Judge Armen Tamzarian, Case 20STCV47472 2023-02-23 Tentative Ruling

Judge: Armen Tamzarian, Case: 20STCV47472, Date: 2023-02-23 Tentative Ruling

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Case Number: 20STCV47472 Hearing Date: February 23, 2023 Dept: 52

Cross-Defendant Outfront Media VW Communications, LLC’s Demurrer and Motion to Strike Portions of First Amended Cross-Complaint

Demurrer

Plaintiff/cross-defendant Outfront Media VW Communications, LLC (Outfront) demurs to all four causes of action alleged in defendants/cross-complainants 7219-7225 West Sunset, LLC and Joseph Geoula’s first amended cross-complaint.

1. Breach of Covenant of Good Faith and Fair Dealing

The first amended cross-complaint alleges sufficient facts for this cause of action. “Every contract imposes on each party a duty of good faith and fair dealing in contract performance and enforcement such that neither party may do anything to deprive the other party of the benefits of the contract.” (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 76.) The implied covenant cannot, however, impose “substantive duties or limits beyond” (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 350) or “at variance with” (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 412) the contract’s express terms.

Under the parties’ lease, Outfront agreed to pay rent of either: (a) $2,500 monthly; or (b) 30% of Outfront’s annual net revenue from renting the billboard. (FACC, ¶ 11, Ex. 2.) “[T]he more the lessee (Outfront) rented the billboard for, the more to the lessor (West Sunset) would receive.” (¶ 11.) The first amended cross-complaint alleges, “Outfront failed to rent the Sign for market rates. … [T]he market rate for the Billboard was at least $20,000 per month in excess of that which Outfront claimed to have charged.” (¶ 25.) “[T]he low rate charged by Outfront for the Sign was intentionally done so that Outfront could charge more for Signs on which it did not have to pay percentage rent as part of a bundle.” (Ibid.) The first amended cross-complaint further alleges, “By undercharging for the Sign, Cross Defendants and each of them could charge more for signs not owned by West Sunset and on which Cross Defendants did not have to pay a percentage of their income for rent.” (¶ 26.)

When liberally construed, these allegations suffice to constitute breach of the implied covenant of good faith and fair dealing. The allegations amount to stating that Outfront acted in bad faith by strategically renting the billboard for less money than it was worth so that it would not have to pay more than the base rent. Doing so deprived cross-complainants of the contract’s full benefits. By bundling billboards together, Outfront allegedly manipulated its revenue on the subject billboard to avoid paying a higher percentage rent while complying with the contract’s express terms.

These allegations are analogous to the facts in Ladd v. Warner Bros. Entertainment, Inc. (2010) 184 Cal.App.4th 1298 (Ladd). There, the plaintiffs were movie producers entitled to a share in Warner’s profits from distributing their movies. The Court of Appeal explained the transaction in the following way: “Warner licensed packages of movies to broadcast television and cable networks. Ladd’s movies were included in those packages. In a practice known as ‘straight-lining,’ Warner allocated the same share of the licensing fee to every movie in a package, regardless of its value to the licensee. The gravamen of Ladd’s action against Warner is that by allocating the same portion of the licensing fee to every movie in a package without regard to the true value of each movie, Warner deprived Ladd of a fair allocation of the licensing fees to which Ladd was entitled as a profit participant.” (Id. at p. 1300.)

The court held: “[U]nder the implied covenant of good faith and fair dealing, Warner was bound to act in good faith toward profit participants. Warner had an obligation, as conceded by a Warner executive, to ‘fairly and accurately allocate license fees to each of the films based on their comparative value as part of a package.’ Therefore, the record supports the jury’s determination that Warner’s straight-lining method of allocating licensing fees to profit participants breached the implied covenant of good faith and fair dealing.” (Ladd, supra, 184 Cal.App.4th at p. 1300; see also Celador Intern. Ltd. v. Walt Disney Co. (C.D. Cal. 2004) 347 F.Supp.2d 846, 851-853 [breach of implied covenant based on allegations that Disney artificially inflated its costs to deprive plaintiff of profit share].)

