Judge: H. Jay Ford, III, Case: 22SMCV00702, Date: 2023-02-16 Tentative Ruling

Case Number: 22SMCV00702    Hearing Date: February 16, 2023    Dept: O

Case Name:  Basson v. 1239 10^th Street, LLC, et al.

SUBJECT:                 (1)  DEMURRER TO FAC

                                    (2)  MOTION TO STRIKE

MOVING PARTY:   Defendants 1238 10^th Street, LLC, NMS Properties, Inc., NMS Residential, LLC, My Suite, LLC, WNMS Communities, LLC, Neil Shekhter, Margot Shekhter, Adam Shekhter and Scott Walter

RESP. PARTY:         Plaintiff Gert Besson

TENTATIVE RULING

            Defendants 1238 10^th Street, LLC, NMS Properties, Inc., NMS Residential, LLC, My Suite, LLC, WNMS Communities, LLC, Neil Shekhter, Margot Shekhter, Adam Shekhter and Scott Walter’s Demurrer is OVERRULED.  Defendants 1238 10^th Street, LLC, NMS Properties, Inc., NMS Residential, LLC, My Suite, LLC, WNMS Communities, LLC, Neil Shekhter, Margot Shekhter, Adam Shekhter and Scott Walter’s Motion to Strike is DENIED.  Defendants’ RJN is GRANTED. 

            Defendants to answer in 20 days. 

I.  Defendant’s Demurrer to Entire Complaint

            Defendants’ demurrer to the entire complaint pursuant to CCP §430.10(c) is overruled.  CCP §430.10(c) does not apply, because it requires that the parties be in the identical relationship in the “other action pending.”  Plant Insulation Co. v. Fibreboard Corp. (1990) 224 Cal.App.3d 781, 787-788.  Plaintiff is a not the plaintiff in City of Santa Monica’s lawsuit, 21SMCV01585.

            Defendants’ demurrer to the entire complaint on grounds of uncertainty is overruled.  The FAC is not so poorly drafted that Defendants cannot reasonably respond.  Plaintiff alleges that Defendants engaged in a fraudulent scheme to circumvent rent control ordinances by falsely representing to government agencies and tenants that they were removing the property from the rental market.  See FAC, ¶25.  Plaintiff alleges that Defendants did not have any intent to remove the property from the rental market and began to advertise the property for rent on various websites immediately after allegedly withdrawing it from the rental market.  Id. at ¶¶32-40.  Plaintiff alleges Defendants also began renovations on the property that rendered the property uninhabitable.  Id. at ¶¶26-31.  Plaintiff alleges Defendants intentionally refused to ensure that Plaintiff’s unit remained habitable during the renovation, nor did they relocate Plaintiff.  Id.  Plaintiff alleges this was part of Defendants’ scheme to drive rent-controlled tenants from their homes.  Id.  These allegations are sufficiently clear that Defendants can respond to them. 

            Individual Defendants’ demurrer to the entire complaint based on uncertainty and failure to state a cause of action is overruled.  Individual Defendants argue there are no allegations tying each individual defendant to the wrongful conduct alleged.  Plaintiff alleges sufficient ultimate facts to plead alter ego, including unity of interest based on inadequate capitalization and failure to adhere to corporate formalities and resulting injustice if the corporate form were recognized.  See FAC, ¶20; Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 236 (plaintiff need only allege ultimate facts to plead alter ego and survive demurrer).

            Plaintiff also alleges Defendants are and were, at all times pertinent to this Complaint, the owners, lessors, managers and controllers of the property, or in the business of owning, renting, controlling, possessing, leasing, managing and/or maintaining the Property or Premises.  See FAC, ¶15.  Plaintiff’s allegation of ownership is an ultimate fact that must be accepted as true on demurrer.  See McKinnon v. McKinnon (1960) 181 Cal.App.2d 97, 106 (“well settled tht ownership or title may be pleaded as an ultimate fact”). 

