Avalon Land Co. v. Lee CA2/2 ( 2014 )

Filed 5/5/14 Avalon Land Co. v. Lee CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
AVALON LAND COMPANY, LLC, et al., B245736
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC456112)
v.
DAE YONG LEE,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los Angeles County.
Joseph R. Kalin, Judge. Dismissed in part and reversed and remanded in part.
Safarian Choi & Bolstad, David C. Bolstad, Jerome M. Jauffret for Plaintiffs and
Appellants.
Law Office of Frank N. Lee, Frank N. Lee for Defendant and Respondent.
___________________________________________________
Appellants Avalon Land Company, LLC (Avalon), and 435 Los Feliz LLC
(Los Feliz) filed a third amended complaint that failed to properly allege a cause of
action. On appeal, however, appellants have demonstrated a reasonable possibility of
properly alleging breach of fiduciary duty and negligence causes of action. Accordingly,
we reverse the judgment and direct the trial court to grant appellants leave to amend.
We further dismiss the appeal of purported appellant Kyung Ku Cho (Cho),
against whom no judgment has been entered.
BACKGROUND
This is one of a number of consolidated lawsuits arising out of a failed business
relationship formed to develop a parcel of commercial property in Glendale. Plaintiffs—
Cho, Avalon, and Los Feliz—filed suit against Dae Yong Lee, aka David Lee (Lee), in
November 2011. Following the filing of a demurrer by Lee, plaintiffs filed a first
amended complaint. Lee again filed a demurrer, which was sustained by the trial court
with leave to amend. Plaintiffs filed a second amended complaint. Lee’s demurrer to the
second amended complaint was sustained, again with leave to amend.
Plaintiffs then filed the third amended complaint (TAC), the subject of this appeal.
The TAC, which is largely vague and disjointed, alleged that Lee hired Coldwell Banker
Commercial Wilshire Properties (Coldwell Banker) to represent him in the acquisition of
a promissory note secured by undeveloped land, and that Robin Yi, a broker with
Coldwell Banker, signed the representation agreement with Lee. Lee was personally
liable for payment to Coldwell Banker for all services rendered to him.
Yi had formed Avalon and Lee purchased membership interests in the limited
liability company. Neither Lee nor Avalon had sufficient funds to complete the purchase
of the promissory note, so Lee and Yi made a plan to get the needed funds from Cho, a
practicing neurologist who had no experience in the development of raw land. Yi was to
persuade Cho to buy some of Lee’s membership interests in Avalon with the help of a
supposed attorney who, unknown to Cho, was unlicensed in California.
Cho explained that he had no experience in land development, but over the course
of a number of meetings at Cho’s home, Yi told Cho not to worry because he would
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ensure his investments were safe and that Yi would be loyal to him. Yi convinced Cho
that Cho could rely on him since he had successfully developed condominium projects
and had a development team.
The TAC asserted that a fiduciary relationship was formed whereby Yi and Lee
owed duties to Cho. It alleged that Lee, by himself and through his agent Yi, breached
those duties by (i) not negotiating on behalf of Avalon with the bank selling the
promissory note to purchase the note at a conventional discount so that following
foreclosure a new loan could be obtained from the bank to develop the land, and by
concealing from plaintiffs how this would affect the value of their investment; (ii)
recommending the supposed attorney to represent Cho and Avalon notwithstanding the
supposed attorney’s conflicts of interest and lack of a license in California; (iii)
concealing that the value of plaintiffs’ interests was reduced because Avalon purchased
the land through escrow instead of foreclosure so that Lee’s $400,000 debt to Coldwell
Banker, which was concealed from plaintiffs, would be paid by Avalon; and (iv)
abandoning their promises to develop the land and instead leaving it to Cho to develop
the land.
The TAC further alleged that Yi, on behalf of Lee, made intentional
misrepresentations to Cho inducing him to buy some of Lee’s membership interests in
Avalon by falsely stating: (i) Lee would help develop the land; (ii) Lee would help Cho
make wise investments; (iii) Lee would be loyal to Cho; and (iv) the supposed attorney
was licensed in California. Cho believed and relied on these representations in
purchasing interests in Avalon.
Finally, the TAC asserted that Lee was liable for negligence to Avalon because he
(i) entered into agreements that cost Avalon $1.1 million, an expenditure that could have
been avoided; (ii) entered into a development project without financing; (iii) obtained
funding from members without a capital call; (iv) substantially overpaid for a
nonperforming note; (v) overpaid for land without a viable appraisal; and (vi) did not
advise plaintiffs of the foregoing and then withdrew financial support for Avalon, and
thereafter competed with Avalon on another project.
