Daniel E. Park Law Corporation, Daniel E. Park and Christopher C. Cianci for Plaintiff and Appellant. Madden, Jones, Cole & Johnson and Montgomery Cole for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2015-00807743) OPINION Appeal from a judgment of the Superior Court of Orange County, Geoffrey T. Glass, Judge. Affirmed in part, reversed in part and remanded with directions. Daniel E. Park Law Corporation, Daniel E. Park and Christopher C. Cianci for Plaintiff and Appellant. Madden, Jones, Cole & Johnson and Montgomery Cole for Defendant and Respondent.
Linda Hong sued Jin Ha for unpaid rent on a space that Ha had used to sell vitamins and other products at Hong's Fullerton spa. Hong also sued Ha for her alleged part in a conspiracy to divert funds owed Hong from a Korean land investment. Ha then sued Hong for money due on dishonored checks - and that was all she sued for. Her complaint contained no other causes of action and no claim Hong owed any money on a loan agreement. After a trial to the court, the judge rejected both of Hong's claims against Ha, but awarded Ha $33,000 against Hong, ruling that her complaint really stated a claim for breach of an oral loan agreement. He calculated $33,000 was the amount due on that agreement. Hong challenges all three determinations on appeal.
We affirm the judgment insofar as it denies Hong's claims for unpaid rent and conspiracy. There was substantial evidence at trial the two parties never had a rental agreement at all. There was also substantial evidence that Ha did not know of her then-fiancé's scheme to divert funds from Hong's Korean investment, nor did she reap any benefit from it.
However, we must reverse the $33,000 judgment in Ha's favor. The trial judge awarded that money based on a cause of action - breach of an oral loan agreement - that was never pled and never the subject of a motion to amend. The possibility of amendment was contained only in Ha's written closing argument, not even as its own separate motion, and only presented to the court after trial and after the close of evidence. No request to amend was ever formally granted; at most one was implied in the trial judge's minute order deciding the case. The belated request thus gave Hong no opportunity to marshal her evidence as to how much, if anything, she actually owed Ha. For that and other reasons we remand the matter to the trial court with directions to enter a defense judgment on Ha's cross-complaint against Hong.
Before we relate the facts, we will echo the observation of the trial judge who, toward the end of the opening statements, observed: "I don't understand why two very successful women would ever set up a deal like this." As an appellate court we write on the record we receive, which is not always a record that fills in all the logical gaps. There were only two witnesses at trial and our facts are mostly taken from the trial transcript. But the attorneys sometimes did not pin down the two witnesses as to exactly when things happened, necessitating an inexact narrative on our part.
In fairness to both parties, both gave their testimony using translators, so we don't know how much was lost in translation.
Hong came to the United States from Korea in 1977. She earned an accounting degree from Cal State Fullerton in 1989, obtained a real estate agent's license, and worked in her brother's accounting office in the early 1990's, then opened her own accounting office in Buena Park. Sometime in the nineties, Hong also bought and sold two restaurants. By 2003, she owned a real estate office in La Habra and was opening a spa in Garden Grove. That's when she met Ha - also from Korea - who was selling vitamins and supplements to a woman who worked in Hong's real estate office. Ha worked for Hong as housekeeper and cook for (according to Hong) about three months.
In 2008, Hong began leasing space in what would become Imperial Spa in Fullerton. She formally opened Imperial Spa in 2010, with some financial help from her husband, Howard Kea.
Ha had a space at the newly-opened Imperial Spa from which she began selling vitamins, women's underwear, accessories and cosmetics. She used that space from July 2010 to September 2014. Ha kept the all proceeds and never paid any rent for the space. At trial Hong testified the two had an agreement that "if her business . . . does well, we agreed to have her pay" but admitted the two had no agreement as to the amount Ha would pay if her business did well.
But Hong developed financial troubles. About the time the spa was opening her husband died. She owed money on the bank loan she had used to open the Fullerton spa. Hong turned to Ha for money to ease those troubles, and in 2011 and 2012, Ha gave Hong money, totaling $75,000. Ha had borrowed the money from a friend at her church to give to Hong.
At trial both sides agreed there was no set date for the amounts to be paid back. But they did not agree about the interest rate. At one point Hong said the interest rate was "around 15 to 20 percent annual interest," at another point she said the rate was "about 20 percent." Ha, on the other hand, said the interest rate was 2 percent per month, i.e., 24 percent.
