Judge: Armen Tamzarian, Case: 22STCV10400, Date: 2023-05-09 Tentative Ruling

Case Number: 22STCV10400    Hearing Date: May 9, 2023    Dept: 52

Cross-Defendants Nile Niami and Castillian Pride LLC’s Demurrer to Second Amended Cross-Complaint

Cross-Defendants Nile Niami and Castillian Pride LLC demur to all seven causes of action alleged in the second amended cross-complaint by cross-complainants Patrick Cheh and Above the Boulevard, LLC.

(1) Quiet Title

Cross-complainants do not allege sufficient facts for quiet title.  “The purpose of a quiet title action ‘is to finally settle and determine, as between the parties, all conflicting claims to the property in controversy, and to decree to each such interest or estate therein as he [or she] may be entitled to.’ ”  (Deutsche Bank National Trust Co. v. Pyle (2017) 13 Cal.App.5th 513, 524.)  Quiet title concerns “adverse claims to the title of the plaintiff against which a determination is sought.”  (CCP § 761.020(c).)

            The second amended cross-complaint alleges no adverse or competing claims to the subject property at 2165 Castilian Drive, Los Angeles, CA 90068.  It alleges, “NIAMI financed the purchase of the Subject Property with title placed in CHEH’s LLC, Above the Blvd.”  (¶ 16.)  It further alleges, “[T]itle to the Subject Property was CHEH’s collateral for the sum owed him by NIAMI and was put in the name of CHEH’s LLC, Above the Blvd.”  (¶ 31.)  “Cross Defendants claim title adverse to Cross Complainants’ claim as Cross Defendants claim CHEH entered into agreements on October 8, 2021 where he granted management of the Subject Property to Cross Defendant CASTILIAN PRIDE, which is NIAMI’s alter ego, where he granted an irrevocable proxy of CHEH’s voting rights within ABOVE THE BLVD to CASTILIAN PRIDE and then finally granted an option to purchase CHEH’s 100% control of ABOVE THE BLVD to CASTILIAN BLVD for the absurdly nominal fee of one dollar ($1.00).  Through these attempted maneuvers, Cross Defendants NIAMI and CASTILIAN PRIDE seek to eliminate any interest Cross Complainants have in the Subject Property.”  (¶ 32.) 

            These facts do not establish a dispute or adverse claim of title to the property.  The second amended cross-complaint acknowledges Above the Boulevard, LLC owns title to the property.  It alleges no adverse claims by Niami or Castillian Pride to the subject property itself.  Rather, it alleges they took over Above the Boulevard, LLC—not the real property.  The allegations show the property was assigned to the LLC, which still has title to it. 

            Cheh argues he has a constructive trust over the property.  The opposition cites no supporting authority on that topic.  The second amended cross-complaint alleges no facts constituting a legal basis for a constructive trust.

Cheh also argues that the court should “look at the true nature of the dispute and not a complex web of corporations used to cover ownership.”  (Opp., pp. 6-7.)  This argument requires Cheh piercing the corporate veil of the LLC he formed.  Generally, “an incorporator should be precluded from ignoring his own deliberately chosen corporate form.”  (In re Marriage of Imperato (1975) 45 Cal.App.3d 432, 439.)  “[A] sole stockholder is estopped to deny the validity of his own corporation.”  (Id. at p. 439, fn. 9.)     

(2) Fraud – Intentional Misrepresentation

Cross-complainants do not allege sufficient facts for fraud.  Intentional misrepresentation requires: (1) a misrepresentation of fact; (2) knowledge of falsity; (3) an intent to defraud; (4) justifiable reliance; and (5) resulting damages.  (Ryder v. Lightstorm Entertainment, Inc. (2016) 246 Cal.App.4th 1064, 1079.)  “[F]raud must be pled specifically” by “pleading facts which show how, when, where, to whom, and by what means the representations were tendered.”  (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, internal quotes omitted.) 

The second amended cross-complaint does not specifically allege damages resulting from cross-complainants’ reliance on any alleged misrepresentations.  “The fraud plaintiff must … allege his damages were caused by the actions he took in reliance on the defendant’s misrepresentations.”  (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1064.)  A plaintiff is “incapable of alleging damages” when “even in the absence of the defendant’s fraud, the plaintiff would have suffered the same injury.”  (Id. at pp. 1064-1065.)

