Judge: Anne Richardson, Case: 20STCV43065, Date: 2023-03-02 Tentative Ruling
Case Number: 20STCV43065 Hearing Date: March 2, 2023 Dept: 40
Case
No.: 20STCV43065
[TENTATIVE] RULING
RE:
Plaintiff Finnegan’s Wake, LP’s Motion for
Summary Judgment on the Complaint; or, in the Alternative, for Summary
Adjudication Thereon.
Plaintiff Finnegan’s Wake, LP sues Defendant Hero Mountain,
LLC pursuant to claims of Breach of Contract and Money Had and Received on
various grounds, including issues related to whether Finnegan’s Wake suffered
damages as a result of Hero Mountain’s retention of a $200,000 Deposit made by
Finnegan’s Wake's predecessor-in-interest in contemplation of the purchase of
real property from Hero Mountain.
Now before the Court is Finnegan’s Wake’s opposed February
16, 2023 Motion for Summary Judgment on the Complaint; or, in the Alternative,
for Summary Adjudication Thereon (“Motion”), which seeks summary adjudication
of the First and Second Causes of Action on the issue of refundability of the
$200,000 Deposit to Finnegan’s Wake.
On March 2, 2020, Defendant Hero Mountain, LLC and the predecessor-in-interest
to Plaintiff Finnegan’s Wake, LP (i.e., Landmark Properties (“Landmark”)) entered
into a written Residential Income Property Purchase Agreement (“RIPPA”) and
Joint Escrow Instructions for the purchase and sale of the real property
located at 1030 W. Huntington Dr., Arcadia, CA 91007 (“Subject Property”) for a
price of $8.8 million. The initial closing under the RIPPA was scheduled to
occur on or around May 25, 2020 (“First Closing Date”).
The RIPPA, through its Addendum No. 1, required that Hero
Mountain cooperate with Landmark in obtaining financing under the RIPPA. The
RIPPA’s terms further required an initial deposit of $200,000.00 (“Deposit”)
from Landmark. Such Deposit was made by, or on behalf of, Landmark with
Chartwell Escrow, Inc. (the “Escrow Company”), in care of Jason Annotti (the
“Escrow Agent”).
On June 1, 2020, Landmark made a request for repair on the
Subject Property. On June 4, 2020, Hero Mountain made a response to the request
for repair, which offered to credit Landmark Properties with $100,000 at the
close of escrow on the condition that Landmark remove all contingencies,
including the physical inspection contingency of the Subject Property, and
agree to the terms of an Addendum No. 2. Landmark signed the Response agreeing
to the Hero Mountain’s conditions. The parties also signed Addendum No. 2,
which provided in pertinent part that: the Buyer’s deposit was agreed to be
non-refundable “regardless of whether or not the Buyer complete[d] the purchase
of the property” with “no recourse to recover these funds”; the First Closing
Date, per Landmark’s request, would be extended to August 8, 2020 (“Second
Closing Date”); and Hero Mountain would cooperate with Landmark’s lender in
efforts to obtain financing. Landmark signed a Contingency Removal No. 2 on
June 5, 2020.
The parties agreed to several extensions of the closing date. In or around August 2020, Landmark assigned
its rights under the RIPPA to Plaintiff Finnegan’s Wake.
In response to the buyers’ failure to fully fund escrow by
the Third Closing Date, on September 3, 2020, Finnegan’s Wake and Hero Mountain
executed a First Amendment to Escrow Instructions, wherein Finnegan’s Wake
agreed, inter alia, that $100,000 of the Deposit would immediately be released
to Hero Mountain through escrow and would be a credit against the purchase
price if Finnegan’s Wake closed escrow, as well as extending the closing date
to October 5, 2020 (“Fourth Closing Date”).
