Ren v. Ma CA2/5 ( 2021 )

Filed 3/25/21 Ren v. Ma CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on
opinions not certified for publication or ordered published, except as specified by rule
8.1115(b). This opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
BOXI REN et al., B299023
Plaintiffs and Respondents, (Los Angeles County
Super. Ct. No. KC069135)
v.
IVORY MA et al.,
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Dan Thomas Oki and Gloria White-Brown,
Judges. Reversed and remanded with directions.
Law Office of Gregory N. Albright and Gregory N. Albright
for Defendants and Appellants.
Yoka & Smith, Chad Chen and Nicholas von der Lancken,
for Plaintiffs and Respondents.
Defendants Ivory Ma (Ma) and Powerful Auto Group (PAG)
thrice sought to file a cross-complaint against plaintiffs Boxi Ren
and Kun Wendian. Each time they were rebuffed because the
trial court believed defendants delayed, without sufficient excuse,
in seeking leave to file the cross-complaint. Later, following a
bench trial on mostly stipulated facts concerning a failed luxury
automobile purchase deal, the trial court entered judgment for
plaintiffs. We consider whether the trial court should have
permitted defendants to file a cross-complaint with claims that
arose out of the same auto purchase course of dealing alleged in
Plaintiffs’ complaint.
I. BACKGROUND
A. Plaintiffs’ Complaint, and Defendants’ Attempts to
File a Cross-Complaint
Plaintiffs are Chinese citizens who conduct business in
California. In March 2017, Plaintiffs sued PAG and its president,
Ma, for allegedly failing to deliver certain luxury automobiles to
them in China.1 According to their complaint, Plaintiffs entered
into an oral agreement with Defendants in early 2016 for the
purchase of nine luxury vehicles (mostly Mercedes Benz GL450s
and at least one Land Rover Range Rover HSE) and paid
Defendants a down payment of $309,500. Two of the nine
1
In their complaint, Plaintiffs asserted the following seven
causes action: breach of contract, money had and received, open
book account, intentional misrepresentation, negligent
misrepresentation, false promise, and violation of California’s
Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200, et
seq.). The trial court ultimately found against Plaintiffs on their
misrepresentation, false promise, and UCL claims.
2
vehicles were delivered to Plaintiffs with the purchase price of
those vehicles ($189,450) deducted from the down payment. The
remaining seven vehicles, however, were never delivered to
Plaintiffs. Plaintiffs sought to recover the balance of their down
payment ($120,050).
One year into the litigation and five weeks before trial was
scheduled to begin, Defendants applied ex parte for leave to file a
cross-complaint.2 In their proposed cross-complaint, Defendants
alleged the parties had been in communication about the sale and
shipment of luxury automobiles to China since 2014 and that the
2016 agreement for nine vehicles alleged in Plaintiffs’ pleading
was part of a larger transaction involving six additional vehicles
for a total purchase price of $1.36 million. Defendants further
alleged they purchased and shipped eight of the contracted 15
vehicles to China, but Plaintiffs failed to pay the outstanding
balance on those vehicles. As a result, Defendants were forced to
sell the vehicles at substantially lower prices than the ones
agreed to by Plaintiffs. By their proposed cross-complaint,
Defendants sought to recover $525,279.
In a declaration supporting the application, Defendants’
attorney generally explained his clients only recently discovered
the factual basis for their claims due to high turnover among
PAG’s bookkeeping and accounting staff. Plaintiffs did not file an
opposition to the application to file the proposed cross-complaint.
2
In their initial proposed cross-complaint, Defendants
asserted the following six causes of action: breach of contract,
anticipatory breach, intentional misrepresentation, negligent
misrepresentation, account stated, and breach of the covenant of
good faith and fair dealing.
3
The trial court nevertheless denied the application. The court’s
denial order withheld permission to file the cross-complaint
because “[t]here is no declaration as to what additional
information was discovered[,] when it was discovered, and why it
could not have been discovered earlier.”
The very next day, Defendants filed a second ex parte
application for leave to file the same proposed cross-complaint.