They did agree on how the loan was memorialized: Hong wrote a check to Ha every time she received money from Ha, and both sides agreed the checks were never intended to be cashed or deposited. Rather, each check - five in total - was merely a bookkeeping device to reflect the loan. The checks were to be returned when the loan was repaid.
Interest payments were also problematic. Hong testified she would make payments of $350 to $400 a month for interest, "more or less," to help Ha with her "living expenses." Sometimes Hong would not pay Ha in cash or check, but in the form of admission tickets to the spa, which Ha could then sell and keep the money. Ha testified that she often had to discount the price of the tickets to sell them.
Despite the imprecision of the loan and its terms, the arrangement seemed to be satisfactory to the parties until Hong ran into more misfortune. Hong had an interest in Korean property (apparently forest land, in Yangpyung Gyeoggi-do) in her late husband's name and needed an agent in Korea to recover it. For that task Ha recommended Sung-bae Im (called "Sung Bae Lim" in the record) with whom Ha had a relationship and married sometime in 2014.
Lim did recover the investment, about 677.6 million Korean Won. However, according to Hong, Lim only returned 390 million Korea Won, which meant he kept back 287.5 million of it, or about $280,000 worth. Hong concluded Ha knew of Lim's embezzlement and stopped her $400 a month interest payments at that time. She also contacted police in Korea.
Hong filed suit in September 2015 against Ha and Ha's daughter (Lim was not included and never added as a defendant), alleging two claims. The big claim was the loss of a portion of her Korean investment. Hong sought $280,000 from Ha based on Ha's alleged part in a conspiracy with her now-husband Lim to defraud Hong. The allegation was that Lim and Ha had kept the $280,000.
Hong also sought $51,000 on the theory she and Ha had entered into an oral lease agreement in which Hong would lease Ha space within Hong's spa (the complaint did not say for what), with Ha agreeing to pay $1,000 a month.
Ha filed her own complaint (with a different docket number than Hong's) the next month. Ha's complaint alleged but a single cause of action: "money due on dishonor of checks." In none of the 14 paragraphs of Ha's complaint is there any mention of a loan agreement between Ha and Hong. The complaint alleged that Ha had five checks in her possession totaling $75,000, that she presented them to her branch of Bank of America, and they were returned because of "nonsufficient funds for payment." Ha then, in August 2015, made a written demand for payment for the $75,000 due on the checks. She sought $75,000 in principal plus another $1,500 each under Civil Code section 1719.
The statute provides in pertinent part: "Any person who passes a check on insufficient funds shall be liable to the payee for the amount of the check and a service charge payable to the payee for an amount not to exceed twenty-five dollars ($25) for the first check passed on insufficient funds and an amount not to exceed thirty-five dollars ($35) for each subsequent check to that payee passed on insufficient funds."
The two cases were consolidated and heard together in a two-day trial to the court on January 4 and 5, 2017. (Hong's claims against Ha's daughter were dismissed during the trial.) The parties asked the court for permission to submit written closing arguments, and the court agreed.
There had been no request to amend previously, but on page 9 of Ha's closing brief filed January 11, 2016, Ha "move[d] for leave of court to amend her complaint to state a cause of action for breach of oral contract." Ha argued that since the same set of facts supported a different theory of recovery, there could be no prejudice to Hong.
The trial judge decided the cases in a minute order filed January 24, 2017. The court found in favor of defendant Ha on the two claims advanced in Hong's complaint. He simply wrote Hong had "failed to establish her claims by a preponderance of the evidence." But as to Ha's complaint the court found Hong owed Ha $33,000. The judge did not (at least in so many words) grant Ha's posttrial motion to amend. Rather, he equated Ha's complaint with a cause of action for breach of an oral loan contract. He wrote that "although Ms. Ha's complaint is denominated as a claim for dishonored checks, it states a claim against Ms. Hong for the failure to repay loans totaling $75,000."
