Huawei Ma, Trustee of The Liu and Ma Family Trust vs. Li

TENTATIVE RULINGS

Date: July 9, 2026

# Case Name Tentative

1. 30-2025-01520541 1. Motion to Strike Portions of Complaint 2. Demurrer to Complaint Huawei Ma, Trustee of 3. Case Management Conference The Liu and Ma Family Trust vs. Li Demurrer to Complaint Defendant, Wenhui Li a/k/a Wenhui Laura Li a/k/a Laura Li (“Li”) demurs to the Verified Complaint of Plaintiff Huawei Ma (“Plaintiff”), and each of the six causes of action therein.

As a threshold matter, Plaintiff’s opposition is supported by a Declaration of Alexander J. Chang, counsel for Plaintiff. Said declaration discusses Plaintiff’s pre-litigation demand letter for inspection of books and records and communications with counsel for Breakthrough Genomics Inc. as well as includes copies of letters regarding the issue. As a result, it consists of evidence that is extrinsic to the Complaint. In turn, Plaintiff’s counsel’s declaration and exhibits are not considered. A demurrer can be used only to challenge defects that appear within the “four corners” of the pleading – which includes the pleading, any exhibits attached, and matters of which the court is permitted to take judicial notice. (Blank v.

Kirwan (1985) 39 Cal. 3d 311, 318; Donabedian v. Mercury Ins. Co. (2004) 116 Cal. App. 4th 968, 994.) No other extrinsic evidence can be considered. (Ion Equip. Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.)

In addition, the reply argues for the first time that the causes of action for negligence (second cause of action) and unjust enrichment (sixth cause of action) are duplicative of the breach of fiduciary duty claim, as well as that the claims for breach of fiduciary duty, aiding and abetting, and accounting are derivative and governed by Delaware law under the internal affairs doctrine. The Court declines to consider these arguments that are raised for the first time in reply. (See Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010; Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537-1538.)

Futility Initially, Li contends that the Complaint is defective as a derivative suit as it fails adequately allege demand futility with particularity under Corporations Code section 800(b)(2) and Delaware law.

Plaintiff contends that Delaware law applies as Defendant Li and Breakthrough Genomics Inc. (“BTG”) have consistently maintained that BTG is a Delaware corporation and that the Complaint adequately pleads demand futility under Delaware law.

California Corporations Code section 1157 states, in part: “The conversion by a domestic other business entity, foreign other business entity, or foreign corporation shall be effective under this chapter upon the filing with the Secretary of State of the articles of incorporation of the converted corporation, containing a statement of conversion that complies with subdivision (e).” (Corp. Code § 1157(e).) “The filing with the Secretary of State of articles of incorporation containing a statement pursuant to subdivision (e) shall have the effect of the filing of a certificate of cancellation by a converting foreign limited liability company or foreign limited partnership.” (Corp. Code § 1157(f).)

Upon a conversion taking effect, “[a]ny action or proceeding pending by or against the converting entity or converting corporation may be continued against the converted entity or converted corporation as if the conversion had not occurred.” (Corp. Code § 1158(b)(4).)

California Corporations Code section 1159 states: “The shareholders of a converting corporation shall have all of the rights under Chapter 13 (commencing with Section 1300) of the shareholders of a corporation involved in a reorganization requiring the approval of its outstanding shares (Section 152), and the converting corporation shall have all of the obligations under Chapter 13 (commencing with Section 1300) of a corporation involved in the reorganization. Solely for purposes of applying the provisions of Chapter 13 (and not for purposes of Chapter 12), a conversion pursuant to Section 1151 or 1157 shall be deemed to constitute a reorganization.” (Corp. Code § 1159.)

The Complaint alleges that Nominal Defendant BTG was initially formed as a corporation under the laws of the State of Delaware, and that BTG’s principal place of business is located at 2 Hughes, Ste. 100, Irvine, CA 92618. (Verified Complaint, ¶ 3.) It is also alleged that BTG filed conversion paperwork with the California Secretary of State in February 2025, but that BTG maintains that it is still a Delaware corporation and that the conversion paperwork was filed in error. (Verified Complaint, ¶ 4.) The Verified Complaint was filed on October 21, 2025.

On demurrer, a complaint must be liberally construed. (Code Civ. Proc. § 452; Stevens v. Superior Court (1999) 75 Cal. App. 4th 594, 601.) All material facts properly pleaded, and reasonable inferences, must be accepted as true. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal. 4th 962, 966- 67.) “ ‘ “It is not the ordinary function of a demurrer to test the truth of the plaintiff's allegations or the accuracy with which he describes the defendant's conduct. A demurrer tests only the legal sufficiency of the pleading.” [Citation.] In considering the merits of a demurrer, ‘the facts alleged in the pleading are deemed to be true, however improbable they may be.’ ” [Citation.]” (Bath v. State of California (2024) 105 Cal.App.5th 1184, 1201.)

Based on the allegations of the Verified Complaint, and assuming their truth and all reasonable inferences, BTG filed conversion paperwork before the filing of this lawsuit, such that the reasonable inference the Complaint alleges that BTG was a California corporation at the time of the filing of this lawsuit. That BTG disputes the conversion does not contradict the allegation that BTG filed conversion paperwork.

