Judge: Bruce G. Iwasaki, Case: 22STCV30638, Date: 2023-03-01 Tentative Ruling

Case Number: 22STCV30638    Hearing Date: March 1, 2023    Dept: 58

Judge Bruce G. Iwasaki

Department 58

Hearing Date:             March 1, 2023

Case Name:                PM Andy’s Liquor Inc. v. Jane Suong Tran-Bresler et al.

Case No.:                    22STCV30638

Motion:                       Demurrer x2

Moving Party:             Defendant Jane Suong Tran-Bresler

                                    Defendant Eric Nhan Tran

Opposing Party:          Plaintiff PM Andy’s Liquor

            This is an action for breach of contract of a commercial lease.  In the First Amended Complaint (Complaint), PM Andy’s Liquor Inc. (Plaintiff) sues Jane Suong Tran-Bresler (Jane) and Eric Nhan Tran (Eric) (collectively Defendants) for breach of contract, fraud, promissory estoppel, specific performance, and declaratory relief.

            Plaintiff alleged that its predecessor, Harbinder Singh, executed a “Business Purchase Agreement” (Purchase Agreement) to purchase “Kennys Liquor & Jr Market” from Defendant Eric.  Following numerous counteroffers from both sides, a 10-year commercial lease (Lease) was executed in September 2012.  The parties to the lease were Plaintiff (the Lessee) and Defendant Jane (the Lessor).  The lease was for 10-years, which included a 10-year option to renew.  The base rent under the lease was for $2,500 per month for the first year, followed by 3% increases every year. 

            Plaintiff avers that it invoked the 10-year option in July 2022; however, Defendant Jane reportedly then proposed a new lease for the monthly amount of $9,900, with a provision that Plaintiff must also lease additional property next to the store.  Plaintiff alleges that Defendants breached the lease by failing to renew under the original terms of the Lease.

            The two Defendants filed separate demurrers.  Plaintiff filed oppositions and Defendants filed a reply.  The meet-and-confer requirements are satisfied.  (Gandy Decl., ¶ 2.) 

            Plaintiff’s and Defendants’ request for judicial notice of property appraisals, official records, and court records is granted.  (Evid. Code, § 452, subds. (c), (d).)

            Because Plaintiff’s breach of contract count confusingly conflates two contracts with different parties, the demurrer is sustained with leave to amend on the first, second, fourth and fifth causes of action. The demurrer to the claim for promissory estoppel is overruled.

Legal Standard

            A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice.  (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)  The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.”  (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.)  “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.”  (Code Civ. Proc., § 452.)  The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.)  The complaint must be construed liberally by drawing reasonable inferences from the facts pleaded. (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.)

Discussion

Statute of limitations and economic loss rule

A “ ‘ “demurrer on the ground of the bar of the statute of limitations will not lie where the action may be, but is not necessarily barred.” ’ ”(Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 224.) “ ‘ “It must appear clearly and affirmatively that, upon the face of the complaint [and matters of which the court may properly take judicial notice], the right of action is necessarily barred.” ’ ”  (Ibid.)  “ ‘Resolution of the statute of limitations issue is normally a question of fact.’ ”  (Paredes v. Credit Consulting Services, Inc. (2022) 82 Cal.App.5th 410, 427; Michaels v. Greenberg Traurig, LLP (2021) 62 Cal.App.5th 512, 538.) 

            A statute of limitations begins to run “at ‘the time when the cause of action is complete with all of its elements.’ ”  (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806.)  However, under a delayed discovery rule, “a cause of action accrues and the statute of limitations begins to run when the plaintiff has reason to suspect an injury and some wrongful cause, unless the plaintiff pleads and proves that a reasonable investigation at that time would not have revealed a factual basis for that particular cause of action. In that case, the statute of limitations for that cause of action will be tolled until such time as a reasonable investigation would have revealed its factual basis.” (Id. at p. 803.)

            Plaintiff alleges that it invoked the option to renew on July 1, 2022, but Defendants refused to continue the Lease under the original terms.  Therefore, the statute of limitations begins on that date.

            Both Defendants also argue that the economic loss rule bars the fraud claim.  The Court disagrees.  “Tort damages have been permitted in contract cases where a breach of duty directly causes physical injury [citation]; for breach of the covenant of good faith and fair dealing in insurance contracts [citation]; for wrongful discharge in violation of fundamental public policy [citation]; or where the contract was fraudulently induced. [Citation.] In each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm.”  (Erlich v. Menezes (1999) 21 Cal.4th 543, 552-553, italics added.)  Plaintiff alleges fraudulent misconduct here, which is sufficient.  (Complaint, ¶¶ 21-22.)

First cause of action – breach of contract

            To state a claim for breach of contract, a plaintiff must allege sufficient facts to establish: (1) a contract between the parties; (2) plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) damages to plaintiff from the breach. (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.)

