Judge: Anne Richardson, Case: 24STCV01254, Date: 2024-07-01 Tentative Ruling

Case Number: 24STCV01254    Hearing Date: July 1, 2024    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

I. Background

A. Pleadings

Plaintiff Kids Empire Pomona, LLC (Kids Empire) sues Defendants Royal Oak, L.P., Twin Flower Properties, L.P., Clear Mountain Properties, L.P., Skymeadow Properties, L.P., Reliable Properties, and Does 1-10 pursuant to a January 17, 2024, Complaint alleging claims of (1) Fraud, (2) Rescission (Mistake), and (3) Declaratory Relief.

The claims arise from the following allegations. In September 2018, Kids Empire entered a written lease with Defendants Royal Oak, L.P., Twin Flower Properties, L.P., Clear Mountain Properties, L.P., Skymeadow Properties, L.P., and Reliable Properties (the Landlord Defendants), with Reliable Properties as agent of the remaining four Landlord Defendants. The lease involved rental of commercial premises. The Landlord Defendants—which are also generally agents and alter egos of one another—knowingly and falsely represented to Kids Empire through David Gold of Reliable Properties that the rent for the premises would be $4,795 per month, an amount later reflected in the parties’ lease agreement at section 18.1, attached to the Complaint as Exhibit 1. Kids Empire commenced its occupancy of the premises and operations in June 2021. The falsity of the statements regarding the rent to be paid by Kids Empire was shown when, after Kids Empire commenced occupancy, the Landlord Defendants claimed that Kids Empire’s monthly expense obligation was (or would have been, for pre-occupancy months) $8,096.90 for 2021, $9,236.82 for 2022, and $9,474.20 for 2023. An employee of Reliable Properties later informed Kids Empire that David Gold, who had since passed away, was known to underrepresent rent expenses to induce potential tenants to sign leases.

B. Motion Before the Court

On March 1, 2024, the Landlord Defendants filed a demurrer to the Complaint’s three causes of action.

On June 17, 2024, Kids Empire filed an opposition, and on June 24, 2024, the Landlord Defendants filed a reply.

Defendants’ demurrer is now before the Court.

II. Demurrer

A. Requests for Judicial Notice

Per Plaintiff’s request, the Court takes judicial notice of the grant deeds recorded with the Recorder’s Office for Los Angeles County, California. (Opp’n, RJN, Exs. 1-4; Evid. Code, §§ 452, subds. (c), (h), 453, subds. (a), (b).)

Per the Landlord Defendants’ request, the Court takes judicial notice of various statements of information filed by companies with the name ‘Kids Empire’ s filed with the California Secretary of State. (Reply, RJN, Exs. A-S; Evid. Code, §§ 452, subds. (c), (h), 453, subds. (a), (b).)

The Court notes that documents are generally only judicially noticeable to show their existence and what orders were made, but the truth of the facts and findings within the documents are not judicially noticeable. (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 885.) Judicial notice may be taken as to existence of document and legal effects deriving therefrom. (Julian Volunteer Fire Co. Assn. v. Julian-Cuyamaca Fire Protection Dist. (2021) 62 Cal.App.5th 583, 600.)

B. Legal Standard

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747; see Code Civ. Proc., § 430.10, subd. (e).)

To sufficiently allege a cause of action, a complaint must allege all the ultimate facts—that is, the facts needed to establish each element of the cause of action pleaded. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 212, superseded by statute as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.) “[E]ach evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)

In testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-67.) Courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228, disapproved on other grounds, Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158, 1162.) A demurrer, however, “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)

A demurrer may only be used to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence. (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447, superseded by statute on other grounds as stated in White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 521.)

C. Analysis

1. Demurrer, Complaint, Statute of Limitations: OVERRULED.

a. Relevant Law

Unless a complaint affirmatively discloses on its face that the statute of limitations has run, the general demurrer on these grounds must be overruled. (See Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 881 [“It must appear clearly and affirmatively that, upon the face of the complaint, the right of action is necessarily barred”].) Instead, “[t]he proper remedy ‘is to ascertain the factual basis of the contention through discovery and, if necessary, file a motion for summary judgment ….’ [Citation.]” (Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316, 325.)

