This case was last updated from Los Angeles County Superior Courts on 06/02/2019 at 03:59:48 (UTC).

MHJ GROUP INC ET AL VS JI LI ET AL

Case Summary

On 09/12/2017 MHJ GROUP INC filed an Other - Injunction lawsuit against JI LI. This case was filed in Los Angeles County Superior Courts, Stanley Mosk Courthouse located in Los Angeles, California. The case status is Pending - Other Pending.
Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    ****5380

  • Filing Date:

    09/12/2017

  • Case Status:

    Pending - Other Pending

  • Case Type:

    Other - Injunction

  • County, State:

    Los Angeles, California

 

Party Details

Plaintiffs and Cross Defendants

MHJ GROUP INC

WHITE PEAK ONE INC

LIANG KAIHOU

BAI YOUNG

HONGSHI INTERNATIONAL USA COMPANY

LI CHUNSHI

YORBA LINDA GARDENS LLC

Defendants and Cross Plaintiffs

LI JI

PARK & LIM

AA SUNRISE INC. A CALIFORNIA CORPORATION

XIONG HOLLY

Attorney/Law Firm Details

Plaintiff Attorneys

MARGOLIS NAKI B.

BRANDT JUSTIN MATTHEW

LIANG ENOCH H.

Defendant Attorneys

MCPHILLIPS DENNIS MARTIN

LIM SHI YOUNG

ZARGARYAN DAVIT

Cross Plaintiff Attorney

ADLER JAMES EMANUEL

Cross Defendant Attorney

LEVITSKAIA JULIA

 

Court Documents

Answer

3/28/2019: Answer

Case Management Statement

3/29/2019: Case Management Statement

Request for Dismissal

3/29/2019: Request for Dismissal

Case Management Statement

4/2/2019: Case Management Statement

Unknown

4/2/2019: Unknown

Minute Order

4/3/2019: Minute Order

Case Management Order

4/3/2019: Case Management Order

Notice of Ruling

4/4/2019: Notice of Ruling

Notice

4/5/2019: Notice

Motion to Be Relieved as Counsel

4/8/2019: Motion to Be Relieved as Counsel

Declaration

4/8/2019: Declaration

Proof of Service by Mail

4/8/2019: Proof of Service by Mail

Declaration in Support of Attorney's Motion to Be Relieved as Counsel-Civil

4/8/2019: Declaration in Support of Attorney's Motion to Be Relieved as Counsel-Civil

Notice

4/16/2019: Notice

Proof of Personal Service

5/2/2019: Proof of Personal Service

Request for Judicial Notice

5/15/2019: Request for Judicial Notice

Declaration

5/15/2019: Declaration

Minute Order

5/16/2019: Minute Order

88 More Documents Available

 

Docket Entries

  • 05/30/2019
  • DocketDeclaration (OF NAKI MARGOLIS); Filed by KAIHOU LIANG (Plaintiff); MHJ GROUP INC (Plaintiff)

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  • 05/30/2019
  • DocketNotice of Entry of Dismissal and Proof of Service; Filed by MHJ GROUP INC (Plaintiff)

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  • 05/30/2019
  • DocketSeparate Statement; Filed by KAIHOU LIANG (Plaintiff); MHJ GROUP INC (Plaintiff)

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  • 05/30/2019
  • DocketSeparate Statement; Filed by KAIHOU LIANG (Plaintiff); MHJ GROUP INC (Plaintiff)

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  • 05/30/2019
  • DocketDeclaration (of Naki Margolis); Filed by KAIHOU LIANG (Plaintiff); MHJ GROUP INC (Plaintiff)

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  • 05/30/2019
  • DocketMotion to Compel (Further Response to and Compliance with Inspection Demand); Filed by KAIHOU LIANG (Plaintiff); MHJ GROUP INC (Plaintiff)

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  • 05/30/2019
  • DocketSeparate Statement; Filed by MHJ GROUP INC (Plaintiff)

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  • 05/30/2019
  • DocketDeclaration (of Naki Margolis); Filed by MHJ GROUP INC (Plaintiff)

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  • 05/30/2019
  • DocketMotion to Compel (Further Responses); Filed by MHJ GROUP INC (Plaintiff)

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  • 05/30/2019
  • DocketMotion to Compel (Further Response); Filed by KAIHOU LIANG (Plaintiff); MHJ GROUP INC (Plaintiff)

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141 More Docket Entries
  • 09/12/2017
  • DocketCOMPLAINT FOR: (1) BREACH OF CONTRACT; ETC

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  • 09/12/2017
  • DocketDeclaration; Filed by Plaintiff/Petitioner

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  • 09/12/2017
  • DocketDECLARATION OF KAIHOU LIANG IN SUPPORT OF PLAINTIFFS' EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE RE PRELIMINARY INJUNCTION

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  • 09/12/2017
  • DocketOrder; Filed by Plaintiff/Petitioner

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  • 09/12/2017
  • DocketDECLARATION OF YONG BAI IN SUPPORT OF PLAINTIFFS' EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE RE PRELIMINARY INJUNCTION

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  • 09/12/2017
  • DocketORDER GRANTING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE RE PRELIMINARY INJUNCTION

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  • 09/12/2017
  • DocketDECLARATION OF RICHARD CHOU IN SUPPORT OF PLAINTIFFS' EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE RE PRELIMINARY INJUNCTION

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  • 09/12/2017
  • DocketComplaint; Filed by KAIHOU LIANG (Plaintiff); MHJ GROUP INC (Plaintiff)

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  • 09/12/2017
  • DocketDeclaration; Filed by Plaintiff/Petitioner

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  • 09/12/2017
  • DocketEx-parte Request for Order; Filed by Plaintiff/Petitioner

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Tentative Rulings

Case Number: ****5380 Hearing Date: November 14, 2022 Dept: 39

MHJ Group, Inc. v. Ji Li, et al.

