Judge Deirdre Hill, Case 19TRCV00125 2023-05-17 Tentative Ruling

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On February 5, 2019, Kurt Baker, individual dba as Riviera Fitness, LLC and Dustin Holcomb, ind. dba as Riviera Fitness, LLC filed a complaint against Redondo Riviera Associates, LLC for (1) fraud, (2) breach of contract, (3) breach of covenant of good faith and fair dealing, and (4) rescission. On April 8, 2019, plaintiffs filed a FAC for (1) fraud-concealment, (2) fraud-false representation, (3) breach of contract, (4) breach of covenant of good faith and fair dealing, (5) gross negligence, and (6) rescission.

On January 24, 2023, Baker, Holcomb filed the operative third amended complaint wherein they added plaintiff Riviera Fitness, LLC, who was previously a dba of plaintiffs, and the allegation that Riviera Fitness, LLC has assigned its claims against defendant to plaintiffs. (TAC ¶ 3.) The TAC alleges causes of action for (1) Fraud-Concealment, (2) Fraud-False Representation, (3) Negligent Misrepresentation, (4) Breach of Contract, (5) Breach of Covenant of Good Faith and Fair Dealing, and (6) Rescission.

Beginning in October, 2017, Plaintiffs began to negotiate with Defendant to lease 1650 S. Pacific Coast Highway, Suite 101, in Redondo Beach (the subject premises) with hopes of starting a health club. (TAC ¶ 23.)

On March 26, 2018, Baker, Holcomb, and Defendant entered into a Lease Agreement for five years at $24,397 per month. (TAC ¶ 10, Ex. 1.)

After entering the Agreement, Plaintiffs discovered that Defendant had misrepresented the conditions of the premises. Plaintiffs discovered a malfunctioning HVAC system, window defects, and other aspects of the premises that needed repair; various other ongoing repairs, including a remodeling of the balcony and patio; and multiple permits that were out of compliance. (TAC ¶¶ 13-21.) Defendant did not inform Plaintiffs of any of defects during the negotiation period prior to signing the Lease.

Pertinent to this motion, on April 20, 2022, a hearing was held on a Motion for Summary Adjudication of lssues ("MSAI") brought by Defendant. Defendant argued that Plaintiffs lacked standing to sue for damages that belonged to Riviera Fitness, LLC. At the hearing, the Court indicated that Plaintiffs and the LLC had separate claims but because of triable issues of fact only granted the MSAI as to Plaintiffs' gross negligence cause of action. On January 24, 2023, the court granted Plaintiffs request for leave to file a TAC. In that Minute Order, the court stated that it was “satisfied that the proposed amendment is more technical than substantive, in that it serves to align the legal entities involved in the lawsuit with the already stated parties’ interests.” (1.24.23 Minute Order, p. 4.)

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. “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905. “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 v. Mirda (2007) 147 Cal. App. 4th 740, 747.

Plaintiffs request, pursuant to Evidence Code § 452, that the court take judicial notice of: 1. Defendant Redondo Riviera Associates, LLC’s Notice of Motion and Motion For Summary Adjudication of Issues (Plaintiffs’ Request for Judicial Notice, Ex. 1), and

As these are records of the court, Plaintiffs’ request is granted as to both court documents. Defendant requests, pursuant to Evidence Code §§ 452 and 453, that the court take judicial notice of:

1. The Court's Tentative Ruling on Plaintiffs' Motion for Leave to File Second Amended Complaint dated January 24, 2023. ( a true and correct copy of which is attached hereto as Exhibit "A".

2. Plaintiffs Opposition to Defendant Redondo Riviera Associates, LLC's Motion for Summary Adjudication, etc. filed on April 6, 2023 in the above-captioned action, specifically page 13, lines 8- 14: "It is undisputed that the lease upon which this lawsuit is brought was signed by Plaintiffs Baker and Holcomb. No one disputes that they are the parties who executed the contract. They subsequently formed an LLC to operate their business, but as the individual lessees of the property, they have standing to sue for beach of the lease contract. Plaintiffs Baker and Holcomb individually paid the first and last month's rent, security deposit, and obtained the Letter of Credit through their friend Derek McLay, and as individuals they suffered damages by Defendant's wrongful taking of those amounts.” Defendant’s request is granted as to both court documents.

Code of Civil Procedure § 430.41 requires that “[b]efore filing a demurrer pursuant to this chapter, the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” (Code Civ. Proc., §¿430.41(a).) The parties are to meet and confer at least five days before the date the responsive pleading is due. (Code Civ. Proc., § 430.41(a)(2).) Thereafter, the demurring party shall file and serve a declaration detailing their meet and confer efforts. (Code Civ. Proc., § 430.41(a)(3). The Court finds that the parties have sufficiently met and conferred for the purposes of this motion.

Defendant demurs to the 1^st through 6^th causes of action on the ground that plaintiffs do not have standing to assert those claims. Defendant also demurs to the 1st, 2nd, 3rd, and 6th causes of action on the ground that the statute of limitations has run for each claim.

Defendant contends all three plaintiffs in the TAC lack standing. The gravamen of Defendant’s argument is that the claims of Baker and Holcomb are rooted in the Lease while the LLC' s claims give rise to a different set of obligations, damages and causes of action.

Defendant contends Riviera Fitness, LLC lacks standing to sue under all six causes of action because the LLC was never in privity of contract with Defendant, nothing was falsely concealed from or misrepresented to the LLC, and, regardless of whether it had standing to bring any claims at all, by assigning its rights to Baker and Holcomb, the LLC extinguished any claims it might have had. As for Baker and Holcomb, Defendant contends they lack standing because as the assignees of the LLC, which itself lacked standing to sue, they have no claims.

