Judge: Curtis A. Kin, Case: 21STCV40893, Date: 2023-02-07 Tentative Ruling

Case Number: 21STCV40893    Hearing Date: February 7, 2023    Dept: 72

DEMURRER

Date:          2/7/23 (9:30 AM)                                                            

Case:          Javid Somekh et al. v. South Gate Tweedy, LLC et al. (21STCV40893)

TENTATIVE RULING:

Defendants South Gate Tweedy, LLC and Mehdi Bolour’s Demurrer to Verified Fifth Complaint (“5AC”) is OVERRULED.

Defendants South Gate Tweedy, LLC (“South Gate Tweedy”) and Mehdi Bolour demur to the first cause of action for breach of oral contract. The first cause of action is based on an oral agreement between plaintiffs Javid Somekh and Hezi Kashanian and both demurring defendants to build the Atlantic Park Plaza project. (5AC ¶¶ 10, 11, 18.) Under the purported agreement, Bolour was to provide all financing, including construction financing, for the project. (5AC ¶ 11.)

Defendants assert that, based on the sham pleading doctrine, plaintiff cannot allege that Bolour made a promise to build or finance the project. “‘[U]nder the sham pleading doctrine, plaintiffs are precluded from amending complaints to omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers or motions for summary judgment. [Citations omitted].’” (State ex rel. Metz v. CCC Info. Servs., Inc.) (2007) 149 Cal. App. 4th 402, 412.)

With respect to the Fourth Amended Complaint (“4AC”), the Court sustained the demurrer to the dissolution of partnership cause of action without leave to amend on the ground that the written Joint Venture Agreement, which allegedly memorialized the terms of the oral partnership agreement, did not provide the joint management and control required for a partnership. (See Fourth Amended Complaint filed June 13, 2022 [“4AC”] ¶¶ 16, 18; 8/18/22 Minute Order at 2; see also TAC ¶ 18; SAC ¶ 19; FAC ¶ 18; Compl. ¶ 17 [alleging that written partnership agreement “memorializ[ed] the terms of the parties’ oral agreement”].) Because the 4AC did not have the written agreement attached, the Court referred to the agreement attached as Exhibit B to the Third Amended Complaint filed on March 15, 2022 (“3AC”). (3AC Ex. B; see also FAC Ex. B and Complaint Ex. B [same Joint Venture Agreement attached].) The written agreement attached to the 3AC provided that in the alleged partnership, defendant South Gate Tweedy had 51% of the vote and plaintiffs Javid Somekh and Hezi Kashanian had 49% of the vote. (TAC Ex. B at ¶ 4.) Plaintiffs also previously alleged that defendant Bolour was the managing member of South Gate Tweedy. (4AC ¶ 16.) Because Bolour, by way of South Gate Tweedy had majority control over the project, as the purported partnership is structured, the Court found that plaintiffs failed to allege that they had any ability to manage or control the project.

Defendants argue that, based on the majority control in favor of South Gate Tweedy set forth in the written agreement, Bolour could not have breached any promise to build or finance the project. Defendants also point to prior allegations from plaintiffs regarding Bolour’s right to reimbursement and the division of revenue “[i]f the partners opted to develop the Project….” (3AC ¶ 16(c); 2AC ¶ 17(c); 1AC ¶ 16(c); Compl. ¶ 16(c).) Defendants also point to a recital in the written agreement which states that South Gate Tweedy “desires that Sharing Members [Somekh and Kashanian] use their expertise in the further planning and development of works of improvement on the Real Property for a percentage of the income which the Real Property may create.” (3AC Ex. B.) Based on these prior allegations, defendant contends that the building and financing of the project was at South Gate Tweedy or Bolour’s discretion.

Accordingly, the sham pleading doctrine does not apply because the referenced written Joint Venture Agreement and the other prior allegations are not necessarily inconsistent with the allegation in the operative 5AC that defendants agreed to build and finance the project. The written agreement provides: “This Joint Venture is for the express purpose of the planning and development and construction of works of improvement on the Real Property and sharing of the income resulting therefrom.” (3AC Ex. B at ¶ 2.) The written agreement also provides: “Owner [i.e., South Gate Tweedy] shall provide the financing for the development of the Real Property.” (3AC Ex. B at ¶ 5.)

Even though paragraph 4 indicates that South Gate Tweedy has majority control “regarding any matter involving the Joint Venture,” this does not necessarily foreclose the possibility that defendants orally agreed to build and finance the project. Otherwise, paragraphs 2 and 5 regarding the purpose and intent of the joint venture would have no effect. “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” (Civ. Code § 1641.)

In addition, with respect to plaintiffs’ allegation regarding the opting of the partners to develop the project, this allegation was part of a Letter of Intent that “tentatively” set forth the terms of the alleged partnership agreement. Plaintiffs alleged that the written Joint Venture Agreement, not the Letter of Intent, memorialized the oral agreement. 