To illustrate Ladd’s point, the court will use a hypothetical example. A license to broadcast the highly successful movie “Jurassic Park” is worth more than a license to broadcast one of the much less successful six “Police Academy” movies or one of the six “Highlander” movies. Suppose Warner entered a package deal with HBO to broadcast those 13 movies for $13 million—and allocated those earnings equally, $1 million for each movie. That package deal artificially depressed Jurassic Park’s true earnings, thereby depriving the movie’s producers the benefits of their contract for a percentage of profits. If Warner structured the deal this way so it could keep more money for itself and deprive the producers of the fair share of Jurassic Park’s profits, the producers potentially have a claim under the implied covenant.

The first amended cross-complaint similarly alleges a package deal—“a bundle” (¶ 25 )—in which “the low rate charged by Outfront for the Sign was intentionally done so that Outfront could charge more” for other billboards. (Ibid.) This is equivalent to Warner licensing “Jurassic Park” for less than it was worth so it could get paid more for the other 12 movies.

Outfront notes a dearth of controlling authority and relies on B.M.B. Corp. v. McMahan's Valley Stores (5th Cir. 1989) 869 F.2d 865, which is not binding. The court does not find it persuasive. The opinion has only a brief and conclusory discussion of the issue: “[T]he lease nowhere provides that the lessee is obligated to maximize the percentage rent paid to [lessor]. We find no support for [lessor’s] contention that an implied covenant to this effect ever existed. [Citations.] If, under Texas law, there was no implied covenant in 1965 when the lease originally was signed, we fail to see how 20 years later there could spring into being such a covenant obligating [lessee] to maximize the percentage rent.” (Id. at p. 868.)

Outfront’s duty, however, may not go as far as the first amended cross-complaint’s allegation that it must “maximize the value of the Billboard.” (¶ 24.) “The precise nature and extent of the duty imposed ... will depend on the contractual purposes.” (Foothill Properties v. Lyon/Copley Corona Associates (1996) 46 Cal.App.4th 1542, 1551, internal quotes and alterations omitted.) “Depending on the circumstances, that duty may go no farther than to act in a commercially reasonable manner.” (Id. at p. 1552.)

Outfront argues the implied term underlying this cause of action contradicts the lease’s express terms. It does not. The implied term serves to ensure the landlord gets the appropriate benefit of the express term for percentage rent. The implied term is to act in good faith in using the billboard to earn revenue and in accounting for the billboard’s revenue. The express term is to pay 30% percent of the revenue as rent. The implied term prohibits Outfront from unfairly avoiding paying a higher rent.

That the contract also provides for a minimum rent does not change this analysis. The lease does not give Outfront discretion to pay only $2,500 in rent if it so chooses. It requires Outfront to pay “the greater of” the two alternatives and requires it to “provide LESSOR a full and accurate statement of its revenue calculation” annually. (FACC, Ex. 2.) By allegedly discounting this billboard by “at least $20,000” (FACC, ¶ 11) while bundling it with others, Outfront structured deals with advertisers so it could give a technically “full and accurate” accounting to the lessor but avoid paying more than the minimum rent.

2. Negligence / Premises Liability

The first amended cross-complaint alleges sufficient facts to constitute a cause of action for negligence. Negligence requires “a legal duty to use due care, a breach of such legal duty, and the breach as the proximate or legal cause of the resulting injury.” (Beacon Residential Community Assn. v. Skidmore, Owings & Merrill LLP (2014) 59 Cal.4th 568, 573.)

Outfront argues it owed no duty to cross-complainants. “The general rule in California is that ‘[e]veryone is responsible ... for an injury occasioned to another by his or her want of ordinary care or skill in the management of his or her property or person....’ ” (Cabral v. Ralphs Grocery Co. (2011) 51 Cal.4th 764, 771.) “[I]n the absence of a statutory provision establishing an exception to the general rule of Civil Code section 1714, courts should create one only where ‘clearly supported by public policy.’ ” (Ibid.)