            The first cause of action concerns two contracts: (1) the Purchase Agreement, by which Plaintiff purchased the liquor store business (Complaint, Ex. 1), and (2) the Lease, in which Plaintiff is a tenant in a commercial lease for that business (Ex. 2).  Plaintiff entered the Business Purchase Agreement with Defendant Eric; Plaintiff entered the Lease with Defendant Jane. But Plaintiff has conflated the two agreements under one purported cause of action.

            If multiple contracts are involved, it is better practice to plead them as separate causes of action.  Otherwise, there may be a lack of clarity about which contract is the basis of the cause of action, and which acts are the alleged breaches of which contract, as well as the associated damages. (See Leader v. Health Industries of America, Inc. (2001) 89 Cal.App.4th 603, 608; Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2022) ¶ 6:104.)

            Had the Plaintiff separated out these contracts into two separate causes of action, the Court would overrule the demurrer based on breach of the commercial lease.  However, because Plaintiff combines these claims into one, it is not evident how the Purchase Agreement was breached, especially given that Plaintiff alleged that the “sales transaction closed” and was therefore completed.[1]  (Complaint, ¶ 9.)  Thus, the demurrer is sustained as to the first cause of action for breach of contract, with leave to amend.  The cause of action is uncertain; amendment is required to clarify the bases for the breach of contract claims.

            If Plaintiff does intend to allege a breach of the Purchase Agreement, Defendant Eric contends Plaintiff has no standing because the purchaser was “Harbinder Singh and or Assignors.”  Plaintiff contends the handwritten text specifies “Assignees.”  Defendants’ interpretation makes little sense.  The second counteroffer attached to the Complaint specifies that it should state “assignee.”  Thus, the argument is not well-taken.

            In any event, as the Court sees it, the real issue here is breach of the Lease and the following language within the Lease:

            2. LEASE TERM: The term shall be for a term of 10 years plus one 10-year option ...  

28. OPTION TO RENEW: The option shall be exercised by written notice given to Lessor not less than 60 days prior to the expiration of the initial lease term. If notice is not given in the manner provided herein within the time specified, this option shall expire.  

            Jane contends there was no breach because the Lease’s “option to renew” is distinct from an “option to extend.”  Therefore, it was within her right to renegotiate the Lease’s terms even when Plaintiff executed on its option.  Plaintiff argues that because the Lease fails to require the execution of a new lease, the original terms should govern.

Jane argues that there is a legal distinction between “renewing” and “extending” a contract.  However, her reliance on Beatty Safway Scaffold, Inc. v. Skrable (1960) 180 Cal.App.2d 650, 653 is misplaced because that case was an appeal from judgment and factually distinguishable.  That case involved a distribution agreement between a manufacturer of scaffolding equipment and its distributor.  The clause at issue stated that the distributor “shall have the option to renew this contract for an additional period of five (5) years provided the Distributor has complied with all of the terms and conditions of this agreement. . . .”  (180 Cal.App.2d at p. 652.)  The distributor argued that it did not invoke the renewal clause while the manufacturer argued that the distributor’s conduct showed otherwise.  (Id. at p. 654.)  It was in that context that the Court of Appeal found against the manufacturer, i.e., that renewal does not operate merely to extend the previous contract.  The case does not address the issue presented here: when an option to renew is silent on the terms and conditions of the renewal.  Accordingly, it offers no authority for sustaining Jane’s demurrer as to the Lease.

Generally, an option to renew an agreement that does not specify terms and conditions indicates that renewal is on the same terms as the original agreement.  “While it is a general principle that covenants to renew or extend in leases must be certain and definite in order to be valid and enforceable, a general covenant to renew or extend a lease that makes no provision as to the terms and conditions of the renewal or extension is deemed to imply a renewal or extension for the same rental as provided for in the original lease and to be sufficiently definite and certain to be valid and enforceable.”  (42 Cal.Jur.3d (2023) Landlord and Tenant, § 350; Robert T. Miner, M.D., Inc. v. Tustin Avenue Investors (2004) 116 Cal.App.4th 264, 274 [“option agreements may be enforceable even where they do not specify the exact amount of future rents, so long as there is an ascertainable standard for the determination of rent”].)  Under this authority, to the extent Defendant Jane claims she has an unfettered right to impose new conditions for the option, Plaintiff can reasonably plead a claim for breach of the Lease.

“ ‘A general covenant to extend or renew implies an additional term equal to the first, and upon the same terms, including that of rent, except the covenant to renew.’ ”  (Penilla v. Gerstenkorn (1927) 86 Cal.App.668, 670; see also Buck v. Cardwell (1958) 161 Cal.App.2d 830, 836 [uncertainties in the lease regarding renewals are construed in favor of the tenant and against the landlord].)[2]  Here, the Lease is silent on the terms and conditions of a renewal.  The original 10-year term contemplated an annual 3% increase per year.  (Complaint, Ex. 2, ¶ 3.)  Absent evidence of a contrary agreement, it would appear that the Lease is renewable on the same terms as the original Lease, other than a further option to renew.