Case No. ****5380

Motion for Summary Adjudication of the Eighth Cause of Action

BACKGROUND

In the third amended complaint, Plaintiff MHJ Group, Inc. (“MHJ”) asserts the eighth cause of action as a derivative claim in the name of Yorba Linda Gardens, LLC (“YLG” or the “Company”) against Defendant AA Sunrise (“AA Sunrise”) for disassociation under Corporations Code section 17706.02(e). AA Sunrise does not dispute that the company is owned by four members: (1) MHJ, (2) White Peak One, Inc. (“White Peak”), (3) Hongshi International USA Company (“Hongshi”), and (4) AA Sunrise. (Defendant’s Response to Plaintiff’s Separate Statement, 7.) The third amended complaint alleges that the Company has four members: (1) Plaintiff Kaihou Liang from MHJ; (2) Former plaintiff Yong Bai from White Peak; (3) Former plaintiff Chunshi Li from Hongshi; and (4) Defendant Ji Li from AA Sunrise. AA Sunrise does not dispute that the Company was operated by four managers, of which Defendant Ji Li was one. (Defendant’s Response to Plaintiff’s Separate Statement, 8.) AA Sunrise does not dispute that Defendant Ji Li “was designated to manage the operation of YLG because he was the only one with experience regarding development of real estate.” (Ibid.) AA Sunrise concedes: “[Defendant Ji] Li was given full authority to act on behalf of YLG.” (Ibid.) Now, MHJ seeks summary adjudication of the eighth cause of action, which AA Sunrise opposes. The motion is granted.

LEGAL STANDARD

“A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if the party contends that the cause of action has no merit, that there is no affirmative defense to the cause of action, that there is no merit to an affirmative defense as to any cause of action, that there is no merit to a claim for damages, as specified in Section 3294 of the Civil Code, or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs.” (Code Civ. Proc., 437c, subd. (f)(1).) “[T]he party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law[.] There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) “[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact.” (Ibid.)

DISCUSSION

California Corporations Code section 17706.02 states that a person may be “dissociated as a member from a limited liability company” when “[o]n application by the limited liability company, the person is expelled as a member by judicial order because the person has done any of the following . . . (1) Engaged, or is engaging, in wrongful conduct that has adversely and materially affected, or will adversely and materially affect, the limited liability company’s activities.” (Corp. Code, 17706.02(e)(1).) MHJ relies on a declaration from Kaihou Liang, which states that the Company’s banking records show the following transfers: (1) $326,000 to China TV Media Group, (2) $1,460,292.81 to Fox Property Holdings, (3) $176,000 to JWY Group, and (4) $860,000 to US Longton Inc. (Declaration of Kaihou Liang, 23.) MHJ relies on California Secretary of State records demonstrating that all of these entities are affiliated with Defendant Ji Li. (Id., Exhs. #11-14.) Specifically, the records establish that: (1) Defendant Ji Li is the president, chief executive officer, secretary, chief financial officer, and sole director of China TV Media Group, (2) Defendant Ji Li is the sole managing member of Fox Property Holdings, LLC, (3) Defendant Ji Li is the secretary and one of three directors of JWY Group, Inc., and (4) Defendant Ji Li is the chief executive officer and sole director of US Longton Inc. (Ibid.) These records are admissible under California Evidence Code section 1280. AA Sunrise does not dispute that “Li owned and/or controlled the following additional entities: U.S. Longton, Inc., China TV Media Group, Fox Property Holdings, LLC, . . . [and] JWY Group . . . .” (Defendant’s Response to Plaintiff’s Separate Statement, 6.)

MHJ alleges that Defendant Ji Li embezzled the Company’s funds by funneling them to his own companies. Defendant Ji Li does not dispute the transfers but states that there was no nefarious intent: “I engaged several companies with expertise in real estate development: US Longton was the general contractor for the project, JWY Group was hired for design, traffic studies, and architectural services, and China TV provided medial services related to presentations on YLG’s behalf at public hearings, inter alia. I have management rights to the three companies and thus used them as opposed to other entities so I could keep costs down for YLG.” (Declaration of Ji Li, 15, 16.)

While there may be a triable issue whether the transfers to US Longton, JWY Group, and China TV constituted embezzlement, AA Sunrise does not satisfy its burden of demonstrating that these transactions were in good faith and fair to YLG’s other members. Although the operating agreement permitted a manager or member to engage in transactions with YLG, such transactions still had to be “fair and reasonable to the Company and [] at least as favorable to the Company as those that are generally available in similar transactions between unrelated parties.” (Declaration of Ji Li, Exh F, p. 41, 5.10.) The operating agreement also imposed “the obligation of good faith and fair dealing.” (Id., Exh. F, p. 21, 4.7.) In other words, the operating agreement did not relieve YLG’s members and managers of their fiduciary duties.

“A limited liability company is a hybrid business entity formed under the Corporations Code and consisting of at least two ‘members’ who own membership interests.” (PacLink Communications Intern. Inc. v. Superior Court (2001) 90 Cal.App.4th 958, 964, citations omitted.) “[T]he business and affairs of the company are to be managed by one or more managers.” (People v. Pacific Landmark, LLC (2005) 129 Cal.App.4th 1203, 1212, citing Corp. Code, 17151(a).) “The managers need not be members of the company.” (Ibid.) However, a manager owes the same fiduciary duties to the limited liability and its members as a partner owes to a partnership and its partners. (Id., citing Corp. Code, 17153.) In other words, Defendant Ji Li and AA Sunrise owed the same fiduciary duty to the other members of YLG that one partner owes to the other partners and the partnership.