A tenant owes a tort duty to its landlord to not damage the premises. “The hirer of a thing must use ordinary care for its preservation in safety and in good condition.” (Civ. Code, § 1928.) “The hirer of a thing must repair all deteriorations or injuries thereto occasioned by his want of ordinary care.” (Civ. Code, § 1929.) “[A] tenant’s duty … is to restore the premises to the lessor unimpaired beyond ordinary wear and tear.” (Haupt v. La Brea Heating & Air Conditioning Co. (1955) 133 Cal.App.2d Supp. 784, 789.)

The first amended cross-complaint alleges, “Outfront was negligent in the use or maintenance of the Sign.” (¶ 30.) It further alleges that “the Sign had cause[d] severe structural damage to the Premises… The foundation, as well as other portions of the Premises, were now compromised as a direct and proximate result of the Sign.” (¶ 31.) These allegations constitute breach of Outfront’s duty to not damage cross-complainants’ property.

Outfront’s reliance on Aas v. Superior Court (2000) 24 Cal.4th 627 (Aas) is misplaced. Outfront relies on a quote taken out of context: “A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations.” (Id. at p. 643.) But the question in that case was, “May plaintiffs recover in negligence from the entities that built their homes a money judgment representing the cost to repair, or the diminished value attributable to, construction defects that have not caused property damage?” (Id. at p. 635.) The California Supreme Court stated, “[T]ort law provides a remedy for construction defects that cause property damage.” (Ibid.)

Aas distinguished numerous prior cases where the defendant’s negligence caused property damage. For example, the Court stated, “Because Stewart and Sabella clearly involved property damage, we find nothing in those decisions to cast doubt on the requirement of property damage.” (Aas, supra, 24 Cal.4th at p. 642.) “[C]onduct amounting to a breach of contract becomes tortious when it also violates a duty independent of the contract arising from principles of tort law. [Citation.] The strict liability and negligence cases discussed above, which hold the builders of homes liable for construction defects causing property damage, may be understood as recognizing such an independent duty.” (Id. at p. 642.)

As discussed above, the first amended cross-complaint alleges Outfront’s failure to use reasonable care to keep the property in good condition caused structural damage to the property. That constitutes breach of an independent tort duty. Aas does not apply.

3. Unjust Enrichment

The third cause of action fails because “there is no cause of action in California for unjust enrichment.” (Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793.) “Unjust enrichment is ‘ “a general principle, underlying various legal doctrines and remedies,” ’ rather than a remedy itself.” (Ibid.; accord Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1138.)

Moreover, “[a]s a matter of law, a quasi-contract action for unjust enrichment does not lie where, as here, express binding agreements exist and define the parties’ rights.” (California Medical Ass'n, Inc. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151, 172.) In a “claim of unjust enrichment resulting in an implied-in-fact contract, it is well settled that an action based on an implied-in-fact or quasi-contract cannot lie where there exists between the parties a valid express contract covering the same subject matter.” (Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 203.) Instead, the plaintiff “must allege that the express contract is void or was rescinded in order to proceed with its quasi-contract claim.” (Ibid.)

The lease expressly defines Outfront’s obligation to pay and the landlord’s corresponding right to payment. This cause of action arises from the same allegation as the first cause of action: “Outfront deliberately undercharged the rent on the Sign so as to be able to overcharge other signs on which it did not have to pay percentage rent as part of a bundle.” (¶ 44.) This is the same subject matter covered by the lease, and it is fully encompassed in the first cause of action.

4. Quantum Meruit

The first amended cross-complaint does not allege sufficient facts for quantum meruit. “A quantum meruit or quasi-contractual recovery rests upon the equitable theory that a contract to pay for services rendered is implied by law for reasons of justice. [Citation.] However, it is well settled that there is no equitable basis for an implied-in-law promise to pay reasonable value when the parties have an actual agreement covering compensation.” (Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, 1419 (Hedging).) Like the third cause of action, this fourth cause of action seeks quasi-contractual recovery despite an actual agreement covering compensation.