As relevant here, California Corporations Code section 800 provides that no action may be instituted or maintained in right of any domestic or foreign corporation by any holder of shares of the corporation unless “[t]he plaintiff alleges in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.” (Corp.

Code § 800(b)(2).) “The failure to comply with this requirement under section 800(b)(2) leaves a shareholder/plaintiff without standing to bring a derivative claim on behalf of the corporation. [Citation.]” (Bader v. Anderson (2009) 179 Cal.App.4th 775, 793 (“Bader”) [applying Delaware law to pleading a demand under California Corporations Code section 800(b)(2)].) “[G]eneral averments that the directors were involved in a conspiracy or aided and abetted the wrongful acts complained of will not suffice to show demand futility. [Citation.]” (Id. at p. 790.) “Rather, ‘the court must be apprised of facts specific to each director from which it can conclude that particular director could or could not be expected to fairly evaluate the claims of the shareholder plaintiff.’ [Citation.]” (Ibid.)

Thus, the court, in reviewing the allegations to support demand futility, must be able to determine on a director-by-director basis whether or not each possesses independence or disinterest such that he or she may fairly evaluate the challenged transaction. [Citation.]” (Ibid.)

“The test commonly employed in determining the adequacy of the pleading of demand futility was enunciated by the Delaware Supreme Court . . . .” (Bader, supra, 179 Cal.App.4th at p. 791.) Where the matter complained of was not a board business decision, “the court inquires ‘whether the board that would be addressing the demand can impartially consider its merits without being influenced by improper considerations. Thus, a court must determine whether or not the particularized factual allegations of a derivative shareholder complaint create a reasonable doubt that, as of the time the complaint is filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to the demand.’ [Citation.]” (Id. at pp. 791-792.)

“A director will be deemed not to be disinterested if the facts alleged ‘demonstrate[] a potential personal benefit or detriment to the director as a result of the decision.’ [Citations.] The personal benefit must arise out of the transaction being challenged. [Citation.]” (Bader, supra, 179 Cal.App.4th at p. 792.) “[W]here there is a showing that a director is not disinterested, and the transaction has not been approved by a majority of directors, the business judgment rule does not come into play; demand futility is established.’ [Citation.]” (Ibid.)

An allegation that the entire board is not disinterested or independent since every member of the board is liable for the violations of the statute is a conclusory allegation that is insufficient to establish demand futility. (Bader, supra, 179 Cal.App.4th at p. 797.)

“The Delaware Supreme Court recently adopted a universal test for assessing demand futility. [Citation.] In all shareholder-derivative suits, courts are to determine (on a director-by-director basis): (1) ‘whether the director received a material personal benefit from the alleged misconduct that is the subject of the litigation’; (2) ‘whether the director faces a substantial likelihood of liability on any of the claims’; or (3) ‘whether the director lacks independence from someone who received a material personal benefit from the alleged misconduct . . . or who would face a substantial likelihood of liability on any of the claims.’ [Citation.] ‘If the answer to any of the questions is “yes” for at least half of the members of the demand board, then demand is excused as futile.’ [Citation.]” (Tola v.

Bryant (2022) 76 Cal.App.5th 746, 752 [applying Delaware law where the parties agreed that Delaware law governs the sufficiency of pleading demand futility in a case involving a Delaware corporation headquartered in California].)

Based on the foregoing, in evaluating the demand futility under California Corporations Code section 800(b)(2), courts looks to Delaware law.

The Complaint alleges that Defendant Li is a majority shareholder of BTG, “owning well more than 50% of the issued and outstanding shares of BTG,” and that Plaintiff is informed and believes that Li is the sole director and sole officer of BTG. (Verified Complaint, ¶ 10.) It is alleged that on or about March 31, 2020, Plaintiff invested $1 million in BTG in exchange for 8,301,000 shares of common stock which represents approximately 11.072% of the issued and outstanding common stock of the company, and that as long as Plaintiff has been a shareholder of the company, BTG has never noticed or held any annual meeting of the shareholders. (Verified Complaint, ¶¶ 15, 17.)

Plaintiff also alleges, on information and belief, that during the times where Plaintiff was a shareholder of BTG, Li, with the assistance of other defendants, “caused BTG engage in transactions in which LI was self-interested. On information and belief, these included without limitation: (i) BTG providing a substantial loan in excess of $2 Million to BTG GENOMICS PROFESSIONAL, a real estate company in which LI, on information and belief, was the sole member and sole manager; (ii) BTG providing a loan or loans to a shareholder (presumably LI); (iii) BTG receiving a loan or loans from a shareholder (presumably LI); (iv) engaging LI’s husband BUDA (an immigration attorney) and his firm BUDA LAW GROUP (a law firm specializing in immigration law) at unreasonably excessive cost to purportedly perform legal work.” (Verified Complaint, ¶ 19.)

