Judge: Gregory Keosian, Case: 23STCV17500, Date: 2024-02-14 Tentative Ruling

Case Number: 23STCV17500    Hearing Date: February 14, 2024    Dept: 61

Cross-Defendant KCS West, Inc.’s Demurrer and Motion to Strike Portions of Whisky Hotel, LLC’s Cross-Complaint is OVERRULED and DENIED.

Cross-Complainant to give notice.

I.                   DEMURRER

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) In particular, as is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) 39 Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“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. [Citation.]”)

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.”  (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Such demurrers “are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 14 Cal.App.5th 841, 848.)

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

Plaintiff and Cross-Defendant KCS West, Inc. (Plaintiff) demurrers to the fourth cause of action for inducing a breach of contract contained in the First Amended Cross-Complaint (FAXC) of Defendant Whisky Hotel, LLC (Defendant).  Plaintiff argues that the FAXC fails to plead the existence of a written or oral contract, and fails to plead that Plaintiff caused any breach of Defendant’s contract with its lender. (Demurrer at pp. 13–16.) Plaintiff further argues that any alleged conduct that induced the breach was privileged, and further that Defendant endorsed the conduct at issue in another agreement. (Demurrer at pp. 17–18.)

These arguments are unpersuasive. Plaintiff relies on authority stating that actions on a contract must plead whether the contract is oral or written, and must plead the contract verbatim. (Demurrer at pp. 13–14, citing Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 459; Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) Yet this authority applies to claims for breach of contract, not to tort claims for interference with contractual relations, where the “actionable wrong lies in the inducement to break the contract or to sever the relationship, not in the kind of contract or relationship so disrupted, whether it is written or oral, enforceable or not enforceable.” (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257, 289.) In any event, the FAXC adequately pleads the legal effect of the contract at issue, which is that Defendant had a loan agreement with a third party lender for $35 million, with one of the specified events of default being “a material change in the financial condition of the borrower” i.e. Defendant. (FAC ¶¶ 47–48; McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.) The contract has been adequately alleged.

Plaintiff  argues that Defendant has not adequately alleged a “breach” of the loan agreement that it caused, as opposed to a termination of the contract pursuant to a specified event of default. (Demurrer at pp. 14–15.) However, a claim for interference with contract need not allege a breach of any term of the agreement, but may arise from actions that “induce a party to a contract to terminate the contract according to its terms.” (I-CA Enterprises, supra, 235 Cal.App.4^th at p. 389.)

Plaintiff argues that there are no allegations that it caused any such termination, since the FAXC alleges that the lender, in choosing to terminate the agreement, had access to information provided by Defendant that would have provided sufficient basis to declare a default. (Demurrer at pp. 15–16.) But this argument is contrary to the allegations of the FAXC. The pleading states that the lender had Defendant’s information concerning a more limited $6 million cost overrun, but that Plaintiff provided “false information” concerning a larger $11.5 million in proposed change orders, which “led the Bank to declare an event of default.” (FAXC ¶ 8.) The FAXC sufficiently alleges that Plaintiff’s false report, and not Defendant’s accurate report, caused the termination of the contract.

Plaintiff claims their conduct in telling the lender their $11.5 million change order estimate was privileged, as its contract with Defendant obligated it to provide a consent to assignment form. (Demurrer at p. 16.) This argument, however, depends on facts neither pleaded nor judicially noticeable — namely Plaintiff’s good faith. (See Richardson v. La Rancherita (1979) 98 Cal.App.3d 73, 81 [“In harmony with the general guidelines of the test for justification is the narrow protection afforded to a party where (1) he has a legally protected interest, (2) in good faith threatens to protect it, and (3) the threat is to protect it by appropriate means.”].) Indeed, the FAXC alleges that Plaintiff knew its estimated cost overruns were false. (FAXC ¶ 50.) 

Plaintiff finally argues that the “Transition Agreement” executed by Defendant following Plaintiff’s termination of their contract with Defendant contained an incorporation and endorsement of the information that Plaintiff sent the lender. (Demurrer at pp. 17–18.) Assuming that this court may take judicial notice of the terms of this contract, which are not contained in the FAXC, they do not support Plaintiff’s argument. Plaintiff does not cite the particular contractual provision that it relies on, but the paragraph quoted in its own FAC states that Defendant “acknowledges and agrees that KCSW's termination of Owner for cause per Section 24.4 of the GMP Contract executed on January 30, 2020 (‘Contractor) per the Notice of Termination letter dated October 26, 2022 is effective as of Friday, November 18, 2022, and that this Agreement is not a waiver of KCSW's termination of Owner.” (Li Decl. Exh. B, § 1.1.) The contract thus agrees as to the effective date of the termination, not the accuracy of the $11.5 million  estimate that Defendant claims was wrongfully communicated to the lender.

The demurrer is therefore OVERRULED.

II.                MOTION TO STRIKE

Any party, within the time allowed to respond to a pleading, may serve and file a notice of motion to strike the whole or any part thereof. (Code Civ. Proc., § 435(b)(1)). The notice of motion to strike a portion of a pleading shall quote in full the portions sought to be stricken except where the motion is to strike an entire paragraph, cause of action, count or defense. (California Rules of Court Rule 3.1322.)

The grounds for a motion to strike shall appear on the face of the challenged pleading or form any matter of which the court is required to take judicial notice. (Code Civ. Proc., § 437(a)). The court then may strike out any irrelevant, false, or improper matter inserted in any pleading and strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ. Proc., § 436.) When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend. (Perlman v. Municipal Court (1979) 99 Cal.App.3d 568, 575.)

Plaintiff moves to strike allegations related to its practices as to other construction projects and other lawsuits, which it claims are irrelevant to this action. (Motion at pp. 7–8.)

Plaintiff’s argument is unpersuasive. Allegations as to the “dozens of lawsuits against” Plaintiff relate to Defendant’s inclusion of Tack Builders, Inc. as a cross-defendant, based on the theory that Tack is a  “mere continuation” of Plaintiff, formed because of Plaintiff’s insolvency. (FAXC ¶¶ 1, 14.) Moreover, while allegations of Plaintiff’s prior conduct on other, similar projects may constitute impermissible character evidence (Evid. Code § 1101, subd. (a)), it may also relate to “motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake or accident.” (Evid. Code § 1101, subd. (b).) Intent is an element of Defendant’s fourth cause of action for intentional interference with contract. (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1148.)

Plaintiff’s argument against the prayer for punitive damages is solely that the fourth cause of action for induced breach of contract is defective. (Motion at pp. 8–9.) Because that claim survives Plaintiff’s demurrer, the motion is DENIED.