Judge: Daniel S. Murphy, Case: 24STCV12643, Date: 2024-07-29 Tentative Ruling

Case Number: 24STCV12643    Hearing Date: July 29, 2024    Dept: 32

BACKGROUND

            On May 20, 2024, Plaintiffs 3500 Sepulveda LLC and 13th & Crest Associates LLC filed this action for breach of contract against Defendant 6220 Spring Associates, LLC.

The complaint alleges that in 2005, Plaintiffs and Defendant (collectively, the parties) acquired a commercial property in Manhattan Beach, California (Hacienda Property) as tenants in common. (Compl. ¶ 7.) The parties allegedly entered into an agreement (TIC Agreement) providing for their respective interests in the Hacienda Property, requiring payment of costs and expenses in proportion to those interests, and allowing the prevailing party in any litigation arising out of the TIC Agreement to recover its costs and attorney’s fees. (Id., ¶ 8.)

The parties were allegedly involved in a dispute with the owner of a neighboring property (RREEF), who had planned an expansion project which the parties disapproved of. (Compl. ¶ 9.) This dispute resolved in a settlement agreement between the parties and RREEF. (Ibid.) Upon realizing that the RREEF expansion project would still encroach on the Hacienda Property, the parties decided to sue RREEF for breach of the settlement agreement. (Id., ¶ 12.) However, Defendant’s principal, Richard Rizika (Rizika), requested that Defendant not be named as a plaintiff in the lawsuit against RREEF. (Id., ¶ 12.) Accordingly, the parties allegedly entered into an oral contract whereby Plaintiffs would file suit against RREEF for the benefit of all the parties, Defendant would provide assistance to the litigation, and Defendant would bear its proportionate share of costs and liabilities related to the lawsuit. (Ibid.)

RREEF ultimately prevailed in the litigation and was awarded $2,737,174 in attorney’s fees and costs. (Compl. ¶ 14.) Plaintiffs paid the award in full, but Defendant has refused to reimburse Plaintiffs for its 28.3% pro rata share, or $775,578.25. (Id., ¶¶ 15-16.) This action followed. The complaint asserts two causes of action for breach of contract: (1) for the written TIC Agreement; and (2) for the oral agreement regarding litigation responsibilities.

On July 1, 2024, Defendant filed the instant demurrer to the complaint. Plaintiffs filed their opposition on July 16, 2024. Defendant filed its reply on July 23, 2024.

LEGAL STANDARD

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Ibid.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, supra, 147 Cal.App.4th at 747.)

MEET AND CONFER

Before filing a demurrer or a motion to strike, the demurring or moving party is required to meet and confer with the party who filed the pleading demurred to or the pleading that is subject to the motion to strike for the purposes of determining whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., §§ 430.41, 435.5.) The Court notes that Defendant has complied with the meet and confer requirement. (See French Decl.)

JUDICIAL NOTICE

            a. Court Documents (Exhibits 2-12)

Defendant’s request for judicial notice is GRANTED as to Exhibits 2 through 12 as “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States.” (See Evid. Code, § 452(d).) However, the Court does not take judicial notice of the truth of the matters asserted in such filings. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

b. Purported Contract (Exhibit 1)

            Defendant’s request for judicial notice is DENIED as to Exhibit 1 because it constitutes extrinsic evidence that is reasonably subject to dispute and is not capable of immediate and accurate determination by a source of indisputable accuracy. (See Evid. Code, § 452(h).) “[T]he existence of a contract between private parties cannot be established by judicial notice under Evidence Code section 452, subdivision (h).” (The Travelers Indemnity Co. of Connecticut v. Navigators Specialty Ins. Co. (2021) 70 Cal.App.5th 341, 354-55.) “The existence and terms of a private agreement are not facts that are not reasonably subject to dispute and that can be determined by indisputable accuracy.” (Ibid.)

The contract is not undisputed, and Plaintiff objects to judicial notice of the document. For the Court to find that Defendant’s proffered document is the true and accurate TIC Agreement, it “would have to engage in the kind of fact-finding appropriate for a trial on the merits, not for a hearing on demurrer.” (Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1146.) “[A] court cannot simply look at a piece of paper and conclude as a matter of law it is a contract between the parties.” (Ibid.)

Defendant’s cited cases do not support judicial notice of a contract under the circumstances here. (See Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743; Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949; Ingram v. Flippo (1999) 74 Cal.App.4th 1280; Salvaty v. Falcon Cable TV (1985) 165 Cal.App.3d 798.) Therefore, the Court does not take judicial notice of the purported TIC Agreement attached as Exhibit 1.    

DISCUSSION

I. Breach of Written Agreement

            a. General Principles

            To establish breach of contract, a plaintiff must show: (1) the contract existed, (2) the plaintiff’s performance of the contract or excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting damage to the plaintiff. (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.) A breach of contract can be alleged by simply “plead[ing] the legal effect of the contract rather than its precise language.” (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 402.) “[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.)

            b. Terms of the TIC Agreement

            According to the complaint, the TIC Agreement provides for the parties’ respective interests in the Hacienda Property, requires payment of costs and expenses in proportion to those interests, and allows the prevailing party in any litigation arising out of the TIC Agreement to recover its costs and attorney’s fees. (Compl. ¶ 8.) In particular, Plaintiffs allege that Section 2.01 of the TIC Agreement reads as follows: “Each Co-Owner shall bear such Co-Owner’s proportionate share of the costs and expenses associated with the operation, management and ownership of the Property. Each Co-Owner’s proportionate share of such costs and expenses shall equal such Co-Owner’s Percentage Interest.” (Ibid.)