It is alleged that prior to causing BTG to enter into these transactions, Li “did not: (i) disclose the material facts of her self-interest to disinterested shareholders; nor (ii) seek to obtain the good faith approval of a majority of the disinterested shareholders,” and Plaintiff is informed and believes that “there are no corporate minutes or resolutions evidencing or authorizing any of the self-interested transaction [sic] LI caused BTG to enter.” (Verified Complaint, ¶¶ 20, 23.) Plaintiff also alleges that Plaintiff has been kept in the dark with respect to BTG, its operations, and its financials, and that Plaintiff issued demands for shareholder inspection of books and records, but these demands were met with delay and obfuscation. (Verified Complaint, ¶¶ 16, 24.)

Plaintiff additionally alleges that “BTG, under LI’s control and direction, refused to provide further information and/or documentation concerning questionable transactions about which Plaintiff inquired.” (Verified Complaint, ¶ 26.) The Complaint further alleges: “Plaintiff is informed and believes, and thereon alleges, that BTG is a closely held entity where any harmful acts by its interest holders, officers, directors, such as LI, directly impact BTG. Plaintiff alleges wrongdoing by LI and the other Defendants who are related to her.

As LI could block any corporate action by her votes, it would be inconceivable that any demand by Plaintiff would result in any corporate action against LI or the other Defendants. Accordingly, Plaintiff, acting as an interest owner of BTG, hereby brings this instant derivative cause of action on behalf of BTG against LI and the other Defendants.” (Verified Complaint, ¶ 27.)

Based on these allegations, Defendant Li cannot be impartial due to the alleged self-dealing transactions, it is alleged that Li received a material personal benefit from the alleged misconduct, and it is alleged that LI is the sole director such that she is the entire demand board. The foregoing allegations sufficiently pled demand futility with particularity. Thus, the demurrer on this ground is OVERRULED.

Uncertainty Li contends that the Complaint is ambiguous and uncertain due to the failure to clearly distinguish between direct and derivative claims, the vague references to "DOES 1-10" without any factual basis, and the inconsistent allegations regarding BTG's corporate status (Delaware vs. California conversion).

Plaintiff contends that the Complaint is not uncertain, that any inconsistent allegations regarding BTG’s corporate status was created by Li and BTG themselves, and that there is no uncertainty as to direct and derivative claims.

Code of Civil Procedure section 430.10(f) provides that a defendant may demur on the ground that the pleading is uncertain. “As used in this subdivision, ‘uncertain’ includes ambiguous and unintelligible.” “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal App.4th 612, 616.) Demurrers for uncertainty “are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v.

Fin. Indus. Regulatory Auth. (2012) 208 Cal.App.4th 1125, 1135.) “ ‘. . . “[D]emurrers for uncertainty are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” [Citation.]’ [Citation.] (Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 292.)

Here, the Complaint is clearly a derivative action and expressly indicates that Plaintiff Huawei Ma, as Trustee of the Liu and Ma Family Trust, brings this action derivatively on behalf of BTG.

However, it is unclear whether Plaintiff alleges that BTG is a Delaware corporation or California corporation given the conversion, regardless of what BTG or Li believes or has asserted. The demurrer based on uncertainty is SUSTAINED, with 20 days’ leave to amend.

First Cause of Action for Breach of Fiduciary Duty Li contends that the first cause of action for breach of fiduciary duty incorporates 29 prior paragraphs against all defendants but fails to specify which acts by Defendant breached duties of loyalty, care, or good faith under Delaware or California law.

Plaintiff contends that the Complaint sufficiently pleads the elements of her first cause of action for breach of fiduciary at paragraphs 10, 31, 32, and 34.

Initially, despite the purported uncertainty created by whether Plaintiff alleges that BTG is currently a Delaware corporation or California corporation, both parties apply California law to the causes of action asserted in the Verified Complaint. To the extent that the reply attempts to apply Delaware law to any cause of action, it is raised for the first time in reply and is disregarded. “[P]oints raised in a reply brief for the first time will not be considered unless good cause is shown for the failure to present them before. [Citations.]” (Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010.) No good cause is shown for Li’s failure to present the argument that Delaware law applies in her moving papers. Consequently, the Court applies California law.

To establish a claim for breach of fiduciary duty, a plaintiff must establish that: (1) a fiduciary duty exists; (2) that duty is breached; and (3) plaintiff was damaged and that damage was proximately caused by the breach. (Pellegrini v. Weiss (2008) 165 Cal.App.4th 515, 524.)

The first cause of action alleges that Li owed fiduciary duties to BTG, including the “highest obligation of good-faith, fair-dealing, loyalty, and due care.” (Verified Complaint, ¶ 31.) It also alleges that Plaintiff is informed and believes that Li “violated and breached their fiduciary duty by, without limitation, the following: (i) failing to have BTG hold annual shareholder meetings; (ii) failing to hold election of directors; (iii) failing to document and maintain corporate books and records; (iv) causing BTG to engage in transactions in which they were self-interested, that were not negotiated at arm’s length nor fair to BTG at the time they were entered into; (v) failing to disclose the material facts of their self-interest to disinterested shareholders; and (vi) failing to seek the good faith approval of a majority of the disinterested shareholders as to self-interested transactions.” (Verified Complaint, ¶ 32.)