“Partnership is a fiduciary relationship, and partners are held to the standards and duties of a trustee in their dealings with each other.” (Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 424, citing BT-I v. Equitable Life Assurance Society (1999) 75 Cal.App.4th 1406, 1410.) “In proceedings connected with the conduct of a partnership, partners are bound to act in the highest good faith to their copartners and may not obtain any advantage over them in the partnership affairs by the slightest misrepresentation, concealment, threat or adverse pressure of any kind.” (Ibid.) AA Sunrise has the burden of demonstrating that these self-dealing transactions were in good faith and fair to YLG’s other members. (See Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 424, citing Laux v. Freed (1960) 53 Cal.2d 512, 522; Smith v. Tele-Communication, Inc. (1982) 134 Cal.App.3d 338, 345.) AA Sunrise fails to do so. There is no evidence that these self-dealing transactions were disclosed to, and approved by, the disinterested members of YLG. To the contrary, AA Sunrise concedes that the other members of YLG were not aware of these transactions. (See Declaration of Defendant Ji Li, 13-14 & Exh. J.) Nor is there any evidence suggesting that these transactions benefitted YLG. Defendant Li’s declaration lacks foundation for his assertion that his entities provided services to YLG at a lower cost than competitors.

Putting aside those transfers, Defendant Ji Li does not explain the transfer of a total of $1,460,292.81 to Fox Property Holdings in three transfers between June 13 and November 15, 2016. (See Declaration of Kaihou Liang, 23; see also Declaration of Luke Goetz, Exh. A, p. 8; Defendant’s Response to Plaintiff’s Separate Statement, 10.) Although AA Sunrise relies on Defendant Ji Li’s declaration to dispute this fact, the cited paragraphs ( 8-12, 17-20, 25) and exhibits (F, K, L, and N) are silent on this transfer. AA Sunrise instead argues that YLG took out the underlying loan of $2 million from First General Bank in order to build YLG’s credit history. (Declaration of Defendant Ji Li, 9-12; see also Defendant’s Response to Plaintiff’s Separate Statement, 10.) This does not explain why Defendant Ji Li transferred $1.46 million of YLG’s money to an entity that he controls as the sole managing member. AA Sunrise also argues that Defendant Ji Li personally guaranteed the loan and that the entire loan was repaid. (Declaration of Defendant Ji Li, 12; see also Defendant’s Response to Plaintiff’s Separate Statement, 10.) There are two problems with this argument. First, the mere fact that YLG may have paid back the loan is not relevant to whether Defendant Ji Li’s entity received $1.46 million in YLG’s funds. Second, even if Fox Property Holdings paid this money back to YLG or First General Bank, the transfer still was “wrongful.” It was a breach of fiduciary duty to have diverted the funds to himself in the first place since there was no apparent benefit to YLG in the transfer. The mere fact that Defendant Ji Li may have repaid the funds “in order to resolve [MHJ’s] objection” does not excuse his conduct. (Defendant’s Response to Plaintiff’s Separate Statement, 12.)

AA Sunrise appears to argue that Defendant Ji Li was authorized to undertake these actions based upon Paragraph 5.3.11 of the operating agreement, as well as the other members’ decision to make him “the lead of the company.” (See Declaration of Ji Li, 8-9, 17-18.) This does not authorize his actions. This does not relieve AA Sunrise and Defendant Ji Li of their fiduciary duties. (See BT-I v. Equitable Life Assurance Society of the United States (1999) 75 Cal.App.4th 1406, 1412-1413, citations omitted.)

Based upon the foregoing, the Court finds that Defendant Ji Li engaged in “wrongful” conduct in that he breached his fiduciary duty to the other members of YLG. AA Sunrise argues that Defendant Ji Li’s actions cannot be attribute to AA Sunrise. The Court disagrees. Per the operating agreement, each of the entities that owned YLG provided one manager, and Defendant Ji Li was that manager. Defendant Ji Li owns AA Sunrise. (See Declaration of Brandon Fernald, Exh. A, pp. 73-74.) Defendant Ji Li acknowledges that he managed the financial affairs of YLG in his capacity as a manager. (Declaration of Ji Li, 8-16.) An entity acts through its agents. Therefore, Defendant Ji Li’s actions may be attributed to AA Sunrise.

Finally, the Court finds that the conduct of Defendant Ji Li and AA Sunrise has adversely and materially affected, or will adversely or materially affect, YLG’s activities. Defendant Ji Li and AA Sunrise diverted substantial sums from YLG. More important, having any member who operates in violation of his fiduciary duty risks future harm to the limited liability company.

The parties argue over the accuracy of the translations of board minutes. The Court need not rely on Plaintiff’s version of these minutes in order to resolve the motion.

CONCLUSION AND ORDER

Based upon the foregoing, the Court orders as follows:

1. The Court grants MHJ’s motion for summary adjudication of the eighth cause of action.

2. Plaintiffs’ counsel may lodge a proposed order for the Court’s signature, if necessary.

3. Plaintiffs’ counsel shall provide notice and file proof of such with the Court.



Case Number: ****5380 Hearing Date: March 21, 2022 Dept: 39

MHJ Group, Inc. v. Ji Li, et al.

Case No. ****5380

Motion for Leave to Amend

Plaintiffs Kai Hou Liang and MHJ Group, Inc. (“MHJ,” collectively, “Plaintiffs”) move for an order granting leave to file a Third Amended Complaint. Plaintiffs seek to add a cause of action under Corporations Code section 17706.02 to remove AA Sunrise, Inc. (“AA Sunrise”) as a member of Yorba Linda Garden, LLC (“Yorba Linda Garden”). In this case, MHJ and AA Sunrise are two of four members of Yorba Linda Garden. Plaintiffs seek to remove AA Sunrise as a member of Yorba Linda Garden because Plaintiffs contend AA Sunrise and its principal, Ji Li, mismanaged Yorba Linda Garden. Plaintiffs advance the declaration of their counsel, Brandon C. Fernald (“Counsel”). Counsel states that he substituted in as counsel for Plaintiffs on February 24, 2021, and this case was stayed from March 11, 2021 to February 2, 2022. During the stay, Counsel determined that adding the claim to dissociate AA Sunrise as a member of Yorba Linda Garden is necessary for Yorba Linda Garden to operate without interference from Ji Li. This is a proper basis for amendment. The Court finds no undue prejudice. The motion is not opposed. Therefore, the Court orders as follows:

1. Plaintiff’s motion to amend is granted.

2. Plaintiff shall file the third amended complaint within ten (10) days.

3. Plaintiff’s counsel shall provide notice and file proof of such with the Court.



b'

Case Number: ****5380 Hearing Date: November 17, 2021 Dept: 39

MHJ Group, Inc., et al. v. Ji Li, et al.