Finnegan’s Wake failed to place the remaining funds in
escrow by the Fourth Closing Date, citing loan issues and Covid-19 pandemic
related delays. As a result, on October 5, 2020, the parties executed a Second
Amendment to Escrow Instructions, providing that: an additional $100,000 of the
Deposit would be immediately released to Hero Mountain through escrow, to be applied
towards the purchase price if escrow was closed, where the full $200,000
Deposit would “non-refundable” if Finnegan’s Wake failed to close escrow; and
extending the closing date to October 26, 2020 (“Fifth Closing Date”) with a
specific provision agreeing to “no further extensions,” and a late charge of
$750 would be added to the purchase price for every day after September 21,
2020 that the escrow did not close. The non-refundability clause specifically
provided that:
Buyer … acknowledge[d] that should
he/she fail to deposit remaining funds required to close escrow by October 26,
2020, ALL released funds … [would] be non-refundable to Buyer whether or not
the Property ultimately close[d] escrow. Buyer [would] have no recourse to
recover such released funds should Buyer not ultimately purchase the Property
and Seller [would] retain such released Funds … [where] Buyer expressly agree[d]
NOT, and waives any right TO pursue recovery of such non-refundable funds
through any legal action.
Finnegan’s Wake failed to fully fund escrow as of the Fifth
Closing Date. In response, on November 2, 2020, Hero Mountain served on
Finnegan’s Wake a demand to close escrow. Through counsel, Finnegan’s Wake
contacted Hero Mountain to indicate that escrow could not close because (1) the
Escrow Company did not have a valid pay-off demand for the existing debt on the
Property and (2) Hero Mountain had not permitted for a final inspection of the
Subject Property pursuant to the terms of the RIPPA. Hero Mountain provided an
updated pay-off demand letter to Finnegan’s Wake on November 5, 2020. On the
same day and through counsel, Hero Mountain served a new demand requiring that
escrow be closed on November 9, 2020 (“Sixth Closing Date”).
On November 6, 2020, Finnegan’s Wake requested an extension
of the Sixth Closing Date to November 13, 2020, which Hero Mountain rejected on
November 7, 2020. Finnegan’s Wake failed to close escrow as of November 9,
2020.
On November 10, 2020, Finnegan’s Wake filed this action,
alleging claims of: (1) Breach of Contract against Hero Mountain on the grounds
that (a) Hero Mountain failed to have lawful fire extinguishers at the Subject
Property prior to “the close of escrow” in violation of “para. 7B(3) of the
PSA”; (b) as of November 2020, Hero
Mountain failed to maintain the Subject Property in the same condition as in or
about April 2020 “in violation of para. 16 of the PSA”; (c) Hero Mountain
failed to cooperate with Finnegan’s Wake and its lender in financing the
purchase of the Subject Property, in violation of Addendum 1 to the RIPPA; and
(d) Hero Mountain permitted five vacancies in the Subject Property to accrue
during escrow (but failing to reference the contractual provision at issue);
and (2) Money Had and Received on the grounds that the $200,000 Deposit had
been turned over by the Escrow Company to Hero Mountain for the benefit of
Finnegan’s Wake and that equity required the return of such monies to
Finnegan’s Wake.
On November 11, 2020, Hero Mountain sent cancellation
instructions to Finnegan’s Wake and the Escrow Company, on or around which date
escrow was terminated.
Despite the allegations in the Complaint, the parties agree
that the $200,000 Deposit was not disbursed to Hero Mountain until December
2020—with the evidence supporting a distribution date of December 1, 2020.
Hero Mountain ultimately sold the Subject Property to a
third party for $9.86 million in November 2021.
Now before the Court is Finnegan’s Wake’s opposed February
16, 2023 Motion for Summary Judgment on the Complaint; or, in the Alternative,
for Summary Adjudication Thereon (“Motion”), which seeks summary adjudication
of the First and Second Causes of Action insofar as they relate to issues related
to the reimbursement of the $200,000 Deposit to Finnegan’s Wake.
Neither party disputes the material facts advanced by the
opposing party in the Separate Statement; rather this is a dispute as to their legal
significance.
