Judge Elaine Lu, Case 19STCV07425 2023-03-16 Tentative Ruling

On March 4, 2019, Plaintiff 147-151 W. 25^th St., LLC (“25^th Street LLC”) filed the action numbered 19STCV07425 (“Lead Action”). On December 16, 2019, 25^th Street LLC filed the operative First Amended Complaint against Chang Lee, CJWorld-LA and GRG Collective, LLC^{^[1]} asserting causes of action for (1) Breach of Written Contract, (2) Vandalism,[2] [Violation of Penal Code § 594], (3) Intentional Misrepresentation, and (4) Declaratory Relief.

On October 31, 2019, Plaintiffs CJWorld-LA, Chang Lee, and Eric Lee (collectively “CJWorld Parties” or “Plaintiffs”) initiated the 19STCV39298 action (“Related Action”). On January 29, 2021, CJWorld Parties filed the operative Third Amended Complaint asserting claims against Defendants 25^th St. LLC, Babak Aframian, and Avi Aframian (collectively, for purposes of this motion, “Defendants”), as well as Downtown Natural Caregivers, Inc., Lex W. Yoo[3]; Christopher James Giordano; Yun T. Kang; Charles Dunn Company, Inc.; William Christopher Steck; and Brent Yoonmoo Koo. The Third Amended Complaint in this action asserts thirteen causes of action for: (1) Fraud; (2) Negligence; (3) Breach of Written Contract; (4) Breach of the Covenant of Good Faith and Fair Dealing; (5) Breach of the Covenant of Quiet Enjoyment; (6) Wrongful Eviction; (7) Trespass to Chattels; (8) Intentional Interference with Contractual Relations; (9) Intentional Interference with Prospective Economic Relations; (10) Specific Performance; (11) Violation of the Unfair Competition Law; (12) Unjust Enrichment; and (13) Return of Security Deposit.[4]

On October 9, 2020, the Court sustained cross-defendants DNC and Kang’s demurrer to and motion to strike the cross-complaint as to the eighth, ninth, and tenth causes of action without leave to amend and as to the second and eleventh causes of action with leave to amend. (Order 10/9/20.)

On October 14, 2020, Landlords filed the operative First Amended Cross-Complaint (“FACC”) asserting the same causes of action^{^[5]} for (1) breach of written contract, (2) intentional misrepresentation, (3) fraud in the inducement, (4) professional negligence, (5) breach of fiduciary duty, (6) violation of Civil Code § 2079.16 et seq., (7) breach of covenant of good faith and fair dealing, (8) implied indemnity, (9) comparative indemnity, (10) equitable indemnity, and (11) declaratory relief. Only the first, second, and eleventh causes of action are asserted against cross-defendants DNC and Kang. On April 7, 2021, the Court sustained DNC and Kang’s demurrer to the second cause of action without leave to amend. (Order 4/7/21.)

On December 4, 2019, the Court deemed the cases related and designated 19STCV07425 to serve as the lead action. (Minute Order 12/4/19.) On June 1, 2021, the Lead Action and Related Action were consolidated for all purposes. (Order 6/1/21.) On June 2, 2022, Plaintiff Landlords dismissed Defendants Christopher James Giordano, Charles Dunn Company, Inc., and William Christopher Steck from their complaint in the Lead Action. On June 2, 2022, Cross-Complainants Christopher James Giordano, Charles Dunn Company, Inc., and William Christopher Steck dismissed their cross-complaint filed on December 2, 2020. On June 2, 2022, CJWorld Parties dismissed Christopher James Giordano from their complaint in the related action. On June 3, 2022, CJWorld Parties dismissed Brent Koo from their complaint in the related action.

