case in order to hold Waters accountable. 10 These facts, as set forth in Plaintiffs’ Second Amended Complaint (“SAC”), Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 properly plead causes of action for conversion, intentional misrepresentation, 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 concealment, breaches of contract, and unjust enrichment. See Beeler v. City Title Ins. 13 Co. (1962) 201 Cal. App. 2d 702, 705 (“In considering each of the demurrers [courts] are 14 guided by the settled rule that the pleading must be liberally construed and that all facts 15 well pleaded are assumed to be true.”). The SAC specifically alleges that Defendants 16 misrepresented that the funds would be held in trust and lied to keep the funds, and that 17 Plaintiffs have been damaged because Defendants refuse to return those funds which 18 were to be held in trust. Plaintiffs never would have permitted the transfer of the funds, 19 had they known the truth that the funds would not be held in trust and would not be 20 returned to Plaintiffs. Had they known the truth that the funds were not frozen in 21 Defendants’ accounts, Plaintiffs also would have never let months go by, believing that 22 the money would be returned, without taking action to prevent the dissipation of those 23 funds. Defendants have unjustly benefited from having control over Plaintiffs’ funds, 24 and Plaintiffs are entitled to restitution. 25 Because the SAC pleads facts sufficient to set forth claims for conversion, 26 intentional misrepresentation, concealment, breaches of contract, and unjust enrichment, 27 the demurrer should be overruled, and Defendants should be held to answer the 28 allegations in the SAC. 1 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 II. FACTUAL BACKGROUND 2 Defendant Waters is a fraudster. (SAC ¶ 1.) Through his various companies, 3 Waters lured wealthy investors into sending him hundreds of thousands of dollars, which 4 he then misappropriated for his own personal use. (Ibid.) Waters created shell 5 companies to mislead potential investors, conning them into believing that each company 6 would be legitimately operated and profitable. (Ibid.) 7 Defendant Waters targeted Mr. Schaub, befriending him and then ultimately 8 defrauding him. Mr. Schaub and Waters’ relationship began around 2008 when they 9 were both living in Shanghai, China. (SAC ¶ 18.) Waters held himself out as a 10 successful businessman, running successful businesses, and well-connected to major Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 players in China, Hong Kong, and Australia. (Ibid.) Over time, Mr. Schaub, an attorney, 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 came to trust Waters and even agreed to be named as a director or shareholder in several 13 of Waters’ companies. (SAC ¶¶ 19-20.) 14 Mr. Schaub also made an occasional loan to Waters, but not all of them were 15 repaid. (SAC ¶ 21.) One particular loan was made in May 2010 in the amount of 16 $400,000. (Ibid.) In exchange for the $400,000 loan, Mr. Schaub was told he would 17 receive a 25% interest in Waters’ business, China Network Logistics. (Ibid.) In 2016, 18 however, Mr. Schaub and Waters agreed that in exchange for the $400,000 loan, Mr. 19 Schaub would receive shares in a different company owned by Waters, the Food Box 20 Network. (SAC ¶ 24.) The $400,000 was to be repaid when the company went public on 21 the Australian Stock Exchange via a backdoor listing, which never materialized. (Ibid.) 22 The Food Box Network is now no longer a viable business, and Mr. Schaub has yet to be 23 repaid the $400,00 he loaned to Waters. (SAC ¶ 25.) 24 In 2019, Mr. Schaub was informed that HSBC in Hong Kong was planning to 25 close his TLG company account. (SAC ¶ 26.) Defendant Waters misled Mr. Schaub into 26 believing that HSBC was closing the account because the bank believed it to contain 27 tainted funds. (SAC ¶ 27.) Unfamiliar with Hong Kong banking regulations and trusting 28 in Waters’ apparent expertise, Mr. Schaub believed Defendant Waters’ 2 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 misrepresentations and transferred his funds to the FCP Corporate account controlled by 2 Waters, who promised Mr. Schaub that the money was going to a client account and that 3 the funds would be held in trust. (Ibid.) 4 Unfortunately for Mr. Schaub, in July 2019, a bank error led to the transfer of 5 approximately $1,940,000 (instead of the intended $50,000) from Mr. Schaub’s TLG 6 account to the Waters-controlled FCP Corporate account. (SAC ¶ 32.) When Mr. 7 Schaub inquired about the money, rather than returning the funds to Mr. Schaub, 8 Defendant Waters proceeded to drain FCP Corporate’s account of the entire $1.9 million. 