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Chao Fu, Inc v. Wen Ching Chen et al

May 21, 2012


(Santa Clara County Super. Ct. No. CV065581)

The opinion of the court was delivered by: Premo, J.


Plaintiff Chao Fu, Inc. (CFI) sued defendant Wen Ching Chen (also known as Dennis Chen) for wrongful foreclosure, quiet title, and related causes of action. The trial court granted Chen's motion for summary judgment (Code Civ. Proc., § 437c),*fn1 finding that the claims were barred by the compulsory cross-complaint statute (§ 426.30). We conclude that Chen failed to establish that section 426.30 bars this action as a matter of law. Accordingly, we shall reverse.

I. FACTS*fn2

A. The $370,000 Note CFI is a closely held corporation formed by Chung Mei Kuo, also known as Julia Kuo. One of CFI's investments was a 25 percent interest in real property located at 852-860 Villa Street in Mountain View (the Villa Street property).

Mali Kuo, Julia Kuo's sister, is CFI's secretary and helped manage the company's investment properties. From 1990 until about 1998, Mali Kuo was involved with Oran Chang in a variety of real estate and gaming investments separate from CFI. Either she or Chang borrowed money from Chen for these investments. When the investments did not pan out, Chen asked for his money back. In December 1997, Chang signed an unsecured promissory note for $370,000 in favor of Chen. Mali Kuo guaranteed repayment. The note was due December 31, 1998.

B. The Deed of Trust

By March 1998, Chen had become concerned about Chang's ability to pay and so he asked for collateral. Mali Kuo obtained permission from her sister to prepare a deed of trust on CFI's Villa Street property. Mali Kuo wanted to give Chang something he could show to Chen to assuage his concern about repayment. The deed of trust inadvertently named Chang (rather than Chen) as the beneficiary and purported to secure a promissory note in the amount of $250,000, which Mali Kuo believed to be the balance owed on the $370,000 note. Mali Kuo gave the deed of trust to Chang and told him not to have it recorded without advising CFI. Nevertheless, in May 1999, Chang assigned the deed of trust to Chen and Chen recorded it.

In December 2000, Julia Kuo moved to Brazil. Mali Kuo went to China the following year. On April 29, 2003, while both sisters were out of the country, Chen served a notice of foreclosure to CFI offices on Louis Road in Palo Alto. On May 23, 2003, Chen foreclosed on CFI's interest in the Villa Street property. Mali Kuo did not return from China until October 2003. According to Mali Kuo, she did not learn of the foreclosure until February 2004, when the co-owner of the Villa Street property told her that the Kuos' mother could not move into the property because Chen had foreclosed on CFI's interest.

C. The Bumb Case

On September 13, 2004, in a further attempt to collect on the $370,000 note, Chen sued Mali Kuo in a case entitled Chen v. Bumb. (Santa Clara County Superior Court, case No. 1-03-CV-817047, hereafter, the Bumb case.) On October 1, 2004, Mali Kuo obtained a written assignment of claims from CFI. Specifically, CFI assigned to Mali Kuo "all of its right, title, interest, and standing to bring suit, to, in, and on, any and all claims and causes of action which it has against Chen, and any other persons or entities who may be liable to it, on any legal theory (whether in tort, contract, or otherwise) based upon any foreclosures, transactions, contracts, understandings, agreements, or other dealings between it and Chen." Mali Kuo paid $1,000 for the assignment; in turn, she was to receive 50 percent of any monetary damages she recovered. Mali Kuo then answered Chen's complaint and filed a cross-complaint against Chen alleging causes of action for wrongful foreclosure/slander of title, interference with prospective advantage, defamation, conspiracy, and unjust enrichment. As to the wrongful foreclosure cause of action the cross-complaint alleged that Chen "misused the Deed of Trust--which was still in his possession--to foreclose on the Villa Street property although he (a) was owed nothing on any note or under any agreement; and (b) was not owed anything under the only note connected with the Deed of Trust." Mali Kuo sought damages arising from the cloud on title, loss of rents and profits, and expenses incurred in efforts to recover property. She did not include a cause of action for quiet title or for declaratory relief.

Just prior to trial, Chen filed a motion in limine challenging Mali Kuo's capacity to prosecute the claim based upon the assignment from CFI. Chen pointed out that CFI's corporate powers were suspended and, therefore, that it had no power to pursue its own claims in court. Chen further argued that the assignee of a suspended corporation also lacks capacity. On October 7, 2005, the second day of trial, Mali Kuo dismissed, without prejudice, the cause of action for wrongful foreclosure and gave the assignment back to CFI.


A. The First Amended Complaint

CFI commenced the present case when it filed a complaint against Chen on June 16, 2006. CFI's first cause of action was for foreclosure/slander of title of the Villa Street property. The cause of action repeated, verbatim, the allegations of the cross-complaint Mali Kuo had filed in the Bumb case. The first amended complaint contained seven other causes of action as well: cancellation of trustee's deed, quiet title, accounting, breach of written contract, unjust enrichment, imposition of constructive trust, and fraud. All eight causes of action related to the foreclosure of CFI's interest in the Villa Street property. ...

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