Judge Curtis A. Kin, Case 22STCV14060 2023-04-11 Tentative Ruling

Judge: Curtis A. Kin, Case: 22STCV14060, Date: 2023-04-11 Tentative Ruling

Case Number: 22STCV14060 Hearing Date: April 11, 2023 Dept: 72

DEMURRER TO CROSS-COMPLAINT

Date: 4/11/23 (8:30 AM)

Case: WM Sunset & Vine, LLC v. GOSH Enterprises, LLC (22STCV14060)

TENTATIVE RULING:

Cross-Defendant WM Sunset & Vine, LLC’s Demurrer to Cross-Complaint is SUSTAINED.

Cross-defendant WM Sunset & Vine, LLC (“Landlord”) demurs to the first and second cause of action for breach of contract and third cause of action for fraudulent concealment.

With respect to the first and second causes of action for breach of contract, cross-complainants GOSH Enterprises, Inc. and BBB Operating CA-1, LLC (“Guarantor” and “Tenant,” respectively) base this cause of action on the covenant of good faith and fair dealing implied in all contracts. (XC ¶¶ 37, 46.) Cross-complainants allege that Landlord unreasonably refused to secure or negotiate with potential replacement tenants and to negotiate a workout or early termination of the subject lease. (XC ¶¶ 18-24, 34, 35, 43, 44.)

Landlord argues that no breach of contract is stated because cross-complainants do not allege any contractual obligation by Landlord to negotiate an early termination of the lease. The Court agrees. “The implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation.” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031.) “In essence, the covenant [of good faith and fair dealing] is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.” (Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1153.)

Here, cross-complainants do not allege any express obligation for Landlord to agree to a replacement tenant or to negotiate an early termination of the lease. Cross-complainants do not cite any case in which the implied covenant of good faith and fair dealing rested on a nonexistent provision in the contact. Instead, cross-complainants cite cases in which breach of the implied covenant was based on express covenants. For example, in Locke v. Warner Bros, Inc. (1997) 57 Cal.App.4th 354, the contract provided that a film studio would have the “first look” to approve or reject development of movies submitted by a director and that the studio could decide whether to use director’s services. (Locke, 57 Cal.App.4th at 358.) The Court of Appeal found that, even though the contract provided the studio with discretion to decline to develop the director’s movies or work with the director, the “implied covenant of good faith and fair dealing obligated [the studio] to exercise that discretion honestly and in good faith” and consider the director’s proposals on the merits. (Id. at 365, 367.)

Unlike Locke, where the implied covenant supplemented the discretion contractually provided to the studio, cross-complainants do not allege any obligation of Landlord under the lease which could give rise to an implied covenant to negotiate the termination of the lease or renegotiate the terms of the lease. “Only when the parties are under a contractual compulsion to negotiate does the covenant of good faith and fair dealing attach, as it does in every contract.” (Copeland v. Baskin Robbins U.S.A. (2002) 96 Cal.App.4th 1251, 1260.)

With respect to the purported obligation to secure or negotiate with potential replacement tenants, “[i]n California, when a lease requires prior consent of the Lessor for assignment, such consent may be withheld only when the lessor has a commercially reasonable objection to the assignment, even absent a provision in the lease stating consent will not be unreasonably withheld.” (John Hogan Enterprises, Inc. v. Kellogg (1986) 187 Cal.App.3d 589, 593; see XC ¶¶ 34, 44.) “Generally, a lessor's refusal to consent to a lease assignment for the purpose of charging a higher rent or receiving part of the consideration paid for the lease is an arbitrary reason failing the test of good faith and reasonableness.” (Ibid.) While Landlord allegedly refused to accept a replacement tenant because it was entitled to higher amount of rent from Tenant (XC ¶¶ 24-26), the Cross-Complaint contains no allegations regarding whether the subject lease allows for assignment and whether Landlord’s consent is required for assignment. The Cross-Complaint therefore contains no allegations from which an implied covenant to not refuse an assignment for arbitrary or commercially unreasonable reasons can be inferred.

The demurrer to the first and second causes of action is SUSTAINED.

With respect to the third cause of action for fraudulent concealment, cross-complainants allege that Landlord failed to disclose that it was negotiating with California Chicken Café (“California Chicken”), a potential replacement tenant, to occupy the subject premises, even though it was aware that cross-complainants were seeking to negotiate a termination of the lease. (XC ¶¶ 50, 52, 53.)

Landlord argues that cross-complainants fail to allege any a duty to disclose. There are four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff, (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff, (3) when the defendant actively conceals a material fact from the plaintiff, and (4) when the defendant makes partial representations but also suppresses some material facts. (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.) No fiduciary relationship between Landlord and cross-complainants is alleged.

As for the second, third, and fourth non-fiduciary-based circumstances of fraudulent concealment, cross-complainants fail to allege a fact that is material to the parties’ relationship. (LiMandri, 52 Cal.App.4th at 336-337 [“Each of the other three circumstances in which nondisclosure must be actionable presupposes the existence of some other relationship between the plaintiff and defendant in which a duty to disclose can arise”].) The existence of a potential replacement tenant is material only if Landlord had a contractual duty to find a replacement or somehow negotiate early termination of the lease. As discussed above, no such contractual obligations are alleged.

Due to the failure to allege a duty to disclose and reliance, the demurrer to the third cause of action is SUSTAINED.

While the Court recognizes leave to amend should be liberally granted, such leave is given where there is a reasonable possibility that the defects in the pleading may be cured. Here, in opposition, cross-complainants merely proffer they “are likely to adduce further facts in support of their claims,” which would seem to be insufficient. (Opp. at 12.) The Court inquires whether leave to amend the first, second, or third causes of action in the Cross-Complaint should be given.