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Guan v. Hu

California Court of Appeals, Second District, First Division

June 2, 2017

LI GUAN, Plaintiff and Appellant,
v.
YONGMEI HU, Defendant and Appellant.

         APPEAL from an order and a judgment of the Superior Court of Los Angeles County No. BC572177, Richard L. Fruin, Jr., Judge. The order is affirmed; the judgment is reversed with directions.

          Arent Fox, Malcolm S. McNeil, Allan E. Anderson and Ismael Bautista, Jr., for Plaintiff and Appellant.

          Quinn Emanuel Urquhart & Sullivan, Dominic Surprenant and Daniel H. Bromberg for Defendant and Appellant.

          JOHNSON, J.

         Defendant Yongmei Hu (Hu) appeals from a judgment entered in favor of plaintiff Li Guan (Guan). Guan initially sued Hu for breach of a contract. However, several months before trial, the trial court dismissed the breach of contract claim with prejudice. As a result, Guan proceeded to trial on various fraud-based claims (e.g., rescission, cancellation, and fraud in the inducement) that effectively disaffirmed the validity of the parties' contract.

         Following a bench trial, the trial court found that Guan had failed to prevail on any of his claims because, while his evidence in support of those claims was “considerable, ” it was nonetheless “insufficient.” However, because there was evidence showing that Hu had breached the parties' contract, the trial court awarded damages to Guan. The trial court justified its decision in favor of Guan on language in Civil Code section 1692, [1] which purportedly allowed it under these circumstances to “ ‘adjust the equities' ” between the parties.

         We hold that the trial court's interpretation of section 1692 was flawed and, as a result, we reverse the judgment and direct that judgment be entered in favor of Hu. We further hold that the trial court did not abuse its discretion in denying Guan's posttrial motion to conform his pleadings to the proof presented at trial.

         BACKGROUND

         I. The parties' dispute

         In 2010, Hu, a concert pianist, became romantically involved with QiWei Chen (Chen), a professor at a university in China. At Chen's request, Guan, a Chinese businessman and friend of Chen's, loaned $2.55 million to Hu so that she could purchase a house in Malibu. The parties documented the transaction in two separate but related documents, both dated February 23, 2011: a one-page “Agreement” signed by Guan, Hu and Chen; and a one-page “Arrangement” signed by Guan and Hu only. Together, the two documents constituted the parties' contract.

         The contract provided, among other things that Hu would hold title to the house as its “nominal owner.” The contract further provided that Hu would sell the house when and if instructed to do so by Chen. Upon sale of the house, Hu was to remit the proceeds to Guan. Under the terms of the contract, Hu would be entitled to certain benefits when she sold the house. Specifically, Hu would “get 20%” if the house was “sold from Jan 1st, 2012” and her percentage of the equity would increase by 20 percent each year the house was not sold, with Hu obtaining 100 percent of the equity “as a gift from Mr. Guan after Jan. 1st, 2016.” Escrow closed in early March 2011 and Hu moved into the house shortly thereafter.

         The relationship between Chen and Hu proved to be somewhat tempestuous. For example, in November 2011, Chen emailed Hu telling her that “[i]t is very sad now both of us realize the relationship can not work” and advising her that she was “not qualified to own the house.” A month later, however, in December 2011, Chen visited Hu at the Malibu house, gave her thousands of dollars in gifts, and said nothing further about selling the house. Eventually, in July 2012, after their romantic relationship had ended, Chen emailed Hu telling her that “ ‘[i]t is over! Don't you realize it with normal sense?! S[ell] the house as instructed by Mr. Guan Li so that you could stil[l] be benefited from the deal.' ” Hu, however, in the wake of Chen's July 2012 email did not sell the house or take any steps to sell the house or seek any assistance in selling the house.

         II. The parties litigate their dispute

         In February 2015, Guan filed suit against Hu, alleging breach of a written contract, as well as fraud and various other related claims.