Thus, Jane’s contention that there was no breach because the Lease allowed renegotiation of the terms appears to be contrary to law.  This is because such a position would make the option a nullity.  The parties were free to negotiate and provide for such conditions, but did not.  “Where a complaint is based on a written contract which it sets out in full, a general demurrer to the complaint admits not only the contents of the instrument but also any pleaded meaning to which the instrument is reasonably susceptible.” (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239.) “ ‘[W]here an ambiguous contract is the basis of an action, it is proper, if not essential, for a plaintiff to allege its own construction of the agreement. So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff's allegations as to the meaning of the agreement.’ ” (Ibid.)  As the Lease is silent on the terms of the renewal, Plaintiff’s interpretation that the original amount should govern is not “clearly erroneous” and Jane’s demurrer would be – had the Complaint been properly pleaded – overruled.

Second cause of action – fraud – false promise

            The elements of fraud, are “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.”  (Lazar v. Superior Court (1996) 12 Cal.4th 631.)  Fraud must be pled specifically, not with “general and conclusory allegations.”  (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184; Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73 [“This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.”) 

            Here, Plaintiff alleges that Defendants “confirmed that Plaintiff would not have to pay any more than the proposed rental amounts in the Lease plus 3% increases year after year.”  (Complaint, ¶ 20.)  Defendants allegedly “had no intention of honoring the terms of the Purchase Agreement and Lease and instead would try and use the lease option exercise in an attempt to gouge Plaintiff and attempt to charge them an exorbitant amount of rent beyond what was agreed upon by the parties.”  (Id. at ¶ 21.)

            Defendants contend that Plaintiffs must provide the identities of who made the misrepresentations and who relied on the alleged promises.  For example, Paragraph 20 alleges “negotiations of the Purchase Agreement through [the parties’] dual agent, Bee Investment, [who] confirmed that Defendants understood that Plaintiff expected to have a total of twenty years of lease terms available at the same rates,” but does not indicate who the agent is.  Plaintiff opposes, stating that “it is not necessary to parse out what part of which promise was made by Defendant or another individual.”

            The Court agrees with Defendant.  There are at least two individuals on both the Plaintiff’s and Defendant’s side.[3]  Given the uncertainty of the two contracts involved, Plaintiff should specify who was told what and by whom.  Therefore, the demurrer is sustained on the second claim.

Third, fourth, and fifth causes of action – promissory estoppel, specific performance, and declaratory relief

“ ‘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.” ’ ”  (Joffe v. City of Huntington Park (2011) 201 Cal.App.4th 492, 513)  Promissory estoppel is a method by which a plaintiff can seek enforcement of a promise despite the lack of consideration and nonexistence of a contract. (Southerland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 312.)

Here, the alleged promise is to continue the Lease for an additional 10-year term “at the same rental increases which had been applied over the initial term of the Lease.”  (Complaint, ¶ 28.)  While the Lease contained an option to renew the tenancy, it did not specify the terms and rates of the renewal.  Therefore, contrary to Defendants’ arguments, the promise is separate from the contract itself and is not necessarily duplicative of the first cause of action.  Accordingly, the demurrer is overruled on the cause of action for promissory estoppel.

As to specific performance, this is an “alternative remedy; the cause of action is for breach of contract.”  (5 Witkin, Cal. Procedure (6th ed. 2022) Pleading, § 780(1).) “To obtain a specific performance after a breach of contract, a plaintiff must generally show: ‘(1) the inadequacy of his legal remedy; (2) an underlying contract that is both reasonable and supported by adequate consideration; (3) the existence of a mutuality of remedies; (4) contractual terms which are sufficiently definite to enable the court to know what it is to enforce; and (5) a substantial similarity to the requested performance to that promised in the contract” (Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 472, n.8.)

Because specific performance of an agreement is a remedy and is not itself a cause of action, the demurrer is sustained. (Green Valley Landowners Assn. v. City of Vallejo (2015) 241 Cal.App.4th 425, 433.)

Finally, Defendants argue that the fifth cause of action (erroneously labeled in the Complaint as the fourth cause of action) for declaratory relief is duplicative. While Plaintiff may not ultimately obtain double recovery, it may allege recovery through alternative, and even contradictory, causes of action. (Gherman v. Colburn (1977) 72 Cal.App.3d 544, 565 [“A plaintiff may plead cumulative or inconsistent causes of action”].)  The demurrer is overruled on that basis.  However, because the declaratory relief claim is based on the breach of contract claim, which is sustained because of uncertainty, the demurrer is also sustained on the declaratory relief cause of action.  (Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 794 [demurrer properly sustained on cause of action for declaratory relief that was “wholly derivative of” other causes of action on which demurrer had been properly sustained].)

Conclusion

            The demurrer is overruled on the third cause of action for promissory estoppel.  The demurrer is sustained on the first, second, fourth, and fifth causes of action with 20 days leave to amend.