9 (SAC ¶ 41.) Meanwhile, Waters repeatedly and falsely told Mr. Schaub that the bank had 10 frozen the accounts where Plaintiffs’ funds were transferred to, that the bank believed the Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 funds were from an illegitimate source, and that he would have to go to Hong Kong to 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 resolve the situation with the frozen accounts. (SAC ¶¶ 35-40.) For months, Waters 13 proceeded to use lies to delay the return of Mr. Schaub’s money and facilitate his 14 movement of the money out of the FCP account. (Ibid.) 15 The fraud scheme succeeded until early 2020, when Mr. Schaub learned that 16 Waters had been lying to him the whole time—not just about the frozen accounts, but 17 about Waters’ business dealings as well. (See SAC ¶¶ 44-48.) When Mr. Schaub 18 demanded the immediate return of his funds, Waters refused, and he continues to refuse 19 to this day. In an effort to conceal and complete the fraud, Waters has threatened 20 litigation against Mr. Schaub based on entirely false allegations concerning business 21 transactions, including a purported deal with Hearst Communications--a deal that appears 22 to be as fake as Waters’ many other fraudulent claims to Mr. Schaub and others. (SAC 23 ¶ 54.) 24 III. ARGUMENT 25 A. Pleadings Are Liberally Construed 26 In considering demurrers, courts “are guided by the settled rule that the pleading 27 must be liberally construed and that all facts well pleaded are assumed to be true.” 28 Beeler v. City Title Ins. Co. (1962) 201 Cal. App. 2d 702, 705 (citations omitted); Code 3 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Civ. Proc. § 452 (“In the construction of a pleading, for the purpose of determining its 2 effect, its allegations must be liberally construed, with a view to substantial justice 3 between the parties.”). “Although the complaint may not be a model pleading, the policy 4 of the law is to construe pleadings liberally to the end that cases will be tried on their 5 merits rather than disposed of on technicalities of pleadings.” Porten v. University of San 6 Francisco (1976) 64 Cal. App. 3d 825, 833. “Mistaken labels and confusion of legal 7 theory are not fatal; if appellant’s complaint states a cause of action on any theory, he is 8 entitled to introduce evidence thereon.” Ibid. 9 Applying the standards above, Defendants’ demurrer must be overruled. 10 B. Mr. Schaub Has Standing to Pursue All of the Alleged Causes of Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 Action 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 As an initial matter, Mr. Schaub has standing to bring all the claims alleged in the 13 SAC as a real party in interest. “In general terms, in order to have standing, the plaintiff 14 must be able to allege injury—that is, some ‘invasion of the plaintiff’s legally protected 15 interests.’” Angelucci v. Century Supper Club (2007) 41 Cal. 4th 160, 175 (citations 16 omitted). “A person who invokes the judicial process lacks standing if he, or those whom 17 he properly represents, ‘does not have a real interest in the ultimate adjudication because 18 [he] has neither suffered nor is about to suffer any injury of sufficient magnitude 19 reasonably to assure that all of the relevant facts and issues will be adequately 20 presented.’” Blumhorst v. Jewish Family Servs. of L.A. (2005) 126 Cal. App. 4th 993, 21 1001. 22 As alleged in the SAC, Mr. Schaub is the 100% beneficial owner of TLG. (SAC 23 ¶ 10 (“Plaintiff TLG, Ltd. is a Hong Kong limited liability company, owned by Mr. 24 Schaub.”).) The TLG bank account was used as a savings account for employment 25 bonuses received by Mr. Schaub. Whatever injury TLG suffers is consequently suffered 26 by Mr. Schaub—the money was his money. (See SAC ¶ 4 (stating that Mr. Schaub has 27 pleaded with “Defendants to return the funds that rightfully belong to him”).) 