Superior Court of California 

County of Los Angeles – West District  

Beverly Hills Courthouse / Department 205 

 

 

 

BACKGROUND 

  This case arises from a landlord tenant dispute.  Defendants Roem Automotive Inc., Jeffrey Atkins and Caren Atkins entered into a written commercial lease agreement (the “Lease”) with Jordan Geller, as the trustee of the Jerome H. and Faith Pearlman Trust No. 2 (the “Pearlman Trust”).  The Pearlman Trust agreed to lease to Defendants an industrial building located at 1101 Olympic Blvd, Santa Monica, California (the “Premises”).  Defendants ran an automobile repair shop at the Premises.    

Plaintiff 3Gen acquired the Premises from the Pearlman Trust, which assigned to 3Gen all of its rights and benefits under the Initial Lease and amendments thereto.  After Plaintiff acquired the Premises, Defendants failed to pay to Plaintiff amounts due under the Initial Lease and its amendments (including real estate property taxes), and wrongfully vacated and abandoned the Premises during the term of the Lease.   

  The operative complaint alleges three claims for: (1) breach of contract, (2) common count, and (3) breach of contract on personal guaranty.   

This hearing is on Defendants’ motion for leave to file a second amended answer.  Defendants argue that through prior counsel’s inadvertence, their answer failed to include any affirmative defenses.  Prior counsel’s inadvertence was caused by his wife and law partner’s mental illness (and eventual death) which left counsel with having to run his law practice by himself as well as take care of their three children.   

Defendants also seek leave to file a cross-complaint against Plaintiff and Jordan Geller individually and as successor trustee of the Pearlman Trust, alleging four claims for (1) fraud-concealment, (2) fraud-intentional misrepresentation, (3) fraud-negligent misrepresentation, and (4) rescission.  Defendants argue that the cross-complaint is compulsory and must be granted in the absence of bad faith, of which there is none.  In the alternative, Defendants argue that should the cross-complaint be deemed permissive rather than compulsory, the Court should grant leave in the interests of justice because the parties have a common interest in seeking the claims and cross-claims resolved at one time in the same case. 

Plaintiff filed an opposition to the motion for leave to file a cross-complaint, but not as to the motion for leave to file an amended answer.   

LEGAL STANDARD 

Leave to Amend Answer¿ 

California Code of Civil Procedure section 473, subdivision (a)(1) provides, in relevant part: “The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading or proceeding by adding or striking out the name of any party, or by correcting a mistake in the name of a party, or a mistake in any other respect; and may, upon like terms, enlarge the time for answer or demurrer.¿ The court may likewise, in its discretion, after notice to the adverse party, allow, upon any terms as may be just, an amendment to any pleading or proceeding in other particulars; and may upon like terms allow an answer to be made after the time limited by this code.”¿ 

“This discretion should be exercised liberally in favor of amendments, for judicial policy favors resolution of all disputed matters in the same lawsuit.”¿ (Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1047.)¿ Ordinarily, the court will not consider the validity of the proposed amended pleading in ruling on a motion for leave since grounds for a demurrer or motion to strike are premature.¿ (Id. at 1048.)¿ The court, however, does have discretion to deny leave to amend where a proposed amendment fails to state a valid defense as a matter of law and the defect cannot be cured by further amendment.¿ (See California Casualty General Ins. Co. v. Superior Court (1985) 173 Cal.App.3d 274, 281, (overruled on other grounds by Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390).)¿ 

Under California Rules of Court Rule 3.1324(a), a motion to amend a pleading shall (1) include a copy of the proposed amendment or amended pleading, which must be serially numbered to differentiate it from previous pleadings or amendments; (2) state what allegations in the previous pleading are proposed to be deleted, if any, and where, by page, paragraph and line number, the deleted allegations are located; and (3) state what allegations are proposed to be added to the previous pleading, if any, and where, by page, paragraph, and line number, the additional allegations are located.¿ 

Under California Rule of Court Rule 3.1324(b), a separate declaration must accompany the motion and must specify (1) the effect of the amendment; (2) why the amendment is necessary and proper; (3) when the facts giving rise to the amended allegations were discovered; and (4) the reasons why the request for amendment was not made earlier.¿ 

