Zhang v. Chu ( 2020 )

Filed 3/5/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
QINGYU ZHANG, B292418
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. EC068282)
v.
ANTHONY CHU,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of
Los Angeles County, William D. Stewart, Judge. Affirmed.
Liu Law and Long Z. Liu for Plaintiff and Appellant.
Law Offices of Dilip Vithlani and Dilip Vithlani for
Defendant and Respondent.
____________________
In this malicious prosecution suit, the plaintiff lacked
evidence showing the defendant acted with malice. The trial
court thus rightly granted the defendant’s special motion to
strike the plaintiff’s meritless suit. We affirm.
I
We begin with a brief factual overview.
Mr. Anthony Chu is the defendant lawyer in this malicious
prosecution case. Mr. Qingyu Zhang sued lawyer Chu because
Chu had added Zhang as a defendant in an earlier and
underlying lawsuit. Chu dismissed Zhang from that underlying
case without prejudice, which prompted Zhang to sue Chu for
malicious prosecution, which prompted Chu to file a special
motion to strike Zhang’s malicious prosecution case, which the
trial court granted. The trial court struck Zhang’s malicious
prosecution case for want of malice. Malice is a vital element of
malicious prosecution, and Zhang had no proof of it.
In every malicious prosecution case, there is an earlier and
underlying case. We next explain that case, which has continued
in parallel with this other one.
The underlying case was Qi v. Bluestar Express Group Inc.
(Super. Ct. L.A. County, 2019, No. KC068561) (Qi v. Bluestar),
which is a wage-and-hour case against a trucking company called
Bluestar Express Group, Inc. Lawyer Chu represented a worker
named Jiang Qi. On behalf of Qi, Chu filed the action alleging
Bluestar had worked Qi 24 hours a day and seven days a week at
a trucking warehouse. Bluestar allegedly required Qi to work
whenever a truck came in and paid no overtime, gave him
improper breaks, and otherwise violated the Labor Code.
In addition to Bluestar, Chu’s original complaint for Qi
named Ms. Yidan Zhang (no relation to appellant Qingyu Zhang)
2
as an individual defendant, together with 20 Doe defendants.
The date of Chu’s original complaint was June 29, 2016.
According to the complaint, Bluestar’s address is 719 S.
Nogales Street, City of Industry, CA 91748.
Qi’s complaint alleged Bluestar was a sham corporation,
claiming it had been set up with illusory capital to evade
potential judgment creditors like Qi, should he win a judgment
against Bluestar.
As this allegation suggested, Qi and Chu had suspicions
about the extent of Bluestar’s corporate integrity and
independence.
Qi later declared others worked at the 719 Nogales Street
address, but those other employees and Qi did not all have the
same employer. The businesses there shared employees and
pooled their resources. It appeared to Qi another company called
New Diamond Trucking, Inc. (New Diamond) was combining its
business efforts with Bluestar at that same address, sometimes
as though it was one business.
Chu later declared he discovered New Diamond trucking
company operates at that same 719 Nogales Street address. The
record shows many connections between Bluestar, New Diamond,
and Qingyu Zhang.
Chu learned Qingyu Zhang was the sole shareholder of
New Diamond.
Chu found the California Secretary of State listed Qingyu
Zhang as chief executive officer and as a director of New
Diamond, which listed its business and executive offices as 719
Nogales Street, City of Industry, CA 91748.
Zhang admits he is owner, CEO, and director of New
Diamond.
3
Qingyu Zhang’s son, Tom (also known as “Tao”) Zhang, is
the agent for service of process for New Diamond.
New Diamond made $40,000 and $50,000 payments to
Bluestar.
Chu testified the trial court sanctioned Bluestar $5,420 for
discovery violations, but Bluestar paid Chu this sum with a check
from New Diamond. The check is signed in what appear to be
non-English characters. The signature appeared to Chu to be
that of Qingyu Zhang.
