Judge Barbara M. Scheper, Case 23STCV00738 2023-05-15 Tentative Ruling

Judge: Barbara M. Scheper, Case: 23STCV00738, Date: 2023-05-15 Tentative Ruling

Case Number: 23STCV00738 Hearing Date: May 15, 2023 Dept: 30

Dept. 30

Calendar No. 12

Ten Five Hospitality LLC, et. al. vs. Relevant Group LLC, et. al., Case No. 23STCV00738

Tentative Ruling re: Defendant’s Demurrer to First Amended Complaint; Motion to Strike

Defendants Relevant Group LLC, Relevant Hospitality LLC, Hollywood Citizen News F&B LLC, Hollywood International Regional Center LLC, Hollywood Cahuenga Restaurant LLC, 1601 Cahuenga Nightclub LLC, Vincent Chen, and Grant King (collectively, Defendants) demur to the seventh cause of action in Plaintiffs’ First Amended Complaint (FAC), and move to strike portions of the FAC. The demurrer is overruled. The unopposed motion to strike is granted. Defendants are ordered to answer within ten (10) days of today’s date.

In reviewing the legal sufficiency of a complaint against a demurrer, a court will treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank); C & H Foods Co. v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1062.) It is well settled that a “demurrer lies only for defects appearing on the face of the complaint[.]” (Stevens v. Superior Court (1999) 75 Cal.App.4th 594, 601.) “The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Guclimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 (internal quotes omitted).) For purposes of ruling on a demurrer, the complaint must be construed liberally by drawing reasonable inferences from the facts pleaded. (Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952, 958.)

When ruling on a demurrer, the Court may only consider the complaint’s allegations or matters which may be judicially noticed. (Blank, supra, 39 Cal.3d at 318.) The Court may not consider any other extrinsic evidence or judge the credibility of the allegations plead or the difficulty a plaintiff may have in proving his allegations. (Ion Equip. Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.) A demurrer is properly sustained only when the complaint, liberally construed, fails to state facts sufficient to constitute any cause of action. (Kramer v. Intuit Inc. (2004) 121 Cal.App.4th 574, 578.)

In 2019, Plaintiff Dan Daley (Daley) was hired by Relevant Group LLC and Relevant Hospitality LLC (collectively, Relevant) to manage Relevant’s hospitality platform. (FAC ¶ 10.) In late-2020 and early-2021, Daley and Relevant negotiated an arrangement where Daley, through the corporate Plaintiffs, would conceptualize and manage hospitality venues in Hollywood. (FAC ¶ 11.) Under the parties’ agreements, Plaintiffs are provided complete control over the management and operation of those venues, including the authority to hire and fire staff, the right to withdraw funds from operating accounts, and the exclusive right to use trademarks associated with the existing food and beverage venues at future locations. (FAC ¶ 13.) The management agreements contain “initial 10-year terms and provisions precluding termination absent service of a notice of certain delineated defaults with the right to cure,” “negotiated specifically to protect Plaintiffs’ right to reap long-term benefits from their dedication, hard work, talent and expertise.” (FAC ¶ 14.)

In November 2022, Relevant encountered significant financial troubles. (FAC ¶ 17.) In response, it began retaining management fees owed to Plaintiffs and instructing Plaintiffs’ employees not to follow Daley’s instructions. (FAC ¶ 18.) On January 13, 2023, the day after Plaintiffs commenced the current action, Defendants sent correspondence alleging that Daley was siphoning money from Relevant’ s accounts, and stating that Defendants had informed East West Bank that Daley’s withdrawals were unauthorized and filed a police report falsely accusing Daley of criminal misconduct. (FAC ¶ 20.) Defendants also claimed in bad faith that the parties’ management agreements were void or terminated, as a means to avoid Defendants’ payment obligations to Plaintiffs and usurp control of Plaintiffs’ business operations, intellectual property, and employment relationships. (FAC ¶¶ 21-23.)

