Judge: Deirdre Hill, Case: 22TRCV00795, Date: 2023-01-17 Tentative Ruling

Case Number: 22TRCV00795    Hearing Date: January 17, 2023    Dept: M

Hearing Date:                         January 17, 2023

Moving Parties:                      Plaintiff Sinatra-Castle Point Sponsor Holdings, LLC

Responding Party:                  None

Motion for Judgment on the Pleadings

            The court considered the moving papers.  No opposition was filed.

RULING

            The motion for judgment on the pleadings is GRANTED.  See judgment.

BACKGROUND

            On September 13, 2022, plaintiff Sinatra-Castle Point Sponsor Holdings, LLC filed a verified complaint against L5 Odyssey Management, LLC for (1) reformation and (2) declaratory relief.

LEGAL AUTHORITY

CCP § 438 states, in relevant part:  “(b)(1) A party may move for judgment on the pleadings. . . . (c)(1)  The motion provided for in this section may only be made on one of the following grounds:  (A) If the moving party is a plaintiff, that the complaint states facts sufficient to constitute a cause or cause of action against the defendant and the answer does not state facts sufficient to constitute a defense to the complaint . . . . (d) The grounds for motion provided for in this section shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice. . . .”  

DISCUSSION

            Plaintiff Sinatra-Castle Point Sponsor Holdings, LLC requests judgment on the pleadings against defendant L5 Odyssey Management, LLC on the complaint, seeking reformation of the Manager Operating Agreement to (1) delete each reference to “SCRE” in Article 3.2 and insert “Sinatra & Company Real Estate LLC” in lieu thereof and (2) amend Article 7.1.8 to restate that the acquisition fee, asset management fee, disposition fee and refinance fee described in the Term Sheet, will be paid 50% to Sinatra & Company Real Estate LLC.

            The complaint alleges that plaintiff and defendant are co-owners and co-managers of Castle Point Manager, LLC.  Complaint, ¶3.  Castle Point Manager is a joint venture formed to purchase and manage an apartment complex called Castle Point Apartments in South Bend, Indiana.  Id., ¶4.  Plaintiff and defendant are the only parties to the Castle Point Manager OA.  Id., ¶5.  Sinatra and Company Real Estate, LLC (“Sinatra”) is the managing member of plaintiff Sinatra-Castle Point.  Id., ¶6.

            The complaint also alleges that the parties agreed at the time they entered into the Manager OA that they would pay Sinatra (not Sinatra-Castle Point) certain incentive and performance Fees for its work co-managing Castle Point Manager, LLC on behalf of plaintiff Sinatra-Castle Point.  Id., ¶8.  For the approximately 3 ½ years since commencing the venture, the parties have co-managed the joint venture, paid to Sinatra any Fees that became due, and neither party raised any issue concerning to whom Castle Point Manager, LLC must pay the Fees.  Id., ¶11.  In May 2022, it came to plaintiff’s attention that the Manager OA contained internally contradictory language concerning the Fees.  Id., ¶12. 

            The complaint further alleges that a question has arisen as to whether plaintiff and defendant properly paid certain Fees to Sinatra, and whether the parties may continue to pay Fees to Sinatra as Fees become due.  Id., ¶13.  When the parties entered into the Manager OA, they understood that such Fees were payable to Sinatra.  Id., ¶14.  The attorney who drafted the Manager OA made a mistake which resulted in the Manager OA containing internally contradictory provisions regarding the payee of the fees.  Id., ¶15.  The attorney who drafted the Manager OA has admitted that any language in the Manager OA suggesting that the Fees be paid other than to Sinatra as a mistake.  Id., ¶16.  When the parties entered into the Manager OA, they were unaware that it contained scrivener’s errors.  Id., ¶17.  Plaintiff has been unable to obtain a definitive resolution of the mistake.  Id., ¶18.  Defendant has not disputed that the language of certain Manager OA provisions concerning Fees conflicts with the parties’ original intentions as expressed elsewhere in the Manager OA concerning Fees.  Id., ¶19.  Plaintiff proposed to defendant that the parties sign an amendment to correct the scrivener’s errors and remove the internal contradictions from two provisions in the Manager OA.  Id., ¶20.  Since then, defendant has declined to sign an amendment.  Id., ¶21.  A live controversy exists concerning the language of the Manager OA, whether the parties appropriately directed payment of past Fees to Sinatra, and to whom the parties must direct payment of future Fees.  Id., ¶22

            In its answer filed on October 28, 2022, defendant did not assert any affirmative defenses.  Defendant admitted to several of the paragraphs in the complaint and did not deny any of them.