The first cause of action additionally alleges that Buda and Buda Law Group were attorneys for BTG, and breached their fiduciary duty to BTG by providing Li substantial assistance or encouragement in their breach of fiduciary duty against BTG, and that “[t]hrough these self-interest[ed] transactions,” Li, Buda, Buda Law Group, and DOES 1- 10 “misappropriated funds rightfully belonging to BTG.” (Verified Complaint, ¶¶ 33-34.)

Based on the foregoing allegations, the Complaint alleges facts sufficient to constitute a cause of action for breach of fiduciary duty. Incorporating general allegations do not create uncertainty such that Li cannot reasonably respond. The Complaint alleges that through the alleged self-interested transactions, Li misappropriated funds belonging to BTG. With regards to Plaintiff’s allegations on information and belief, Plaintiff alleges that she has been kept in the dark about BTG’s operations, that she issued demands for shareholder inspection of books and records, and that the limited records produced by BTG in response to the demands raised more questions, and that BTG, under Li’s control and direction, refused to provide further information and/or documentation concerning questionable transactions about which Plaintiff inquired. (Verified Complaint, ¶¶ 24- 26.)

The reasonable inference from these allegations is that Plaintiff makes certain allegations on information and belief based on the limited records produced by BTG. “A plaintiff may allege on information and belief any matters that are not within his personal knowledge, if he has information leading him to believe that the allegations are true [citation], and thus a pleading made on information and belief is insufficient if it merely asserts the facts so alleged without alleging such information that leads the plaintiff to believe that the allegations are true.” (Gomes v.

Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1158, emphasis in original, internal quotations and citations omitted.)

The demurrer to the first cause of action is OVERRULED.

Second Cause of Action for Negligence Li contends that the second cause of action for negligence incorporates 35 prior paragraphs, and restates the fiduciary breach allegations without identifying specific duties of care owed by Defendant as a majority shareholder/director, breaches, or proximate causation of damages, as well as lacks detail on causation and harm.

Plaintiff contends that the Complaint sufficiently pleads the elements of her second cause of action for negligence at paragraphs 37-39, 49.

The elements for a claim of negligence are duty, breach of duty, causation, and damages. (Burgess v. Superior Court (1992) 2 Cal.4th 1064, 1072.)

The second cause of action alleges that Li, as an officer and director, and Buda and Buda Law Group, as attorneys, owed duties to BTG to act with ordinary care and diligence, and that “Defendants failed to exercise ordinary care and diligence by, without limitation, the following: following: (i) failing to have BTG hold annual shareholder meetings; (ii) failing to hold election of directors; (iii) failing to document and maintain corporate books and records; (iv) causing BTG to engage in transactions in which they were self-interested, that were not negotiated at arm’s length nor fair to BTG at the time they were entered into; (v) failing to disclose the material facts of their self-interest to disinterested shareholders; (vi) failing to seek the good faith approval of a majority of the disinterested shareholders as to self-interested transactions; and (vii) providing substantial assistance or encouragement to other Defendants in their negligent acts or omissions against BTG.” (Verified Complaint, ¶¶ 37-38.)

The prior allegations which are incorporated into the second cause of action allege that Li, with the assistance of other defendants, caused BTG to engage in which Li was self-interested including BTG providing a substantial loan in excess of $2 million to a real estate company in which Li was the sole member and sole manager, BTG providing a loan or loans to a shareholder (presumably Li), BTG receiving a loan or loans from a shareholder (presumably Li), and Li engaging her husband, Buda, an immigration attorney and his firm Buda Law Group at unreasonably excessive cost to purportedly perform legal work. (Verified Complaint, ¶¶ 19, 36.)

It is also alleged that as a proximate result of Defendants’ negligence, BTG has been damaged, and that Defendants’ conduct was a substantial factor in causing harm to BTG. (Verified Complaint, ¶¶ 39-40.)

The Verified Complaint alleges ultimate facts sufficient to state a cause of action for negligence. A complaint must contain “[a] statement of the facts constituting the cause of action, in ordinary and concise language.” (Code Civ. Proc. § 425.10, subd. (a)(1).) This fact-pleading requirement obligates the plaintiff to allege ultimate facts that “as a whole apprise[] the adversary of the factual basis of the claim. [Citations.]” [Citations.]” (Davaloo v. State Farm Ins. Co. (2005) 135 Cal.App.4th 409, 415.) The demurrer to the second cause of action is OVERRULED.

Third Cause of Action for Aiding and Abetting Li contends that the third cause of action for aiding and abetting incorporates 40 prior paragraphs, and also alleges knowledge and substantial assistance without specific facts regarding knowledge or substantial assistance by Defendant in any underlying tort. Li also contends that there is no allegation regarding causation, and that the claim of joint liability is conclusory.

Plaintiff contends that the Complaint sufficiently pleads her third cause of action for aiding and abetting at paragraphs 9, 10, and 19, and that the facts support the reasonable inference that Li knew of and assisted her husband, his law firm, and her affiliated real estate entity in the wrongful misappropriation of BTG funds.