            Plaintiff also alleges that Defendants were all agents of one another, including the individual defendants, and in doing the things alleged in the complaint, they were all acting within the scope of that agency.  See FAC, ¶17.  An allegation of agency constitutes an averment of ultimate fact, which we accept as true on a demurrer.  See Brown v. USA Taekwondo (2019) 40 Cal.App.5th 1077, 1106.

II. Defendants’ Demurrer to the 5^th cause of action for fraudulent misrepresentation and 6^th cause of action for fraudulent concealment

The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages.  See Civil Code §1709.  Fraud actions are subject to strict requirements of particularity in pleading.  See Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197, 216.  A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation.  See Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782. 

“Each element of a fraud count must be pleaded with particularity so as to apprise the defendant of the specific grounds for the charge and enable the court to determine whether there is any basis for the cause of action, although less specificity is required if the defendant would likely have greater knowledge of the facts than the plaintiff.”  Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 231. 

            Plaintiff alleges Defendants misrepresented to him that they were withdrawing the property from the rental market pursuant to the Ellis Act and the provisions of the Santa Monica Rent Control Board of Regulations.  See FAC, ¶79.  Plaintiff alleges that, on 7-25-18, Defendant Scott Walker, on behalf of 1238 10^th Street, LLC and WNMS Communities, LLC notified him in writing of Defendants’ intent to withdraw the property from the rental market pursuant to the Ellis and the Santa Monica Rent Control Board of Regulations.  Id. at ¶32.  Scott Walker is the only member of WNMS Communities, LLC.  Id. at ¶24.  Defendants 1238 10^th Street, LLC is the owner of properties.  Id. WNMS Communities, LLC is 1238 10^th Street, LLC’s managing member. Id.  All Defendants are allegedly the alter egos of one another.  Id. at ¶20.  Based on these allegations, Plaintiff alleges fraudulent misrepresentation with specificity as to each Defendant. 

Less specificity is demanded of Plaintiff’s fraudulent concealment cause of action.  See Chapman, supra, 220 Cal.App.4th at 231.  Plaintiff alleges Defendants fraudulently concealed their unlawful intent to evict Plaintiff under the false pretense of removing the property from the rental market, when in fact they advertised the property for lease as short-term rentals immediately after allegedly withdrawing the property from the rental market.  Id. at ¶¶93-94.  The relevant events transpired from Defendants’ initial purchase of the property in June 2015 through the present.  Id. at ¶¶24-44. 

Defendants’ demurrer to the 5^th and 6^th causes of action for fraudulent misrepresentation and fraudulent concealment is OVERRULED.

III.  Defendants’ Demurrer to the 7^th cause of action for violation of S.M.M.C. §6.20

            Defendants argue Plaintiff’s 7^th cause of action for violation of S.M.M.C. §6.20 fails, because Plaintiff lacks standing.  Section 6.20 of the SMMC imposes requirements on any person offering property for home sharing and vacation rentals.  Under S.M.M.C. §6.20.100, “[a]ny interested person may seek an injunction or other relief to prevent or remedy violations of this Chapter. The prevailing party in such an action shall be entitled to recover reasonable costs and attorney’s fees.”  Here, Plaintiff is an “interested person,” because the Defendants unlawfully evicted Plaintiff from his unit so that they could offer Plaintiff’s unit for lease as a home-sharing or vacation rental in violation of S.M.M.C. §6.20’s requirements.  See FAC, ¶102. 

Plaintiff is also an interested person, because he notified Defendants of his interest re-renting the property if Defendants placed it back on the rental market.  Id. at ¶36.  Defendants advertised the unit for rent as a home-share or vocational rental without first offering Plaintiff the chance to re-let.  Id. at ¶¶36, 42.  Defendants failure to do so allegedly violated Plaintiff’s re-rental rights under the Ellis Act.  Id. at ¶42. 

Defendants’ Demurrer to the 7^th cause of action for violation of S.M.M.C. §6.20 is OVERRULED. 

IV.  Defendants’ Demurrer to the 8^th cause of action for violation of FEHA

            “It shall be unlawful: (a) For the owner of any housing accommodation to discriminate against or harass any person because of the race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, veteran or military status, or genetic information of that person.”  Gov. Code, § 12955.