The second amended cross-complaint alleges three purported misrepresentations.  First, “Niami represented… that in order to pay” a debt Niami owed to Cheh, “Niami would place title of the Subject Property in the name of an LLC wholly owned and controlled by Cheh—Cross-Complainant Above the Blvd.”  (SACC, ¶ 37.)  That is not a misrepresentation of fact because, as the other allegations show, Niami did place title for the subject property in the name of Above the Boulevard, LLC, which Cheh owned and controlled.  (¶¶ 15-16, 39, Ex. A.)

Second, cross-complainants allege Niami “further represented to Cheh that upon either sale or refinancing of the Subject Property Cheh would be re-paid what Niami owed him.”  (SACC, ¶ 38.)  Third, “Niami additionally represented that Niami would pay for all expenses for the upkeep of the Subject Property.”  (¶ 40.) 

In reliance on these representations, cross-complainants “did acquire title to the Subject Property and entered into the management services agreement.”  (¶ 43.)  The second amended cross-complaint alleges that due to his reliance, Cheh “now has lost not only his ownership of the Subject Property but also the security/collateral for the sums Niami owes him.”  (¶ 48.)

These facts do not show that cross-complainants’ reliance on Niami’s or Castillian Pride’s representations proximately caused any damages to them.  Cross-complainant Above the Boulevard, LLC was not “damaged” by acquiring property, and it did not enter into a management services agreement.  Cross-complainant Cheh simply ended up back where he started.  Before his actions in reliance, he had no title to the subject property nor other collateral for the purported debt Niami owed.  His reliance did not cause any harm he would not have otherwise suffered.

(3) Promissory Estoppel

            The second amended cross-complaint fails to allege sufficient facts for this cause of action, which is brought against Niami only.  “The elements of a promissory estoppel claim are ‘(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.’ ”  (US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 901 (US Ecology).)  “[U]nder the doctrine of promissory estoppel, ‘A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.’ ”  (Kajima/Ray Wilson v. Los Angeles County Metropolitan Transp. Authority (2000) 23 Cal.4th 305, 310.)

            The second amended cross-complaint alleges, “On or about September 27, 2021, Cross Defendant NIAMI made a clear and unambiguous promise to Cross Complainants CHEH and to his LLC, ABOVE THE BLVD., that NIAMI would pay CHEH the sums he owed CHEH from their previous business dealings in Interlight Pictures by giving CHEH, through his LLC, ABOVE THE BLVD ownership of the Subject Property and that CHEH would be repaid what he is owed by ABOVE THE BLVD. retaining title to the Subject Property.”  (¶ 50.)  It further alleges cross-complainants “reasonably relied upon these promises and acted upon that reliance by agreeing to place title in the name of ABOVE THE BLVD.”  (¶ 51.)  Finally, it alleges they “have been injured by” that reliance because “NIAMI now seeks to deprive CHEH of his control and ownership of ABOVE THE BLVD and thereby deprive CHEH and ABOVE THE BLVD of their ability to collect the money NIAMI owes CHEH.”  (¶ 52.)

As with the second cause of action for fraud, these factual allegations do not show that cross-complainants’ reliance on Niami’s promise damaged them.  Had Cheh not relied on the promise, he would not have created Above the Boulevard, LLC, and the LLC would not have acquired title to the subject property.  That did not result in Cheh being in any worse a position than if Niami never made the promise or Cheh never relied on it.  Cheh started out with no LLC and no title to the subject property.  Niami’s alleged conduct deprived Cheh of his control and ownership of Above the Boulevard, LLC, which owns the subject property.  Cheh ended up where he started. 

(4) Breach of Implied Covenant of Good Faith and Fair Dealing

Cross-complainants fail to allege sufficient facts for this cause of action.  “Every contract contains an implied covenant of good faith and fair dealing providing that no party to the contract will do anything that would deprive another party of the benefits of the contract.  [Citations.]  The implied covenant protects the reasonable expectations of the contracting parties based on their mutual promises.”  (Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 873, 885.)  “Although breach of the implied covenant often is pleaded as a separate count, a breach of the implied covenant is necessarily a breach of contract.”  (Ibid.) 