“The elements of a claim for aiding and abetting a breach of fiduciary duty are: (1) a third party’s breach of fiduciary duties owed to plaintiff; (2) defendant’s actual knowledge of that breach of fiduciary duties; (3) substantial assistance or encouragement by defendant to the third party’s breach; and (4) defendant’s conduct was a substantial factor in causing harm to plaintiff.” (Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 343.) Under an aiding and abetting theory, liability depends upon the actual commission of a tort. (Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 574.)

The third cause of action alleges that each “Defendant knew that a breach of fiduciary duty was being or going to be committed by each other Defendant,” and that “Defendant aided and abetted each breach of fiduciary duty and/or act of conversion of the Defendants by providing substantial assistance or encouragement in accomplishing the result of each breach,” based on allegations that Li and Buda are husband and wife, that Li is a majority shareholder of BTG and is the sole director and sole officer of BTG, and of Li’s self-interested transactions wherein BTG provided a substantial loan in excess of $2 million to a real estate company in which Li was the sole member and sole manager, that BTG provided a loan or loans to a shareholder (presumably Li), that BTG received a loan or loans from a shareholder (presumably Li), and that Li engaged her husband, Buda, an immigration attorney and his firm Buda Law Group at unreasonably excessive cost to purportedly perform legal work. (Verified Complaint, ¶¶ 9-10, 19, 41, 43.)

In incorporating the prior allegations, third cause of action alleges that Buda and Buda Law Group owed duties to BTG to act with ordinary care and diligence. (Verified Complaint, ¶ 37.) These allegations, liberally construed, allege that Li knew of fiduciary duties owed by Buda and Buda Law Group as attorneys providing legal services to BTG, but they do not sufficiently state in what manner Buda and Buda Law Group breached their alleged fiduciary duties of ordinary care and diligence to Plaintiff.

To the extent that Plaintiff attempts to allege that Li aided and abetted the affiliated real estate company, BTG Genomics Professional, there is no allegation that BTG Genomics Professional breached fiduciary duties owed to Plaintiff.

The demurrer to the third cause of action for aiding and abetting is SUSTAINED, with 20 days leave to amend.

Fourth Cause of Action for Accounting Li contends that the fourth cause of action for accounting incorporates 45 prior paragraphs, and asserts an “unknown balance” without alleging a fiduciary relationship requiring accounting or stating facts as to why one is necessary. Li asserts that no specific transactions or amounts are tied to Li.

Plaintiff contends that the Complaint sufficiently pleads the fourth cause of action for accounting at paragraphs 16, 23-26.

The elements of a cause of action for an accounting are: (i) a relationship exists between the plaintiff and defendant that requires an accounting; and (ii) some balance is due the plaintiff that can only be ascertained by an accounting. (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.) A fiduciary relationship is not required for a cause of action for accounting. (Ibid.) All that is required is some relationship requiring an accounting, such as possession by the defendant of money or property which defendant may be obligated to surrender. (Id. at pp. 179-180.)

The fourth cause of action alleges that each defendant owes “an unknown that is due to BTG that cannot be ascertained without an accounting.” (Verified Complaint, ¶ 47.) It also incorporates the prior allegations which indicate that Plaintiff is a minority shareholder of BTG, that Li is a majority shareholder of BTG and is the sole director and sole officer of BTG, that Li and BTG “kept Plaintiff in the dark with respect to the Company, its operations, and its financials,” that as a director and officer, Li owed fiduciary duties to BTG, and that Li has engaged in self-interested transactions and misappropriated money from BTG. (Verified Complaint, ¶¶ 10, 15, 16, 19, 21-23, 31, 34, 46.)

The foregoing allegations sufficiently allege a fiduciary relationship between Plaintiff and Li, requiring an accounting. The demurrer to the fourth cause of action is OVERRULED.

Fifth Cause of Action for Constructive Trust Li contends that the fifth cause of action for imposition of constructive trust incorporates 48 prior paragraphs, and alleges wrongful acquisition of funds without identifying what property Li holds or how it was wrongfully obtained, and that a constructive trust is not a standalone cause of action in a shareholder derivative lawsuit, but is an equitable remedy.

Plaintiff contends that the Complaint sufficiently pleads her fifth cause of action for constructive trust. Plaintiff asserts that some cases recognize this as a valid cause of action, and that the allegations in the Complaint provide that Li is in possession of specific traceable property of BTG.

“A constructive trust is ‘not an independent cause of action but merely a type of remedy’ ..., and an equitable remedy at that....” (Batt v. City and County of San Francisco (2007) 155 Cal.App.4th 65, 82 [citations omitted].) “ ‘A constructive trust is an involuntary equitable trust created by operation of law as a remedy to compel the transfer of property from the person wrongfully holding it to the rightful owner. [Citations.] The essence of the theory of constructive trust is to prevent unjust enrichment and to prevent a person from taking advantage of his or her own wrongdoing. [Citations.]’ (Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 990; Campbell v. Super. Ct. (2005) 132 Cal.App.4th 904, 920.) A specific identifiable property is a prerequisite for a constructive trust. (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 76.)