28 Additionally, Waters cannot make a good faith argument that Mr. Schaub is not a proper 4 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 party to any of the causes of action, because Waters is well aware that the funds he stole 2 were Mr. Schaub’s personal funds, as he later “returned” $750,000 to Mr. Schaub’s 3 personal bank account (see SAC ¶ 42). 4 Because the money stolen by Defendants is Mr. Schaub’s money over which he 5 has a legally protected interest, Mr. Schaub has standing to bring the First Cause of 6 Action for Conversion. Mr. Schaub also has standing to bring the Second and Third 7 Causes of Action for Intentional Misrepresentation and Concealment because he was lied 8 to, he ultimately relied on the lies to his detriment, and his money has been stolen as a 9 result. Finally, Mr. Schaub has standing to bring the Fourth, Fifth and Sixth Causes of 10 Action for Breaches of Contract and Unjust Enrichment because both he and TLG are Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 parties to the contracts at issue, and these were his funds that were borrowed and never 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 returned. 13 C. Plaintiffs’ Complaint Adequately Pleads Intentional Misrepresentation 14 “A complaint alleging fraud must plead with particularity ultimate facts showing 15 representation, falsity of representation, knowledge of falsity, intent to deceive and 16 reliance with resulting damage.” Winn v. McCulloch Corp. (1976) 60 Cal. App. 3d 663, 17 670. “Negligence in reliance upon a misrepresentation is not a defense where the 18 misrepresentation was intentionally made to induce reliance upon it.” Id. at 671. 19 Plaintiffs have properly pleaded a claim for intentional misrepresentation against 20 Defendant Waters. 21 1. Misrepresentations that funds will be held in trust 22 The first misrepresentation alleged by Plaintiffs is the misrepresentation that their 23 funds would be held in trust. On May 14, 2018, Waters wrote to Mr. Schaub in a Wechat 24 text exchange that the FCP Corporate (HK) account is “a client trust typ[e] account for 25 corporate services.” (SAC ¶¶ 29, 66.) Around June 2019, Waters verbally told Mr. 26 Schaub again that the FCP Corporate (HK) account was a client trust account and that 27 Plaintiffs’ funds would be held in trust. (SAC ¶ 66.) Around June 2019, Waters also 28 verbally told Mr. Schaub that the funds would be transferred back to him upon request. 5 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 (SAC ¶ 81.) Plaintiffs relied on these representations to their detriment and allowed for 2 their funds to be transferred to FCP Corporate (HK)’s Citibank account. (SAC ¶ 30.) 3 Reliance on these representations were to Plaintiffs’ detriment because Defendants then 4 took those funds and misappropriated them to their own use. (SAC ¶ 41.) 5 Defendants attempt to skirt around the claim for intentional misrepresentation by 6 arguing that the alleged misrepresentations were made to induce Plaintiffs to send 7 $50,000, not $1,940,000. The SAC alleges no such thing. 8 The SAC states that “Waters induced Plaintiffs into sending funds to the accounts 9 under his control.” (SAC ¶ 66 (emphasis added).) The amount of funds Plaintiffs were 10 induced into sending was not specified and did not play a part in Plaintiffs’ inducement. Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 Nowhere does the SAC state that Waters induced Plaintiffs into sending just $50,000. 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 Whether $50,000 or $1,940,000, Plaintiffs transferred the funds because they thought the 13 funds would be held in trust. (Ibid.) Plaintiffs justifiably relied on Waters’ 14 representations because of “Waters’ status as a business associate and years of 15 maintaining a personal relationship with Mr. Schaub.” (SAC ¶ 72.) Plaintiffs have been 16 damaged as a result of their reliance on Waters’ misrepresentations because the funds still 17 have not been returned to them. (SAC ¶ 74.) 