Judge: Holly J. Fujie, Case: 22STCV14135, Date: 2022-12-15 Tentative Ruling

DEPARTMENT 56 JUDGE HOLLY J. FUJIE, LAW AND MOTION RULINGS. The court makes every effort to post tentative rulings by 5.00 pm of the court day before the hearing. The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)], and are also available in the courtroom on the day of the hearing [see CRC 3.1308(b)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) call Dept 56 by 8:30 a.m. on the day of the hearing (213/633-0656) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no telephone call is necessary and all parties should appear at the hearing in person or by Court Call. Court reporters are not provided, and parties who want a record of motions and other proceedings must hire a privately retained certified court reporter.

Case Number: 22STCV14135    Hearing Date: December 15, 2022    Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

MOVING PARTY: Defendant City of Monterey Park (“Moving Defendant” or the “City”)

RESPONDING PARTY: Plaintiff

BACKGROUND

This action arises out of a dispute over the abatement of a public nuisance on real property (the “Property”) owned by Plaintiff.  The currently operative first amended complaint (the “FAC”) alleges: (1) declaratory relief; (2) breach of contract – Development Agreement; (3) breach of implied covenant of good faith and fair dealing – Development Agreement; (4) breach of contract – Settlement Agreement; (5) breach of implied covenant of good faith and fair dealing- Settlement Agreement; and (6) declaratory relief regarding ability to foreclose on deeds of trust.

In relevant part, the FAC alleges: On December 31, 2015, Moving Defendant (as attorney for the People of the State of California (the “People”) initiated an abatement action in the case styled as The People of the State of California, ex rel., Mark D. Hensley, City Attorney for the City of Monterey Park v. Center Int’l Investments, Inc., LASC Case No. BC605788 (the “Abatement Action”).  (FAC ¶ 12.)

Plaintiff and the People entered into a settlement agreement (the “Settlement Agreement”) to resolve the Abatement Action on April 25, 2017.  (FAC ¶ 13, Exhibit A.)  The Settlement Agreement required Plaintiff to take steps to permanently abate the nuisance on the Property.  (Id.)  The Settlement Agreement was subsequently amended twice to alter its timeline and objectives.  (See id.)   

Plaintiff began submitting applications for permits on or around January 13, 2020.  (FAC ¶ 18.)  Plaintiff and Moving Defendant (the “Parties”) thereafter entered into a development agreement (the “Development Agreement”).  (FAC ¶ 19, Exhibit B.)  The City Council Moving Defendant to enter into the Development Agreement on June 16, 2021.  (FAC ¶ 20.)  The Development Agreement became effective July 17, 2021.  (FAC ¶ 21.) 

On or about July 21, 2021, litigation was filed to challenge Plaintiff’s development of the Property pursuant to the California Environmental Quality Act (“CEQA”) (the “CEQA Litigation”).  (FAC ¶ 25.)  Plaintiff and Defendant entered into a Joint Defense Agreement regarding the CEQA Litigation on or about August 10, 2021.  (FAC ¶ 26.)  On or around September 20, 2021, the Parties disagreed on the scope of the CEQA Litigation and Moving Defendant stopped discussing the matter with Plaintiff.  (FAC ¶ 28.) 

On October 13, 2021, Moving Defendant issued a notice of default (the “NOD”) pursuant to the Settlement Agreement and assumed control over the development of the Property.  (See FAC ¶ 121.) 

Moving Defendant filed a demurrer (the “Demurrer”) to the FAC on the grounds that the FAC fails to state facts sufficient to constitute a cause of action.

REQUEST FOR JUDICIAL NOTICE

            Moving Defendant’s Request for Judicial Notice is GRANTED.  Plaintiff’s Request for Judicial Notice is GRANTED.  While the Court takes judicial notice of the Parties’ submitted documents, it does not take judicial notice of the truth of all matters stated therein.  (See Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 193-94.)

DISCUSSION

Meet and Confer

The meet and confer requirement has been met.

Legal Standard

A demurrer tests the sufficiency of a complaint as a matter of law.  (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.)  The court accepts as true all material factual allegations and affords them a liberal construction, but it does not consider conclusions of fact or law, opinions, speculation, or allegations contrary to law or judicially noticed facts.  (Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal.App.4th 1246, 1254.)  With respect to a demurrer, the complaint must be construed liberally by drawing reasonable inferences from the facts pleaded.  (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.)  A demurrer will be sustained without leave to amend if there exists no reasonable possibility that the defect can be cured by amendment.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) 

First Cause of Action: Declaratory Relief

The elements of a declaratory relief claim are: (1) a proper subject of declaratory relief; and (2) an actual controversy involving justiciable questions relating to the party’s rights or obligations.  (See Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.) 

            The FAC alleges that Moving Defendant breached Section 17 of the Development Agreement, which requires that the Parties cooperate in the defense of any litigation challenging the validity of the Development Agreement (the “Cooperation Clause”), and seeks a declaration regarding Plaintiff’s responsibility to indemnify Moving Defendant’s defense in the CEQA Litigation.  (See FAC ¶¶ 140-41; Exhibit B §§ 17, 19.)   

            Moving Defendant argues that there is no basis for the first cause of action because its indemnification demand letter was made pursuant to its rights under the Settlement Agreement rather than the Development Agreement, which Moving Defendant argues was not yet effective as of July 20, 2022, the date it tendered its defense.  The Court finds that regardless of the operative date of the Development Agreement, Plaintiff has sufficiently alleged facts to support the first cause of action because it seeks a determination of its obligations under the Development Agreement in light of Moving Defendant’s alleged breach of the Cooperation Clause.  Furthermore, Moving Defendant’s argument that the Demand Letter unequivocally communicated its intent to exclusively enforce the Settlement Agreement requires a factual analysis inappropriate for resolution on demurrer.  (See FAC, Exhibit D.)  The Court therefore OVERRULES the Demurrer to the first cause of action.