Even if a good amendment is proposed in proper form, a long, unwarranted and unexcused delay in presenting it may be a good reason for denial.¿ In most cases, the factors for timeliness are: (1) lack of diligence in discovering the facts or in offering the amendment after knowledge of them; and (2) the effect of the delay on the adverse party.¿ If the party seeking the amendment has been dilatory, and the delay has prejudiced the opposing party, the judge has discretion to deny leave to amend.¿ (Hirsa v. Superior Court (1981) 118 Cal.App.3d 486, 490.)¿ Prejudice exists where the amendment would require delaying the trial, resulting in loss of critical evidence, or added costs of preparation such as an increased burden of discovery.¿ (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 486-488.)¿ 

Leave to File Cross-Complaint¿ 

California Code of Civil Procedure section 428.50 states, “(a) A party shall file a cross-complaint against any of the parties who filed the complaint or cross-complaint against him or her before or at the same time as the answer to the complaint or cross-complaint. (b) Any other cross-complaint may be filed at any time before the court has set a date for trial. (c) A party shall obtain leave of court to file any cross-complaint except one filed within the time specified in subdivision (a) or (b).¿ Leave may be granted in the interest of justice at any time during the course of the action.”¿ 

A cross-complaint is compulsory when a related cause of action existed at the time of serving the defendant’s answer to the complaint.¿ (Code Civ. Proc. § 426.30, subd. (a); see also Crocker Nat. Bank v. Emerald (1990) 221 Cal.App.3d 852, 864.)¿ A related cause of action is “. . . a cause of action which arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause of action which the plaintiff alleges in his complaint.”¿ (Code Civ. Proc. § 426.10, subd. (c).)¿ Leave must be granted to file a compulsory cross-complaint when the defendant is acting in good faith.¿ (Code Civ. Proc. § 426.50.)¿ 

DISCUSSION 

Amended Answer 

Defendants seek leave to amend their answer to add affirmative defenses.¿ The Court grants leave to amend.¿¿¿ 

“With respect to the amendment of pleadings, there has developed in this state a policy of great liberality in allowing amendments at any stage of the proceeding so as to dispose of cases upon their substantial merits where the authorization does not prejudice the substantial rights of others.”¿ (Dunzweiler v. Superior Court of Alameda County (1968) 267 Cal.App.2d 569, 576.)¿ This policy applies “particularly [to] an amendment to an answer.”¿ (Gould v. Stafford (1894) 101 Cal. 32, 34; Dunzweiler, 267 Cal.App.2d at 576 (“The rule of liberality is particularly important where, as in the present case, an amendment is sought to an answer.”).)¿ The Court of Appeal has held that it is proper to grant leave to amend an answer even at trial.¿ (Eng v. Brown (2018) 21 Cal.App.5th 675, 700-701.)¿ 

Here, Defendants seek to amend their answer to add affirmative defenses that were inadvertently omitted.  The affirmative defenses were raised in the original answer, but inadvertently deleted from the first amended answer.  The omission was due to prior counsel’s tragic circumstances, where his wife (and law partner of 35 years) was suffering from a mental illness eventually leading to her death, and prior counsel was left to run their law practice on his own as well as take care of their three children.   

Defendants’ current counsel substituted into the case on January 30, 2024 and immediately after discovering that the affirmative defenses were not included, he reached out to Plaintiff’s counsel, who was also unaware of the inadvertent omission.  Accordingly, there is no unreasonable delay in seeking the amendment.   

Plaintiff also cannot claim that it would be prejudiced if the instant motion is granted.  The trial in this matter is not set until July 29, 2024.  Plaintiff has more than sufficient time to conduct written or oral discovery.  And Defendants have already answered interrogatories that asked for all facts, witnesses and documents supporting each of the affirmative defenses set forth in the original answer.  In addition, no depositions have been taken in this case.  ¿ 

In sum, given the liberal policy favoring amendments and the lack of a showing of prejudice, the Court grants Defendants leave to file their second amended answer. 