Defendants sought to oust Plaintiffs from the management and operation of the venues, first by hiring guards to prevent Daley from entering the venues and removing Daley from his hotel room in Los Angeles. (FAC ¶ 26.) Defendants then contacted the employees of Plaintiff Ten Five Hospitality LLC (Ten Five) and ordered them to attend meetings held by Relevant and its counsel, without notice to Plaintiffs. (FAC ¶ 27.) At these meetings, Defendants told the employees that Ten Five had shut down, dissolved, and was not operating, and that Relevant was taking over the restaurants. (FAC ¶ 28.) Defendants and their counsel demanded that Ten Five’s employees resign from Ten Five on the spot, falsely advised that the employees would not be paid if they did not sign new employment agreements with Relevant, and purported to “fire” employees who did not comply. (FAC ¶¶ 29-30.) Defendants deployed similar tactics with other key personnel of Plaintiffs, leading employees to resign. (FAC ¶ 31-32.)

Plaintiffs assert causes of action against Defendants for breach of contract, breach of implied covenant, declaratory relief, defamation, and interference with prospective economic advantage. Here, Defendants demur only to Plaintiffs’ seventh cause of action for breach of implied duty of good faith against Defendants.

Breach of Implied Covenant of Good Faith and Fair Dealing

“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. [Citations.] The scope of conduct prohibited by the implied covenant depends on the purposes and express terms of the contract.” (Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 873, 885.)

“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made. The covenant thus cannot ‘be endowed with an existence independent of its contractual underpinnings.’ It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350.) The implied covenant “requires neither party do anything which will deprive the other of the benefits of the agreement,” though “[t]he precise nature and extent of the duty imposed ... will depend on the contractual purposes.” (Ellis v. Chevron, U. S. A. Inc. (1988) 201 Cal.App.3d 132, 139.)

Allegations for an implied covenant claim “must show that the conduct of the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement. Just what conduct will meet this criteria must be determined on a case by case basis and will depend on the contractual purposes and reasonably justified expectations of the parties.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.) “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.” (Ibid.)

Defendants demur on the basis that Plaintiffs’ breach of implied covenant claim (FAC p. 27) is duplicative of Plaintiffs’ claims for breach of contract, which are based on Defendants’ alleged breaches of the parties’ Food and Beverage Service Management Agreements, the Hotel Co-Management Agreements, the Licensing Agreement, and Daley’s Employment Agreement. (FAC pp. 21-26.) The Court disagrees. Plaintiffs have sufficiently pled deliberate, bad faith conduct by Defendants designed to frustrate the purposes of the parties’ contracts and deprive Plaintiffs of the benefits of those agreements.

Plaintiffs allege that the management contracts contained initial 10-year terms and limitations on termination, so as to “protect Plaintiffs’ right to reap long-term benefits,” but that Defendants have purported to terminate the agreements without justification, in order to avoid paying Plaintiffs management fees and usurp Plaintiffs’ business. (FAC ¶¶ 14, 23-24.) Defendants told Ten Five’s employees to not take direction from Daley or Ten Five, made false representations regarding Relevant’s authority over the business, and pressured Ten Five’s employees to resign from Ten Five and sign an employment agreement with Relevant Group LLC (FAC ¶¶ 123-127.) Relevant instructed its Vice President of Finance not to process Ten Five’s management fees, and falsely stated to the bank that Daley’s withdrawals of fees constituted criminal activity. (FAC ¶¶ 121, 125.) Relevant has also allegedly usurped Ten Five’s role as manager of the venues, but has rendered inferior services under Ten Five’s trademarks and intellectual property, harming Ten Five’s business reputation and goodwill. (FAC ¶¶ 132-134.)

The fact that these allegations have some overlap with Plaintiffs’ claims for breach of contract does not preclude the implied covenant claim. (See Careau, supra, at 1395 [“allegations which assert such a claim must show that the conduct of the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities” (italics added)].) Defendants’ bad faith termination of the parties’ contracts, conduct with respect to Plaintiffs’ employees, and attempts to undermine Plaintiffs’ access to management fees due are sufficient to support the claim for breach of implied covenant. (C.f. Guz, 24 Cal.4th at 353 [“for example, the covenant might be violated if termination of an at-will employee was a mere pretext to cheat the worker out of another contract benefit to which the employee was clearly entitled, such as compensation already earned”].) Accordingly, the demurrer is overruled.

Defendants move to strike portions of Plaintiffs’ claim for declaratory relief and the Prayer for injunctive relief. (FAC ¶ 216(c)-(h), Prayer D.) The motion to strike is unopposed by Plaintiffs, and so is granted.