Defendants demur to the FEHA claim on grounds that Plaintiff fails to identify his disability, the accommodation requested and refused by Defendants and why the accommodation was necessary.  Defendants fail to cite to any authority requiring that Plaintiff allege the specific nature of his disability.  Plaintiff alleges that Defendants discriminated against him based on his protected status under GC §12955 as a disabled person.  See FAC, ¶¶1, 43, 105.  Plaintiffs allege he requested that Defendants perform repairs of hazardous conditions on the property due to his disability, that Defendants knew that their failure to perform these repairs would disparately impact persons with Plaintiff’s disability and that Defendants refused to perform these repairs despite this knowledge.  Id. at ¶106.  Plaintiff alleges that the hazardous conditions included, but were not limited to, asbestos, inadequate fire protection, unsafe construction zones, uneven walking surfaces, inadequate plumbing and dust.  Id. at ¶27.  Plaintiff sufficiently alleges a claim for housing discrimination under FEHA.

Defendant’s Demurrer to the 8^th cause of action for FEHA violation is OVERRULED. 

V.  Defendants’ Demurrer to the 9^th cause of action for breach of the implied warranty of habitability

            The elements of a claim to recover damages based on a breach of the implied warranty of habitability are: (1) the existence of a material defective condition affecting the premises' habitability; (2) notice to the landlord of the condition within a reasonable time after the tenant's discovery of the condition; (3) the landlord was given a reasonable time to correct the deficiency; and (4) resulting damages.  See Erlach v. Sierra Asset Servicing, LLC (2014) 226 Cal.App.4th 1281, 1297.

            Plaintiff alleges material defective conditions on the property that rendered it uninhabitable.  See FAC, ¶¶27, 28, 112 (defects including, but not limited to, asbestos, inadequate fire protection, unsafe construction zones, uneven walking surfaces, inadequate plumbing and dust).  Plaintiff alleges that Defendants had notice of the defective conditions.  Id.at 113.  Defendants intentionally refused to remedy with the intent of coercing Plaintiff into involuntarily relinquishing possession of his unit.  Id. at ¶¶28, 113.  Plaintiffs allege Defendants renovated the property in a way that was intended to render the property uninhabitable.  Id. at ¶26.  Plaintiffs allege the City of Santa Monica issued a Stop Work Order and required mandatory relocation of Plaintiff due to the uninhabitability of the premises.  Id. at ¶29.  When Plaintiff returned, the property was still uninhabitable and the City again ordered that Defendants relocate Plaintiff due to the property’s uninhabitability.  Id. at ¶31.  Thereafter, Defendants filed their allegedly fraudulent notice of withdrawal under the Ellis Act.  Plaintiff sufficiently alleges a breach of implied warranty claim.

            Defendants’ Demurrer to the 9^th cause of action is OVERRULED. 

VI.  Defendants’ Demurrer to the 10^th cause of action for breach of the covenant of quiet enjoyment

            “In the absence of language to the contrary, every lease contains an implied covenant of quiet enjoyment, whereby the landlord impliedly covenants that the tenant shall have quiet enjoyment and possession of the premises.  The covenant of quiet enjoyment insulates the tenant against any act or omission on the part of the landlord, or anyone claiming under him, which interferes with a tenants right to use and enjoy the premises for the purposes contemplated by the tenancy.”  Andrews v. Mobile Aire Estates (2005) 125 Cal.App.4th 578, 588.

            Plaintiff alleges that Defendants entered into a lease with him and assumed a landlord-tenant relationship.  See FAC, ¶¶115, 120.  Plaintiff alleges that Defendants intentionally renovated the property in a way that rendered the premises uninhabitable.  See FAC, ¶¶26-31, 112 (defects including, but not limited to, asbestos, inadequate fire protection, unsafe construction zones, uneven walking surfaces, inadequate plumbing and dust).  Plaintiff alleges that he was forced to vacate the premises due to Defendants’ renovation work and refusal to remediate the hazardous conditions created by the renovation.  Id.  Plaintiff sufficiently alleges a claim for breach of the covenant of quiet enjoyment.