Defendant argues that Plaintiffs fail to properly plead the terms of the TIC Agreement because Plaintiffs have neither attached the contract nor recited the terms verbatim. However, the allegations sufficiently set forth the legal effect of the contract, thus Plaintiff is not required to attach the contract or plead its terms verbatim. (Miles, supra, 236 Cal.App.4th at p. 402.) Additionally, Plaintiffs have pled verbatim the term that was allegedly breached, Section 2.01 of the TIC Agreement. (See Compl. ¶ 8.)  

c. Obligation to Pay RREEF Judgment

Defendant argues that Section 1.02(b) of the TIC Agreement provides that the parties cannot be liable to each other except as expressly set forth in the agreement, and Plaintiffs have not alleged any express term requiring a party to pay a judgment rendered against another party. However, as discussed above, the Court cannot consider extrinsic evidence of the agreement, and the agreement cannot be judicially noticed.

Instead, Plaintiffs’ allegation that Section 2.01 of TIC Agreement requires each party to bear its proportionate share of costs associated with the operation, management, and ownership of the Hacienda Property must be assumed true. (See Compl. ¶ 8.) It must also be assumed true that “Defendants have breached the TIC Agreement by failing to pay their pro rata share of the costs, expenses, and liabilities incurred in the RREEF Lawsuit.” (Id., ¶ 20.) For demurrer purposes, Plaintiffs have pled a reasonable interpretation of the contract. (See Aragon-Haas, supra, 231 Cal.App.3d at p. 239.) Specifically, it may be reasonably inferred that the “costs and expenses associated with the operation, management and ownership of the Property” include judgments incurred in litigation involving the Property. Because the complaint alleges that each party under the TIC Agreement was responsible for its proportionate share of such costs and expenses, Defendant’s alleged refusal to pay its share of the RREEF judgment sufficiently constitutes a breach of contract.

Defendant argues that the complaint misquotes Section 2.01 of the TIC Agreement. According to Defendant, the actual terms of Section 2.01 require each party to cover all costs and expenses incurred by that party which the other parties have not authorized. However, as discussed above, the Court cannot take judicial notice of extrinsic evidence of the contract. For pleading purposes, Plaintiffs’ allegation of the contract terms is assumed true. (Aragon-Haas, supra, 231 Cal.App.3d at p. 239.) Defendant cannot disprove this allegation on a demurrer. Furthermore, the allegations support a reasonable inference that Defendant authorized the costs incurred in the RREEF litigation because the parties allegedly agreed to litigate the case together and cover their proportionate share of costs regardless of who was named in the complaint against RREEF. (See Compl. ¶ 12.)

III. Breach of Oral Agreement

            a. Certainty

“Where a contract has but a single object, and such object is unlawful, whether in whole or in part, or wholly impossible of performance, or so vaguely expressed as to be wholly unascertainable, the entire contract is void.” (Civ. Code, § 1598.) “To be enforceable, a promise must be definite enough that a court can determine the scope of the duty and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.” (Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 770.)

Defendant argues that the alleged oral contract is impermissibly vague because it cannot be objectively evaluated whether Plaintiffs “prosecuted” the RREEF lawsuit “for the benefit of all the Tenants in Common,” or whether Defendant sufficiently “participated in” and “actively supported” the case. (See Compl. ¶ 12.) The Court disagrees. The terms are sufficiently certain for pleading purposes and support an inference that a valid oral contract was formed. Again, Plaintiffs need only plead the legal effect of the contract. “An oral contract may be pleaded generally as to its effect, because it is rarely possible to allege the exact words.” (Scolinos v. Kolts (1995) 37 Cal.App.4th 635, 640.) The precise terms and their meaning are matters of proof beyond the scope of a demurrer.

Moreover, those terms are not the material terms underpinning the breach of contract claim. Rather, the claim is based on Defendant’s refusal to “pay their pro rata share of the costs, expenses, and liabilities incurred in the RREEF Lawsuit.” (Id., ¶¶ 23, 25.) For pleading purposes, it may be reasonably inferred that the RREEF judgment is a cost or liability covered by the agreement. Defendant’s obligation to pay such costs is sufficiently certain and calculable. The “scope of the duty and the limits of performance” are sufficiently defined because the alleged contract makes clear that Defendant is responsible for costs equal to its proportionate share in the Hacienda Property, and the judgment incurred in the RREEF litigation is in a definite amount. (See Ladas, supra, 19 Cal.App.4th at p. 770.) Thus, there is a “rational basis for the assessment of damages.” (Ibid.) Therefore, the alleged oral agreement is sufficiently certain. 