Case No. ****5380

Motion To Be Relieved

Counsel for Defendants Ji Li, Holly Xiong, and AA Sunrise, Inc., and Cross-Complainants Ji Li and AA Sunrise, Inc. seek to withdraw from this case. Good cause having been shown, the Court grants the motion.

CONCLUSION AND ORDER

The Court orders as follows:

1. Counsel’s motion to withdraw is granted. The motion shall be effective once Counsel serves a copy of this minute order AND the signed order on Form MC-053, upon all parties, including their clients, and files proof of service.

2. The Court lifts the stay on this case. The Court discharges the Order to Show Cause why the stay should not be lifted.

3. The Court declines to terminate the discovery reference. The Court discharges the Order to Show Cause why the discovery reference should not be terminated.

4. Defendants reserved hearing dates for motions for summary judgment on November 22, 2021, and January 6, 2022. The Court vacates those hearing dates, as no motions were filed within statutory notice periods for hearing on those dates.

5. Plaintiffs reserved a hearing date for a motion for leave to amend the operative complaint on December 21, 2021. The Court is not available for hearings on that date, so the Court continues the reservation to January 18, 2022, at 9:00 a.m.

6. AA Sunrise, Inc. cannot represent itself in this litigation. Therefore, the Court sets an Order to Show Cause why it should not strike its answer to the complaint, and dismiss its cross-complaint, for lack of representation. The OSC shall be heard on January 18, 2022, at 9:00 a.m. at the following location:

Stanley Mosk Courthouse

111 North Hill Street

Department #39 (Goorvitch, J.)

Los Angeles, California 90012

The Court provides notice that if new or prospective counsel for AA Sunrise, Inc. does not appear at the OSC absent good cause, the Court intends to strike its answer and dismiss its cross-complaint.

7. The Court shall hold a case management conference on January 18, 2022, at 9:00 a.m. to discuss whether Cross-Complainant Ji Li intends to pursue the cross-complaint as a self-represented party. The Court orders Ji Li (or new or prospective counsel) to appear at this case management conference. If there are no appearances absent good cause, the Court intends to issue an Order to Show Cause why the Court should not dismiss the cross-complaint by Ji Li for lack of prosecution.

8. Counsel for Defendants shall serve THIS MINUTE ORDER and a copy of the Court’s order on Form MC-053 upon all parties, including his former clients, and file proof of service with the Court making clear that both orders were served. Once the proof of service is properly prepared and file, Counsel shall be relieved.

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Case Number: ****5380    Hearing Date: January 26, 2021    Dept: 39

MHJ Group, Inc., et al. v. Ji Li, et al.

Case No. ****5380

Order Re: Discovery Referee

The Court posts this tentative order in advance of the hearing:

Plaintiffs MHJ Group and Kaihou Liang (“Plaintiffs”), among others, filed this action against Defendants Ji Li, AA Sunrise, Inc. and Holly Xiong (“Defendants”), among others, alleging that Defendants misappropriated assets from the parties’ company. This case has involved numerous discovery disputes. On July 29, 2019, the Court (Feffer, J.) granted Plaintiffs’ four motions to compel further responses from Defendants. On September 19, 2019, the Court (Feffer, J.) granted Plaintiffs’ two motions to compel further responses from Defendants, as well as numerous discovery motions involving third-parties. On July 13, 2019, the Court (Feffer, J.) granted Plaintiffs’ motion for financial discovery of Defendants, finding that “a substantial probability exists that they will prevail on their punitive damages claim against Defendants.” (Court’s Minute Order, dated July 13, 2019.) Following that ruling, Plaintiffs have filed 15 motions to compel further responses against Defendants. Defendants have filed two motions to quash subpoenas that Plaintiffs issued to their accountants.

On December 11, 2020, the Court (Aenlle-Rocha, J.) issued an Order to Show Cause why a discovery referee should not be appointed in this case, per Code of Civil Procedure section 639. “Unless both parties have agreed to a reference, the court should not make blanket orders directing all discovery motions to a discovery referee except in the unusual case where a majority of factors favoring reference are present. These include: (1) there are multiple issues to be resolved; (2) there are multiple motions to be heard simultaneously; (3) the present motion is only one in a continuum of many; (4) the number of documents to be reviewed (especially in issues based on assertions of privilege) make the inquiry inordinately time-consuming.” (Taggares v. Superior Court (1998) 62 Cal.App.4th 94, 105.) In his order, Judge Aenlle-Rocha stated that “[a]ll of the Taggares factors appear to be met in this case, and the court is inclined to find that exceptional circumstances exist such that a discovery referee is necessary.” (Court’s Minute Order, dated December 11, 2020.)

On December 17, 2020, Plaintiffs filed a notice of non-opposition to appointment of a discovery referee. On December 23, 2020, Defendants filed a response which did not raise any objection to the appointment of a discovery referee and nominated Judge Owen Kwong. The next day, Plaintiff filed an objection to Judge Kwong. Following Judge Aenlle-Rocha’s confirmation to the U.S. District Court for the Central District of California, the case was reassigned and the Court (Goorvitch, J.) ordered the parties to meet-and-confer concerning a potential discovery referee and, if they could not agree, to file separate lists of three proposed discovery referees with their business addresses, telephone numbers, and hourly rates.