VII.  Defendants’ Demurrer to the 11^th cause of action for violation of Civ. C. §1940.2

            Per CC §1940.2(a)(3), “it is unlawful for a landlord to do any of the following for the purpose of influencing a tenant to vacate a dwelling…(3) Use, or threaten to use, force, willful threats, or menacing conduct constituting a course of conduct that interferes with the tenant’s quiet enjoyment of the premises in violation of Section 1927 that would create an apprehension of harm in a reasonable person.” 

Defendants demur to this claim on grounds that Plaintiff fails to identify what specific menacing conduct they allegedly engaged in to interfere with Plaintiff’s quiet enjoyment of the property.  Defendants fail to cite any authority requiring Plaintiff to specifically allege the verbiage used or the specific menacing conduct engaged in by Defendants.  In addition, Plaintiff’s allegation that Defendants made threats to use force, willful threats and engaged in menacing conduct that interfered with Plaintiff’s quiet enjoyment of the premises is itself an allegation of ultimate fact that must be accepted as true on demurrer.  See Munoz v. Patel (2022) 81 Cal.App.5^th 761, 771 (court must accept as true all properly pleaded facts, including those facts that may be implied or inferred from those expressly alleged but court need not accept the truth of contentions, deductions or conclusions of fact or law). 

Defendants’ Demurrer to the 11^th cause of action for violation of Civil Code §1940.2 is OVERRULED.

VIII.  Defendants’ Demurrer to the 12^th cause of action for violation of Civil Code §1954

            Civil Code §1954 only allows a landlord to enter a dwelling unit in certain specific cases and only after satisfying certain requirements.  See Civ. C. §1954(a).  Plaintiff alleges Defendants granted third parties the right to enter his unit without his permission.  See FAC, ¶133.  Plaintiff alleges none of the criteria allowing a landlord to enter a residential unit existed when Defendants’ granted third parties the right to enter Plaintiff’s unit.  Id. at ¶134.  Plaintiff alleges Defendants did not provide Plaintiff with the requisite notice under Civil Code §1954.  Id. at 135.  Plaintiff sufficiently alleges a violation of Civil Code §1954. 

Defendants fail to cite any authority requiring Plaintiff to allege the date of the unauthorized entry or the name of parties who entered the unit. Plaintiff also alleges that “Defendants” are alter egos of one another, including the owner, the owner’s managing member and the managing member’s member.  Plaintiff alleges that “Defendants” granted the third- parties permission to enter Plaintiff’s unit in violation of Civil Code §1954.  Based on these allegations, Plaintiff sufficiently states a claim for violation of Civil Code §1954 against all Defendants. 

            Defendants’ demurrer to the 12^th cause of action for violation of Civil Code §1954 is OVERRULED.

IX.  Defendants’ Demurrer to the 13^th cause of action for violation of B&PC §17200

            “As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.”  Bus. & Prof. Code, § 17200.  “By prohibiting unlawful business practices, section 17200 ‘borrows’ violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.”  De La Torre v. CashCall, Inc. (2018) 5 Cal.5^th 966, 980 (plaintiffs stated a UCL cause of action based on high interest rate consumer loans; such loans violated Financial Code §22302 and UCL claim could be stated based on that violation even though Financial Code §22302 did not itself create a separate right of action).   

Defendants argue the 17200 claim fails to specific the misrepresentations made.  As discussed above, Plaintiff sufficiently alleges Defendants’ fraudulent misrepresentations and violations of other laws (Ellis Act, Santa Monica Municipal Code and Santa Monica Rent Control Board Regulations) that would support a B&PC §17200 based on “fraudulent” and “unlawful” conduct. 

Defendants’ demurrer to the 13^th c/a for violation of B&PC §17200 is OVERRULED.