Furthermore, quantum meruit applies to “payment for services rendered.” (Hedging, supra, 41 Cal.App.4th at p. 1419.) The cause of action seeks recovery of “the reasonable value of services.” (Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 794.) The first amended cross-complaint, however, does not allege cross-complainants rendered any services to Outfront. Cross-complainants were Outfront’s landlords, not a service provider.

Disposition

Plaintiff/cross-defendant Outfront Media VW Communications, LLC’s demurrer to the first and second causes of action is overruled. Plaintiff/cross-defendant’s demurrer to the third and fourth causes of action is sustained with 20 days’ leave to amend.

Motion to Strike

Plaintiff/cross-defendant Outfront moves to strike the first amended cross-complaint’s prayers for punitive damages and for attorney fees. A party may move to strike a “demand for judgment requesting relief not supported by the allegations of the complaint.” (Code Civ. Proc., § 431.10, subd. (b)(3).)

1. Punitive Damages

The first amended cross-complaint does not allege sufficient facts to recover punitive damages. Punitive damages are not available for the first cause of action for breach of the implied covenant of good faith and fair dealing. A plaintiff can only recover punitive damages “[i]n an action for the breach of an obligation not arising from contract.” (Civ. Code, § 3294(a).)

After the demurrer, the only other remaining cause of action is for negligence. The first amended cross-complaint fails to allege sufficient facts to recovery punitive damages via that cause of action. Courts may strike allegations related to punitive damages where the facts alleged “do not rise to the level of malice, oppression or fraud necessary” to recover punitive damages under Civil Code section 3294. (Turman v. Turning Point of Central California, Inc. (2010) 191 Cal.App.4th 53, 64.) The first amended cross-complaint does not allege such facts. The allegations amount to Outfront doing a poor job maintaining its billboard. These allegations do not rise to the level of intentionally harmful or despicable conduct required for malice or oppression. The second cause of action for negligence is an ordinary dispute over property damage.

The first amended cross-complaint makes conclusory allegations that the damage to the property caused a “safety hazard” (¶ 32) or resulted in “unsafe conditions” (¶ 33). It does not allege factual allegations supporting those conclusions. It only makes vague allegations of “severe structural damage” and that the foundation is “compromised.” (¶ 31.) The first amended cross-complainant also does not allege the property damage caused physical injury to anyone.

2. Attorney Fees

Cross-complainants can recover attorney fees on their first cause of action for breach of the implied covenant. A plaintiff may only recover attorney fees when authorized by contract, statute, or other law. (CCP § 1033.5(a)(10).) The lease provides, “In the event of litigation to determine the rights of either party under this lease or to construe the said lease, or the obligations of either party in regard hereto, the prevailing party shall be entitled to reasonable attorney’s fees.” (FACC, Ex. 1, ¶ 10.)

Cross-complainants may not be able to recover attorney fees on the second cause of action for negligence. For “causes of action that do not sound in contract,” an “attorney fee provision, depending upon its wording, may afford” a party “a contractual right, not affected by section 1717, to recover attorney fees incurred in litigating those causes of action.” (Santisas v. Goodin (1998) 17 Cal.4th 599, 617.)

The court declines to reach the issue of whether cross-complainants can recover attorney fees on the second cause of action. Outfront’s notice of motion states it moves to strike the following portion of the first amended cross-complaint’s prayer for relief: “As for all causes of action, for attorney fees, per law, statute and/or contract.” (¶ 54.G.) This part of the prayer for relief does not distinguish between the four causes of action. Because cross-complainants can recover attorney fees on the first cause of action, it would not be appropriate to strike this portion of the first amended cross-complaint. An order that cross-complainants cannot recover attorney fees on only some causes of action would require rewriting the pleading rather than striking a portion of it.

Disposition

Plaintiff/cross-defendant Outfront Media VW Communications, LLC’s motion to strike is granted as to punitive damages and denied as to attorney fees.

The court hereby strikes the following portion of the first amended cross-complaint with 20 days’ leave to amend: “As for all causes of action, for punitive damages according to proof.” (¶ 54.F., p. 9, line 10.)