A statute of limitations starts to run once the cause of action “accrues,” and although a cause of action typically accrues when it is complete with all of its elements, a cause of action will at times be deemed to accrue at a later date, such as when the plaintiff did not discover and had no occasion to discover the cause of action until that later date (the discovery rule), when the defendant fraudulently concealed the existence of a possible claim until that later date, or when the defendant committed multiple wrongs that ended on that later date (continuing violations doctrine). (Doe v. Roman Catholic Archbishop of Los Angeles (2016) 247 Cal.App.4th 953, 961 (Doe).)

b. Court’s Determination

The Court finds in favor of Kids Empire.

The statute of limitations for fraud is three years. (Code Civ. Proc., § 338.) The statute of limitations for declaratory relief is the one applicable to an ordinary legal or equitable action based on the same claim, i.e., three years based on the fraud claim. (Abbott v. City of Los Angeles (1958) 50 Cal.2d 438, 463.)

The Court does not discuss the rescission ‘claim,’ which fails for reasons discussed in detail below.

The Complaint alleges that at some undisclosed point in time after Kids Empire commenced its occupancy of the subject premises in June 2021, the Landlord Defendants informed Kids Empire that its rent would be substantially higher than that agreed to in the lease. (Complaint, ¶ 14.) Even if the Court were to assume that this communication took place on June 1, 2021, taken as the date of discovery, three years from June 1, 2021, was June 1, 2024, well before the Complaint filing date of January 17, 2024.

The Landlord Defendants demurrer argues that the three-year statute of limitations should not apply here because as shown in the lease attached to the Complaint, the lease imposes a one-year statute of limitations for claims arising from the lease. However, this argument fails because the fraud claim in the Complaint is sufficiently alleged, as discussed in the following subsection. Fraud in the inducement voids a contract. (Vai v. Bank of Am. Nat’l Tr. & Sav. Assn (1961) 56 Cal.2d 329; accord Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295.) Thus, the term in the contract establishing a one-year statute of limitations on claims arising from the lease is, for pleading purposes, void, and cannot control for the purposes of the statute of limitations discussion.

To the extent that the reply argues that the one-year statute of limitations clause can be upheld because it goes to procedural matters alone such as arbitration agreements (Reply, pp. 2-3), the Court disagrees. When read liberally and for pleading purposes, the Complaint alleges sufficient grounds to infer that the inclusion of the one-year statute of limitations in the lease agreement was part of the fraudulent scheme that induced Kids Empire to enter the lease in the first instance and that the one-year clause furthers the benefits of that fraud in favor of the Landlord Defendants.

The Court thus OVERRULES the Landlord Defendants’ demurrer insofar as it arises from a global statute of limitations argument.

2. Demurrer, Complaint, First Cause of Action, Fraud: OVERRULED.

a. Relevant Law

“Fraud in the inducement is a subset of the tort of fraud. It occurs when the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, which, by reason of the fraud, is voidable.” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295, quotations and citations omitted.)

Intentional misrepresentation involves “(1) a knowingly false representation by the defendant; (2) an intent to deceive or induce reliance; (3) justifiable reliance by the plaintiff; and (4) resulting damages.” (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1816.)

Allegations of fraud “must be pled with more detail than other causes of action.” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 240.) “Every element of the cause of action for fraud must be alleged … factually and specifically[,] and the policy of liberal construction of the pleadings … will not ordinarily be invoked to sustain a pleading defective in any material respect. [Citations.]” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216, superseded by statute as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.) A plaintiff pleading fraud must plead facts showing “how, when, where, to whom, and by what means” the allegedly fraudulent representations were tendered. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) “[G]eneral and conclusory allegations do not suffice.” (Small v. Fritz Cos., Inc. (2003) 30 Cal.4th 167, 184 [citations omitted].)

However, generally, “less particularity [of pleading] is required where the defendant may be assumed to possess knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff.” (Burks v. Poppy Construction Co. (1962) 57 Cal.2d 463, 474.)

b. Court’s Determination

The Court finds in favor of Kids Empire.

The Complaint alleges either intentional misrepresentation or fraudulent inducement.