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Lee filed a demurrer to the TAC. The demurrer was sustained in its entirety.
Leave to amend was denied, except for a cause of action for violation of California
securities laws, a claim that only Cho was allowed to amend.
Cho thereafter filed a fourth amended complaint. A demurrer to that complaint
was sustained on November 20, 2012.
Meanwhile, in October 2012, Lee filed an ex parte application to dismiss the
action by Avalon and Los Feliz, against whom the demurrer to the TAC was sustained
without leave to amend. The application was granted, and judgment was entered against
Avalon and Los Feliz on October 17, 2012.
DISCUSSION
I. The proper appellants
The initial matter of dispute between the parties is: Who are the appellants to this
appeal? The notice of appeal listed all three plaintiffs—Cho, Avalon, and Los Feliz. In
their opening brief, however, appellants asserted that Avalon and Los Feliz were the only
parties appealing and that Cho was incorrectly listed on the notice of appeal. Cho also
filed a motion to withdraw his appeal.
Lee, on the other hand, asserts that Cho should be penalized for listing his name
on the notice of appeal and some related documents, and that Cho should be considered a
party to the appeal, regardless of whether a judgment was entered against him or not.
Alternatively, Lee contends that Cho’s purported appeal should be dismissed with
prejudice to bringing any further appeals.
Reviewing the record, we find it clear that even if Cho had wished to appeal, he
could not have. A party may only appeal from a final judgment or other orders made
appealable by Code of Civil Procedure section 904.1. (Griset v. Fair Political Practices
Com. (2001) 25 Cal. 4th 688, 697.) The record contains no final judgment against Cho,
who was allowed to amend the complaint, and actually did amend the complaint, after
demurrer to the TAC was sustained.
A judgment was entered against Avalon and Los Feliz, so their appeal is proper.
If he appeals in a timely manner, Cho may appeal a judgment entered against him. But
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since the appeal here does not involve a final judgment pertaining to Cho, on our own
motion we dismiss this appeal as to him.1, 2
II. The demurrer
We review a ruling sustaining a demurrer de novo, exercising independent
judgment as to whether the complaint states a cause of action as a matter of law. (Desai
v. Farmers Ins. Exchange (1996) 47 Cal. App. 4th 1110, 1115.) We give the complaint a
reasonable interpretation, assuming all properly pleaded material facts are true, but not
assuming the truth of contentions, deductions or conclusions of law. (Aubry v. Tri-City
Hospital Dist. (1992) 2 Cal. 4th 962, 967.)
A demurrer tests the legal sufficiency of the complaint. (Hernandez v. City of
Pomona (1996) 49 Cal. App. 4th 1492, 1497.) As such, we are not concerned with the
difficulties a plaintiff may have in proving the claims made in the complaint. (Desai v.
Farmers Ins. Exchange, supra, 47 Cal.App.4th at p. 1115.) We are also unconcerned
with the trial court’s reasons for sustaining the demurrers, as it is the ruling, not the
rationale, that is reviewable. (Mendoza v. Town of Ross (2005) 128 Cal. App. 4th 625,
631; Sackett v. Wyatt (1973) 32 Cal. App. 3d 592, 598, fn. 2.)
Avalon and Los Feliz argue that the trial court improperly sustained the demurrer
as to three causes of action: breach of fiduciary duty, intentional misrepresentation
(fraud), and negligence. To plead a breach of fiduciary duty claim a plaintiff must allege
“the existence of a fiduciary relationship, breach of fiduciary duty, and damages.” (Oasis
West Realty, LLC v. Goldman (2011) 51 Cal. 4th 811, 820.) The elements of an
intentional misrepresentation fraud claim are: “(1) a representation, (2) that is false, (3)
made with knowledge of its falsity, and (4) with an intent to deceive, coupled with (5)
actual detrimental reliance and (6) resulting damage.” (Lim v. The.TV Corp. Internat.
(2002) 99 Cal. App. 4th 684, 694.) A negligence claim requires the defendant’s duty to
1 Cho’s motion to withdraw his appeal is denied as moot.
2 The request for judicial notice filed by Lee on March 19, 2004, is granted. His
motion to dismiss Cho’s appeal filed on the same date is denied as moot.
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use due care, breach of that duty, and proximate or legal cause of resulting injury.
(Hayes v. County of San Diego (2013) 57 Cal. 4th 622, 629.)