The Court DECLINES to take Judicial Notice of the
declarations, lis pendens filings, contracts, communications, and other
documents presented for notice by Defendant Hero Mountain, LLC but nevertheless
considers these documents as evidence in ruling on this Motion. (Evid. Code, §§
452, subds. (d), (h), 453.)
Legal Standard
A motion for summary judgment shall be granted if all the
papers submitted show that there is no triable issue as to any material fact
and that the moving party is entitled to a judgment as a matter of law. (Code
Civ. Proc., § 437c, subd. (c).) A party may also seek summary adjudication of
an entire a cause of action or, under certain circumstances, parts thereof,
which may be made by a standalone motion or as an alternative to a motion for
summary judgment and proceeds in all procedural respects as a motion for
summary judgment. (Code Civ. Proc., § 437c, subds. (f)(1)-(2), (t); see Lilienthal
& Fowler v. Superior Court (1993) 12 Cal.App.4th 1848, 1854-55; see
also Public Utilities Com. v. Superior Court (2010) 181 Cal.App.4th 364,
380.) The moving party bears the initial burden of production to make prima
facie showing no triable material fact issues. (Aguilar v. Atlantic
Richfield Co. (2001) 25 Cal.4th 826, 850.) This burden on summary judgment
“is more properly one of persuasion rather than proof, since he must persuade
the court that there is no material fact for a reasonable trier of fact to
find, and not to prove any such fact to the satisfaction of the court itself as
though it were sitting as the trier of fact.” (Id. at p. 850, fn. 11.)
If the moving party meets this burden, the burden shifts to the opposing party
to make converse prima facie showing that a triable issue of material fact
exists. (Ibid.) The evidence of the moving party is strictly construed,
and the evidence of the opposing party liberally construed. (Crouse v.
Brobeck, Phleger & Harrison (1988) 67 Cal.App.4th 1509, 1524.) Doubts
as to the propriety of granting the motion must be resolved in favor of the
party resisting the motion. (Stationers Corp. v. Dun & Bradstreet, Inc.
(1965) 62 Cal.2d 412, 417.)
First Cause of Action, Breach of Contract: DENIED.
“A contract is a voluntary and lawful agreement, by
competent parties, for a good consideration, to do or not to do a specified
thing.” (Robinson v. Magee (1858) 9 Cal. 81, 83.) “To prevail on a cause
of action for breach of contract, the plaintiff must prove (1) the contract,
(2) the plaintiff’s performance of the contract or excuse for nonperformance,
(3) the defendant’s breach, and (4) the resulting damage to the plaintiff.” (Richman
v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)
By way of the instant Motion, Finnegan’s Wake seeks summary
adjudication of the First Cause of Action as to the issue of whether Hero
Mountain breached the RIPPA, thus causing damages to Finnegan’s Wake, by (1)
engaging in conduct that precluded the RIPPA from closing in favor of
Finnegan’s Wake and (2) failing to return to Finnegan Wake the $200,000 Deposit,
as made by Landmark Properties and assigned to Finnegan’s Wake in August 2020.
(Mot., 12:1-17:3.) No other grounds are advanced for Breach of Contract in this
Motion. (See Mot., 13:1-3 [inappropriate conduct], 13:4-16:22 [failure to
return Deposit].)
I. Conduct Precluding
RIPPA from Closing as Breach of Contract
The Court first finds that Finnegan’s Wake fails to carry
its burden on summary adjudication as to the issue of whether Hero Mountain’s
conduct precluded the RIPPA from closing in favor of Finnegan’s Wake. Simply,
this ground for summary adjudication of the Breach of Contract claim is made in
a conclusory fashion, with the Motion failing to elaborate on these grounds
other than to make vague references to aforementioned “improper actions in not
cooperating with FW’s lender precluded the RIPPA from closing in FW’s favor.”
(Mot., 13:1-3.) Moreover, the court
agrees with Hero Mountain that cooperating with the lender does not extend, as
a matter of law, to requiring a party to extend for the seventh time a closing
date that the parties already agreed would not be extended.