In support, Defendants’ counsel filed an expanded declaration
detailing the delayed discovery of information regarding the six
additional vehicles that were allegedly part of the transaction
described in Plaintiffs’ complaint. Among other things, counsel
explained the search for relevant documents was complicated by
the fact that some of the vehicles purchased by Defendants for
Plaintiffs had been sold at auction or traded for attorney fees in
other cases to mitigate the damages arising from Plaintiffs’
refusal to pay for the vehicles. In addition, Ma submitted a
declaration stating her bookkeeper/accountant had changed
“multiple times” since the inception of the litigation, which
caused confusion about prior transactions.
As before, Plaintiffs did not oppose this renewed
application to file the cross-complaint. The trial court, however,
denied the application for a single reason stated in its minute
order: “The application is untimely.”
Ten days later, pursuant to a stipulation by the parties that
they had acted “diligently” throughout the proceedings, the trial
court extended the discovery cut-off date and continued the trial.
The parties then stipulated twice more to continuing the
discovery and trial dates, agreeing each time that both sides had
acted diligently in litigating the matter, and the trial court
approved the stipulations.
4
In April 2019, eight days before a bench trial on Plaintiffs’
complaint was scheduled to begin, Defendants asked for leave to
file a cross-complaint once more. Although the essential facts
alleged in the proposed cross-complaint remained the same as
before (i.e., in January 2016, Plaintiffs ordered the purchase and
delivery of 15 luxury vehicles from Defendants for the total price
of $1.36 million), this cross-complaint was less ambitious than
the prior two—asserting only a single cause of action for breach
of contract.3
Defendants’ third application to file a cross-complaint was
accompanied by a declaration authored by their new attorney of
record. The declaration explained that since the denial of their
two prior applications they had discovered additional relevant
documents in China regarding the parties’ agreement and course
of dealing, including voice messages which needed to be
translated from Mandarin.
This time, Plaintiffs opposed Defendants’ application for
permission to file a cross-complaint. The sole ground for
Plaintiffs opposition was that the application was untimely and if
leave were granted, it would be prejudicial in that “the trial date
will be greatly delayed as additional discovery and depositions
will be required.”
The trial court4 stated it needed additional facts to
determine whether Defendants had acted in bad faith by bringing
their third application to file a cross-complaint. Accordingly, the
3
In addition, Defendants reduced the amount of their
claimed damages to $205,745.
4
In between the second and third applications for leave, the
case had been re-assigned to a different trial judge.
5
court continued the hearing on the application so that
Defendants could submit additional evidence about the discovery
of the new documents.
Defendants’ counsel submitted a second declaration
describing how Ma, while in China in December 2018, came back
into possession of one of her old cell phones (which she had given
to a niece after Plaintiffs filed suit) and discovered WeChat voice
records on that phone between her and one of the Plaintiffs.
When Ma returned to the United States in early 2019, she
delivered the WeChat records to her counsel who translated the
communications personally. The translation of the WeChat
records proved to be difficult and time-consuming for counsel due
to differences in dialect and accent. Once the translation was
completed in mid-March 2019, defense counsel began preparing a
revised version of the cross-complaint and an application for
permission to file it.
Plaintiffs filed a supplemental opposition after this second
declaration from counsel was filed. Plaintiffs argued the trial
court had twice before denied leave to Defendants to assert cross-
claims based on nearly identical facts as those found in the
revised proposed cross-complaint and reiterated that granting the
application would require postponement of the trial and a re-
opening of discovery.
The trial court denied Defendants’ application to file a
cross-complaint, stating at the hearing that Ma should have
known she had relevant information on her old cellphone before
giving it away to her niece. The trial court did not find
Defendants were seeking leave to file a cross-complaint in bad
faith. Rather, the court denied the application solely because it
was untimely.
6
B. Trial of Plaintiffs’ Complaint, Largely on Stipulated
Facts
A bench trial on Plaintiffs’ complaint was held largely on
stipulated facts. What immediately follows are the facts to which
the parties agreed.