X.  Defendants’ Demurrer to the 14^th c/a for IIED

            Defendants demur to the IIED cause of action on grounds that extreme and outrageous conduct is not alleged.  To state an IIED claim, the plaintiff must allege facts showing: (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff's suffering severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by the defendant's outrageous conduct.  See Smith v. BP Lubricants USA Inc. (2021) 64 Cal.App.5th 138, 147 (plaintiff alleged outrageous conduct based on three racially offensive statements made by defendant’s employee before 50 of plaintiff’s coworkers and 3 of his supervisors); Berkley v. Dowds (2007) 152 Cal.App.4th 518, 534 (affirming order sustaining demurrer to IIED cause of action without leave to amend based on failure to allege outrageous conduct).

            Whether conduct is outrageous is usually a question of fact but can be determined as an issue of law.  See Smith, supra, 64 Cal.App.5th at 147.  “Mere insulting language, without more, ordinarily would not constitute extreme outrage unless it is combined with aggravated circumstances.  But behavior may be considered outrageous if a defendant (1) abuses a relation or position which gives him power to damage the plaintiff's interest; (2) knows the plaintiff is susceptible to injuries through mental distress; or (3) acts intentionally or unreasonably with the recognition that the acts are likely to result in illness through mental distress.”  Id. at 147.

            The conduct alleged against Defendants is not mere insulting language.  In addition, Defendants were in a position of power to damage Plaintiff’s interest, Defendants allegedly knew of Plaintiff’s disabled status and Defendants acted intentionally and with knowledge of Plaintiff’s susceptibility to mental distress due those acts.  Defendants’ allegedly (1) intentionally renovated the property in a way that rendered the premises uninhabitable; (2) did so with the intent to injure Plaintiff by exposing him to hazardous conditions and with the intent to drive him from his home; (3) lied about whether Defendants were withdrawing the property from the rental market in order to induce Plaintiff to leave the unit; and (4) did all of this to circumvent rent control and re-rent the property at market rate.  See FAC, ¶¶24-44.  The Court cannot find that such conduct is not extreme and outrageous as an issue of law.  A trier of fact must make the determination. 

            Defendants’ Demurrer to the 14^th cause of action for IIED is OVERRULED. 

XI.  Motion to Strike is DENIED

            A. Punitive Damages against corporate defendants

            Scott Walker is the only member of WNMS Communities, LLC.  Id. at ¶24.  Defendants 1238 10^th Street, LLC is the owner of properties.  Id. WNMS Communities, LLC is 1238 10^th Street, LLC’s managing member. Id.  All Defendants are allegedly the alter egos of one another.  Id. at ¶20.  Based on these allegations, Plaintiff alleges grounds to hold corporate Defendants liable for the wrongful conduct of individual Defendants.

            B.  Punitive damage allegations of malice, fraud and oppression

            Plaintiff successfully states claims for IIED, fraud and violation of SMMC §4.56.020, which expressly provides for recovery of punitive damages.  Plaintiff therefore states a claim for punitive damages based on both fraud and malice.

            C.  Attorney’s Fees

            Defendants argue cannot recover attorney’s fees under CCP §1021.5.  Plaintiff does not allege a request for fees under CCP §1021.5.

Plaintiff alleges entitlement to attorney’s fees pursuant to SMMC §4.56.  Defendant does not challenge Plaintiff’s cause of action for violation of SMMC §4.56. 

            Plaintiff alleges entitlement to attorney’s fees pursuant to SMMC §6.20.100(d).  Plaintiff’s cause of action for violation of SMMC §6.20 is sufficiently stated. 

            Plaintiff alleges entitlement to attorney’s fees pursuant to Gov. C. §12965(b), which provides for recovery fees and costs in a FEHA action.  Plaintiff’s cause of action for violation of Gov. C. §12955 is sufficiently stated.

            D. References to SM Rent Control Board Regulations, Government Code §7060, et seq., SMMC §4.56 as basis for unlawful business practice

            Defendants seek to strike these references in the 17200 claim on grounds that no court has ever found that Defendants violated SM Rent Control Board Regulations, Government Code §7060, et seq., SMMC §4.56.  A prior determination that Defendants’ violated these laws is not required to state a claim under B&PC §17200.  Plaintiff need only allege facts that would support a finding that these laws were violated, which Plaintiff does.