Summary adjudication of the First Cause of Action is thus DENIED
on this issue.
II. Failure to Return
$200,000 Deposit as Breach of Contract
Finnegan’s Wake next argues that Hero Mountain’s retention
of the Deposit constitutes an unenforceable penalty against Finnegan’s Wake. (Mot.,
13:4-16:22.) The Court focuses its discussion on the third element of a Breach
of Contract claim: the defendant’s breach of a contractual provision between
the parties.
Whether the amount to be paid upon breach of a contractual
term should be treated as liquidated damages or as an unenforceable penalty is
a question of law. (McGuire v. More-Gas Invs., LLC (2013) 220
Cal.App.4th 512, 523.) In a case where the only material issue presented is a
question of law, it is appropriate for the court to resolve the legal issue and
grant summary judgment. (Morales v. Fansler (1989) 209 Cal.App.3d 1581,
1584.)
The $200,000 Deposit was made by Finnegan’s Wake
predecessor-in-interest pursuant to the terms of the RIPPA for the sale of the
Subject Property by Hero Mountain. (Mot., 8:2-3 [referencing UMF No. 2]; Mot.,
Separate Statement, UMF No., 2 [referencing Mot., Exs. Comp., Ex. A, RIPPA, §§
1 [Offer of sale of Subject Property for $8.8 million], 3 [Finance Terms
requiring $200,000 deposit]].) The $200,000 Deposit was disbursed to Hero
Mountain by the Escrow Company on or around December 1, 2020 in conformity with
the First and Second Amendments to Escrow Instructions. (Mot., 9:12-16
[referencing UMF No. 18]; Mot., Separate Statement, UMF No. 18 [referencing
Mot., Exs. Comp., Ex. B, Depo. Of Wellington Yang, 85:1-4 [agent of Hero
Mountain confirming disbursal of Deposit to Hero Mountain on December 1, 2020]];
see also Opp’n, Separate Statement, AMF Nos. 4, 7 [referencing Opp’n, RJN, Exs.
E, F [respectively, First and Second Amendments to Escrow Instructions]].)
Finnegan’s Wake argues that Hero Mountain breached the terms
of the RIPPA by failing to return the Deposit to Finnegan’s Wake, citing Kuish
v. Smith (2010) 181 Cal.App.4th 1419. (See Mot., 13:17-16:22.)
In Kuish, the court determined that “[i]n the context
of a rising market, … an interpretation of the nonrefundable term of the
agreement as precluding the return of plaintiff's deposit above and beyond any
damages suffered by defendants as a result of plaintiff’s breach would render
that provision unenforceable.” (Kuish v. Smith, supra, 181
Cal.App.4th at p. 1429.) The Kuish court reasoned that “‘[t]o permit
what are in effect punitive damages merely because a party has partially
performed his contract before his breach is inconsistent both with section 3294
of the Civil Code limiting the right to exemplary damages and sections 1670 and
1671 dealing with liquidated damages’” and that “‘[s]uch penalties cannot
reasonably be justified as punishment for one who wilfully breaches his
contract’” where “a penalty … should bear some rational relationship to its
purpose,” i.e., damages arising from breach of contract. (Id. at p. 1427
[citations omitted].)
Finnegan’s Wake argues that the retention of the Deposit by
Hero Mountain pursuant to the terms of the RIPPA’s Second Amendment to Escrow
Instructions constitutes an unenforceable penalty rather than a proper
liquidated damages clause within the meaning of Civil Code sections 1670, 1671,
and 1675, subdivision (c). (See Mot., 13:4-19.) Finnegan’s Wake reasons that the
retention of the Deposit is a penalty against it for failing to close escrow on
the sale of the Subject Property and that, in essence, the retention of the
Deposit bears no reasonable relationship to nonexistent damages sustained by
Hero Mountain, where Hero Mountain sold the Subject Property for $9.86
million—contrasted to the $8.8 million price contemplated by the RIPPA. (Mot.,
15:21-16:22; see Mot., 9:22-25 [referencing UMF Nos. 21-23]; Mot., Separate
Statement, UMF No. 23 [referencing Mot., Exs. Comp., Ex. B, Depo. Of Wellington
Yang, wherein, at page 135:9-13, agent confirms sale of Subject Property by
Hero Mountain at price of $9.86 million].)