The cases cited by Plaintiff for the proposition that a constructive trust has been recognized as a valid cause of action are not applicable as they did not involve the argument or issue of whether a constructive trust is a valid cause of action. (Martin v. Kehl (1983) 145 Cal.App.3d 228, 240-241 [finding that cause of action for involuntary trust was not barred by any statute of limitations or laches]; Dabney v. Philleo (1951) 38 Cal.2d 60, 68 [finding no cause of action for resulting trust was stated]; Michaelian v. State Comp. Ins. Fund (1996) 50 Cal.App.4th 1093, 1114 [finding plaintiff was not entitled to relief under a constructive trust theory because plaintiff did not allege facts showing any fraud or breach of fiduciary duty].)

The demurrer to the fifth cause of action is SUSTAINED, without leave to amend, as a constructive trust is an equitable remedy and is not substantive claim for relief.

Sixth Cause of Action for Unjust Enrichment Li contends that the sixth cause of action for unjust enrichment incorporates 51 prior paragraphs and alleges receipt of benefits without specifics on what benefits Li allegedly retained unjustly or why retention is inequitable. Li also contends that California does not recognize unjust enrichment as a standalone cause.

Plaintiff contends that the Complaint sufficiently pleads her sixth cause of action for unjust enrichment as it specifically alleges that Li, while serving as BTG’s fiduciary, engaged in selfinterested transactions that funneled millions of dollars to herself, her husband, and their affiliated entities, and thus, it adequately plead entitlement to relief under a theory of unjust enrichment.

Some courts state that “’[T]here is no cause of action in California for unjust enrichment.’ . . . Unjust enrichment is synonymous with restitution.” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370; Levine v. Blue Shield of Cal. (2010) 189 Cal.App.4th 1117, 1138.) “There is no freestanding cause of action for ‘restitution’ in California. Common law principles of restitution require a party to return a benefit when the retention of such benefit would unjustly enrich the recipient; a typical cause of action involving such remedy is ‘quasi-contract.’’ (Munoz v.

MacMillan (2011) 195 Cal.App.4th 648, 661.) Other California courts have suggested the existence of a separate cause of action for unjust enrichment. (See e.g., Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1593 [“The elements of an unjust enrichment claim are the ‘receipt of a benefit and [the] unjust retention of the benefit at the expense of another.’”]

In light of the existence of authorities which expressly state that there is no cause of action for unjust enrichment or restitution, the demurrer to the sixth cause of action is SUSTAINED, without leave to amend.

In sum, the Court OVERRULES the demurrer to the first, second, and fourth causes of action. The Court SUSTAINS, with 20 days’ leave to amend, the demurrer to the third cause of action for aiding and abetting. The Court SUSTAINS, without leave to amend, the demurrer to the fifth and sixth causes of action.

Plaintiff to file an amended complaint within 20 days consistent with the Court’s ruling above.

Motion to Strike Portions of Complaint Defendant, Wenhui Li a/k/a Wenhui Laura Li a/k/a Laura Li (“Li”) moves to strike portions of Plaintiff’s Verified Complaint as to the allegations seeking exemplary or punitive damages at paragraphs 35 and 45 and the Prayer for Relief at paragraph 5, and as to the allegations seeking attorneys’ fees at paragraph 29 and the Prayer for Relief at paragraph 4.

As a threshold matter, for the first time in reply, Li contends that the internal affairs doctrine applies and that Delaware law governs the substance of these claims, including the availability and pleading standards for punitive damages and fee-shifting in derivative actions such that California Civil Code section 3294 and California’s common fund/substantial benefit doctrines are inapplicable. The Court declines to consider all new points, arguments, and evidence presented for the first time on reply. (See Balboa Ins.

Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010; Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537-1538.) “[P]oints raised in a reply brief for the first time will not be considered unless good cause is shown for the failure to present them before. [Citations.]” (Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010.) No good cause is shown for why Li applied California law, including Civil Code section 3294 and Corporations Code section 800 in the moving papers, and never argued the applicability of the internal affairs doctrine, only to raise it for the first time in reply.

Exemplary/Punitive Damages Defendant Li contends that paragraphs 35 and 45 seek exemplary damages based on conclusory allegations of “oppression, fraud, and malice” without specific facts showing despicable conduct or intent to harm, and that the Prayer for Relief at paragraph 5 likewise seeks exemplary or punitive damages without sufficient supporting allegations.

Plaintiff contends that the punitive damages allegations in Paragraphs 35, 45, and the Prayer for Relief are well-supported by specific facts detailing an ongoing fraud by omission and concealment by Defendant Li, who as the sole director, officer, and majority shareholder of BTG, intentionally funneled millions in corporate funds to herself, her husband, and their affiliated entities while actively keeping minority shareholders blind to her operations.

In order to state a prima facie claim for punitive damages, the complaint must allege facts of defendant’s oppression, fraud, or malice, as stated in Civil Code section 3294. (Civil Code § 3294(a); College Hospital Inc. v. Superior Court (1994) 8 Cal. 4th 704, 721; Turman v. Turning Point of Central Calif., Inc. (2010) 191 Cal.App.4th 53, 63.) “Malice” is defined as conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. (Civil Code § 3294(c)(1).) “Oppression” is defined as despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights. (Civil Code § 3294(c)(2).) “Fraud” is defined as an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury. (Civil Code § 3294(c)(3).)