Elaborating, the court concluded "It is clear and proven by the evidence that Ms. Ha loaned Ms. Hong $75,000 at a usurious interest rate. The trustworthy evidence showed that Ms. Hong paid Ms. Ha $38,000, plus another $4000 in two payments. . . . [¶] The court explicitly finds that Ms. Ha's complaint for failure to honor the checks is barred by the terms of the agreements. The parties did not agree that the checks could be negotiated en banc by Ms. Ha whenever she felt the loans were not being repaid properly. At the very least, Ms. Ha must give notice of the intent to foreclose on the security. Consequently, the court rejects Ms. Ha's claim for dishonored check fees and treble damages. [¶] The court concludes that Ms. Hong is not required to pay any interest on the $75,000 loan and the two checks comprising interest of $4000 should be deducted from the principal. When the undisputed payment of $38,000 is deducted, the net recovery to Ms. Ha is $33,000." From the ensuing judgment Hong has appealed.
Hong presents three challenges to the judgment. In the order presented by the opening brief, they are: (1) The trial court erred in finding Hong had not established her claim on the oral lease agreement by a preponderance of evidence; (2) the trial court erred by finding Hong had not established her claim on the conspiracy to defraud by a preponderance of evidence; and (3) the trial court erred in finding Ha was entitled to $33,000. The first two challenges are not meritorious.
Preliminarily, we must point out that Hong has incorrectly phrased the nature of her first two challenges. In an appellate review after a full trial, it makes no difference whether the losing side has presented a "preponderance of evidence" in its favor. On appeal we are concerned with whether there was substantial evidence to support the winning side. "[A] finding must be affirmed even though the reviewing court considers it more likely than not that the finding under review is incorrect, so long as that finding is supported by substantial evidence." (Wollersheim v. Church of Scientology (1999) 69 Cal.App.4th 1012, 1015.) Thus, despite the trial judge's did-not-prove-by-a-preponderance formulation in his minute order, we are only concerned with whether substantial evidence supports his judgment. We find it does.
As to the oral lease agreement, even under Hong's indefinite theory of the alleged contract, Ha would only be liable for rent "when she [made] sales." But Ha testified that she never made as much as $100 in a month selling at the spa. The trial court could reasonably conclude that the $100 maximum was de minimis and below the threshold triggering any obligation on Ha's part, particularly given the absence of evidence as to the nature and value of the "space" on which she claimed rent. Hong in fact presented no evidence as to the nature of the space within the spa, and merely claimed she had charged others $1,000 a month "to sell merchandise at the spa," without saying where in the spa they sold that merchandise or that the spaces were equivalent to the space supposedly leased out to Ha.
Moreover, Hong's claim for $1,000 a month never accounted for the time Ha spent away from the "space" working for Hong. While Hong testified that Ha never did any cleaning, kitchen work or towel replacement work at Hong's spa, Ha testified to the exact opposite. Ha testified she spent "most of [her] time at the spa working on cleaning and supplies and laundry and shopping and not selling." With all the time Ha spent working behind the scenes at Imperial Spa, it is no wonder she never made any money from her space. And again it is a reasonable inference that under such circumstances Ha never made enough money to trigger any rent obligation.
Ha's unpaid services for Hong's spa are the basis of a Labor Commissioner award we affirm against Hong in the companion case, Ha v. Hong, G054773. --------
As to Ha's alleged part in the conspiracy to defraud Hong, Ha's own testimony - which the trial court was entitled to believe - suffices to defeat it. As against multiple attempts by Hong's counsel to establish that Ha either knew of Lim's embezzlement or received money from it, Ha was consistent: (1) She never had a deal with a person in Korea by which Lim would transfer money to him to then send it on to Ha. (2) Ha never received money "from anyone that [she] understood to be from Mr. Lim." (3) Ha never received a certain 52 million Korean won from Lim. And (4) even Hong could not testify Ha had ever confirmed that she had received funds from Lim.
We note here that much of Hong's appellate argument relies on a certain document - it looks like a court judgment - received from Korea. The gravamen of the document is that Lim had, indeed, embezzled money destined for Hong - apparently he even confessed to it. While much of the English syntax in the document in our clerk's transcript is confusing (we are not qualified to comment on the quality of the translation) there is a line under the heading "Judgment" that seems to exonerate Ha: "However there is no material to consider that an agreement as above was established between the victim [Hong], defendant [Lim], and Jinhee Ha when the victim was commissioning the defendant with the work of recovering the investment of this case or to consider that the victim gave approval ex post facto to appropriate $261,000 for the victim's debt to Jinhee Ha."