Cross-Complaint 

Defendants argue their proposed cross-complaint is compulsory, and the Court must grant it leave to file a compulsory cross-complaint where it has acted in good faith.¿ Plaintiff does not dispute the cross-complaint is compulsory but argues Defendants are acting in bad faith because there is clear evidence contradicting their claims.  The Court sides with Defendants.   

Defendants’ proposed cross-complaint arises from the same transaction as Plaintiff’s complaint—i.e., Defendants’ lease of the Premises.  In the complaint, Plaintiff alleges that Defendants breached the Lease and its amendments by failing to pay amounts due, including real estate property taxes.  In the Proposed Cross-Complaint, Defendants claim they were misled into entering the Lease and its amendments because Plaintiff allegedly failed to disclose that Defendants would be liable for a huge tax increase due to the death of Faith Pearlman, the original trustee of the Pearlman Trust.   

There is, therefore, no question that Defendants’ proposed cross-complaint is compulsory.  The facts giving rise to the causes of action in the Complaint for breach of lease are inextricably related to the facts set forth in the Proposed Cross-Complaint which seeks rescission of the same lease and damages related to fraud committed in relation to the Initial Lease.  They involve the same property, the same transactions, two of the same parties and the same period of time.   

¿ Because they are related, the cross-complaint is compulsory, and a failure to bring a compulsory counterclaim means “such party may not thereafter in any other action assert against the plaintiff the related cause of action not pleaded.”¿ (Code Civ. Proc. §426.30.)¿¿ Due to the prohibition on filing a separate action to pursue a related cross-claim, Code Civ. Proc. §426.50 provides that a party who, for any reason, fails to file the compulsory cross-complaint at the time it files its answer “may apply to the court for leave … to file a cross complaint … at any time during the course of the action.”¿ Section 426.50 further states that “[t]he court, after notice to the adverse party, shall grant upon such terms as may be just to the parties, leave … to file the cross-complaint to assert such a cause if the party who failed to plead the cause acted in good faith.¿ This subdivision shall be liberally construed to avoid forfeiture of causes of action.”¿ (Emphasis added.)¿ 

Plaintiff argues, however, that Defendants are not acting in good faith because there is clear evidence contradicting their claims.  In opposition, Plaintiff submits an email from Mr. Atkins to Mr. Geller stating: “My broker noted the property owner has a ‘step up basis’ on the property due to the death of  the original owner so the property value is reset at the time of death – let's say it was reset to $1.3m – the tax basis on the property was approximately $325k – so the current 2nd generation owner would be the beneficiary of approximately $1m in tax free income from the sale.”  (Ex. A to Geller Decl.)  The email is dated September 13, 2016, three days before the Initial Lease was executed.  (Id.)   

According to Plaintiff, this email shows that prior to the execution of the Initial Lease, Mr. Atkins was aware that: (1) Faith Pearlman had passed way; (2) the Premises would be reassessed as a result of Ms. Pearlman’s death; (3) the re-assessment would be based on the current value of the Property which had appreciated significantly from the prior assessed value; and (4) Mr. Atkins was receiving advice from at least one real estate professional regarding the terms of the Initial Lease and specifically as to real estate taxes.  This email contradicts Defendants’ claim they did not know Pearlman had died before they signed the Initial Lease and they did not know there would be a resulting increase in real estate property taxes due to her death. 

That Defendants’ cross-complaint may be contradicted by some evidence, however, is not evidence of bad faith.  Courts have routinely concluded that the fact that a cross-claim is substantively defective is not synonymous with bad faith.  The preferred practice is to permit the cross-complaint and allow Plaintiff to challenge the merits of the pleading at a later stage in the proceedings. (See, e.g.,¿Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048¿(“even if the proposed legal theory is a novel one, ‘the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer, motion for judgment on the pleadings or other appropriate proceedings’”).) 

CONCLUSION 

The Court GRANTS Defendants’ motions for leave to file a second amended answer and for leave to file a cross-complaint.     

 

DATED: March 20, 2024 ___________________________ 

Edward B. Moreton, Jr. 

Judge of the Superior Court