On November 28-30, 2022, December 5-8, 2022, and December 12-14, 2022, the Lead and Related Actions came on for two phases of a consolidated jury trial. At the conclusion of the consolidated Jury Trial, the Court held an uncontested prove up hearing regarding 25^th Street LLC’s claims against DNC and Kang on December 14, 2022. On December 14-15, 2022, the Court held an uncontested prove up hearing regarding CJWorld and Chang Lee claims against DNC and Kang. On February 14, 2023, after an offset, judgment was entered on the Third Amended Complaint in the Related Action in favor of Plaintiff CJWorld-LA against Defendants 25th St LLC and Avi Aframian, jointly and severally, in the sum of $340,359.00 and in favor of Plaintiff Chang Lee, jointly and severally, in the amount of $370,359.00 against Defendants 25th St LLC and Avi Aframian. As to the Third Amended Complaint in the Related Action, Judgment was also entered in favor Plaintiffs CJ-World LA and Chang Lee and against Defendants Downtown Natural Caregivers, Inc. and Yun T. Kang, jointly and severally, the sum of $357.859.00. As to the First-Amended Cross-Complaint in the Related Action, judgment was entered in favor of 25th St LLC against Cross-Defendants DNC and Kang jointly and severally for a total judgment of $958,725.62.

On February 21, 2023, Defendants 25th St LLC and Avi Aframian (jointly “Defendants”) filed the instant motion for judgment notwithstanding the verdict. On March 3, 2023, Plaintiffs CJWorld-LA and Chang Lee (jointly “Plaintiffs”) filed an opposition. On March 9, 2023, Defendants filed a reply.

In conjunction with the moving papers, Defendants request that the Court take judicial notice of:

As the court may take judicial notice of court records and government records, (See Evid. Code, § 452(c),(d)), the unopposed request for judicial notice is granted. However, the Court will not take judicial notice of the truth of assertions within. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

The Court “shall render judgment in favor of the aggrieved party notwithstanding the verdict whenever a motion for a directed verdict for the aggrieved party should have been granted had a previous motion been made.” (CCP § 629(a).) “A JNOV motion challenges the legal sufficiency of the opposing party's evidence (‘a demurrer to the evidence’). i.e., it challenges whether that evidence was sufficient to prove the claims or defenses asserted by the opposing party and now embodied in the jury's verdict.” (Wegner, et al., Civ. Trials and Evid. (The Rutter Group 2016) ¶ 18:4.) “Thus, for purposes of a JNOV motion, all evidence supporting the verdict is presumed true. The issue is whether these facts constitute a prima facie case or defense as a matter of law.” (Id., ¶ 18:54.) The Court does not weigh evidence or credibility of witnesses. (Id., ¶ 18:55.)

A judgment notwithstanding the verdict in favor of defendant is proper only where no evidence of “sufficient substantiality” supports the verdict in plaintiff’s favor. This is determined by disregarding evidence on defendant’s behalf, giving plaintiff’s evidence all the value to which it is legally entitled, and indulging in every legitimate inference that may be drawn from that evidence. (Reynolds v. Wilson (1958) 51 Cal. 2d 94, 99.) “A trial court is governed by well settled standards in determining whether to grant a motion for judgment notwithstanding the verdict (JNOV). ‘The trial court's power to grant a motion for JNOV is the same as its power to grant a directed verdict. (Code Civ. Proc., § 629.) The court must accept as true the evidence supporting the jury's verdict, disregarding all conflicting evidence and indulging in every legitimate inference that may be drawn in support of the judgment. The court may grant the motion only if there is no substantial evidence to support the verdict.’” (Jones & Matson v. Hall (2007) 155 Cal. App. 4th 1596, 1607.)

Defendants move for a judgment notwithstanding the verdict setting aside the award of lost profits in the amount of $337,609.00 in favor of Plaintiff CJWorld-LA against Defendants. Defendants contend that these lost profits are predicated on completion of illegal activity.

At trial, CJWorld-LA’s damages expert – Nicholas Buzas – testified that he “estimated the lost profits that CJWorld experienced as a result of having their business operation interrupted for several months between May of 2019 and to the next year – to March 2020, which is about 11 months.” (Request for Judicial Notice “RJN”, Exh. 3 at p.16:15-19.) In calculating the lost profits, CJWorld’s expert testified that because there were no sales of cannabis made between May 2019 through March 2020 until Plaintiff CJWorld-LA’s first sale of cannabis at the new facility in April 2020, that he calculated what the net profits would have been at the old facility had their business not been interrupted. (RJN Exh. 3 at pp.18:17-20, 21:27-22:5.) In closing argument, Plaintiffs’ Counsel summarized the basis for CJWorld-LA’s claim of lost profits in that:

[CJWorld-LA] had until July 2020 at the property. The 25th Street property. They could have continued growing at that property while they were doing construction at the new one. . . [t]hey had months where they were still doing construction and they couldn’t grow. That’s why we have damages here. That’s why we have lost profits here.