Plaintiffs propose the following discovery referees:

1. Hon. Roy Paul - $850 per hour

2. Hon. Jacqueline Connor - $850 per hour

3. Hon. Rita “Sunny” Miller - $800 per hour

Defendants propose the following discovery referees:

4. Hon. Owen Kwong - $600 per hour

5. Hon. John P. Shook - $400 per hour

6. Hon. Alexander H. Williams - $800 per hour

The Court held the OSC hearing on January 22, 2021, following which it continued the hearing to January 26, 2021. Now, the Court appoints a discovery referee in this matter, per Code of Civil Procedure section 639. The Court agrees with Judge Aenlle-Rocha that this is the “unusual case” in which a discovery referee is appropriate. Previously, Judge Feffer resolved seven discovery motions amongst these parties, as well as numerous discovery motions involving third parties. Currently, the parties have 17 discovery motions pending, and the Court does not believe these will be the final discovery motions in this case. Indeed, the record reflects that the parties are unable or unwilling to resolve issues amongst themselves, and the Court’s view was confirmed by the discussion at the hearing on January 22, 2021. Neither Plaintiffs nor Defendants have objected to the appointment of a discovery referee.

Based upon the foregoing, the Court orders as follows:

1. The Court appoints a discovery referee to hear and determine all discovery motions and disputes relevant to discovery and to report findings and to make recommendations, per Code of Civil Procedure section 639(a)(5).

2. The Court finds that there are exceptional circumstances warranting appointment of a discovery referee in this case, viz., the litigious nature of the discovery in this case. Previously, the Court has ruled on seven discovery motions amongst these parties, as well as numerous discovery motions involving third-parties. Now, the parties have filed 17 additional discovery motions. The Court anticipates future discovery motions, because the record reflects that the parties are unable or unwilling to resolve issues amongst themselves.

3. The Court appoints the following discovery referee:

Hon. Rita “Sunny” Miller

ADR Services, Inc.

1900 Avenue of the Stars, Suite #250

Los Angeles, California 90067

Rate: $800 per hour

4. The Court authorizes the following maximum number of hours: 40 Hours.

5. The Court takes all pending discovery motions off-calendar. The Court sets an Order to Show Cause why the discovery reference should not be terminated for April 15, 2021, at 9:00 a.m.

6. The Court dismisses all Doe Defendants and all Roe Cross-Defendants without prejudice.

7. The Court continues the Mandatory Settlement Conference Setting to April 22, 2021, at 9:00 a.m.

8. The Court orders Plaintiffs to provide notice and file proof of such with the Court.

9. The Court orders the Clerk to forward a copy of this order to the Office of the Presiding Judge, per Code of Civil Procedure section 639(e).



Case Number: ****5380    Hearing Date: December 11, 2020    Dept: 39

[TENTATIVE] RULING:

Plaintiffs MHJ Group, Inc. and Kaihou Liang ("Plaintiffs") move to compel Defendant Ji Li ("Li") to provide further responses to Plaintiffs' Requests for Production, Set 3 and for monetary sanctions.  This is the first of 17 discovery motions that have been reserved or scheduled by the parties, and this motion, alone, seeks to compel further responses to 42 inspection demands.

In his opposition, Defendant Li states Plaintiffs have served nearly 50 written discovery devices and issued and served over 38 records subpoenas on third-party witnesses.  Opp. 6.  Defendant requests the court appoint a discovery referee.  Opp. 6.

Code of Civil Procedure, section 639 allows the court to appoint a discovery referee when the parties are not in consent for the need of a referee, upon the written motion of any party, or on its own motion.  Code Civ. Proc. ; 639(a)(5).   

"Unless both parties have agreed to a reference, the court should not make blanket orders directing all discovery motions to a discovery referee except in the unusual case where a majority of factors favoring reference are present. These include: (1) there are multiple issues to be resolved; (2) there are multiple motions to be heard simultaneously; (3) the present motion is only one in a continuum of many; (4) the number of documents to be reviewed (especially in issues based on assertions of privilege) make the inquiry inordinately time-consuming."  Taggares v. Superior Court, 62 Cal.App.4th 94, 105 (1998).

The trial courts must consider that the statutory scheme is designed only to permit reference over the parties’ objections where that procedure is necessary, not merely convenient.  Id. at 105-06.  “Implicit in the statutory requirement that the reference be ‘necessary’ is the Legislature’s acknowledgement of a litigant’s right of access to the courts without the payment of a user’s fee, and the concomitant notion that there ought to be a finding of something out of the ordinary before the services of a referee are forced upon a nonconsenting party.”  Hood v. Superior Court, 72 Cal.App.4th 446, 449 (1999).   

All of the Taggares factors appear to be met in this case, and the court is inclined to find that exceptional circumstances exist such that a discovery referee is necessary.  

The court, therefore, CONTINUES the hearing on this motion to January 15, 2021 at 9:30 a.m. and sets an OSC re: Why a Discovery Referee Should Not Be Appointed for the same date.   Plaintiffs may file a maximum 15-page brief opposing the appointment of a referee by December 17, 2020, and Defendant Li may file a maximum 15-page response by December 23, 2020.  In their briefs, the parties are also to address the matters required by California Rules of Court, rules 3.920-3.926.

Defendant is instructed to give notice.



Case Number: ****5380    Hearing Date: September 17, 2020    Dept: 39

[TENTATIVE] RULING:

The court GRANTS Plaintiffs’ unopposed motion. Plaintiffs are to file their proposed Second Amended Complaint within 5 days.

The court DENIES Defendants AA Sunrise, Inc. and Ji Li’s motion.

Counsel for Plaintiffs to give notice.