Second Cause of Action: Breach of Contract

The elements of a breach of contract claim are: (1) the existence of the contract; (2) plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) the resulting damages to the plaintiff.  (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)  Where a complaint is based on a written contract which it sets out in full, a general demurrer to the complaint admits not only the contents of the instrument but also any pleaded meaning to which the instrument is reasonably susceptible.  (Aragon-Haas v. Family Security Ins. Services Inc. (1991) 231 Cal.App.3d 232, 240.)  While a plaintiff’s interpretation of the contract ultimately may prove invalid, it is improper to resolve the issue against them on their own pleading.  (Id.)  On a demurrer, the court must consider the sufficiency of the allegations, including any parol evidence allegations, to determine whether the contract is reasonably susceptible to plaintiff’s alleged interpretation.  (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1128.)

The FAC alleges that Moving Defendant breached the Development Agreement by: (1) denying Plaintiff’s application for a necessary permit on December 17, 2021; and (2) failing to cooperate with Plaintiff in the CEQA Litigation.  (See FAC ¶¶ 150-51.)

Moving Defendant primarily argues that the second cause of action fails to state a breach of contract claim because the FAC does not allege that Plaintiff exhausted its administrative remedies to challenge the denial of its permit application as required under the Monterey Park City Municipal Code (“MPMC”) section 16.01.040.  The FAC’s allegations concerning Moving Defendant’ breach the Development Agreement are not limited to the permit denial.  A demurrer must dispose of an entire cause of action to be sustained.  (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)  The Court therefore OVERRULES the Demurrer to the second cause of action.

Third Cause of Action

Every contract contains an implied covenant of good faith and fair dealing providing that no party to the contract will do anything that would deprive another party of the benefits of the contract.  (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720.)  The implied covenant protects the reasonable expectations of the contracting parties based on their mutual promises. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 373-74.)  In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.  (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-32.) 

The FAC alleges that Moving Defendant breached the implied covenant of good faith dealing by failing to issue Plaintiff a necessary permit.  (See FAC ¶¶ 156-57.)  With respect to this cause of action, the Court agrees with Moving Defendant’s argument regarding the FAC’s failure to allege that Plaintiff exhausted its administrative remedies. 

The general rule of exhaustion of administrative remedies in California is that where an administrative remedy is provided by statute, relief must be sought from the administrative body and this remedy exhausted before the courts will act.  (Los Globos Corp. v. City of Los Angeles (2017) 17 Cal.App.5th 627, 632.)  There are three exceptions to the rule of exhaustion: (1) an exception where the administrative agency does not provide an adequate remedy; (2) the remedy does not follow the requirements of due process; and (3) where it is futile to pursue a remedy. (Id. at 633.)

Here, the MBMC provides a mechanism to appeal the denial of building permits.  Plaintiff argues that because it seeks monetary damages for Moving Defendant’s alleged breach of the Development Agreement, it was not required to exhaust its administrative remedies before filing this action.  The case cited by Plaintiff to support this argument, Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes 191 Cal.App.4th 435, 457 (“Mammoth Lakes”) is inapposite.  The Mammoth Lakes court found that the plaintiff was not required to exhaust its administrative remedies before filing a civil action because the gravamen of its claims was the defendant city’s failure to proceed under a development contract, rather than an administrative decision to deny a building application.  (See Mammoth Lakes, supra, 191 Cal.App.4th at 456.)  As a result, there was no administrative process that enabled the plaintiff to seek remedies.  (Id.)  Here, the implied covenant claim is rooted in a decision for which there is a statutory appeal mechanism.  (See MPMC Ch. 16.01.040 § 113.)  The Court therefore SUSTAINS the Demurrer to the third cause of action with 20 days leave to amend.

Fourth and Fifth Causes of Action

The FAC alleges that Moving Defendant breached the Settlement Agreement by failing to properly process Plaintiff’s permit application and subsequently seizing control of the Property.  (See FAC ¶ 161.)  

The Second Amendment to the Settlement Agreement provides:

“In the event that Plan B is not underway by the deadline set forth in the Amended Project Schedule, CITY may (1) enter the Property, abate the Nuisance, and/or complete Plan B, and (2) foreclose on the Liens recorded in its favor pursuant to Section 2(A)(i) to recover the cost of completing Plan B. In the event that the actual completion cost is less than the amounts recovered by CITY through the foreclosure of the Liens, CITY will return all sums recovered exceeding the actual cost of completion of Plan B to CII.”  (FAC ¶ 169.)

The FAC does not clearly establish that development was underway in accordance with the deadlines established by the Parties.[1]  Accordingly, as presently alleged, the FAC does not sufficiently allege that Moving Defendant breached the Settlement Agreement by taking control of the Property.  Furthermore, insofar as the claim is based on the permit denial, the FAC fails to allege that Plaintiff exhausted its administrative remedies, as discussed above.  The Court therefore SUSTAINS the Demurrer to the fourth and fifth causes of action with 20 days leave to amend.

Sixth Cause of Action

            The sixth cause of action is rooted in Moving Defendant’s alleged breach of the Settlement Agreement by taking control of the Property.  Accordingly, for the reasons stated above, the Court SUSTAINS the Demurrer to the sixth cause of action with 20 days leave to amend.

Moving party is ordered to give notice of this ruling.

In consideration of the current COVID-19 pandemic situation, the Court¿strongly¿encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative.¿¿If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to¿SMC_DEPT56@lacourt.org¿stating your intention to appear in person.¿ The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date.¿ This rule is necessary to ensure that adequate precautions can be taken for proper social distancing. 

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org.  If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar. 

  Dated this 15th day of December 2022