KUKDONG CORP VS DREAM APPAREL INC ET AL

Tentative Rulings

Case Number: BC692829    Hearing Date: January 31, 2020    Dept: 24

Plaintiff Kukdong Corp.’s motion for leave to file a Second Amended Complaint is GRANTED.

On February 5, 2018, Plaintiff Kukdong Corp. (“Plaintiff”) filed this breach of contract action against Defendant Dream Apparel Inc. and James J. Lee (collectively “Defendants”). Plaintiff is an apparel-manufacturing company that agreed to provide clothing to Defendants. Defendants import and sell women’s clothing and other items to retailers. Defendants agreed to pay $13,191,457 for the clothing. Defendants filed to pay Plaintiff. The operative First Amended Complaint (“FAC”) alleges eight causes of action for: 1) breach of contract, 2) breach of the implied covenant of good faith and fair dealing; 3) conversion; 4) unfair business practices; 5) intentional interference with prospective economic advantage; 6) negligence interference with prospective economic advantage; 7) intentional interference with contract; and 8) unjust enrichment. Trial is set for May 11, 2020.

On December 13, 2019, Plaintiff moved for leave to amend to file the proposed Second Amended Complaint (“SAC”), which will remove several causes of action and add new causes for fraud, a violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and common count. On January 17, 2020, Defendants filed an opposition. On January 24, 2020, Plaintiff filed a reply.

Legal Standard

If a plaintiff wishes to amend a complaint after the answer has been filed or after the demurrer has been filed and after the hearing on the demurrer, or if he or she has already amended the complaint “of course,” permission of the court must be obtained before the amendment will be allowed. (CCP §§ 473(a)(1), 576.)

Motions for leave to amend the pleadings are directed to the sound discretion of the court. “The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading . . . .” (CCP § 473(a)(1); see CCP § 576.) Policy favors liberally granting leave to amend so that all disputed matters between the parties may be resolved. (See Howard v. County of San Diego (2010) 184 Cal.App.4th 1422, 1428.) Absent prejudice to the adverse party, the court may permit amendments to the complaint “at any stage of the proceedings, up to and including trial.” (Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 761 [internal quotes omitted].) Where leave is sought to add entirely new claims, the court may grant leave to amend if the new claims are based on the same general set of facts, and the amendment will not prejudice the opposing party. (Austin v. Massachusetts Bonding & Ins. Co. (1961) 56 Cal.2d 596, 600-602; Glaser v. Meyers (1982) 137 Cal.App.3d 770, 777 [holding trial court did not abuse its discretion in permitting amendment of complaint, which originally alleged constructive eviction, to allege retaliatory eviction where the new claim was based on the same general set of facts].)

Although denial is rarely justified, a judge has discretion to deny leave to amend if the party seeking the amendment has been dilatory, and the delay has prejudiced the opposing party. (Morgan v. Sup.Ct. (1959) 172 Cal.App.2d 527, 530; see also Hirsa v. Superior Court (1981) 118 Cal.App.3d 486, 490). An opposing party is prejudiced where the amendment would necessitate a trial delay along with a loss of critical evidence, added preparation expense, increased burden of discovery, etc. (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 486-488 [leave properly denied where plaintiff sought leave on the eve of trial, nearly two years after the complaint was originally filed and gave no explanation for the delay which prejudiced defendant who did not discover or depose many of the witnesses who would support the new allegations and had not marshaled evidence in opposition of the new allegations].)

Discussion

Procedure

A motion for leave to amend must state with particularity what allegations are to be amended. Namely, it must state what allegations in the previous pleading are proposed to be deleted and/or added, if any, and where, by page, paragraph, and line number. (CRC, Rule 3.1324(a)(2)-(3).) The motion must be accompanied by a declaration specifying: (1) the effect of the amendment; (2) why the amendment is necessary and proper; (3) when the facts giving rise to the amended allegations were discovered; and (4) the reasons why the request for amendment was not made earlier. (CRC, Rule 3.1324(b).) The motion must also be accompanied by the proposed amended pleading, numbered to differentiate it from the prior pleadings or amendments. (CRC, Rule 3.1324(a)(1).) It is within the court’s discretion to require compliance with Rule 3.1324 before granting leave to amend. (Hataishi v. First American Home Buyers Protection Corp. (2014) 223 Cal.App.4th 1454, 1469.)