         Guan's initial complaint, however, did not attach the contract. As a result, in April 2015, Guan filed a verified first amended complaint attaching the parties' contract and adding a claim for rescission. The trial court sustained Hu's demurrer to the first amended complaint with leave to amend, noting, inter alia, that “[a]ny amendment must clarify the nature of the [contract] sued upon.”

         In June 2015, Guan filed a second amended complaint, alleging three principal causes of action: breach of contract, fraud, and rescission. In August 2015, Hu demurred again and again the trial court sustained the demurrer to the breach of contract claim but this time without leave to replead, stating that Guan had failed to “cure the defects previously noted by the Court.”

         In September 2015, Guan filed a third amended complaint asserting three claims: rescission, cancellation; and a common count for money had and received. The trial court overruled Hu's demurrer to this pleading.

         A. The operative complaint

         In January 2016, just two months before the start of trial, Guan filed a fourth amended complaint (FAC) adding to the claims from the previous pleading a claim for fraud in the inducement and promissory estoppel.

         During pretrial briefing on motions in limine, Guan advised the trial court that “this case has been narrowed through the pleadings to concern only rescission of the contract and related theories. The case is now about [Hu's] fraudulent conduct, requiring rescission and a full refund... of all the money [Guan] provided for the purchase of the property... and not about whether or not the Contract required [Hu] to sell the property....” (Underscore added.) At trial, in a similar vein, Guan's counsel stressed his client's claims were all premised on rescission. For example, during closing argument his counsel repeatedly stated that “all roads in this case lead to Rome, meaning that all roads lead to rescission.”

         B. The trial court's decision

         Over the course of five days in late March to early April 2016, the trial court presided over a bench trial. On April 5, 2016, four days after closing arguments, the trial court issued a written tentative decision finding in favor of Guan even though the court could “not find a basis to rescind the contract.” Instead, the court found that Hu “deliberately breached the contract.”

         On April 28, 2016, over Hu's objections, the trial court issued a final statement of decision (the statement of decision) re-affirming its decision in favor of Guan. Consistent with the causes of action alleged in the FAC and consistent with the representations made by Guan's counsel both before and during trial concerning the gravamen of Guan's claims, the statement of decision noted that all of the FAC's “causes of action allege[d] that Hu had no intention when she signed the contract to comply with a written instruction to sell the house, and, therefore, the contract is subject to rescission or some other remedy to restore the parties to their pre-contract position.” The trial court then went on to find that Guan had failed to prove any of his rescission-related causes of action: “Plaintiff argued but did not prove that Hu, at the moment when she signed the contract, did not intend to perform her contract obligation to sell the house when and if Chen gave her written instruction that she do so. There is evidence, but not sufficient evidence, ... to support rescission of the contract”

         However, the trial court nonetheless found for Guan because the evidence showed that Hu “repudiated her contract responsibilities in failing, after receiving Chen's instruction in his July 21, 2012 email to her, to sell the house and remit the proceeds, net of her share, to Guan.” The trial court justified its decision to find for Guan despite his failure of proof by citing to section 1692: “the court may exercise equitable jurisdiction to ‘adjust the equities among the parties' even if it does not find a basis to rescind the contract. Civil Code 1692.... In exercising equitable jurisdiction, Civil Code 1692 authorizes the court to “grant any party to the action any other relief to which he may be entitled under the circumstances.” In its statement of decision, however, the trial court did not address its earlier decision dismissing Guan's breach of contract claim without leave to replead.

         On April 18, 2016-nearly two weeks after the trial court issued its tentative statement of decision, Guan filed a motion to conform the FAC to the proof presented at trial by adding a breach of contract cause of action (the motion).

         On May 11, 2016, the trial court denied the motion, explaining that Guan had “unreasonably delayed” in seeking to amend the FAC and noting that Guan filed the motion “after completion of trial, after the matter was submitted, and, ...


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