“ ‘When there is no evidence the defendant intended to harm the plaintiff, there must be evidence of conduct that is both willful and despicable. [Citation.] Conscious disregard for the safety of another may be found “ ‘where the defendant is aware of the probable consequences of his or her conduct and he or she willfully fails to avoid such consequences.’ ” [Citation.] “ ‘Despicable conduct’ is conduct that is ‘ “so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people.” ’[Citation.] Such conduct has been described as having the character of outrage frequently associated with crime.” ’ [Citation.]” (McNeal v. Whittaker, Clark & Daniels, Inc. (2022) 80 Cal. App. 5th 853, 872.)

“The adjective ‘despicable’ connotes conduct that is ... so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people. .... The wrongdoer ... must act with the intent to vex, injure, or annoy, or with a conscious disregard of the plaintiff's rights. ... Punitive damages are appropriate if the defendant's acts are reprehensible, fraudulent or in blatant violation of law or policy. The mere carelessness or ignorance of the defendant does not justify the imposition of punitive damages . . . . Punitive damages are proper only when the tortious conduct rises to levels of extreme indifference to the plaintiff's rights, a level which decent citizens should not have to tolerate . . . .” (Lackner v. North (2006) 135 Cal.App.4th 1188, 1210.)

“In order to survive a motion to strike an allegation of punitive damages, the ultimate facts showing an entitlement to such relief must be pled by plaintiff. [Citations.] In passing on the correctness of a ruling on a motion to strike, judges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth. [Citations.] In ruling on a motion to strike, courts do not read allegations in isolation. [Citations.]” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) “Further, even though certain language pleads ultimate facts or conclusions of law, such language when read in context with the facts alleged as to defendants’ conduct may adequately plead the evil motive requisite to recovery of punitive damages.” (Monge v. Superior Court (1986) 176 Cal.App.3d 503, 510.)

“In addition to the requirement that the operative complaint set forth the elements as stated in section 3294, it must include specific factual allegations showing that the defendant’s conduct was oppressive fraudulent, or malicious to support a claim for punitive damages. [Citation.]” (Today’s IV, Inc. v. Los Angeles Metropolitan Transportation Authority (2022) 83 Cal.App.5th 1137, 1193.) “Punitive damages may not be pleaded generally. [Citation.]” (Ibid.) Conclusory allegations that conduct was oppressive, fraudulent, or malicious are insufficient to support a claim for punitive damages. (Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1041-1042.) There must be factual assertions supporting a conclusion that a defendant acted with oppression, fraud, or malice. (Ibid.)

“Exemplary damages may be imposed in addition to actual damages for the breach of a fiduciary relationship. [Citation.]” (Sequoia Vacuum Systems v. Stransky (1963) 229 Cal. App. 2d 281, 283- 289.)

Here, exemplary damages are sought under the first cause of action for breach of fiduciary duty at paragraph 35, and the third cause of action for aiding and abetting at paragraph 45. Paragraph 5 of the Prayer for Relief seeks exemplary or punitive damages. The Verified Complaint alleges that Li is a majority shareholder of BTG and is the sole director and sole officer of BTG; that Defendants John Buda and Li are husband and wife; that Plaintiff invested $1 million in BTG in exchange for shares of common stock of the company such that Plaintiff’s shares in BTG represented approximately 11.072% of the issued and outstanding common stock of the company; that Li kept Plaintiff in the dark with respect to BTG, its operations, and its financials; that BTG never noticed or held any annual meeting of the shareholders as long as Plaintiff has been a shareholder of the company; that Plaintiff’s demands for information and records were largely ignored and meaningfully responded to; and that during the times where Plaintiff was a shareholder of BTG, Li caused BTG to engage in transactions in which Li was self-interested. (Verified Complaint, ¶¶ 9-10, 15-16, 17-19.)

It is alleged on information and belief that Li’s self-interested transactions included: “(i) BTG providing a substantial loan in excess of $2 Million to BTG GENOMICS PROFESSIONAL, a real estate company in which LI, on information and belief, was the sole member and sole manager; (ii) BTG providing a loan or loans to a shareholder (presumably LI); (iii) BTG receiving a loan or loans from a shareholder (presumably LI); (iv) engaging LI’s husband BUDA (an immigration attorney) and his firm BUDA LAW GROUP (a law firm specializing in immigration law) at unreasonably excessive cost to purportedly perform legal work.” (Verified Complaint, ¶ 19.)

It is also alleged that prior to causing BTG to enter into these transactions, Li did not disclose the material facts of her self-interest to disinterested shareholders, and did not seek to obtain the good faith approval of the majority of the disinterested shareholders, as well as that these transactions were not negotiated at arm’s length, and were not fair to BTG at the time they were entered. (Verified Complaint, ¶¶ 20-22.) It is additionally alleged that there are no corporate minutes or resolutions evidencing or authorizing any of the self-interested transactions Li caused BTG to enter. (Verified Complaint, ¶ 23.)

It is further alleged that BTG, under Li’s direction and control, refused to provide further information and/or documentation concerning questionable transaction about which Plaintiff inquired. (Verified Complaint, ¶ 26.)