Finally, by way of jury instructions regarding CJWorld-LA’s claim for lost profits – jury instructions to which the parties stipulated -- the Court explained that:

To recover damages for lost profits, CJWorld must prove it is reasonably certain it would have earned profits but for the conduct of 25th Street LLC and Avi Aframian. To decide the amount of damages for lost profits, you must determine the gross amount CJWorld would have received but for the conduct of 25th Street LLC and Avi Aframian and then subtract from that amount the expenses CJWorld would have had if the conduct had not occurred. The amount of lost profits need not be calculated with mathematical precision but there must be a reasonable basis for computing the loss.

Under Health and Safety Code section 11358, it is illegal for a person to cultivate more than six cannabis plants. However, commercial cultivation is permitted if an entity obtains a provisional or temporary license. (Bus. & Prof. Code, § 26050.2.)

At trial Chang Lee testified that he had a temporary state license to cultivate cannabis in 2018. (RJN Exh. 2 at p.23:13-17.) However, this temporary state license expired on April 28, 2019. (Trial Exh. 72, [Temporary License].) As CJWorld-LA’s liability expert noted, CJWorld-LA did not obtain a temporary license until September 2020. (RJN Exh. 2 at pp.181:18-182:1.) Thus, Defendants contend that “[b]ecause CJWORLD did not possess a State of California provisional or temporary license pursuant to Business and Professions Code section 26050.2 during any point from May of 2019 to March of 2020, the judgment for CJWORLD for lost profits is predicated on the completion of illegal activity.” (Motion at p.7:5-8.)

“Where the illegality of a contract does not appear from the face of the complaint it becomes a matter of affirmative defense that must be specially pleaded. And in such case the burden of proof is on the defendant.” (Eaton v. Brock (1954) 124 Cal.App.2d 10, 13.) Moreover, “it [i]s procedurally improper to grant JNOV on an issue that was never pleaded, argued, or presented to the jury.” (Simmons v. Ware (2013) 213 Cal.App.4th 1035, 1047.)

Here, it is clear that the underlying contract between Plaintiffs and Defendants was not for an illegal purpose. Nor did the contract appear on its face to be for an illegal purpose. Indeed, both Plaintiffs and Defendants sought to enforce the contract in the Lead Action and Related Action. Moreover, there was no apparent illegality on the face of the various successive complaints in the Related Action, and the successive complaints in the Related Action all sought lost profits. (See Oct. 31, 2019 Complaint, ¶ 4; Nov. 5, 2019 First Amended Complaint, ¶ 4; Jul. 8, 2020 Second Amended Complaint, ¶ 4; Jan. 29, 2021 Third Amended Complaint, ¶ 4.) Thus, it was incumbent on Defendants to specifically plead that the lost profits sought were illegal. Defendants did not raise any affirmative defense of illegality in their answer. (Mar. 1, 2021 Answer.) Nor was this issue ever raised in demurrer, judgment on the pleadings, summary judgment, or through a motion in limine seeking to exclude evidence of CJWorld-LA’s lost profits. (Sadat Decl. ¶ 4.)

During trial, Defense Counsel did not argue at any point that CJWorld-LA’s claimed lost profits were unrecoverable because they would constitute proceeds of illegal activity. (Sadat Decl. ¶¶ 5-6.) Nor did Defendants ever request a jury instruction regarding the purported illegality of CJWorld-LA’s lost profits in any of the 31 sets of proposed jury instructions filed in this action between May 27, 2022 and December 14, 2022. (Sadat Decl. ¶ 5.)