Delay

Here, no delay is apparent. Plaintiff provides an adequate showing that it discovered the instant claims during the deposition of Lee, which took place in November 2019. The instant motion was made less than a month later. Particularly, Plaintiff points to Lee’s testimony that Lee admitted that the contracts between Dream Apparel and the Korean manufacturers are in virtually the same format with the stamp of his signature as President of Dream Apparel. (Balatbat Decl., ¶ 12, Ex. P (“Lee Depo.”), at 233:24-234:14.) Lee claimed that the sales contracts are invalid because his brother had no authority to enter into the sales contracts on Dream Apparel’s behalf. (Id. at 314:7-315:12.) Both Dream Apparel and SJ Mode have denied any liability to Kukdong, pointing the finger at the other brother and other company. However, Lee admitted promising Kukdong that he would pay for the goods shipped to Dream Apparel. (Id. at 165:21-166:8; 169:18-170:18; 171:7-9; 179:14-20; 187:11-188:2; 203:12-17; 207:7-208:25; 221:6-222:18.) Lee knew that Kukdong was continuing to ship product to Dream Apparel because he had promised Kukdong that he would pay. (Id. at 245:1-21.) Lee testified that he only sent those emails to Kukdong and made those promises because his brother said it was necessary. (Id. at 184:1-19; 186:20-23; 194:25-198:24; 210:15-20; 213:10-17, 215:6-9.)

Plaintiff states that this newly discovered evidence suggests a racketeering scheme between Lee, controlling Dream Apparel, and his brother, controlling SJ Mode. Plaintiff asserts that Dream Apparel contracts with the manufacturer for goods by having SJ Mode email sales contracts stamped with Dream Apparel’s signature as the purported buyer. Then, Dream Apparel accepts the goods provided by the manufacturers pursuant to those sales contracts. Dream Apparel receives payment for the goods it provides to its customers, but fails to fully pay the manufacturer for the goods, and wires millions from its U.S. bank account to various SJ Mode bank accounts in Korea, leaving Dream Apparel with insufficient funds to pay the manufacturer. After the fact, Dream Apparel and SJ Mode deny any liability for payment to the manufacturers on the basis that the other brother or other company was the one responsible for payment under the sales contracts. Plaintiff notes that the deposition testimony and the email correspondences during 2015 show this pattern.

Plaintiff also notes that this was not discovered earlier because Defendants concealed their fraudulent intent prior to Lee’s deposition. Defendants providing incomplete and misleading discovery responses and destroying documents. In their discovery responses, Defendants had claimed that (a) Lee did not recall any discussion “concerning the party who actually owed the claimed debt,” and (b) Lee told Kukdong that he would attempt to get SJ Mode to pay what was owed. (Batlatbat Decl., Ex. J at 7:17-21.) However, Defendants failed to provide any communications between themselves and SJ Mode, leaving Plaintiff to resort to third party discovery and the deposition.

Further, it was not until Fall 2019 that Plaintiff discovered that two other Korean manufacturers had filed lawsuits based on similar facts, further suggesting fraudulent intent/RICO violation. The first lawsuit was filed on September 12, 2019 and the second on November 22, 2019. (Balatbat Decl. ¶¶ 11, 13, Exs. O, Q.)

Prejudice

Even if the Court were to assume delay, Defendants have not established any prejudice caused by such delay in amendment. Defendants essentially only identify substantive liability issues as prejudice, i.e., that the instant parties never had a contract in the first place. Of course, this does not explain how Defendants would be prejudiced by amendment. Any substantive issues may be addressed through appropriate means, such as demurrers, summary judgment, or trial. Defendant also references discovery in the other cases filed against it but does not explain how that discovery affects this case.

Defendants’ opposition fails to identify any prejudice they would suffer as a result of granting leave to amend. The Court finds none. Accordingly, Plaintiff’s motion is GRANTED.

Moving party is ordered to give notice.