The elements of this cause of action are the same as for breach of contract, except with breach of the implied covenant instead of breach of an express contract term.  Thus, the plaintiff must allege: (1) a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant prevented plaintiff from receiving the benefits under the contract; (4) in doing so, defendant did not act fairly and in good faith; and (5) defendant’s conduct harmed plaintiff.  (See CACI No. 325.)

The second amended cross-complaint alleges the parties entered an agreement “whereby CHEH’s LLC ABOVE THE BLVD would hold title to the Subject Property as a means to secure what NIAMI owed CHEH.”  (¶ 54.)  It further alleges, “Cross-Defendants breached the implied covenant of good faith and fair dealing by attempting to take control of both the LLC, ABOVE THE BLVD and therefore ownership of the Subject Property away from Cross Complainants and put those in control of NIAMI’s alter ego CASTILIAN PRIDE through NIAMI’s agent Masse’s LLC CASTILIAN PRIDE controlling the holding of title to the Subject Property and take from Cross Complainants what is rightfully theirs and thereby depriving Cross Complainants of receiving the benefit of the agreement.”  (¶ 57.) 

Assuming the parties had a binding contract to that effect, the second amended cross-complaint does not allege facts showing that cross-defendants proximately caused any harm to cross-complainants.  “The test for causation in a breach of contract (or promissory estoppel) action is whether the breach was a substantial factor in causing the damages.”  (US Ecology, supra, 129 Cal.App.4th at p. 909.)

The second amended cross-complaint’s allegations show that Cheh caused himself to lose the benefits of the purported agreement.  He lost those benefits because he entered other contracts that resulted in transferring the benefits to Castillian Pride LLC.  Cross-complainants allege, “Niami coerced Cheh to sign agreements he did not fully understand” (¶ 20), including the “management services agreement” (¶ 21, Ex. B), the “irrevocable proxy agreement” (¶ 22, Ex. C), and the “Option to Purchase Agreement” (¶ 23, Ex. D). 

Cross-complainants further allege, “When CHEH entered these agreements (Exhibits B-D) he had no idea he was signing over control of his LLC, his ownership interest in its sole asset, the Subject Property and the security for the now more than $1,000,000 debt NIAMI owed to him all in exchange for the nominal consideration of ONE DOLLAR ($1.00)!  Nobody in their right mind would do such a thing.”  (¶ 24.)  “What CHEH reasonably believed he was signing was a management contract whereby CASTILIAN PRIDE would manage the day to day running of the subject property, i.e. make sure the mortgage was paid, taxes paid, pay for landscaping services and any repairs necessary for the Subject Property’s upkeep.”  (¶ 25.)

These agreements may have such unfavorable terms that nobody in their right mind would knowingly enter them—but Cheh signed them.  “[O]rdinarily one who signs an instrument which on its face is a contract is deemed to assent to all its terms.” (Marin Storage & Trucking, Inc. v. Benco Contracting and Engineering, Inc. (2001) 89 Cal.App.4th 1042, 1049–1050; see Williston on Contracts § 4:19 (4th ed. 2020) [“what is essential is not assent, but rather what the person to whom a manifestation is made is justified as regarding as assent”].)

The plain language of these agreements states their effects.  The third paragraph of the management services agreement notes that the parties “contemporaneously … entered into an option to purchase agreement” permitting Castillian Pride to “purchase one hundred percent (100%) of the membership interest in” Above the Boulevard, LLC “from its sole member, Patrick D. Cheh.”  (SACC, Ex. B, p. 1.)

Similarly, the fourth paragraph of the irrevocable proxy agreement provides that Cheh “desires to irrevocably appoint the Proxyholder [Castillian] as its proxy to vote all of the Membership Interest held by” Cheh.  (SACC, Ex. C, p. 1.)  That agreement further provides that Cheh “hereby irrevocably appoints the Proxyholder as his proxy, with full power of substitution and re-substitution.”  (Id., § 2.)  Finally,  

Finally, the option to purchase agreement provides, “Optionee [Cheh] agrees to grant and does hereby grant Optionor [Castillian Pride, LLC] an option to purchase … 100% of the issued and outstanding membership interests of the Company,” Above the Boulevard, LLC.  (Ex. D, § 2.)  “The purchase price of the Membership Interest to be paid by Optionor if the option is exercised will be $1.00.”  (Id., § 3.)  This contract also states the parties would execute the other two agreements.  (Id., §§ 6-7.)