In sum, Defendants failed to plead, argue, or present to the jury any claim that CJWorld-LA’s claimed lost profits would have all derived from illegal activities. Therefore, Defendant has waived this objection to CJ-World’s claimed lost profits. As a procedural matter, the instant motion must be denied.

Here, as pled and proved at trial, Plaintiff’s lack of an operative license was due to Defendant’s wrongful actions. As specifically alleged in the operative complaint in the Related Action:

25th Street LLC undertook actions designed to render it impossible for CJ World to obtain a permanent cannabis cultivation license at the Property. To achieve this goal, 25th Street LLC, through its agents and principals, Babak Aframian and Avi Aframian, in June 2018 (and with the Lease Agreement still in effect) secretly entered into a parallel lease agreement for the Property with DNC, another cannabis cultivator. Then, unbeknownst to Plaintiffs, and at the direction of Babak and Avi Aframian, DNC, through its CEO, Kang, applied for a permanent cultivation license at the Property.

25th Street LLC knew that by entering into a parallel lease with DNC, and by assisting DNC with its application for a permanent cultivation license at the Property, CJ World’s application would be denied, forcing CJ World to vacate the Property, and allowing 25th Street LLC to lease the Property to DNC at substantially higher rent.

At trial, Plaintiffs’ expert in cannabis licensing for the State of California– Hilary Bricken – testified that had DNC not obtained temporary approval at the same property, Plaintiff CJWorld-LA would have obtained temporary approval at the 25^th Street location. (Sadat Decl. ¶ 10, Exh. D at pp.153:21-155:4.) Chang Lee testified that in April 2019, CJWorld-LA learned of Defendants’ secret lease with DNC. CJWorld-LA parties introduced further evidence that only one cultivator could obtain a temporary license for each location, and CJWorld-LA would never be able to obtain temporary approval to cultivate cannabis at the Subject Property because DNC had already obtained a temporary license for that property with Defendants’ assistance. (Sadat Decl. ¶ 8, Exh. B at p.143:19-24.) Because Defendants’ surreptitious conduct and wrongful eviction caused CJWorld-LA not to be able to obtain a proper license at the Subject Property, CJWorld-LA transferred its limited immunity to its new warehouse (Sadat Decl., ¶ 16, Exh. H.123 [Trial Exhibit 123]), ceased operations at the Subject Property (Sadat Decl. ¶ 8, Exh. B at p.148:6-12), and began building out the new warehouse from scratch (Sadat Decl. ¶ 9, Exh. C at pp.420:16-424:5). After building the warehouse, CJWorld-LA obtained a state license at the new warehouse on Griffith Avenue. (RJN Exh. 2 at pp.181:18-182:1.)

Thus, at trial, Plaintiffs proved that Defendants wrongfully evicted Plaintiffs and thereby prevented Plaintiffs from obtaining a temporary license from at least May of 2019 to March of 2020. (RJN Exh. 1 [Judgment].) Defendants’ argument that the Court should not permit Plaintiff CJWorld-LA to recover lost profits premised on illegal activity fails to recognize the substantial evidence supporting the jury’s finding that it was Defendants’ wrongful actions that prevented Plaintiff CJWorld-LA from obtaining the license that would have made such lost profits legal. Thus, as pled and shown at trial, but for Defendants’ wrongful conduct, Plaintiffs would have been able to legally earn such profits because they would have had a temporary license to cultivate cannabis at the Subject Property.

Based on the forgoing, Defendants 147-151 W. 25^th St., LLC and Avi Aframian’s motion for judgment notwithstanding the verdict is DENIED.

[1] On July 13, 2020, 25^th Street LLC dismissed GRG Collective, LLC.

[2] On July 23, 2020, the Court sustained Chang Lee and Eric Lee’s demurrer as to the vandalism cause of action without leave to amend. (Lead Action Order 7/23/20.)

[3] On February 10, 2021, the CJWorld Parties dismissed the action as to Lex Yoo without prejudice.

[4] On June 17, 2022, the CJWorld Parties dismissed the tenth cause of action for specific performance.

[5] Cross-Defendants DNC and Kang are no longer alleged as part of the eighth, ninth, and tenth causes of action.

Superior Court of California

County of Los Angeles

Department 26