While we are not exactly sure the preceding sentence in the original Korean actually meant to exonerate Ha, we can say that there was nothing in the document that would have compelled the court to rule in Hong's favor. The trial judge got the law of judicial notice spot on: He could take judicial notice of the fact another court had said Lim had done such-and-such, but that didn't establish for purposes of the case before him that Lim had actually done such-and-such. (See Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 122.)
The judgment for $33,000 is a different matter. Ha never amended her one cause of action complaint beyond what it alleged, which was that Hong had given her insufficient fund checks. Ironically, the trial judge rejected that one cause of action on the merits, since both sides had testified the checks were never meant to be negotiated at all. We can certainly understand his attempt to do equity here, but we cannot find a legal basis for it.
A party cannot obtain relief on a cause of action not in its pleadings. (E.g. Davis v. Farmers Ins. Exchange (2016) 245 Cal.App.4th 1302, 1326; Griffin Dewatering Corp. v. Northern Ins. Co. of New York (2009) 176 Cal.App.4th 172, 210.) "It is a fundamental principle of pleading that 'a plaintiff must recover, if at all, upon the cause of action set out in the complaint, and not upon some other which may be developed by the proofs.' [Citations.]" (Lavely v. Nonemaker (1931) 212 Cal. 380, 385.) In this regard we must recognize that the trial court never granted a motion to amend. All it did was declare that the complaint "state[d] a claim" for a "failure to repay loans totaling $75,000." Since the judgment awards Ha damages on a cause of action never pled, we must reverse.
Our conclusion remains the same even assuming, for sake of argument, that the trial judge's minute order was the substantive equivalent of granting a belated motion to amend according to proof. Prejudice is a statutory limit on the authority of a trial court to grant leave amend to amend to conform to proof at trial. (See Code Civ. Proc. § 469 [authorizing motions to amend to conform to proof "unless it has actually misled the adverse party to his prejudice"].) In this case we are forced to conclude that such late-granted leave was indeed prejudicial to Hong.
First, the text of the complaint did not give fair warning that Ha would be seeking recovery on Ha's loans to Hong, only on the fact of Hong having given Ha bad checks. Hence there is nothing in the complaint that attempts to state an amount owing after giving Hong credit for the payments that she unquestionably did make. Hong was thus unprepared at trial to present an accounting of what she had paid. We note that Hong testified that she had no central record keeping on the Ha loans; she would have had to reconstruct such a record using her receipts, her checking account, and admission ticket records. It is a reasonable inference that had Hong been given warning she had to account for what she owed Ha on the loans, she would have prepared for trial by reconstructing those records.
Second, Hong's lack of warning of the need to reconstruct her records is salient given that (as the trial judge noted), the interest rate on the Ha-to-Hong loan was usurious. In the case of usurious loans, interest cannot be collected at all and all payments must be credited to reduction of the principal. (See Hardwick v. Wilcox (2017) 11 Cal.App.5th 975, 979.) But Ha made no attempt either in her complaint nor at trial to present any sort of accounting that credited Hong's $350 to $400 monthly interest payments to reduction of principal. Consequently Hong came to trial unprepared to claim credit as against the $75,000 she had borrowed from Ha for the payments she had made.
Then there's the statute of limitations. All five loans were made in 2012 or earlier. Ha did not file her complaint until late in 2015. The statute of limitations on an oral loan contract is two years. (Code Civ. Proc., § 339(1).) To be sure, as Ha's respondent's brief points out, Hong might have acknowledged the loans before the statute of limitations ran, but that is not the point: Hong was unaware of the need to prepare a case concerning the timing of the running of the statute of limitations or rebut any theory she had acknowledged the loans because she had no warning that Ha's suit required it.
Finally, there is the sheer delay, which was prejudicial because it created a serious imbalance in the ability of each side to present an argument vis-à-vis the oral loan agreement. While Ha had more than two years to contemplate adding a cause of action for breach of an oral loan agreement and was allowed to present evidence on the topic at trial, Hong had less than two weeks to rebut the new theory after receiving first word of it in a posttrial written closing argument and had no chance at putting on her own evidence on the issue. Unwarranted delay is enough by itself to justify denial of leave to amend, particularly when the delaying party knew of the need to amend from the beginning of the case. (See Record v. Reason (1999) 73 Cal.App.4th 472, 486-487.)