Background

This action arises in connection with the management of Defendant Yorba Linda Garden, LLC (“Yorba”). Plaintiffs MHJ Group, Inc. (“MHJ”), White Peak One, Inc. (“White Peak”), Hongshi International USA Company (“Hongshi International”), Kaihou Liang (“Liang”), Yong Bai (“Bai”), and Chunshi Li (“Chunshi Li”) (collectively “Plaintiffs”) allege that Defendants AA Sunrise Inc. (“AA Sunrise”), Ji Li (“Ji Li”), and Holly Xiong (“Xiong”) (collectively “Defendants”) wrongfully assumed and exercised ostensible authority and actual power over Yorba’s business and financial affairs, and books and records, to the detriment of Yorba’s other members and managers.

According to Plaintiffs, an investigation of Yorba’s bank records disclosed significant wrongful diversion of funds from Yorba into companies owned or controlled by Ji Li in sums exceeding $2.8 million. First Am. Compl. (“FAC”) ¶ 35. Defendant Ji Li has allegedly also confessed to secretly causing Yorba to borrow $2 million in 2016 without the knowledge of the other members or managers. FAC ¶¶ 35-36. Plaintiffs further allege that Defendants have failed and refused to allow them full access to Yorba’s books and records, despite repeated demands. FAC ¶¶ 41-43.

In the FAC, Plaintiffs allege six causes of action for: (1) breach of contract as a direct claim by MHJ, White Peak, and Hongshi against AA Sunrise; (2) violation of Corporations Code ; 17704.10 as a direct claim by all Plaintiffs against all Defendants; (3) conversion, as a derivative claim by MHJ, White Peak, and Hongshi against all Defendants; (4) fraudulent concealment as a direct and derivative claim by MHJ, White Peak, and Hongshi against all Defendants; (5) breach of fiduciary duty as a direct and derivative claim by MHJ, White Peak, and Hongshi against Ji Li and Xiong; and (6) breach of Corporations Code ; 17704.09 and the obligation of good faith and fair dealing as a direct and derivative claim by all Plaintiffs against AA Sunrise and Ji Li.

Plaintiffs Chunshi Li and Hongshi International dismissed their claims against Defendants without prejudice on March 29, 2019. Plaintiffs Bai and White Peak dismissed their claims against Defendants Ji Li and AA Sunrise on May 28, 2019 with prejudice and dismissed their claims against Defendants Xiong and Yorba on May 31, 2019, without prejudice. Defendants/Cross-Complainants Ji Li and AA Sunrise likewise dismissed their cross-claims against Bai and White Peak on May 28, 2019 with prejudice. Plaintiffs MHJ and Liang are the only remaining Plaintiffs in this action.

Defendants AA Sunrise and Ji Li filed a First Amended Cross-Complaint (“FACC”) in November 2017, asserting two causes of action for: (1) dissolution of limited liability company against Yorba; and (2) declaratory relief against Bai and White Peak. Plaintiffs’ motion for judgment on the pleadings on the FACC came to hearing on July 13, 2020, at which time the court granted the motion without leave to amend.

Plaintiffs now move for leave to file a Second Amended Complaint (“SAC”). Defendants AA Sunrise and Ji Li do not oppose the motion. Defendants AA Sunrise and Ji Li, in turn, move to file a Second Amended Cross-Complaint (“SACC”). Plaintiffs MHJ and Liang oppose Defendants’ motion.

Legal Standard

California law holds that leave to amend is to be granted liberally, to accomplish substantial justice for both parties. Code Civ. Proc. ; 473(a); Hirsa v. Superior Court, 118 Cal. App. 3d 486, 488-89 (1981). “If the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend….” Morgan v. Superior Court, 172 Cal. App. 2d 527, 530 (1959). Prejudice includes “delay in trial, loss of critical evidence, or added costs of preparation.” Solit v. Tokai Bank, Ltd. New York Branch, 68 Cal. App. 4th 1435, 1448 (1999).

“Assuming proper notice, the trial court has wide discretion in determining whether to allow the amendment, but the appropriate exercise of that discretion requires the trial court to consider a number of factors: ‘including the conduct of the moving party and the belated presentation of the amendment. The law is well settled that a long-deferred presentation of the proposed amendment without a showing of excuse for the delay is itself a significant factor to uphold the trial court’s denial of the amendment. [Citation.]’” Leader v. Health Ind. of America, Inc., 89 Cal. App. 4th 603, 613 (2001). “The power to permit amendments is interpreted very liberally as long as the plaintiff does not attempt to state facts which give rise to a wholly distinct and different legal obligation against the defendant.” Herrera v. Superior Court, 158 Cal. App. 3d 255, 259 (1984).

While the court has the discretion to deny an amendment that fails to state a cause of action or defense, the court normally should not consider the viability of the proposed amendments in deciding whether to grant a motion for leave to amend a pleading. Foxborough v. Van Atta, 26 Cal. App. 4th 217, 230 (1994); Kittredge Sports Co. v. Superior Court, 213 Cal. App. 3d 1045, 1048 (1989). “[E]ven if the proposed legal theory is a novel one, ‘the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer, motion for judgment on the pleadings or other appropriate proceedings.’ [Citation.]” Kittredge, id.

Plaintiffs’ Motion for Leave to File SAC

A. Procedural Considerations

A motion to amend a pleading before trial must include a copy of the proposed amendment or amended pleading and state which allegations were deleted from and which allegations were added to the previous pleading and identify the changes “by page, paragraph, and line number.” Cal. R. Ct. 3.1324(a).

Plaintiffs have attached a redline copy of the proposed SAC as Exhibit B to the Declaration of Naki Margolis (“Margolis Decl. ISO Pl. Mot.”). This is sufficient to satisfy rule 3.1324(a).

Under rule 3.1324(b), “[a] separate declaration must accompany the motion and must specify: (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.” Cal. R. Ct. 3.1324(b).