18 2. Misrepresentations that funds are frozen 19 In addition to the misrepresentation that Plaintiffs’ funds would be held in trust, 20 the SAC specifically states how Defendant Waters also made the following additional 21 misrepresentations after the funds were transferred over email and Wechat: (1) that the 22 bank had frozen the accounts where Plaintiffs’ funds were transferred to (SAC ¶ 40); and 23 (2) that the bank believed the funds were from an illegitimate source (SAC ¶¶ 36-39). 24 Waters knew these representations were false when he made them because around the 25 same time he made these false representations, he drained the FCP Citibank accounts of 26 all funds. (SAC ¶ 41.) 27 Plaintiffs were induced not to act, or to alter their position, based on Waters’ false 28 representations that the funds were frozen in the FCP Corporate (HK) accounts. Rather 6 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 than immediately go to the authorities, or take some other type of legal action to prevent 2 the dissipation of the funds, to their detriment, Plaintiffs relied upon Waters’ assertions 3 that the funds were locked in the account and could not be moved. See Gagne v. Bertran 4 (1954) 43 Cal. 2d 481, 487-88 (“[T]o be actionable deceit, the representation . . . need 5 only be an assertion, as a fact, of that which is not true, by one who has no reasonable 6 ground for believing it to be true, and made with intent to induce (the recipient) to alter 7 his position to his injury or his risk.” (internal citations and quotation marks omitted)). 8 Waters made these misrepresentations to Plaintiffs in order to buy time so that he could 9 withdraw all of Plaintiffs’ funds and transfer the funds to other accounts for his own 10 personal use, and now Plaintiffs’ money is gone. Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 As the SAC alleges all elements of a cause of action for intentional 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 misrepresentation, Defendants’ demurrer to this cause of action should be overruled. 13 D. Plaintiffs’ Complaint Adequately Pleads Concealment 14 An action for concealment has five elements: (1) concealment of a material fact, 15 (2) a duty to disclose the fact, (3) intentional concealment of the fact with the intent to 16 defraud, (4) the plaintiff was unaware of the fact and would not have acted as he did if he 17 had known of the concealed fact, and (5) damage as a result of the concealment. 18 Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal. App. 4th 603, 612-13. 19 The same allegations for misrepresentation also properly allege a cause of action 20 for concealment. The material fact concealed by Defendants was that the accounts were 21 not frozen, and Plaintiffs’ funds could have been returned to them at any time. Waters 22 intentionally concealed this material fact by lying about the following: (1) that the funds 23 transferred by Plaintiffs would be held in trust, (2) that the funds were frozen by the bank, 24 (3) that Citibank wanted to close the accounts because something was wrong with the 25 money, (4) that Defendant Waters had to go to Hong Kong in order for the money to be 26 released, (5) that the bank had locked Defendants’ accounts, and (6) that the $750,000 27 repaid to Plaintiffs is Defendant Waters’ own personal funds. (SAC ¶¶ 35-42.) All of 28 these statements were made in furtherance of the fraud. 7 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Defendants had a duty to disclose the truth about Plaintiffs’ funds, that the funds 2 were not frozen and could be withdrawn, and that funds had been withdrawn by Waters. 3 (SAC ¶ 76.) Plaintiffs were unaware that the funds were not frozen in the FCP Corporate 4 (HK) accounts, and that Waters had withdrawn all of Plaintiffs’ funds with no intention 5 of returning them. Had Plaintiffs known the truth, they would have immediately gone to 6 the authorities or taken some other legal action to prevent the dissipation of funds; 7 instead, Plaintiffs were strung along for months, believing Defendants’ lies about the 8 accounts being frozen, while Waters drained the accounts. (SAC ¶ 77.) Plaintiffs have 9 been damaged as a result of not being told the truth about the accounts not being frozen, 10 because the funds have been transferred to other third parties, making it extremely Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 difficult to retrieve those funds and be made whole. (SAC ¶¶ 41, 78.) 