Garcia v. Roberts (2009) 173 Cal.App.4th 900 (Garcia), a case which reversed a trial court grant of a leave to amend despite a favorable abuse-of-discretion standard on review, seems to us to be very close to the one at hand - certainly instructive. In Garcia, the plaintiff sued alleging an oral argument to sell the plaintiffs even though there was a written lease-option agreement on which he also might have sued. (See id. at pp. 903-904.) Even by the third amended complaint no written agreement was alleged, and even though the answer mentioned the written agreement as a defense to the oral agreement. (Id. at p. 907.) However, at the beginning of trial plaintiff announced an intention to move for leave to add a new cause of action based on the written agreement, and finally got around to making a formal motion to amend prior to closing arguments. (Id. at p. 908.) The trial court granted that motion. Yet despite the usually favorable standard of review and the policy of liberal allowance of amendments, the appellate court still reversed.
In holding the grant of leave was an abuse of discretion, the Garcia court noted: (1) the amendment introduced new and substantially different issues (Garcia, supra, 173 Cal.App.4th at p. 909), (2) the delay caused the defendants not to pursue discovery on the written contract issue (id. at p. 911); and (3) the plaintiff had disavowed knowledge of the written agreement, and it was impossible to question the plaintiff further (since he had died and the case was taken over by his widow). (Id. at p. 913.)
We recognize that the express repudiation of the written contract which plaintiff later tried to use in a new cause of action is an element from Garcia not present in the case before us. However, the fact of a new and different issue is the same. There is a difference between paying a debt with a bad check and thereby incurring liability for that act and having an unpaid balance due on a loan. (North 7th Street Associates v. Constante (2001) 92 Cal.App.4th Supp. 7 [granting leave to amend to landlord in unlawful detainer was abuse of discretion where original complaint alleged landlord gave 30-day notice of termination but proposed amendment sought ouster for failure to pay rent].) The latter requires some calculation.
Also instructive is this court's decision in City of Stanton v. Cox (1989) 207 Cal.App.3d 1557 (Stanton), again involving prejudice from a new and different claim made after trial began. There a city trying to shut down an adult bookstore, framed its complaint based on an alleged zoning violation, and the case proceeded on the issue of whether there were any places in the city where an adult bookstore might or could actually "do business." (See id. at pp. 1560-1561.) The complaint did not address the "manner" in which certain arcade booths were being operated, but at trial there was evidence the arcade booths were fully enclosed in contravention of a city ordinance. (Id. at pp. 1562-1563.) The city sought leave to amend after trial commenced, and would later assert that because the trial court admitted evidence on the manner-of-operation issue and because of certain remarks by the trial judge, the defense should have anticipated the motion to amend according to proof. (See id. at p. 1563.)
But this court held otherwise. Noting the problem that the new theory effectively surprised the defendant, the court said: "The city also argues the defense had ample opportunity to present evidence on the booth controversy during trial but failed to do so. Consequently, the city contends it should not be penalized by the defense oversight. This argument completely misses the point. The reason for the defense 'omission' is simple: The complaint did not raise the issue of booth operation. Had it done so, Cox would have been expected to present evidence. Cox's failure to contest an unexpected issue cannot be used by Stanton to justify its tardy attempt to amend. It is impossible to glean from the complaint that the city intended to place these matters in issue. A party who waits 18 months before attempting to amend, and then does so only after trial has commenced, and who offers no excuse for the failure, can hardly complain when the request to amend is denied." (Stanton, supra, 207 Cal.App.3d at p. 1564, italics added.)
Here, unlike Stanton, Hong did not receive even a warning of the possibility of an amendment from remarks by the trial judge during the course of trial. But like Stanton there was a simple reason Hong, a professional accountant, did not present a tidy accounting of what she thought she owed Ha - the complaint did not raise the issue. Both the difference from, and the similarity to, Stanton point in the same direction: the trial judge - despite his impeccable instincts - should not have given judgment for Ha on the oral loan agreement claim.
The judgment is affirmed except insofar as it provides that Ha will recover $33,000 from Hong. As to that matter, the cause is remanded with directions to enter a defense judgment in favor of Hong on Ha's complaint. Because this is a split decision, each side will bear its own costs on appeal.
BEDSWORTH, ACTING P. J. WE CONCUR: ARONSON, J. GOETHALS, J.