Fraudulent misrepresentation is alleged through:

(1) A knowing misrepresentation from David Gold regarding the rent for the premises, the falsity of which was shown through juxtaposition of the promised and charged rents and through the comment for a Reliable Properties employee regarding David Gold’s common falsity in inducing tenants to enter leases for one rate only to charge another (Complaint, ¶¶ 10-16, 17, 18-19);

(2) David Gold’s position as agent for Reliable Properties, which itself is an agent for the remaining Landlord Defendants, supporting vicarious liability for David Gold’s actions (Complaint, ¶¶ 9 [general agency and alter ego allegations], 11 [David Gold as agent for Reliable Properties], Ex. 1, p. 13 [Reliable Properties as agent for Royal Oak, Twin Flower Properties, Clear Mountain Properties, and Skymeadow Properties]);

(3) An intent to induce reliance as inferable from the intent to profit from the difference in rent promised and the rent charged by the Landlord Defendants, i.e., $4,795 versus $8,096.90 for 2021, $9,236.82 for 2022, and $9,474.20 for 2023 (Complaint, ¶¶ 20-21);

(4) Reasonable reliance by Kids Empire (Complaint, ¶ 22); and

(5) Damages (Complaint, ¶¶ 23-25).

Fraud in the inducement is alleged through the same allegations.

While the demurrer argues that fraud is not alleged with particularity as to the “how, when, where, to whom, and by what means,” here, the misrepresentations were made by David Gold, to Kids Empire, and on or before the lease was executed in September 2018. The Court is satisfied that for pleading purposes, this is sufficient particularity and that additional evidentiary facts can be ascertained in discovery.

The Court thus OVERRULES the Landlord Defendants’ demurrer as relates to the Complaint’s first cause of action.

3. Demurrer, Complaint, Second Cause of Action, Rescission (Mistake): SUSTAINED without leave to amend.

a. Relevant Law

Although a breach of contract may be redressed in various ways, such as by rescission, specific performance, declaratory relief, the payment of damages, or injunctive relief, the remedy is not the cause of action, but rather, there is a single cause of cause of action for breach of contract; otherwise stated, the “‘seeking of different kinds of relief does not establish different causes of action.’” (Marden v. Bailard (1954) 124 Cal.App.2d 458, 465.) For the reason, “[r]escission” “is [generally] not a cause of action; it is a remedy.” (Nakash v. Superior Court (1987) 196 Cal.App.3d 59, 70.)

b. Court’s Determination

The Court finds in favor of the Landlord Defendants.

No cause of action for rescission exists in California, as discussed in the above authorities. This point is not addressed in Kids Empire’s opposition.

The Court thus SUSTAINS the Landlord Defendants’ demurrer as relates to the Complaint’s second cause of action, without leave to amend.

4. Demurrer, Complaint, Third Cause of Action, Declaratory Relief: OVERRULED.

a. Relevant Law

Any person interested under a written instrument, excluding a will or a trust, or under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property, or with respect to the location of the natural channel of a watercourse, may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract. (Code Civ. Proc., §1060.)

The fundamental basis of declaratory relief is a present and actual controversy between the parties over a proper subject. (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 80.)

b. Court’s Determination

The Court finds in favor of Kids Empire.

The third cause of action is derivative of the first cause of action and, as discussed above, is timely for pleading purposes, for which reason the Court relies on its fraud and statute of limitations discussions to determine that the Complaint’s third cause of action is sufficiently alleged.

The Court thus OVERRULES the Landlord Defendants’ demurrer as relates to the Complaint’s third cause of action.

III. Conclusion

Defendants Royal Oak, L.P., Twin Flower Properties, L.P., Clear Mountain Properties, L.P., Skymeadow Properties, L.P., and Reliable Properties’ Demurrer to Complaint [Res ID # 7118] is OVERRULED in part and SUSTAINED in part as follows:

(1) OVERRULED as to the demurrer’s statute of limitations argument against all three of the Complaint’s alleged causes of action;

(2) OVERRULED as to the Complaint’s first and third causes of action; and

(3) SUSTAINED, without leave to amend, as to the Complaint’s second cause of action.