b. Consideration

“It is essential to the existence of a contract that there should be . . . [a] sufficient cause or consideration.” (Civ. Code, § 1550.) “Consideration consists of a benefit bestowed or a detriment suffered as bargained for by the parties.” (A. J. Industries, Inc. v. Ver Halen (1977) 75 Cal.App.3d 751, 761.) “[C]ourts do not weigh the quantum of the consideration as long as it has some value.” (Ibid.) However, “the consideration selected must be the forbearance or acquisition of some legal right. If they select something which is not a legal right, the acquisition or forbearance of it constitutes no consideration.” (Shortell v. Evansferguson Corp. (1929) 98 Cal.App. 650, 655.) Furthermore, “[a] promise to perform a preexisting legal duty is not supported by consideration.” (Us Ecology v. Cal. (2001) 92 Cal.App.4th 113, 129.)

Under the alleged oral contract, Plaintiffs agreed to file a lawsuit against RREEF for the benefit of the parties, and Defendant agreed to assist in the lawsuit and to pay its pro rata share of all costs, expenses, and liabilities related to the lawsuit. (Compl. ¶ 12.)

Defendant argues that Plaintiffs’ agreement not to name Defendant in their complaint against RREEF is not consideration because Plaintiffs had no legal right to have Defendant be named as a party in the first place. However, Plaintiffs had a legal right not to file any lawsuit at all. Therefore, by agreeing to file the lawsuit, Plaintiffs forwent a legal right and provided consideration.

Defendant additionally argues that it had a preexisting legal duty to participate in the lawsuit because it was named as a cross-defendant in RREEF’s cross-complaint. Therefore, according to Defendant, its alleged promise to participate in the lawsuit was not consideration. The complaint alleges that Defendant agreed to “support the case by, among other things, participating in strategy discussions, making strategic decisions, and providing documents, testimony, and other assistance reasonably required.” (Compl. ¶ 12.) “The case” being supported inferably refers to Plaintiffs’ complaint against RREEF, because the parties allegedly agreed to challenge RREEF’s expansion project together through a lawsuit filed by Plaintiffs. Defendant had no preexisting duty to support Plaintiffs’ complaint against RREEF. Defendant’s subsequent obligation to defend itself against RREEF’s cross-complaint is a separate duty unrelated to its promise to support Plaintiffs’ complaint.

Furthermore, Defendant had no “preexisting” duty to participate in the lawsuit at the time the alleged contract was formed, because RREEF did not file its cross-complaint until after Plaintiffs initiated the underlying litigation. (See Steiner v. Thexton (2010) 48 Cal.4th 411, 424 [“the adequacy of consideration is determined at the time of the agreement”].)

Lastly, Defendant’s alleged promise to pay a portion of the costs, expenses, and liabilities of the litigation independently constitutes consideration even if its promise to participate was not consideration. Therefore, the alleged oral contract does not fail for want of consideration.

c. Judicial Admissions

Defendant argues that Plaintiffs are foreclosed from seeking liability against Defendant because the parties filed an ex parte application in the RREEF litigation to correct the district court’s decision to reflect the fact that only 3500 Sepulveda filed the “Director’s Writ Litigation.” (See Def.’s RJN, Ex. 6.) The parties made this request out of a concern that if all of them were considered responsible for filing the Director’s Writ Litigation, they could be held jointly and severally liable in the event RREEF prevailed. (Ibid.) According to Defendant, Plaintiffs’ present attempt to hold Defendant liable for the judgment is incompatible with the position they took in the ex parte application. Defendant further contends that Plaintiffs cannot make Defendant pay for the judgment after failing to petition the district court to include Defendant as a judgment debtor.

However, the Director’s Writ Litigation implicated in the ex parte application appears to be distinct from the RREEF litigation mentioned in Plaintiffs’ complaint. It cannot be determined on a demurrer that the ex parte application referred to the same litigation. In any case, which party is named as the judgment debtor in the RREEF litigation has no bearing on the parties’ separate agreement to cover the costs of the litigation. The parties’ application to correct the district court decision was not an admission that the parties could not independently agree to share the costs of the litigation, including the judgment. This action is not a collateral attack on the district court decision, but an attempt to enforce the parties’ independent agreement. Therefore, the prior ex parte application does not constitute a judicial admission precluding Plaintiffs from suing Defendant for breach of contract.

d. Statute of Frauds

The statute of frauds requires certain contracts to be “in writing and subscribed by the party to be charged.” (Civ. Code, § 1624(a).) One such contract is “[a] special promise to answer for the debt, default, or miscarriage of another.” (Id., § 1624(a)(2).)

However, the statute of frauds does not apply where there is partial performance or reliance. (See Secrest v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 555; Garcia v. World Savings, FSB (2010) 183 Cal.App.4th 1031, 1040, fn. 10.) Plaintiffs allege that they performed their side of the agreement by filing suit against RREEF. (Compl. ¶ 13.) This also shows that Plaintiffs relied on Defendant’s promise to pay the costs of the litigation. Defendant also partially performed by paying some of the litigation costs. (Ibid.) Thus, the statute of frauds does not bar the oral contract claim.

CONCLUSION

            Defendant’s demurrer is OVERRULED.