The parties orally agreed on the sale and purchase of a
certain number of vehicles.5 Pursuant to the parties’ agreement,
Plaintiffs made a down payment in the amount of $307,000 to
PAG for the purchase of the contracted-for vehicles; the down
payment was made in four installments with the first occurring
on January 19, 2016, and the fourth on February 29, 2016.6 On
January 20, 2016, PAG issued an invoice for two vehicles (two
2016 model-year Mercedes Benz GL450s (the invoiced
Mercedes)).7 The invoiced Mercedes were ultimately delivered to
Plaintiffs. The total purchase price for those two vehicles
($189,450) was deducted from Plaintiffs’ down payment.
5
The parties, however, did not stipulate to the number, type,
and delivery date for the vehicles, or how and when Defendants
would receive the balance of the purchase price for all of the
contracted vehicles.
6
The parties also stipulated to the accuracy and authenticity
of copies of bank records from PAG’s account evidencing four wire
transfers from Plaintiffs. Although those records have
handwritten notations on them, the parties did not stipulate to
who made those notations or the meaning and significance of
them.
7
The parties also stipulated to the accuracy and authenticity
of a copy of the January 20, 2016, invoice.
7
Plaintiffs did not receive a refund of the remainder of their down
payment for vehicles that were never sold to them. In January
2017, Plaintiffs made a final demand for the return of the
remainder of their down payment.
Based on only these stipulated facts, Plaintiffs argued they
were entitled to the remainder of their down payment under one
of three theories of recovery (breach of contract, money had and
received, and open book account) because they never received any
of the contracted vehicles other than the two invoiced Mercedes
vehicles.
Defendants contended otherwise. Defendants argued the
parties contracted for 15 vehicles, not nine, and Defendants used
the entirety of Plaintiffs’ down payment to purchase all of the
contracted-for vehicles. To support their position, Defendants
relied on the same stipulated facts, and also on records they
proffered that were not subject to the parties’ stipulation. In
particular, Defendants pointed to invoices issued to PAG from
another automotive dealer during January to March 2016 for
more than a dozen Mercedes Benz GL450s and two Range Rover
HSEs (the PAG invoices), plus translations of WeChat
communications between Ma and Wendian.8 In addition,
Defendants argued four other Mercedes Benz GL450s besides the
invoiced Mercedes were delivered to Plaintiffs in China. In
8
In their reply trial brief, Plaintiffs maintained the PAG
invoices were irrelevant and the WeChat translations
inadmissible. In its statement of decision, the trial court
discussed Defendants’ evidence that was not subject to the
parties’ stipulation, including the PAG invoices and WeChat
translations, but the court did not acknowledge or rule on
Plaintiffs’ objections to that evidence.
8
support of this assertion, Defendants produced four bills of
lading—one from March 2016 and three from May 2016—
indicating four Mercedes Benz GL450s with vehicle identification
numbers different from the invoiced Mercedes were shipped to
China.
In their trial brief, Defendants conceded there was a delay
until November 2016 in delivering nine of the contracted vehicles
“due to legal issues arising out of a separate and unrelated legal
matter.” However, the translated WeChat communications
between Ma and Wendian arguably indicated Plaintiffs refused to
accept those vehicles for reasons other than the delay in delivery;
those reasons included the following: Plaintiffs had “no use for so
many cars” and the Mercedes Benz GL450s were “old styled,”
“hard to sell,” and “difficult to handle.” Defendants did not
present any evidence or offer argument about the losses they
purportedly sustained when (as they asserted in their proposed
cross-complaints that they never received permission to file)
Plaintiffs breached the parties’ agreement.
C. The Trial Court’s Decision
After receiving the parties’ written submissions, the trial
court found Defendants liable on Plaintiffs’ causes of action for
breach of contract, money had and received, and open book
account. The court determined that the parties “entered into an
oral contract, wherein Plaintiffs agreed to pay a certain amount
of money to purchase certain vehicles and Defendants agreed to
supply and deliver said vehicles.” The court found that while
Defendants delivered the invoiced Mercedes to Plaintiffs,
Defendants failed to timely deliver any of the other contractually
required vehicles and that a nine to 10-month waiting period
9
“exceed[ed] a reasonable time period that one would expect in
this situation.” The court accordingly awarded Plaintiffs
$120,050 in compensatory damages.