This argument carries Finnegan’s Wake burden on summary
adjudication of the First Cause of Action because a reasonable factfinder could
determine that no triable issues of material fact exist as to whether Hero
Mountain’s retention of the $200,000 Deposit is unreasonable considering Hero
Mountain’s sale of the Subject Property for a price vastly greater than that
contemplated by the RIPPA—i.e., $9.86 million v. $8.8 million. The burden on
summary adjudication as to this issue thus shifts to Hero Mountain.
In opposition, Hero Mountain argues that triable issues of material
fact exist as to whether its retention of the Deposit pursuant to the RIPPA’s
Second Amendment to Escrow Instructions is reasonable and not a breach of
contract because the retention of these monies was not a penalty levied by Hero
Mountain against Finnegan’s Wake, but rather, was based on a transactional
relationship between the parties, where Finnegan’s Wake contractually agreed in
the Second Amendment to Escrow Instructions to irrevocably release the full
$200,000 Deposit to Hero Mountain in lieu of Hero Mountain’s acquiescence to a
further extension of the closing date for the sale of the Subject Property.
(Opp’n, 15:10-17:20.) Hero Mountain also
argues that Finnegan Wake waived its right to seek recovery of his money by its
explicit agreement not to “pursue recovery of such non-refundable funds through
any legal action.” (Opp’n, 13:16-15:9).
In support of this position, Hero Mountain refers to Horowitz
v. Noble (1978) 79 Cal.App.3d 120. (Mot., 15:18-17:5.) Therein, the court found
that a trial court did not err in finding that the seller’s retention of a
$20,000 deposit by the buyer was not a penalty in lieu of the buyer’s failure
to purchase the property in the agreed-upon time because the $20,000 comprised
a “separate consideration” paid by the buyer to the sellers of the property for
the purpose of securing an extension of time to complete the real estate
transaction, and where the extension agreement provided that the $20,000
deposit would be “irrevocably disbursed to the sellers” if the buyers did not
complete the purchase of the subject property. (Horowitz v. Noble, supra,
79 Cal.App.3d at p. 135.)
Here, Hero Mountain provides evidence—the RIPPA’s Second
Amendment to Escrow Instructions at Opp’n, RJN, Ex. F (see Opp’n, Separate Statement,
AMF Nos. 7, 9)—showing that Finnegan’s Wake agreed to a “non-refundable” release
the $200,000 Deposit to Hero Mountain in lieu of extensions of time for the
closing date for the purchase of the Subject Property.
The Court finds that this evidence carries Hero Mountain’s
burden on summary adjudication as to the issue of whether Hero Mountain’s
retention of the Deposit constitutes an unreasonable penalty against Finnegan’s
Wake for failure to close escrow. Footnote 1 of the Horowitz decision
explained that the $20,000 of “separate consideration” at issue in that case
was comprised of $10,000 already in escrow being “irrevocably” disbursed to the
seller, as well as an additional $10,000 to be “irrevocably” disbursed by the
buyer to the seller in lieu of the time extension requested by the buyer in Horowitz.