Plaintiffs seek leave to file the SAC to: (1) add one cause of action for false promise/fraudulent inducement against Defendants Ji Li and AA Sunrise; and (2) update the complaint to explain which plaintiffs remain in the action, add allegations regarding injunctive relief that was granted in 2019, add allegations regarding misappropriations by Defendants, and make other minor revisions and corrections. Margolis Decl. ¶ 17.

Plaintiffs contend the proposed amendments are necessary and proper to allow Plaintiffs to have their claims against Defendants adjudicated on the merits in this action and to update the various allegations in the complaint based on the procedural history of the action and additional information obtained through discovery. Id. at ¶¶ 20-21. According to Plaintiffs, they discovered the facts regarding Defendants’ fraud on July 13, 2017, but Plaintiffs did not make the request to amend earlier due to oversight, inadvertence, mistake, or neglect. Id. at ¶¶ 22-23.

This declaration is sufficient to meet the procedural requirements of rule 3.1324(b).

B. Substantive Considerations

Generally, motions for leave to amend will be granted unless the party seeking to amend has been dilatory in bringing the proposed amendment before the court and the delay in seeking leave to amend will cause prejudice to the opposing party. Atkinson v. Elk Corp., 109 Cal. App. 4th 739, 761 (2003); see also Hirsa, 118 Cal. App. 3d at 490. Indeed, “courts are much more critical of proposed amendments ... when offered after long unexplained delay or on the eve of trial [citations], or where there is a lack of diligence, or there is prejudice to the other party [citations].” Permalab-Metalab Equip. Corp. v. Maryland Cas. Co., 25 Cal. App. 3d 465, 472 (1972).

Defendants Ji Li and AA Sunrise have filed a notice of non-opposition to Plaintiffs’ motion, and it is, thus, clear Defendants will not suffer prejudice from the proposed amendment. The court, therefore, GRANTS the motion. Plaintiffs are to file their SAC within 5 days.

Defendants Ji Li and AA Sunrise’s Motion for Leave to File SACC

A. Requests for Judicial Notice

Defendants Ji Li and AA Sunrise (“the Moving Defendants”) request the court take judicial notice of: (1) the Complaint in this action, (2) the Moving Defendants’ Cross-Complaint, filed on October 16, 2017, and (3) the Moving Defendants’ FACC, filed on November 27, 2017. The existence and legal effect of these pleadings are judicially noticeable; reasonably disputable assertions of fact contained therein are not. Evid. Code ; 452(d).

Plaintiffs request the court take judicial notice of: (1) the Moving Defendants’ Motion to Disqualify Plaintiffs’ Counsel, filed on March 5, 2019; (2) the Notice of Related Case, filed on April 10, 2019; (3) the Corrected Notice of Related Case, filed on April 16, 2019; (4) the court order re: Notice of Related Case, issued on August 7, 2019; (5) the Complaint in the action titled White Peak One, Inc. v. MHJ Group, Inc., et al., Los Angeles Superior Court Case No. 18PSCV00019 (the “White Peak Complaint”), filed on October 15, 2018; and (6) the Notice of Entry of Dismissal of the White Peak Complaint filed on June 5, 2019. The existence and legal effect of these pleadings are judicially noticeable; reasonably disputable assertions of fact contained therein are not. Evid. Code ; 452(d).

The court GRANTS the parties’ requests for judicial notice.

B. Procedural Considerations

A motion to amend a pleading before trial must include a copy of the proposed amendment or amended pleading and state which allegations were deleted from and which allegations were added to the previous pleading and identify the changes “by page, paragraph, and line number.” Cal. R. Ct. 3.1324(a).

The Moving Defendants identify the proposed changes in the notice of their motion. Defs. Am. Not. Mot. 2. This is sufficient to satisfy rule 3.1324(a).

Under rule 3.1324(b), “[a] separate declaration must accompany the motion and must specify: (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.” Cal. R. Ct. 3.1324(b).

The Moving Defendants contend the effect of the proposed pleading is to vitiate any consent to the terms of the operating agreement and to provide a factual basis for the Cross-Complainants’ claims of violation of securities law, negligent misrepresentation, rescission, and fraud against Cross-Defendants Liang and MHJ. Declaration of Dennis McPhillips (“McPhillips Decl.”) ¶ 3. According to the Moving Defendants, the matters giving rise to the recognition of the need for the proposed SACC were not known until May 2020, when their attorney found a copy of the White Peak Complaint while reviewing the files in this action. Id. ¶ 4.

This declaration is sufficient to satisfy the procedural requirements of rule 3.1324(b).

C. Substantive Considerations

The Moving Defendants bring the subject motion under Code of Civil Procedure section 426.50, which states:

A party who fails to plead a cause of action subject to the requirements of this article, whether through oversight, inadvertence, mistake, neglect, or other cause, may apply to the court for leave to amend his pleading, or to file a cross-complaint, to assert such cause at any time during the course of the action. The court, after notice to the adverse party, shall grant, upon such terms as may be just to the parties, leave to amend the pleading, or to file the cross-complaint, to assert such cause if the party who failed to plead the cause acted in good faith. This subdivision shall be liberally construed to avoid forfeiture of causes of action.

Code Civ. Proc. ; 426.50. (All subsequent statutory references will be to the Code of Civil Procedure unless otherwise specified.)

“A policy of liberal construction of section 426.50 to avoid forfeiture of causes of action is imposed on the trial court. A motion to file a cross-complaint at any time during the course of the action must be granted unless bad faith of the moving party is demonstrated where forfeiture would otherwise result. Factors such as oversight, inadvertence, neglect, mistake or other cause, are insufficient grounds to deny the motion unless accompanied by bad faith.” Silver Orgs. v. Frank, 217 Cal. App. 3d 94, 98-99 (1990). The trial court has a “modicum of discretion in determining whether or not a defendant has acted in good faith,” but the trial court’s decision must be supported by substantial evidence. Id. at 99 (emphasis in original).