Avalon and Los Feliz failed to allege any of these three causes of action
sufficiently. The defects in the TAC largely arise from its vagueness. The TAC fails to
adequately explain any of the plaintiffs’ relationships to each other or the relationship
between Avalon, Los Feliz, and Lee. Indeed, Los Feliz is only mentioned once in the
entire TAC, where it is described as “a limited liability company organized and existing
under the laws of the State of California . . . .”
As such, it is impossible from the TAC to discern how any type of fiduciary
relationship could exist between Avalon and Los Feliz, on the one side, and Lee on the
other. The TAC does also not allege facts showing that Lee owed a duty to either Avalon
or Los Feliz, a necessary component of a negligence claim. Further, the intentional
misrepresentation claim relies on facts only relating to Cho—that false representations
were made to him and that he relied on them. Thus, the demurrer against Avalon and
Los Feliz was correctly sustained.
Nevertheless, if there is a reasonable possibility a plaintiff can amend a complaint
to allege a cause of action, amendment should be granted. (Smith v. State Farm Mutual
Automobile Ins. Co. (2001) 93 Cal. App. 4th 700, 711.) A party may demonstrate how
amendment is warranted for the first time on appeal. (Ibid.)
In this appeal, Avalon and Los Feliz have demonstrated a reasonable possibility
that they can sufficiently amend their breach of fiduciary duty and negligence causes of
action. They contend that Los Feliz invested $3 million in Avalon, and that Los Feliz and
Lee were both members of Avalon, a limited liability company. A member of a member-
managed limited liability company owes fiduciary duties of loyalty and care to the
company itself and other members. (Corp. Code, § 17704.09, replacing former Corp.
Code, § 17153.) Thus, Avalon and Los Feliz have shown that they may be able to allege
that they were owed duties by Lee, and that Lee breached those duties. They should be
given the opportunity to amend their complaint to make allegations curing the defects in
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their complaint with respect to the breach of fiduciary duty and negligence causes of
action.
Lee argues that neither Avalon nor Los Feliz argued in the trial court that they
were owed duties under the Corporations Code, and that they thereby waived such an
argument or otherwise conceded that no duties were owed. This argument is not well
taken. “An appellate court may . . . consider new theories on appeal from the sustaining
of a demurrer to challenge or justify the ruling. As a general rule a party is not permitted
to change its position on appeal and raise new issues not presented in the trial court.
[Citation.] This is particularly true ‘when the new theory depends on controverted factual
questions whose relevance thereto was not made to appear’ in the trial court. [Citation.]
However, ‘a litigant may raise for the first time on appeal a pure question of law which is
presented by undisputed facts.’ [Citations.] A demurrer is directed to the face of a
complaint (Code Civ. Proc., § 430.30, subd. (a)) and it raises only questions of law (Code
Civ. Proc., § 589, subd. (a); [citation]). Thus an appellant challenging the sustaining of a
general demurrer may change his or her theory on appeal [citation], and an appellate
court can affirm or reverse the ruling on new grounds. [Citations.] After all, we review
the validity of the ruling and not the reasons given. [Citation.]” (B & P Development
Corp. v. City of Saratoga (1986) 185 Cal. App. 3d 949, 959.) Lee will have the
opportunity to challenge the sufficiency of appellants’ newly amended complaint in the
trial court, including allegations pertaining to any allegedly owed duty.3
As for appellants’ intentional misrepresentation cause of action, they have failed to
demonstrate how it can be adequately amended. Simply because misrepresentations may
have been made to Cho does not mean that Avalon or Los Feliz were harmed, and neither
appellant contends that they relied on any purported misrepresentations. Furthermore,
the TAC’s allegations relating to Avalon and Los Feliz clearly fail to meet the heightened
pleading standards required of an intentional misrepresentation claim. Fraud must be
3 Lee’s motion for sanctions is denied.
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pled with specificity, and general and conclusory allegations will not suffice. (Robinson
Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal. 4th 979, 993.) The intentional
misrepresentation cause of action is pleaded only with facts relating to Cho, and Avalon
and Los Feliz appear incapable of curing this defect.
DISPOSITION
The appeal is dismissed as to Cho. The judgment is reversed and, on remand, the
trial court is directed to grant Avalon and Los Feliz leave to file an amended complaint to
allege breach of fiduciary duty and negligence causes of action.
Each party to bear its own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
BOREN, P.J.
We concur:
ASHMANN-GERST, J.
FERNS, J.*
_______________________________________________________________
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
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