            Plaintiff contends that counsel met and conferred with defendant and that defendant does not oppose the relief sought by the motion and indicated that it merely seeks confirmation by the court that such relief is appropriate.

            1^st cause of action for reformation and 2^nd cause of action for declaratory relief

            “When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.”  Civil Code §3399.

            Plaintiff contends that the operating agreement is governed by Delaware law and that in Delaware, a contract’s proper construction is a question of law and that Delaware law explicitly allows a party to seek judicial reformation of a contract to correct a scrivener’s error.  See ASB Allegiance Real Estate Fund v. Scion Breckenridge Managing Member, LLC, 2012 Del. Ch. LEXIS 109 (reforming a capital event waterfall provision in an LLC agreement based upon evidence demonstrating the parties’ “specific prior contractual understanding” about how the provision was intended to operate, and showing that the term as written was a scrivener’s error).

            The complaint alleges that the parties originally intended that fees payable for plaintiff’s work as co-manager were payable to SCRE, even identifying SCRE as the payee in a term sheet, which was incorporated into the final version of the Manager OA, and which intent is reflected throughout the parties’ written communications.  Complaint, ¶¶8, 33-47, 68-69, Exhs. 1-4.  The answer admits to the mutual mistake.  The complaint also alleges a scrivener’s error that both sides missed during drafting that misapplied the parties’ original term sheet.  Id., ¶¶15-17, 51-60, 71-72.  The answer admits to that mutual mistake.  The complaint also alleges the contract that contradicts both parties’ original intent.  Id., ¶¶19, 61, 73.  The answer admits the contradiction.

            As further explanation, as to the discovery of the scrivener’s error, the complaint alleges that two provisions in the Manager OA – section 3.2 and 7.1.8 – contain language suggesting that the fees are payable to “SCRE.”  Id., ¶53.  In earlier drafts, the term “SCRE” as used throughout the document was defined as referring to Sinatra.  Id., ¶54.  SCRE is the acronym which typically refers to Sinatra (i.e., Sinatra & Company Real Estate, LLC).  Id., ¶55.  In those earlier drafts, the term SCRE was used in Section 3.2 and 7.1.8 to reflect the parties’ understanding that the referenced Fees be payable to Sinatra.  Id., ¶56.  In later drafts of the Manager OA, the term “SCRE” as used throughout the document was redefined to refer not to Sinatra but to plaintiff Sinatra-Castle Point.  Id., ¶57.  The scrivener’s errors occurred when the drafting attorney, after modifying the definition of the term “SCRE” mistakenly neglected to replace the references to SCRE in section 3.2 and 7.1.8 with references to Sinatra.  Id., ¶58.  Because the acronym SCRE is associated with Sinatra, no one noticed the mistake at that time.  Id., ¶59.  To the extent the body of the Manager OA contains language suggesting that the Fees would be paid to an entity other than Sinatra, such language is (a) rebutted by the incorporated 1/25/22 Term Sheet; (b) a scrivener’s error; (c) clearly out of line with the parties’ express intentions and understandings at the time they entered into the contract; and (d) contradicted by the parties’ course of conduct over the last three and a half years.  Id., ¶61.

            Thus, the complaint alleges, the discovery of the scrivener’s errors has led to confusion and a live controversy concerning whether the parties appropriately directed prior Fees to Sinatra, and concerning to whom such Fees should be paid in the future.  Id., ¶62.

            Plaintiff contends that there is no defense as the parties have always understood the fees were payable to Sinatra, and the pleadings confirm that understanding is consistent with the course of performance.  The parties also agree that the scrivener’s error has created a live controversy and confusion among the parties that requires resolution so the parties can move forward without fear of violating the terms of the Manager OA.

            The court finds that plaintiff has met its burden of stating sufficient facts as to each of its causes of action and that defendant has no defenses.

            There is no opposition.

The motion is therefore GRANTED.

Plaintiff is ordered to give notice of the ruling.