For these reasons, because the allegations and exhibits referenced by defendants are not necessarily inconsistent with the oral contract alleged in the 5AC, defendants’ invocation of the sham pleading doctrine is unavailing.

Defendants also argue that plaintiffs cannot allege that Bolour was a party to the oral agreement in light of the written Joint Venture Agreement attached to prior pleadings. Even though the written agreement, which was unsigned, does not list Bolour as a party, the written agreement has only been alleged to have memorialized the terms of the oral agreement, not necessarily setting forth the parties to the purported oral agreement. Put another way, the written agreement may be evidence of the oral agreement, but it is not the only evidence. Taking plaintiffs’ allegations as true, as the Court must on demurrer, Bolour was a party to the oral agreement. (5AC ¶¶ 12, 23.)

Alternatively, defendants also argue that plaintiffs fail to allege a breach on the part of South Gate Tweedy. Plaintiffs allege that Bolour breached the oral contract when he repudiated its existence. (5AC ¶ 20; see also 5AC ¶ 22 [Defendant Bolour’s breach was a substantial factor in causing Plaintiffs’ damages].) However, plaintiffs also allege that Somekh and Kashanian entered into the oral agreement with Bolour and South Gate Tweedy. (5AC ¶ 19.) Further, Bolour and South Gate Tweedy are allegedly each other’s agents. (5AC ¶ 8.) Accordingly, South Gate Tweedy may be liable for Bolour’s breaches as Bolour’s principal. (Civ. Code § 2334 [“A principal is bound by acts of his agent, under a merely ostensible authority, to those persons only who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof”].)

Defendants next argue that, even if an oral contract existed, Bolour was prevented from performing due to plaintiffs’ delays. In the 5AC, plaintiffs were allegedly responsible for obtaining entitlements and approvals. (5AC ¶ 11.) It took plaintiffs six years from the commencement of the oral agreement to obtain the required entitlements and approvals. (5AC ¶ 14.) “When a party’s failure to perform a contractual obligation constitutes a material breach of the contract, the other party may be discharged from its duty to perform under the contract.” (Brown v. Grimes (2011) 192 Cal.App.4th 265, 277.) “Normally the question of whether a breach of an obligation is a material breach, so as to excuse performance by the other party, is a question of fact.” (Ibid.) Accordingly, whether the time it took plaintiffs to obtain the entitlements and approvals constitutes a breach of oral agreement is a question of fact to be resolved at summary judgment or trial.

Defendants lastly argue that the alleged oral agreement is barred by the statute of frauds. Pointing to the six years or more it took plaintiffs to obtain entitlements and approvals, defendants contend that the statute of frauds applies to an agreement “that by its terms is not to be performed within a year from the making thereof.” (Civ. Code § 1624(a)(1).) The 5AC contains no allegations that prevent plaintiffs from performing in a year. In other words, even though it took six years for plaintiffs to obtain entitlements and approvals does not mean that the terms of the agreement foreclosed plaintiffs from performing within a year.

Defendants also contend that, because a term of the oral contract was for plaintiffs to allow a short sale of the subject property to Bolour, a writing was required under Civil Code § 1624(a)(2), (a)(3), (a)(4), and (a)(6). (5AC ¶ 11.) Even if this were the case, the agreement that plaintiffs seek to enforce is defendants’ agreement to build the project and provide financing. (5AC ¶ 11.) Defendants’ agreement to build and finance is not a special promise to answer for a debt ((a)(2)), an agreement to lease or sell real property ((a)(3)), an agreement authorizing or employing an agent to purchase or sell real estate ((a)(4)), or an agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust ((a)(5)). Accordingly, the statute of frauds is not implicated. 

Lastly, even if the statute of frauds were to apply to defendants’ agreement to build and finance the project, “[p]art performance allows enforcement of a contract lacking a requisite writing in situations in which invoking the statute of frauds would cause unconscionable injury . . . .  In addition to having partially performed, the party seeking to enforce the contract must have changed position in reliance on the oral contract to such an extent that application of the statute of frauds would result in an unjust or unconscionable loss, amounting in effect to a fraud.”  (Secrest v. Security Nat. Mortg. Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 555.) “The part performance by the buyer must clearly relate to, and must be pursuant to, the terms of the oral agreement.” (Sutton v. Warner (1993) 12 Cal.App.4th 415, 422.) Here, plaintiffs allege they spent hundreds of hours over six years to obtain the entitlements and approvals, including holding town hall meetings to obtain the neighbors’ approval of the project, communicating back and forth with City of South Gate personnel hundreds of times, and appearing before the South Gate City Council at every one of the many hearings to obtain the City’s approval of the project. (5AC ¶ 14.) These allegations clearly relate to the agreement to build and finance the project, as the project could not be developed without the entitlements and approvals. Accordingly, plaintiffs sufficiently allege partial performance on defendants’ agreement to build and finance the property, an exception to the statute of frauds.

For the foregoing reasons, the demurrer is OVERRULED.

Ten (10) days to answer.