There were other instances in which Chu concluded one
person was signing checks for both Bluestar and New Diamond.
Chu’s online investigation revealed a pattern. It appeared
a group of individuals, including Qingyu Zhang and his son Tom
Zhang, operated a single enterprise by forming and then
dissolving several different companies. Two of the dissolved
companies were “Sunlight Logistics” and “Sunlight Logistics
Group.” Both also had operated at the same 719 Nogales Street
address. The same person had signed documents for all these
companies.
On September 14, 2017, Chu used Doe substitutions to add
Qingyu Zhang and others to Qi v. Bluestar on alter ego and single
enterprise theories.
When Zhang entered the case, he retained the same law
firm as the one representing Bluestar.
On January 3, 2018, Zhang filed a motion under section
128.7 of the Code of Civil Procedure challenging Chu’s decision to
add Zhang to Qi’s case. Chu declared that, rather than
undertake the cost and risk of opposing Zhang’s section 128.7
motion, Chu dismissed Zhang without prejudice on January 22,
2018, during the section 128.7 safe harbor period.
4
On January 19, 2018, Chu amended Qi’s complaint to add
New Diamond as a defendant.
Zhang sued Chu for malicious prosecution on March 21,
2018. Chu filed a special motion to strike Zhang’s action on May
29, 2018. The trial court issued a 15-page tentative ruling and
heard argument on June 22, 2018. The court ordered further
briefing, issued an amended 22-page tentative ruling, and held a
second hearing on July 27, 2018.
The trial court granted Chu’s special motion to strike.
Zhang appeals that order.
Meanwhile, the underlying case of Qi v. Bluestar has
continued forward in the trial court.
II
The trial court properly granted Chu’s special motion to
strike. Zhang lacked proof he probably would succeed in proving
Chu acted with malice. No malice meant no malicious
prosecution, which meant defeat for Zhang.
A
Three bodies of law are germane. First, we summarize law
governing special motions to strike. Second, we survey the tort of
malicious prosecution. Third, we touch upon sham corporations
and alter egos.
1
The special motion to strike procedure is a recent creature
of statute. The California Legislature passed this act in 1992.
(Code Civ. Proc., § 425.16.)
A special motion to strike involves two steps. The first step
is not relevant here because all sides agree Chu’s motion satisfied
it. The second step is our sole focus.
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The second step in a special motion to strike is a summary-
judgment-like procedure to determine whether plaintiff Zhang
“established that there is a probability that [Zhang] will prevail
on the claim.” (Code Civ. Proc., § 425.16, subd. (b)(1), italics
added.)
We independently review trial court rulings on special
motions to strike. (Monster Energy Co. v. Schechter (2019)
7 Cal.5th 781, 788.)
2
We turn to the tort of malicious prosecution. Unlike the
special motion to strike, which springs from a modern California
statute, the roots of the common law tort of malicious prosecution
go deep into the past. (E.g., Groundless Litigation and the
Malicious Prosecution Debate: A Historical Analysis (1979)
88 Yale L.J. 1218, fn.1 [citing Code of Hammurabi, Babylonia,
2250 B.C.].) We sketch this tort’s modern dimensions.
There are three elements to malicious prosecution. The
plaintiff, who was the defendant in the underlying action, must
prove (1) the defendant was responsible for the underlying
lawsuit, which ended in a legal termination favorable to the
plaintiff; (2) the defendant brought the underlying lawsuit
without probable cause; and (3) the defendant brought the
underlying lawsuit with malice. (Soukup v. Law Offices of
Herbert Hafif (2006) 39 Cal. 4th 260, 292.)
We can nickname these three elements as favorable
termination, probable cause, and malice.
All three elements are essential. The trial court ruled
Zhang failed to establish the third element of malice, so we focus
on that ruling. We do not address the other elements.
6
The malice element of malicious prosecution has an
elaborated common law meaning. Malice may refer simply to
subjective hostility or ill will, but it also has rather different
meanings as well. We explore this complex legal concept.