“‘Bad faith’ is defined as ‘[t]he opposite of ‘good faith,’ generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake . . ., but by some interested or sinister motive[,] . . . not simply bad judgment or negligence, but rather . . . the conscious doing of a wrong because of dishonest purpose or moral obliquity; . . . it contemplates a state of mind affirmatively operating with furtive design or ill will.’” Silver Orgs., 217 Cal. App. 3d at 100 (internal citations omitted).

The Moving Defendants contend their attorney discovered a copy of the White Peak Complaint in May 2020 while reviewing the files of this action and related matters. Defs. Am. Mot. 5. According to the Moving Defendants, a review of the White Peak Complaint and discussions about its allegations revealed that Plaintiffs MHJ and Liang made misrepresentations to former plaintiff Bai to gain his execution of the Yorba operating agreement and that Liang followed up those misrepresentations with his own misrepresentations to Ji Li to gain his agreement and execution of the operating agreement upon which Plaintiffs base their claims. Id. The Moving Defendants seek leave to file the SACC to plead causes of action for violation of securities law, negligent misrepresentation, rescission, and fraud. Id. at 6.

Plaintiffs Liang and MHJ raise two primary arguments against the motion. First, Plaintiffs contend the motion should be denied because the Moving Defendants do not establish any grounds for failure to file the cross-complaint earlier, such as oversight, inadvertence, mistake, or neglect. Opp. to Defs. Mot. at 2, 7. Section 426.50 states: “[a] party who fails to plead a cause of action subject to the requirements of this article, whether through oversight, inadvertence, mistake, neglect, or other cause, may apply to the court for leave to amend his pleading … to assert such cause at any time during the course of the action.” Code Civ. Proc. ; 426.50. The reference to “other cause” makes clear that a cross-complainant need not argue that the failure to plead the claims occurred due to oversight, inadvertence, mistake, or neglect. See id. Instead, section 426.50 allows the liberal amendment of a cross-complaint for any cause that does not involve bad faith. Plaintiffs’ first argument thus fails.

Second, Plaintiffs contend the motion should be denied because the Moving Defendants have not brought the motion in good faith. Opp. to Defs. Mot. at 8. Plaintiffs state that the Moving Defendants were aware of the White Peak Complaint as early as March 5, 2019, when they attached it as Exhibit B to their Motion to Disqualify Plaintiffs’ Counsel. Opp. to Defs. Mot. at 8, citing Pl. RJN Ex. 1. Plaintiffs further state that the Moving Defendants were reminded of this action on April 10, 2019 and April 16, 2019, when Plaintiffs filed a Notice of Related Case and a Corrected Notice of Related Case, respectively, in which Plaintiffs listed the White Peak Complaint. Pl. RJN Exs. 2-3. Additionally, on August 7, 2019, the court issued its ruling in which it found that the instant case was not related to the White Peak Complaint.

The court need not address the parties’ arguments regarding whether the Moving Defendants’ brought this motion in bad faith, because the Moving Defendants’ proposed claims are not properly the subject of a motion under section 426.50. Section 426.50 only applies to compulsory cross-claims involving related causes of action. Code Civ. Proc. ;; 426.30(a), 426.50. “‘Related cause of action’ means a cause of action which arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause of action which the plaintiff alleges in his complaint.” Code Civ. Proc. ; 426.10(c).

On August 7, 2019, this court held that this action was not related to Case 18PSCV00019 within the meaning of California Rules of Court, rule 3.300(a). 8/7/19 Minute Order. Rule 3.300(a) has a broader definition of related case than section 426.10(c). Cf. Cal. R. Ct. 3.300(a) with Code Civ. Proc. ; 426.10(c). The Moving Defendants admit the causes of action in the proposed SACC are based on Bai’s claims in Case 18PSCV00019 that Plaintiffs obtained Bai’s consent to the Yorba agreement based on fraudulent representations and material omissions. Defs. Am. Mot. at 6-7. As such, the proposed cross-claims are not similarly related to Plaintiffs’ claims in this action.

The Moving Defendants argue their proposed cross-claims are related because they are based on the same operating agreement that gives rise to Plaintiffs’ claims. Defs. Am. Mot. at 7. The fact that both sets of parties’ claims arise from the same operating agreement, however, is alone insufficient to establish that the Moving Defendants’ claims arise from the same “transaction, occurrence, or series of transactions or occurrences” as the causes of action in Plaintiffs’ SAC, as is required. See Code Civ. Proc., ; 426.10(c).

The Moving Defendants’ proposed causes of action in the SACC concern Liang’s alleged representations to Bai and Ji Li when Yorba was initially formed. Proposed SACC ¶¶ 10-21. These claims do not involve the “same transaction, occurrence, or series of transactions and occurrences” as Plaintiffs’ claims in this action, which relate to the Moving Defendants’ management and operation of Yorba. See generally SAC. Thus, the proposed SACC does not involve “related” causes of action to Plaintiffs’ claims and are not properly the subject of a motion under section 426.50. These are permissive causes of action that are governed by section 428.10, et seq. and are more properly the subject of a motion for leave to amend under section 473(a).

For these reasons, the court DENIES the Moving Defendants’ motion for leave to amend.



Case Number: ****5380    Hearing Date: July 13, 2020    Dept: 39

MHJ Group, Inc., et al. v. Ji Li, et al., ****5380

Motion for Judgment on the Pleadings by Plaintiffs MHJ Group, Inc. and Kaihou Liang: the parties are to advise the court at the hearing whether non-party White Peak has a membership interest in Yorba Linda Garden, LLC. 

In addition, the parties are also to advise the court regarding service of the moving and opposition papers upon non-parties upon White Peak and Bai, who appear to have membership interests that are at issue in this matter.



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