These agreements are what deprived Cheh of the benefit of the purported contract with Niami or Castillian.  The second amended cross-complaint alleges no facts supporting the conclusory allegation that Niami “coerced” (¶ 20) Cheh to sign the agreements.  Cheh entered these agreements that caused his alleged injury.  Cheh alleges no facts showing any legal basis to undo those agreements.    

(5) Common Count – Unjust Enrichment

Cross-complainants fail to allege sufficient facts for this cause of action, which is brought against Niami only.  “The only essential allegations of a common count are ‘(1) the statement of indebtedness in a certain sum, (2) the consideration, i.e., goods sold, work done, etc., and (3) nonpayment.’  [Citing Witkin.]”  (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460.)

The statute of limitations bars this cause of action.  Which statute of limitations applies to a common count depends on how the debt arose.  (Staniforth v. Judges’ Retirement System (2016) 245 Cal.App.4th 1442, 1450 [considering various statutes of limitation without deciding which applied].)  Here, the second amended cross-complaint alleges the debt arose in 2002.  (¶ 10.)  It alleges Niami and Cheh jointly owned a corporation which was indebted to a creditor.  (Ibid.)  The creditor “forced a sale of Cheh’s home” and “received approximately $1.6 million dollars from the sale.”  (Ibid.)  The second amended cross-complaint further alleges, “Niami agreed in 2002 that he would pay Cheh 40% of what [the creditor] received from the sale of Cheh’s home, which was $640,000.  40% was equivalent to Niami’s share in” the company.  (¶ 10.)  Thus, the debt arose in 2002.  Absent an exception, the cross-complaint would be untimely under any applicable statute of limitations.

            Cross-complainants rely on the exception for affirming or reaffirming a debt.  (SACC, ¶¶ 10, 61; Opp., p. 10.)  Acknowledging, reviving, or continuing a debt is ineffective unless it “is contained in some writing, signed by the party to be charged thereby.”  (CCP § 360.)  Similarly, waiving the statute of limitations requires a waiver “in writing and signed by the person obligated.”  (CCP § 360.5; accord Kaichen’s Metal Mart, Inc. v. Ferro Cast Co. (1995) 33 Cal.App.4th 8, 14.)

The second amended cross-complaint does not allege any signed writing by Niami either renewing or continuing the obligation or waiving the statute of limitations.  It alleges, “Since 2002, NIAMI has repeatedly affirmed his debt to CHEH both orally and in e-mails.”  (¶ 11.)  It does not allege any email was “signed” and was sent within any applicable statute of limitations.  The second amended cross-complaint further alleges, “Niami affirmed in August and September 2021 that he owes this sum to Cheh and agreed to pay it to either Cheh or his LLC… through title to the Subject Property.”  (¶ 61.)  Again, that allegation does not state Niami signed any writing that constitutes an acknowledgment or promise to pay or a waiver of the statute of limitations.

(6) Partition by Sale of the Real Property

Cross-complainants do not allege sufficient facts for partition.  “A co-owner of real or personal property may bring an action for partition.”  (LEG Investments v. Boxler (2010) 183 Cal.App.4th 484, 493.)  A complaint for partition must allege “[a]ll interests the plaintiff has or claims in the property” (CCP § 872.230(b)) and all others’ interests in the property (CCP § 872.230(c)).  It must also “allege the proportionate interests of the parties.”  (Neusted v. Skernswell (1945) 69 Cal.App.2d 361, 364.)

The second amended cross-complaint does not allege joint ownership of the property.  As discussed above, its factual allegations show Above the Boulevard, LLC owns the entire property.  Its conclusions regarding a constructive trust are not supported by adequate factual allegations.  One cannot partition a property with a single owner.  And assuming cross-complainants alleged any joint ownership of the property, they do not allege their proportionate interests as required. 

(7) Declaratory Judgment

For two reasons, cross-complainants do not allege sufficient facts for declaratory relief.  First, declaratory relief is “unnecessary and superfluous” when the issues involved are already “fully engaged by other causes of action.”  (Hood v. Superior Court (1995) 33 Cal.App.4th 319, 324.)  Second, when a court sustains a demurrer to other causes of action, “a demurrer is also properly sustained as to a claim for declaratory relief which is ‘wholly derivative’ of” the other causes of action.  (Ball v. FleetBoston Financial Corp. (2008) 164 Cal.App.4th 794, 800.)