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 Therefore, Plaintiffs’ SAC alleges all elements of a cause of action for 13 concealment. 14 E. Plaintiffs’ $1,940,000 Breach of Contract Claim Is Properly Pleaded 15 Defendants argue that Plaintiffs were not permitted to add the Fourth and Fifth 16 Causes of Action for breaches of contract based on the Court’s ruling on the prior 17 demurrer. This is incorrect. The pleadings can be amended to address the Court’s reason 18 for sustaining a demurrer, which is what Plaintiffs have done here. Patrick v. Alacer 19 Corp. (2008) 167 Cal. App. 4th 995, 1015 (holding that the rule preventing a plaintiff 20 from adding entirely new causes of action without permission does not apply where “the 21 new cause of action directly responds to the court’s reason for sustaining the earlier 22 demurrer”). The breach of contract causes of action were added to address the issue that 23 “plaintiffs have not asserted a contract or implied contract claim.” 1 (Min. Order on 24 Demurrer and Mot. to Strike, June 4, 2021.) 25 26 27 1 For the sake of brevity, Plaintiffs will not repeat the arguments made in Plaintiffs’ Opposition to Motion to Strike the SAC regarding the adding of new claims in response to 28 a ruling on a demurrer here, but instead, fully incorporate Plaintiffs’ Opposition to Motion to Strike, filed concurrently herewith. 8 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Plaintiffs have properly alleged a breach of contract cause of action for the 2 $1,940,000. Mr. Schaub and TLG entered into an oral contract with Defendants in or 3 around June 2019. (SAC ¶ 81.) The terms of the contract were that Defendants would 4 hold Plaintiffs’ funds in trust and return the funds upon request. (Ibid.) Plaintiffs 5 performed by transferring approximately $1,940,000 to Defendant FCP Corporate (HK). 6 (SAC ¶ 83.) Defendants are in breach of the contract because they refuse to return 7 Plaintiffs’ funds even upon request, damaging Plaintiffs. (SAC ¶¶ 84-85.) 8 Defendants’ argument that the contract lacks consideration because they received 9 no benefit is wrong. Good consideration is defined as “[a]ny benefit conferred, or agreed 10 to be conferred, upon the promisor, by any other person, to which the promisor is not Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 other than such as he is at the time of consent lawfully bound to suffer . . . .” Civ. Code 13 § 1605. “[I]t is not necessary [] that there be both a benefit to the transferor and a 14 detriment to the transferee for consideration to be found.” Beatrice Co. v. State Bd. of 15 Equalization (1993) 6 Cal. 4th 767, 783. “It is sufficient under Civil Code section 1605 16 that the transferee of assets suffer prejudice or agree to do so.” Ibid.; see also Chrisman 17 v. S. Cal. Edison Co. (1927) 83 Cal. App. 249, 254. (“The benefit may be trifling, but if 18 the promisor is not otherwise lawfully entitled to it, it is sufficient to sustain the contract 19 as a matter of law.”). When considering the adequacy of consideration, “the court may 20 consider such factors as the relationship of the parties, their friendship, love, affection, 21 and regard for each other, and the object to be obtained by the contract.” Henderson v. 22 Fisher (1965) 236 Cal. App. 2d 468, 474. 23 Here, there was adequate consideration between the parties, who were long-time 24 friends. As the promisor, Defendants were not entitled to Plaintiffs’ funds, and obtained 25 a benefit by receiving the funds. By agreeing to hold the funds, Defendants also suffered 26 whatever obligations come with that responsibility. There is a goodwill element to the 27 agreement, as this was Waters’ opportunity to return a favor to an old friend, who had 28 made occasional loans to Waters in the past. By agreeing to hold the funds, Waters was 9 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 able to ingratiate himself to a past and potentially future investor, Mr. Schaub. Thus, 2 there is adequate consideration here. See Ornbaun v. Main (1961) 198 Cal. App. 2d 92, 3 97 (holding that the relationship of the parties may be considered in determining the 4 adequacy of consideration). 