Justice Roger Traynor on behalf of a unanimous Supreme
Court quoted and adopted the Restatement’s definition of malice
in 1956. We italicize the vital portions of this classic and
governing definition:
“The malice required in an action for malicious prosecution
is not limited to actual hostility or ill will toward plaintiff but
exists when the proceedings are instituted primarily for an
improper purpose. . . . It has been pointed out that the ‘principal
situations in which the civil proceedings are initiated for an
improper purpose are those in which (1) the person initiating
them does not believe that his claim may be held valid; (2) the
proceedings are begun primarily because of hostility or ill will;
(3) the proceedings are initiated solely for the purpose of
depriving the person against whom they are initiated of a
beneficial use of his property; (4) the proceedings are initiated for
the purpose of forcing a settlement which has no relation to the
merits of the claim.’ ” (Albertson v. Raboff (1956) 46 Cal. 2d 375,
383, italics added, quoting Rest., Torts, § 676, com. b.)
This fourth definition of malice is the pertinent one here.
This case does not involve evidence about the first three: (1)
about Chu’s lack of belief that Qi’s claim would not be held valid,
(2) about Chu’s personal hostility or ill will toward Zhang, or
(3) about depriving a person of a beneficial use of property. We
thus concentrate on the fourth definition.
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The fourth definition of malice requires plaintiffs to prove
the defendant initiated proceedings to force a settlement that has
no relation to the merits of the claim.
An alternative and equivalent phrasing is that the
defendant initiated the lawsuit “primarily for a purpose other
than that of securing the adjudication of the claim on which the
proceedings are based.” (Rest., Torts, § 674, subd. (a)(ii).)
As adapted to this suit’s procedural posture, then, Chu’s
motion required Zhang to offer evidence Chu initiated
proceedings against Zhang to force a settlement having no
relation to the merits of Qi’s wage-and-hour claim.
Supreme Court law specifies that the malice element
relates to the subjective intent or purpose with which Chu
brought Zhang into the case. (Sheldon Appel Co. v. Albert &
Oliker (1989) 47 Cal. 3d 863, 874 (Sheldon).)
3
A third body of law concerns sham corporations and
“piercing the veil.”
Courts may disregard the corporate entity when the
corporation is merely the alter ego of its stockholders. Called
piercing the corporate veil, this equitable doctrine gives creditors
access to the stockholders’ personal assets when the corporation’s
assets are so minimal that their small size would defeat a
plaintiff’s judgment against the corporation, thus creating an
inequitable result. (See, e.g., Haning et al., Cal. Practice Guide:
Personal Injury (The Rutter Group 2019) §§ 2:2016 to 2:2024,
pp. 2(II)-297 to 2(II)-299.)
A variety of factors informs this equitable analysis about
when to pierce the veil. These factors include the following:
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● whether ownership of the corporation’s stock is
concentrated in one individual or family,
● whether there is use of the same office or business
location,
● whether there is employment of the same employees,
and
● whether there is employment of the same attorney.
(Associated Vendors, Inc. v. Oakland Meat Co. (1962)
210 Cal. App. 2d 825, 839.)
B
We apply this law to the facts of this case.
To briefly recap, it is the fourth definition of the third
element of malice that is our focus. The procedural posture and
this definition of malice imposed a burden on Zhang to offer
evidence showing his probability of success in proving Chu sued
him for a reason having no relation to the merits of Qi’s wage-and-
hour claim.
As a matter of law and logic, the “no relation to the merits”
element meant it would not be enough for Zhang to show Chu
added Zhang to the wage-and-hour case simply to “force a
settlement.” Forcing a settlement is the omnipresent and proper
goal of litigation. One litigator is constantly trying to convince
the other to settle on the one litigator’s terms, on pain of eventual
and costly defeat. Parties turn to the force of litigation when less
coercive settlement efforts have failed.