            The second amended cross-complaint’s cause of action for declaratory relief primarily involves issues fully engaged by the other causes of action.  Cross-complainants seek judicial declarations that “Cross Complainant is the full legal and beneficial owner of the Property” and “the full legal owner of Above the Boulevard, LLC.”  (SACC, pp. 20-21.)  They further seek “imposition of a constructive trust on the property” requiring cross-defendants “to transfer title to Cross Complainants.”  (Id., p. 21.)  These issues arise from the same facts and involve the same issues as the cause of action for quiet title.  This cause of action also includes one issue that is not superfluous: it seeks “a judicial declaration that Cross Complainant is the full legal owner of Above the Boulevard, LLC.”  (SACC, p. 21.)    

Even if not superfluous, the entire cause of action fails because it relies on the others.  As discussed above, cross-complainants allege facts showing Above the Boulevard, LLC—not Cheh—holds title to the subject property.  Cross-defendants do not dispute that.  The dispute concerns who owns Above the Boulevard, LLC.  And Cheh is not the full legal owner of Above the Boulevard, LLC because Castillian Pride purchased his interest under their option to purchase agreement.  (SACC, Ex. D.)  As discussed above, Cheh does not allege facts establishing a legal basis to reverse that transaction.  Finally, he alleges no basis for a constructive trust over the subject real property.        

Cross-Complainant Above the Boulevard, LLC

            Above the Boulevard, LLC also does not allege sufficient facts for any cause of action for an independent reason.  This case centers around the dispute over who owns and controls that LLC.  That entity is the plaintiff in this action against Patrick D. Cheh and Blossom.Space Inc.  The law firm Raines Feldman LLP represents both Above the Boulevard, LLC as the plaintiff and represents the cross-defendants to the cross-complaint brought by Above the Boulevard, LLC as represented by CNP Law.   

As discussed above, Castillian Pride LLC purchased Cheh’s interest in Above the Boulevard pursuant to the option to purchase agreement.  (SACC, Ex. D.)  The facts alleged in the second amended cross-complaint do not constitute any cause of action by Above the Boulevard, LLC against cross-defendants Niami and Castillian Pride, LLC.  Any causes of action stated would be solely by Cheh against the cross-defendants.  Cross-defendants’ alleged conduct has not harmed Above the Boulevard, LLC itself in any way.  It still owns the subject real property.  The LLC itself is not harmed by transferring its former sole member’s interest in it.  Any harm was to Cheh in losing his personal interest in the LLC. 

Possibility of Amendment

After a successful demurrer, where “there is a reasonable possibility that the defects can be cured by amendment, leave to amend must be granted.”  (Stevens v. Superior Court (1999) 75 Cal.App.4th 594, 601.)  The plaintiff bears the burden of “demonstrat[ing] how the complaint can be amended.”  (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711.)  “Leave to amend should be denied where the facts are not in dispute and the nature of the claim is clear, but no liability exists under substantive law.”  (Lawrence v. Bank of America (1985) 163 Cal.App.3d 431, 436.)

Cross-complainants do not meet their burden of showing a reasonable possibility of curing the defects for any cause of action by Above the Boulevard, LLC.  Their opposition contends they can amend because they have “realized the timing of the corporate formations show evidence of Niami’s plan to defraud Cross-Complainant and is further evidence of Niami being the alter ego of the corporations.”  (Opp., 12.)  That is irrelevant to Above the Boulevard, LLC’s ability to state a cause of action against cross-defendants.  That amendment would not cure the defect.

Cross-complainants also show no reasonable possibility of amending the cross-complaint to state a claim for partition.  Their proposed amendment would not result in factual allegations showing the parties share joint ownership of the subject real property.

Disposition

            The demurrer by cross-defendants Nile Niami and Castillian Pride LLC to all seven causes of action alleged by cross-complainant Above the Boulevard, LLC is sustained without leave to amend.  The demurrer to the sixth cause of action for partition alleged by defendant/cross-complainant Patrick Cheh is sustained without leave to amend.  The demurrer to the first through fifth and seventh causes of action alleged by defendant/cross-complainant Patrick Cheh is sustained with 20 days’ leave to amend.