(Horowitz v. Noble, supra, 79 Cal.App.3d at p. 126, fn. 1.) The copy
of the RIPPA’s Second Amendment to Escrow Instructions provided by Hero
Mountain shows that the parties also agreed to disburse, in a
non-refundable—i.e., irrevocable—fashion, the $200,000 Deposit to Hero Mountain
in lieu of an extension of time to complete this real estate transaction, with the
Deposit to be applied to the purchase price of the Subject Property only if
Finnegan’s Wake closed escrow by the agreed-upon date, and with Hero Mountain
being entitled to keep to Deposit if Finnegan’s failed to close escrow. (Opp’n,
Separate Statement, AMF Nos. 7, 9 [referencing Opp’n, RJN, Ex. F [Second
Amendment to Escrow Instructions showing second release of $100,000 to Hero
Mountain in lieu of further extension for transaction and containing clause
indicating that the Deposit would be “non-refundable” if Finnegan’s Wake failed
to close escrow by October 26, 2020, the Fifth Closing Date].) Hero Mountain’s
evidence also shows that Finnegan’s Wake failed to close escrow as of November
9, 2020, the Sixth Closing Date. (Opp’n, 8:7-10 [referencing Opp’n, Separate
Statement, AMF No. 18]; Opp’n, Separate Statement, AMF. No. 18 [referencing
Opp’n, RJN, Yang Decl., ¶ 14, showing that Finnegan’s Wake failed to fund
escrow by November 9, 2020].)
In reply, Finnegan’s Wake argues that Horowitz is
distinguishable from the facts before this Court because “the deposit never
increased” whereas the facts of Horowitz showed an alleged increase of “$20,000
… in the total amount of the deposit due by plaintiff.” (Reply, 5:22-24, 6:7-9
[former citing to Horowitz v. Noble, supra, 79 Cal.App.3d at
non-existing pin cite of “1431”—likely p. 135].) The Court finds this position unavailing
in light of footnote 1 in Horowitz, which explained that the $20,000
“separate consideration” was comprised of $10,000 already in escrow for the
sale of the subject property in that case, as well as an additional $10,000 to
be disbursed to the seller by the buyer. (Horowitz v. Noble, supra,
79 Cal.App.3d at p. 126, fn. 1.) In light of this footnote, a legal argument
exists as to whether monies already deposited into escrow, released irrevocably
in light of an extension of time to close escrow, comprise a “separate
consideration” for the purposes of Horowitz.
The Court thus DENIES summary adjudication of the First
Cause of Action as to the issue of whether Hero Mountain’s retention of the
$200,000 Deposit was a breach of the terms of the RIPPA and the Amendments to
Escrow Instructions.
Second Cause of Action, Money Had and Received [Common
Counts]: DENIED.
As defined by the court of appeal, “‘[a] cause of action is
stated for money had and received if the defendant is indebted to the plaintiff
in a certain sum ‘for money had and received by the defendant for the use of
the plaintiff.’’” (Gutierrez v. Girardi (2011) 194 Cal.App.4th 925, 937
[citing Schultz v. Harney (1994) 27 Cal.App.4th 1611. 1623].)
The Complaint’s Second Cause of Action alleges common counts
of Money Had and Received against Hero Mountain based on allegations that the
$200,000 Deposit made by Landmark Properties (predecessor-in-interest to Hero
Mountain) was made to Hero Mountain for the benefit of Landmark (and, after
assignment, the benefit of Finnegan’s Wake), only for Hero Mountain to later
retain and use the Deposit for its own purposes. (Complaint, ¶¶ 19-22.)
The Court adopts its discussion above to find that triable
issues of material fact exist as to whether retention of the $200,000 Deposit
was made “for the benefit” of Finnegan’s Wake in light of the terms of the
RIPPA’s Second Amendment to Escrow Instructions and Finnegan’s Wake’s failure
to fund escrow as of November 9, 2020. For this reason, summary adjudication as
to the Complaint’s Second Cause of Action is DENIED.
Plaintiff Finnegan’s Wake, LP’s Motion for Summary Judgment
on the Complaint; or, in the Alternative, for Summary Adjudication Thereon is
DENIED as to the Complaint’s First and Second Causes of Action because, while
Finnegan’s Wake carried its initial burden of showing no triable issues of
material fact as to these claims, Hero Mountain carried its responsive burden
of making a showing of the existence of triable issues of material fact as to the
claims for Breach of Contract and Money Had and Received.