Attempts to force settlements thus are common. To make a
litigation motive improper, to make it “malicious,” it takes more
than a simple desire to win. The attempt to force a settlement
must be unrelated to the merits.
9
The “unrelated to the merits” element meant Zhang had to
show Chu added Zhang to the case for a reason unrelated to the
merits of the wage-and-hour case. By requiring Zhang to prove
Chu’s reason was not related to the merits, this definition
required Zhang to prove a negative: that Chu’s reason for adding
Zhang was not related to the merits of the case. Proving a
negative is hard, and intentionally so for this tort, which is
disfavored. (See Sheldon, supra, 47 Cal.3d at pp. 872–874
[malicious prosecution is a disfavored tort because it tries to solve
the problem of excessive litigation with more litigation, and so it
is advisable to retain traditional limitations on the tort].)
Determining whether reasons are unrelated to the merits
requires familiarity with the merits.
In wage-and-hour cases, searching for alter egos can be,
and typically is, on the merits. Plaintiffs must worry about this
issue at the outset of their case. A common reason for adding
individuals as defendants to wage-and-hour litigation is
plaintiffs’ fear of procuring a worthless judgment. A judgment is
worthless if it is against an entity that is merely an empty
corporate shell. This is not a problem when the defendant is a
Fortune 500 corporation and a plaintiff has confidence the
corporate entity has substantial assets. But wage-and-hour cases
sometimes are against employers of small size or of unknown
substance. If a named defendant entity indeed is merely a shell,
the supposedly victorious plaintiff can be left with few or no
assets against which to levy. The plaintiff’s hard-won judgment
then is worthless as a practical matter. From the plaintiff’s
perspective, the litigation would have been in vain. For this
reason, it is common in wage-and-hour litigation for plaintiffs to
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search for people they suspect may be alter egos of corporate
shells.
Zhang thus had to establish this reason was not the
subjective purpose Chu had for adding Zhang as a Doe defendant.
That reason -- searching for prospective alter egos -- would have
been properly related to the merits of this litigation. Zhang had
to disprove it.
Zhang failed in this quest. The trial court ruled none of his
evidence established Chu acted with malice.
Zhang attacks the trial court ruling with a scattershot of 10
invalid arguments. His points are numerous and insubstantial.
We treat them in turn.
First, Zhang argues the trial court erred in requiring him
to prove a “probability” of succeeding on the malice element.
Zhang claims the court elevated the legal standard in a way that
“was unexplained and unwarranted.” Zhang’s argument ignores
the statute, which specifies Zhang must establish “a probability
that [Zhang] will prevail on the claim.” (Code Civ. Proc., §
425.16, subd. (b)(1), italics added.) The trial court properly
applied the letter of the statute.
Second, Zhang argues Chu added Zhang and five others as
Doe substitutions “in a single day without any change to the
original complaint.” The fact Chu added Does, however, does not
show why Chu added Does. Zhang asserts in passing that Chu
“had been fully aware” of these Does’ “absolute lack of
connections to the underlying employment lawsuit.” Zhang offers
no citation to support this factual assertion, which we disregard.
Third, Zhang argued to the trial court that Chu’s pattern of
settlement demands showed Chu added Zhang to the case for a
11
reason unrelated to the merits. The pattern of settlement
demands was as follows:
1. March 15, 2016 -- Chu made a prelitigation demand
of $347,011.04.
2. June 29, 2016 -- Chu filed the Qi action.
3. July 24, 2017 -- Chu made a settlement offer of
$500,000. Chu explained he calculated this case
valuation by adding the sums Qi was due for
overtime, failure to pay minimum wage, failure to
provide breaks, pay stub violations, waiting time
penalties, and attorneys fees.
4. September 14, 2017 -- Chu added Zhang to the Qi
action via a Doe substitution.