II. DISCUSSION
The trial court erred when it denied Defendants’ second
and third ex parte applications for leave to file a cross-complaint
because those cross-complaints were compulsory, the law
requires a court to grant permission to file a compulsory cross-
complaint if the cross-complaining party acted in good faith, and
there was no finding—nor any substantial evidence—that
Defendants here acted in bad faith. Because this holding
requires reversal of the judgment, and because resolution of
Defendants’ cross-complaint will require a redetermination of
facts that overlap with Plaintiffs’ theory of liability, we find it
unnecessary to address whether the judgment (which we will
reverse) was supported by substantial evidence. That can be
addressed, if there is a need, in an appeal from the new judgment
the trial court will ultimately be required to enter.
A. Governing Law
“[T]he Legislature has created a distinctive statutory
scheme regulating compulsory cross-complaints.” (Sidney v.
Superior Court (1988) 198 Cal.App.3d 710, 717.) That scheme is
designed to prevent “piecemeal litigation.” (Carroll v. Import
Motors, Inc. (1995) 33 Cal.App.4th 1429, 1436.) “The law abhors
a multiplicity of actions, and the obvious intent of the Legislature
in enacting the counterclaim statutes [citation] was to provide for
the settlement, in a single action, of all conflicting claims
between the parties arising out of the same transaction.
10
[Citation.]” (Flickinger v. Swedlow Engineering Co. (1955) 45
Cal.2d 388, 393.)
The Code of Civil Procedure defines a compulsory cross-
claim as one that “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.,9
§ 426.10, subd. (c).) Section 426.30, subdivision (a) describes the
consequence for failing to allege a compulsory cross-claim:
“Except as otherwise provided by statute, if a party against whom
a complaint has been filed and served fails to allege in a cross-
complaint any related cause of action which (at the time of
serving his answer to the complaint) he has against the plaintiff,
such party may not thereafter in any other action assert against
the plaintiff the related cause of action not pleaded.”
The “relatedness standard ‘requires “not an absolute
identity of factual backgrounds for the two claims, but only a
logical relationship between them.’” [Citation.]” (Align
Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 960 (Align
Technology, Inc.); accord, Currie Medical Specialties, Inc. v.
Bowen (1982) 136 Cal.App.3d 774, 777 [logical relationship
existed between contending claims because they “involve[d]
common issues of law and fact,” an “overlap of issues,” and a
“common transaction”].) Accordingly, “‘transaction’ is construed
broadly; it is ‘not confined to a single, isolated act or
occurrence . . . but may embrace a series of acts or occurrences
logically interrelated [citations].’” (Align Technology, Inc., supra,
at 960.) We review the question of whether a cross-complaint
9
Undesignated statutory references are to the Code of Civil
Procedure.
11
alleged a “related cause of action” de novo. (Id. at 958; accord,
Wittenberg v. Bornstein (2020) 51 Cal.App.5th 556, 564.)
Section 426.50, the statutory provision at the heart of this
appeal, addresses the trial court’s authority to grant leave to file
a compulsory cross-complaint. It provides, in relevant part: “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 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 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.”
Forfeiture of a cause of action is justified only where the
prospective cross-complainant has acted in bad faith. “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 Organizations Ltd. v. Frank (1990) 217
Cal.App.3d 94, 99 (Silver).)
“Substantial evidence of bad faith will obviously negate
good faith, the latter being the sine qua non to the granting of a
section 426.50 motion . . . . ‘“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
12
obligation, not prompted by 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. [Citation.]” [Citations.]’” (Silver, supra, 217 Cal.App.3d at
100; accord, Gherman v. Colburn (1977) 72 Cal.App.3d 544, 559-
560 [conduct showing that a proposed cross-complaint is “merely
a tactical, strategic maneuver” may constitute evidence of bad
faith].)
