Judge Curtis A. Kin, Case 19STCV26450 2022-10-27 Tentative Ruling

Judge: Curtis A. Kin, Case: 19STCV26450, Date: 2022-10-27 Tentative Ruling

Case Number: 19STCV26450 Hearing Date: October 27, 2022 Dept: 72

MOTION FOR ATTORNEY FEES

Date: 10/27/22 (8:30 AM)

Case: Loraine Diego et al. v. Harold Fajardo et al. (19STCV26450)

TENTATIVE RULING:

Plaintiffs Lilac Care Residential Home, LLC and Loraine Diego’s Motion for Attorney Fees is DENIED.

As a preliminary matter, after the reply was filed, defendant Harold Fajardo filed an unauthorized sur-reply on October 25, 2022. Notwithstanding plaintiffs’ objection, the Court considers the sur-reply. Ultimately, the sur-reply is not dispositive because, even considering just the arguments presented in the motion, opposition, and reply, the motion would be denied. The Court notes, however, its concern that defense counsel may have “felt the proper course of action was to file the supplemental brief[] without leave to do so” (10/24/22 Keeton Decl. ¶ 3), which, if true, is the sort of unprofessional and unseemly conduct that would warrant sanctions if repeated.

Plaintiffs Lilac Care Residential Home, LLC and Loraine Diego seek an award of attorney fees against defendant Harold Fajardo pursuant to paragraph 35 of the Business Purchase Agreement (“Agreement”).

Paragraph 35 of the Agreement states: “In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorneys fees and costs from the non-prevailing Buyer or Seller, except as provided in paragraph 30A.” (Keeter Decl. ¶ 18 & Ex. 1.) There is no dispute that this action arose from the Agreement or that plaintiff prevailed. The issue is whether paragraph 30A of the Agreement disentitling plaintiff to fees is applicable.

Paragraph 30A states: “The Parties agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action . . . . If, for any dispute or claim to which this paragraph applies, any Party (i) commences an action without first attempting to resolve the matter through mediation . . . then that Party shall not be entitled to recover attorney fees, even if they would otherwise be available to that Party in any such action . . . .” The requirement to mediate before filing the complaint is a condition precedent, the violation of which precludes any award of attorney fees. (Lange v. Schilling (2008) 163 Cal.App.4th 1412, 1417-18 [failure to attempt to mediate before filing suit bars recovery of attorney fees under paragraph similarly worded to paragraph 30A].) Here, there is no dispute that mediation did not occur until January 2021 (see 10/24/22 Sayas Decl. ¶ 8), which was approximately 18 months after plaintiffs filed their Complaint on July 30, 2019.

To escape paragraph 30A’s bar to receiving attorney’s fees, plaintiffs argue paragraph 30C(2) of the Agreement exempts them from the requirement to mediate. Paragraph 30C(2) states: “The following shall not constitute a waiver nor violation of the mediation and arbitration provisions: i) the filing of a court action to preserve a statute of limitations . . . .” The parties thus dispute when plaintiffs’ breach of contract cause of action accrued and when the corresponding statute of limitations expired.

The statute of limitations for breach of a written contract is four years. (CCP § 337(a).) “[A] breach of contract claim does not accrue until there has been a breach of the contract.” (Church v. Jamison (2006) 143 Cal.App.4th 1568, 1583.) However, the “discovery” rule “postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807.) “Although delayed accrual under the discovery rule generally applies to most tort actions, it has been held applicable to certain types of breach of contract actions, such as those involving fraud or misrepresentation by the defendant.” (NBCUniversal Media, LLC v. Superior Court (2014) 225 Cal.App.4th 1222, 1233.)

Plaintiffs maintain that defendant breached the Agreement as soon as the parties entered into the Agreement, purportedly on July 31, 2015. (Reply at 2:2-3.) (Parenthetically, the Court notes that July 31, 2015 was the close of escrow date. (Keeter Decl. ¶ 18 & Ex. 1 at ¶ 1.E.) The parties signed the Agreement on June 17 and 18, 2015.) Plaintiffs argue that they suffered harm upon execution of the Agreement because they did not receive the “benefit of the bargain.” (Reply at 1:26-28.) This benefit purportedly agreed upon by the parties includes training and notification to “Licensing,” i.e., California Department of Social Services, of the potential sale before execution of the Agreement. (Reply at 1:24-26, 2:1-2.)

Plaintiff’s theory of the case has been that defendant was contractually required to transfer the licenses of Quality Health Maintenance Services, Inc. to plaintiffs but failed to comply with this purported requirement. (Compl. ¶¶ 14, 23, 24, 32.) Plaintiffs also claimed that defendant fraudulently induced them to enter into the Agreement by promising to transfer the business licenses with no intent to do so. (Compl. ¶ 53; see also Reply at 1:23-24 [“Specifically, Defendant fraudulently induced Plaintiffs to enter into the Agreement, with no intention of actually meeting his obligations therein”].) Plaintiffs further claimed that, after the parties entered into the Agreement, defendant reassured plaintiffs that the licenses would be transferred, even after the last payment toward the purchase price in July 2017. (Compl. ¶¶ 19-22.)

Critically, plaintiffs have taken the position that they did not discover the licenses would not be transferred until February 10, 2018, when the Community Care Licensing Division determined that the licenses were forfeited. (Compl. ¶ 22.) Plaintiff Loraine Diego confirmed this view of things during her deposition, testifying that she first realized the licenses could not be transferred on February 10, 2018, when she was informed that the licenses were forfeited and licensing began removing the clients from the residential care facilities. (Sayas Decl. ¶ 3 & Ex. 1 at 168:17-168:13, 170:4-171:15.) At trial, plaintiff Diego again confirmed her view that she did now know she was operating her facilities without a license until as late as January 2018, when the Regional Center reached out to tell her.

Related to plaintiffs’ theory that defendant Fajardo failed to transfer the facilities licenses to plaintiffs is plaintiffs’ claim that Fajardo failed to provide the requisite training for plaintiffs to obtain their own facilities license. Ultimately, this latter claim was the theory of liability upon which plaintiffs prevailed, because the Agreement did not actually provide for the transfer of any licenses, but paragraph 10 of the Agreement did impose upon Fajardo the obligation to provide consulting and training to operate the facilities. Under either theory of liability, plaintiffs did not discover that the purported contractual term to transfer the licenses was breached or that they were not provided the training required under paragraph 10 of the Agreement until January or February 2018, when plaintiffs’ discovered for the first time that the facilities were unlicensed and that the licenses were forfeited. Based on a four-year statute of limitations, and based on plaintiffs’ own contention of when Diego learned of defendant’s wrongdoing, plaintiffs had until January or February 2022 to assert a breach of contract cause of action. (Indeed, even under the cause of action in the Complaint with the shortest limitations period, plaintiff had until at least January 2020 to bring her claim for intentional interference with prospective economic relations. (CCP § 339; Augusta v. United Service Automobile Assn. (1993) 13 Cal.App.4th 4, 10).)

Accordingly, under the circumstances presented, it cannot be said that plaintiffs filed the Complaint on July 30, 2019 to preserve the statute of limitations. Plaintiffs had more than two years from the filing of the Complaint to assert a breach of contract cause of action. The Court thus finds that plaintiffs cannot invoke the exception under paragraph 30C(2) of the Agreement. Because plaintiffs did not mediate their dispute before filing the Complaint, plaintiffs are not entitled to recover attorney fees pursuant to paragraph 30A of the Agreement.

The motion is DENIED.