5. October 18, 2017 -- Chu made a settlement offer of
$150,000 that would expire upon the filing of answers
by the Doe defendants.
The pattern of Chu’s settlement demands thus was
$347,011.04, then $500,000, then $150,000.
This pattern of demands logically shows nothing about
Chu’s reason for adding Zhang to the lawsuit. Zhang’s insistence
this pattern shows improper extortion is invalid. Chu’s demands
may have been accurate reflections of his evolving analyses of the
case’s value, or tactical bluffing, or alternating moods of optimism
and panic, or a combination of all the above, or something else
entirely. The pattern of demands is not evidence of Chu’s
subjective reason for adding Zhang to the case.
Fourth, Chu specified his settlement offer would expire
when and if Zhang answered. Nothing about Chu’s deadline
shows malice. For a host of reasons, negotiators routinely put
conditions on settlement offers. Nothing about this tactic shows
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Chu’s subjective mental state when he added Zhang to the case.
The inference Zhang urges is free of logical content.
Fifth, Zhang argues Chu added New Diamond after adding
Zhang, but Chu should have sued New Diamond before suing
Zhang if Chu truly believed the alter ego theory. Zhang claims
“[t]his unorthodox sequence of suing under [the] alter ego theory
can hardly be anything but [an] aim to force a settlement from
[Zhang’s son] Tom Zhang.” This argument is difficult to follow.
The premise is one we do not accept: there is some accepted
orthodoxy about the proper sequence of adding corporate and
individual defendants. Zhang cites no authority for his claim
Chu’s decisionmaking was “unorthodox.”
Sixth, Zhang argues Chu dismissed Zhang without
prejudice after Zhang filed his sanctions motion under section
128.7 of the Code of Civil Procedure. This argument founders on
the fact the simple explanation for Chu’s dismissal is that
Zhang’s motion cowed Chu.
Seventh, Zhang argues Chu sued him for an improper
purpose because Chu did not perform enough research before
adding Zhang to Qi’s case. Zhang, however, cites no evidence
that Chu’s research was substandard. These pages of Chu’s
opening brief contain no record citations.
In the course of this argument, Zhang admits he owns New
Diamond, but he asserts New Diamond is “totally unrelated” to
Bluestar. Zhang does not support this factual assertion with
record citations.
Eighth, Zhang notes the trial court initially mistook Yidan
Zhang as Qingyu Zhang’s son. The court then held a further
hearing at which all agreed that Tom Zhang, not Yidan Zhang, is
Qingyu Zhang’s son, and that Yidan Zhang is a woman unrelated
13
to Qingyu Zhang. The court’s final ruling reflected this
correction. This temporary mix-up was not evidence of Chu’s
malice.
Ninth, Zhang argues the trial court’s finding on element
one -- no probable cause -- should satisfy element three: malice.
This argument is legally invalid. The two elements are distinct.
(Downey Venture v. LMI Ins. Co. (1998) 66 Cal. App. 4th 478, 493–
499.)
Tenth, Zhang argues the trial court’s reliance upon Daniels
v. Robbins (2010) 182 Cal. App. 4th 204 was misplaced. The trial
court cited Daniels as authority it could decide whether there was
any triable issue on malice as a matter of law. (See id. at p. 227.)
Zhang does not dispute Daniels is good law. He merely asserts
he has a stronger case than the plaintiffs in Daniels and he
deserves a jury trial. This argument fails because Zhang lacks
evidence of malice.
In sum, Zhang offered no evidence he had a probability of
success on his malicious prosecution claim. The trial court was
right to grant Chu’s special motion to strike Zhang’s meritless
suit. We need not and do not reach Chu’s other arguments about
whether Chu’s case against Zhang had been terminated in
Zhang’s favor or whether Chu lacked probable cause to sue
Zhang.
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DISPOSITION
We affirm the judgment and award costs to Chu.
WILEY, J.
We concur:
GRIMES, Acting P. J.
STRATTON, J.
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