In their earlier versions of the complaint, Baker and Holcomb stated that they were doing business as the LLC but did not name the LLC as a separate plaintiff. Baker and Holcomb now allege in opposition to this motion that they were not aware of the standing issue that could arise from not naming the LLC separately.

Only a real party in interest has standing to sue to enforce a right. (Code Civ. Proc., § 367 [“Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute”].) A real party in interest is a person possessing the right sued upon under the substantive law. (City of Industry v. City of Fillmore (2011) 198 Cal.App.4th 191, 208.) Under certain circumstances, a complaint may be amended to substitute a new plaintiff where it is determined the named plaintiff is not the proper party to maintain the alleged claims, so long as the amendment does not present an entirely new set of facts and the defendant is not prejudiced. (Demetriades v. Yelp Inc. (2014) 228 Cal. App. 4th 294, 305-306.) The substitution of a new plaintiff is proper where the original plaintiff was found to have no standing to prosecute action after the original complaint has been filed. (Jensen v. Royal Pools (1975) 48 Cal.App.3d 717, 721, 121 Cal.Rptr. 805.) Thus, for example, where a shareholder seeks to enforce a claim belonging to the corporation, the complaint may be amended to substitute the corporation as the named plaintiff. (See, e.g., Klopstock v. Superior Court (1941) 17 Cal.2d 13, 21, 108 P.2d 906.)

Here, the Court finds that the LLC does have original standing to bring claims under the Lease Agreement.

The following facts are undisputed. On March 26, 2018, Baker, Holcomb, and Defendant entered into a Lease Agreement for five years at $24,397 per month. (TAC ¶ 10, Ex. 1.) The LLC was created to operate Baker and Holcomb’s health club business out of the subject property. (TAC ¶ 3.) The LLC was not a party to the Lease but was the named insured.

Plaintiffs contend that the following give the LLC standing despite that it was not a party to the Lease: the Defendant’s listing agent and property manager both had copies of the insurance certificate the day after execution of the Lease and both acknowledged that the certificate identified the LLC, rather than the individuals, as the named insured; and, Defendant and its agents knew that they were making misrepresentations to and concealing fact from the LLC at the time they committed the acts.

Here, the TAC brings claims for (1) Fraud-Concealment, (2) Fraud-False Representation, (3) Negligent Misrepresentation, (4) Breach of Contract, (5) Breach of Covenant of Good Faith and Fair Dealing, and (6) Rescission. As the LLC was the party operating the business and allegedly suffered losses as a result of the allegations, the LLC does have standing to assert any claims based on the contract.

The demurrer alleges that the TAC contains zero allegations of concealment or misrepresentations toward the LLC. However, that is not the case. For example, Defendant’s construction manager, Don Kindle, presented Baker with what plaintiffs allege was a fraudulent timeline for completing the renovations at the subject property. (TAC ¶ 11.) Additionally, Defendant did not inform Plaintiffs, including the LLC, that he had not hired an architect to draft plans to submit to the city of Redondo Beach even though Kindle knew that city approval was required and that he intended to commence work without proper permits or city approval. (TAC ¶ 12.) The TAC also alleges that these concealments and misrepresentations caused delays that impacted the LLC’s business. (TAC ¶ 19.)

Defendant itself concedes in the reply that, “the fact remains that the party allegedly damaged by RRA's alleged misconduct is the LLC, not Baker and Holcomb.” (Reply, p. 9.) Defendant goes on: “The allegations that a Certificate of lnsurance was issued in the name of the LLC, a payment for rent was made by the LLC which [Defendant] allegedly accepted, and correspondence dated October 19, 2018 purportedly from Baker, Holcomb and McLay on behalf of the LLC was sent to [Defendant] after the Lease was entered into underscores the fact that the LLC was the owner of the business operating at the premises, not Baker or Holcomb, and had its own separate claims which it was free to pursue.” (Reply, p. 10.)

Additionally, Defendant attempts to argue that the language in the Lease Agreement undermines the LLC’s standing because it states that the Lease “exculpates [Defendant] from any and all liability for ‘injury to the Lessee's business,’ whether the cause of injury or damage is one of the enumerated causes or ‘from any other cause.’” However, according to this language, since defendant also contends plaintiffs individually have no standing to bring these claims, no party would be able to bring the claims. This cannot be.

Accordingly, the court finds that the LLC does have standing to bring the claims.

Defendant contends that the claims in the amended pleading do not relate back because the LLC sat on its claims and waited until after the statute of limitations had run to assert them for the first time. The court disagrees.

It is well-established that an amended pleading will relate back if it makes a mere technical change in the capacity in which the plaintiff sues on the same cause of action (Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1008.) Here, Baker and Holcomb initially brought the claims as “dba as Riviera Fitness, LLC.” It is undisputed that the parties were all aware that Riviera Fitness, LLC was operating the health club business and was the named insurer on the Lease Agreement. However, Baker and Holcomb mistakenly believed that they did not need to name the LLC as a separate plaintiff. Therefore, they sought leave to amend the pleadings to add the LLC, which they did on January 24, 2023.

This constituted a mere technical change that does not affect the nature of the action. The claims are the same, as are the facts upon which the claims are based. Defendant was fully aware of the LLC and its central role in the subject transaction. Therefore, the court finds that the TAC does relate back and no statute of limitations problems bar the TAC.