The first cause of action incorporates the above allegations and also alleges that Li violated and breached her fiduciary duty by: “(i) failing to have BTG hold annual shareholder meetings; (ii) failing to hold election of directors; (iii) failing to document and maintain corporate books and records; (iv) causing BTG to engage in transactions in which they were self-interested, that were not negotiated at arm’s length nor fair to BTG at the time they were entered into; (v) failing to disclose the material facts of their self-interest to disinterested shareholders; and (vi) failing to seek the good faith approval of a majority of the disinterested shareholders as to self-interested transactions.” (Verified Complaint, ¶ 32.) The first cause of action also alleges that through these self-interested transactions, Li, among others, misappropriated funds rightfully belonging to BTG. (Verified Complaint, ¶ 34.)

The allegations above concerning alleged self-interested transactions by Li, made without disclosing material facts of her self-interest and without the good faith approval of the majority of the disinterested shareholders, and which were unfair to BTG, as well as Li’s misappropriation of funds belonging to BTG sufficiently allege specific facts of Defendant Li’s malice by way of despicable conduct which was carried on by Li with a willful and conscious disregard of BTG’s rights, and fraud by way of Li’s concealment of material facts with the intention of depriving BTG of property or otherwise causing injury.

To the extent that Defendant Li contends that fraud must be pled with specificity, that is in relation to an affirmative cause of action for fraud. Li cites to Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, but that case does not stand for the proposition that fraud within the meaning of Civil Code section 3294 and a claim for punitive or exemplary damages must be pled with particularity. Nevertheless, even assuming that such a standard applied for fraud to assert a claim for punitive or exemplary damages, less specificity is “required of fraud claims ‘when “it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy,” [citation]; “[e]ven under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party . . . .” ’ [Citation.]” (Alfaro v.

Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384.) Given the allegations of self-interested transactions and Li’s control and/or ownership, it appears from the allegations that Li must necessarily possess full information concerning the facts of these transactions such that less particularity is required.

Based on the foregoing, the motion to strike allegations seeking exemplary or punitive damages at paragraphs 35 and 45 and the Prayer for Relief at paragraph 5 is DENIED.

Attorneys’ Fees Defendant Li contends that the request for attorneys’ fees in the Prayer for Relief and paragraph 29 cites inapplicable law as California Corporations Code section 17501 applies to derivative actions involving limited liability companies, not corporations like BTG, and that Corporations Code section 800 governs and does not authorize attorneys’ fees absent a contractual, statutory, or equitable basis applicable here.

Plaintiff acknowledges that Li is correct about the citation to the incorrect statute. The Complaint alleges: “If Plaintiff is successful in this action, a substantial benefit will result to BTG, on whose behalf this cause of action is prosecuted pursuant to California Corporations Code section 17501 and Plaintiff, therefore, is entitled to her attorneys’ fees and costs incurred herein in a sum to be proven at trial from BTG.” (Complaint, ¶ 29.)

To the extent that Plaintiff asserts in the opposition that the request for reasonable attorney’s fees is allowed under the equitable "common fund" and "substantial benefit" doctrines, there are no allegations in the Complaint as to the application of these doctrines to support a claim for attorney’s fees.

In reply, Li asserts that the common fund and substantial benefit doctrines are post-judgment equitable remedies that are applied by the court after a plaintiff has actually conferred a benefit on the corporation through a successful derivative action citing primarily to Cziraki v. Thunder Cats, Inc. (2003) 111 Cal.App.4th 552, 563, but cites to no authority providing that a party cannot seek attorney’s fees based on the equitable “common fund” and “substantial benefit” doctrines in a complaint to support a claim for attorney’s fees.

The motion to strike allegations seeking attorney’s fees at paragraph 29 and the Prayer for Relief at paragraph 4 is GRANTED, with 20 days’ leave to amend.

Defendant Li to give notice.

3. 30-2025-01480879 1. Case Management Conference 2. Demurrer to Cross-Complaint Schatz vs. New Life 3. Motion to Strike Answer Treatment Center, Inc 4. Motion to Strike Portions of Cross-Complaint

Plaintiff/cross-defendant Joshua Schatz (“Schatz”) demurs to the Cross-Complaint of cross- complainants New Life Treatment Center, Inc. (“NLTC”) and Maria V. Malek aka Mary Malek (“Mary” and collectively, “Cross-Complainants”). Schatz also moves to strike portions of the Cross-Complaint and the Answer filed by defendants NLTC, John Malek, and Daniel Zhuralev.

The Court notes that Joshua’s Demurrer is 24 pages long, over the page limit in the California Rules of Court. Counsel for Schatz is admonished that future filings must comply with all applicable rules and statutes.

Demurrer to Cross-Complaint

First Cause of Action for Fraud in the Inducement Schatz argues this cause of action is time-barred because the purported misrepresentations were made in August 2016 and there are no allegations as to when NLTC and Mary discovered the alleged fraud.

“In order to rely on the discovery rule for delayed accrual of a cause of action, ‘[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.’” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808.) “In assessing the sufficiency of the allegations of delayed discovery, the court places the burden on the plaintiff to ‘show diligence’; ‘conclusory allegations will not withstand demurrer.’” (Ibid.)