What constitutes bad faith must be determined in light of
the liberality conferred upon the trial court by section 426.50.
Hence, a “strong showing” of bad faith must be made to support
denial of the right to file a compulsory cross-complaint. (Foot’s
Transfer & Storage Co. v. Superior Court (1980) 114 Cal.App.3d
897, 902 (Foot’s Transfer).)
B. Reversal of the Judgment Is Required Because There
Is No Substantial Evidence the Second and Third
Applications to File a Cross-Complaint Were Brought
in Bad Faith
In both of its iterations, Defendants’ proposed cross-
complaint involved the same transaction as the one alleged in
Plaintiffs’ complaint: the parties’ agreement in early 2016
pursuant to which Plaintiffs would pay Defendants for the
delivery of certain luxury automobiles to them in China. The
principal substantive difference between the negotiations as
described in Plaintiffs’ pleading and those as alleged in
Defendants’ proposed cross-complaint was the number of vehicles
involved. Because there was a logical relationship linking the
13
parties’ actual and proposed pleadings, Defendants’ cross-claims
were compulsory in nature. Moreover, Defendants’ compulsory
cross-claims were viable because they existed at the time of
Defendants’ answer. Consequently, as the trial court
acknowledged at the time of the third application, it could deny
Defendants’ applications only upon a showing of bad faith.
The trial court, however, denied the second and third
applications solely because they were untimely. That was error.
“[T]he late filing of the motion to file a compulsory cross-
complaint absent some evidence of bad faith is insufficient
evidence to support denial of the motion.” (Silver, supra, 217
Cal.App.3d at 101.) The fact that Defendants sought leave one
month before a jury trial (later continued multiple times) and,
later, eight days before the start of a bench trial limited to
written submissions does not establish bad faith.10 “[A]ny
‘surprise’ that may be visited on a party due to a belated motion
pursuant to section 426.50 may be mitigated by postponement or
other conditions to prevent injustice. The legislative committee
comment to section 426.50 provides that, ‘[w]here necessary, the
court may grant such leave [to file a cross-complaint] subject to
terms or conditions which will prevent injustice, such as
postponement or payment of costs.’” (Ibid.)
10
At most, the record reveals evidence of benign neglect (not
arranging for the orderly transition between bookkeepers) and
poor judgment (giving away a cell phone following the initiation
of the lawsuit without first confirming that it did not contain
records of arguably relevant communications).
14
The error in denying permission to file the cross-complaint
requires reversal. (Silver, supra, 217 Cal.App.3d at 100-102
[reversing judgment because substantial evidence did not support
finding that borrowers were acting in bad faith by filing motion
for leave to file compulsory cross-complaint on eve of trial].)
Without a cross-complaint on file, Defendants presented no
evidence of their losses from Plaintiffs’ conduct alleged in their
proposed cross-complaint. The trial court was also required to
make no findings, and made no findings, on the cause(s) of action
Defendants sought to assert. The failure to permit the filing of
the cross-complaint was prejudicial. (Foot’s Transfer, supra, 114
Cal.App.3d at 901 [“The granting of leave to file a cross-complaint
is particularly of importance in avoiding forfeiture of causes of
action because of the principle expressed in section 426.30 of the
Code of Civil Procedure, that cross-complaints relating to the
subject of the action must be filed therein or are deemed lost”].)
DISPOSITION
The judgment is reversed. The cause is remanded to the
trial court with instructions to permit Defendants to file a cross-
complaint substantially in the form submitted with their third ex
parte application to file a cross-complaint or, with leave of court,
in any other form. The trial court shall thereafter permit the
parties to litigate their claims to conclusion. The resolution of
those claims may include reliance on facts previously stipulated
to by the parties but may not include reliance on the findings the
court made after the already-held bench trial—unless those
15
findings are uncontested by the parties. Defendants shall recover
their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
BAKER, J.
We concur:
RUBIN, P. J.
MOOR, J.
16