5 F. Plaintiffs’ $400,000 Breach of Contract Claim Is Properly Pleaded 6 Plaintiffs have also properly alleged a breach of contract cause of action for the 7 $400,000. In 2010, Plaintiffs and Waters agreed that Mr. Schaub would loan Waters 8 $400,000 to provide liquidity for Waters’ company, China Network Logistics. (SAC 9 ¶ 87.) Plaintiffs performed by providing the funds. (Ibid.) The terms were altered in 10 2016 when the parties agreed that the funds would be invested in a different company Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 controlled by Waters, the Food Box Network. (Ibid.) Believing he would be repaid 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 when the company went public on the Australian Stock Exchange via a backdoor listing, 13 Mr. Schaub accepted shares of Food Box Network in exchange for the $400,000 loan. 14 (Ibid.) The Food Box Network was never listed on the Australian Stock Exchange and is 15 now not operational, but Mr. Schaub has not been repaid. (SAC ¶¶ 89-90.) 16 Defendants argue incorrectly that the contract violates the statute of frauds under 17 California Civil Code section 1624(a)(7). Section 1624 pertains to contracts “made by a 18 person engaged in the business of lending or arranging for the lending of money or 19 extending credit.” Civ. Code § 1624(a)(7). Neither party to this agreement was “in the 20 business of lending or arranging for the lending of money or extending credit.” Mr. 21 Schaub was, and is, a practicing attorney, and Waters was supposedly in the e-commerce 22 business. 23 Even if the statute of frauds applies here, which Plaintiffs believe it does not, 24 Defendants will be estopped from asserting this defense. “The doctrine of estoppel to 25 assert the statute of frauds has been consistently applied by the courts of this state to 26 prevent fraud that would result from refusal to enforce oral contracts in certain 27 circumstances.” Monarco v. Lo Greco (1950) 35 Cal. 2d 621, 623. “Such fraud may 28 inhere in the unconscionable injury that would result from denying enforcement of the 10 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 contract after one party has been induced by the other seriously to change his position in 2 reliance on the contract, or in the unjust enrichment that would result if a party who has 3 received the benefits of the other’s performance were allowed to rely upon the statute.” 4 Ibid. at 623-24 (internal citations omitted). 5 Here, the presence of both elements prevents Waters from using this defense to 6 escape liability. Mr. Schaub gave up an enormous amount of savings, $400,000, which 7 could have been placed in real investments that appreciated over time. On the other 8 hand, Waters would be unjustly enriched in the amount of $400,000 were he permitted to 9 rely on the statute of frauds. Waters should not, therefore, be permitted to assert the 10 statute of frauds defense against this breach of contract claim. Spertus, Landes & Umhofer, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 11 G. Plaintiffs Have Appropriately Pleaded A Claim For Unjust 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 Enrichment 13 Although California courts do not recognize a standalone cause of action for 14 unjust enrichment, “a party to an express contract can assert a claim for restitution based 15 on unjust enrichment by alleging in that cause of action that the express contract is void 16 or was rescinded.” Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal. App. 4th 17 221, 231. Unjust enrichment is characterized as “a general principle, underlying various 18 legal doctrines and remedies . . . [and] is synonymous with restitution.” Ibid. Courts 19 have construed “the cause of action as a quasi-contract claim seeking restitution.” Ibid. 20 “[R]estitution may be awarded where the defendant obtained a benefit from the 21 plaintiff by fraud, duress, conversion, or similar conduct. In such cases, the plaintiff may 22 choose not to sue in tort, but instead to seek restitution on a quasi-contract theo