Judge: Gary I. Micon, Case: 23CHCV00792, Date: 2024-08-28 Tentative Ruling

Case Number: 23CHCV00792    Hearing Date: August 28, 2024    Dept: F43

KB Salt Lake III, LLC vs. Fitness International, LLC

Trial Date: 9-23-24

MOTION FOR JUDGMENT ON THE PLEADINGS

MOVING PARTY: Plaintiffs HWP One, LLC and APG De Soto-SPE, LLC

RESPONDING PARTY: Defendant Fitness International, LLC

RELIEF REQUESTED

Plaintiffs have requested that the Court enter an order granting judgment on the pleadings in favor of Plaintiffs and against Defendant for the following affirmative defenses in Defendant’s answer:

·         Fifth Affirmative Defense: Bad Faith – Collusion

·         Sixth Affirmative Defense: Bad Faith – Collusion

·         Seventh Affirmative Defense: Unclean Hands – Collusion

·         Eighth Affirmative Defense: Unclean Hands – Collusion

RULING: Motion for judgment on the pleadings is granted with leave to amend.

SUMMARY OF ACTION

Plaintiffs HWP One, LLC and APG De Soto-SPE, LLC (Plaintiffs) allege that Defendant Fitness International, LLC (Defendant) stopped paying rent to hundreds of its landlords across the country during the COVID-19 pandemic. This case concerns one of those lessors, KB Salt Lake III, LLC (KB). KB was Plaintiffs’ predecessor-in-interest. Prior cases, which Plaintiffs cite in their request for judicial notice, have already determined that Defendant breached its lease with KB. The matters at issue in this case are the calculation of damages and mitigation.

Despite this, Defendant is still attempting to assert affirmative defenses based on what Plaintiffs argue are conclusory allegations that are unrelated to the claims at issue in this case. The defenses allege that KB’s counsel colluded by discussing litigation strategy with counsel for the other landlords that Defendant was litigating against. Plaintiffs argue that Defendant’s defenses are devoid of factual detail and fail as a matter of law. Furthermore, Plaintiffs argue that any alleged collusion would be distinct from the claims at issue in this case and could not negate Plaintiffs’ right to recover on its claims in this case.

Defendant argues in its opposition that it has pleaded facts sufficient to state the defenses. It also argues that the unclean hands and faith defenses are directly connected to the claims at issue because the alleged improper collusion arises of the rent litigation between Defendant and the landlords.

Plaintiffs argue in their reply that the affirmative defenses fail to plead sufficient facts to constitute valid defenses. Plaintiffs also argue that Defendant fails to address the legal deficiencies in its defenses.

Plaintiffs’ Request for Judicial Notice: Plaintiffs request that the Court take judicial notice of court filings from related cases. The Court takes judicial notice of these documents.

ANALYSIS

A motion for judgment on the pleadings has the same function as a general demurrer and, except as provided for CCP § 438, the rules governing demurrers apply. (See Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 999.) A motion for judgment on the pleadings may be granted when “the answer does not state facts sufficient to constitute a defense to the complaint.” (CCP § 438(c)(1)(A).) The grounds for the motion must appear on the face of the challenged pleading or from matters that may be judicially noticed. (CCP § 438(d).) “The determination of whether an answer states a defense is governed by the same principles that apply in determining if a complaint states a cause of action.” (South Shore Land Co. v Petersen (1964) 226 Cal.App.2d 725, 732.)

For a party to successfully allege affirmative defenses for bad faith and unclear hands, they must allege that the plaintiff “has acted unconscionably, in bad faith, or inequitably in the matter in which the plaintiff seeks relief.” (Salas v. Sierra Chemical Co. (2014) 59 Cal.4th 407, 432.)

For the Fifth and Seventh Affirmative Defenses for bad faith collusion and unclean hands collusion with Kids from the Valley, all Defendant has alleged is that “HWP-APG’s claims are barred because of their bad faith, or because of the bad-faith of their predecessor-in-interest. On information and belief, HWP-APG’s predecessor-in-interest, KB Salt, colluded with the owner of the adjacent parcel, Kids from the Valley IX, LLC (“Kids”) in order to exacerbate KB Salt’s damages.” (Answer, ¶¶ 5, 7.) Defendant does not allege how KB or Plaintiffs colluded with the Kids. Nor does Defendant allege how KB or Plaintiffs acted unconscionably, in bad faith, or inequitably. Defendant also does not allege how Plaintiffs’ conduct allegedly exacerbated any damages.

For the Sixth and Eighth Affirmative Defenses for bad faith collusion and unclean hands collusion with third parties, Defendant alleges that “HWP-APG’s claims are barred because of their bad faith, or because of the bad-faith of their predecessor-in-interest. On information and belief, HWP-APG’s and/or its predecessor-in-interest, KB Salt, colluded with Fitness’s other landlords in order to increase the settlement figures and/or increase the rent those landlords could demand as part of any settlement and extension of existing leases. Fitness insists upon confidentiality provisions in its leases to protect against collusion between landlords, but on information and belief, counsel for KB Salt engaged in routine telephone and/or Zoom conferences with counsel for other landlords in order to strategize and coordinate their litigation and settlement approaches. Upon information and belief, by doing so, KB Salt and/or HWP-APG formed a de facto cartel in which they unfairly obtained market power used to unfairly set settlement and future rent prices adverse to Fitness.” (Answer, ¶¶ 6, 8.)

These defenses do not allege any conduct by Plaintiffs or their predecessor-in-interest. Instead, these defenses only allege conduct by KB’s counsel. Nor has Defendant alleged anything that would constitute bad faith or unclean hands because, as Plaintiffs argue, there is nothing inherently wrong with coordinating litigation and settlement approaches. Defendant also does not allege that KB or Plaintiffs breached any particular confidentiality obligation in connection with the lease at issue. It only alleges that Defendant insists on confidentiality provisions. Even if Plaintiffs or KB breached a confidentiality provision, that would not be a material breach that would excuse Defendant’s rent obligations.

Defendant argues in opposition that it has pleaded sufficient facts to support its affirmative defenses, but as discussed above, that is not the case.

Based on the foregoing, Plaintiffs’ motion can be granted based on the lack of factual allegations in Defendant’s affirmative defenses. However, the Court will address Plaintiffs’ other arguments, as well.

Plaintiffs argue that Defendant has not stated facts sufficient to constitute an antitrust violation defense. However, Defendant argues in its opposition that it has not alleged an antitrust violation and does not need to do so.

Defendant has not pled any facts that would indicate that competition was restrained or injured in any way. Defendant has not pleaded any facts that there was a formation and operation of a conspiracy. Defendant has also not pleaded any facts demonstrating damages because of a conspiracy.

Furthermore, any communications between KB’s counsel and other landlords’ counsel would not constitute bad faith or unclean hands. These types of strategic communications are immune. (See Rubin v. Green (1993) 4 Cal.4th 1187; see also Silberg v. Anderson (1990) 50 Cal.3d 205, 212 (holding privilege applies to communications relating to litigation efforts even if made outside the courtroom).)

Finally, the claims of bad faith and unclean hands are not connected to the claims at issue because the defenses do not allege any alleged wrongful conduct on the part of Plaintiffs or their predecessor in entering the lease or in their conduct as lessors. Nor does Defendant allege that its failure to pay rent had anything to do with the alleged collusion between landlords. Any alleged wrongful conduct occurred after Defendant breached the lease.

Plaintiffs’ motion for judgment on the pleadings is granted for Defendant’s Fifth through Eighth Affirmative Defenses. Defendant is given 30 days leave to amend its answer.

Moving party to give notice to all parties.