Judge: Holly J. Fujie, Case: 22STCV14135, Date: 2023-04-24 Tentative Ruling

Case Number: 22STCV14135    Hearing Date: April 24, 2023    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 second amended complaint (the “SAC”) 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 SAC 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”).  (SAC ¶ 12.)  On April 25, 2017, Plaintiff and the People entered into a settlement agreement (the “Settlement Agreement”) to resolve the Abatement Action.  (SAC ¶ 13, Exhibit A.)  The Settlement Agreement required Plaintiff to take steps to permanently abate the nuisance on the Property, including slope abatement.  (Id.)  The Settlement Agreement was subsequently amended twice to alter its timeline and objectives.  (See id.)   Under the Settlement Agreement, permanent slope stabilization efforts could take one of two possible forms, “Plan A” and “Plan B.”  (SAC ¶ 15.)   Plan A required the construction of residential homes and required approvals (“Entitlements”) from the City.  (SAC ¶ 16.)  Plan B did not include the development of residential homes and was required to be completed in 2022 regardless of the approval of Plan A.  (SAC ¶ 17.) 

Plaintiff began submitting applications for the Entitlements on or around January 13, 2020.  (SAC ¶ 18.)  Plaintiff and Moving Defendant (the “Parties”) thereafter entered into a development agreement (the “Development Agreement”).  (SAC ¶ 19, Exhibit B.)  The City Council authorized Moving Defendant to enter into the Development Agreement on June 16, 2021.  (FAC ¶ 20.)  The Development Agreement became effective July 17, 2021.  (SAC ¶ 21.)  The Development Agreement included an indemnification provision that required Plaintiff to indemnify the City in litigation arising out of the slope abatement project.  (SAC ¶ 24.)  The Development Agreement also included a cooperation clause that required the Parties to cooperate in the defense of any third-party legal challenge to the Development Agreement.  (SAC ¶ 25.)

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”).  (SAC ¶ 26.)  On or around July 21, 2021, the City demanded indemnification for the CEQA Litigation from Plaintiff pursuant to both the Development and Settlement Agreements.  (See SAC ¶ 27.) 

On August 10, 2021, the Parties entered into a Joint Defense Agreement regarding the CEQA Litigation.  (SAC ¶ 28.)  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.  (SAC ¶ 30.)  The Parties’ relationship thereafter deteriorated, which impacted the pace of the CEQA litigation and delayed Plaintiff’s ability to defend its Entitlements.  (SAC ¶ 31.)  On October 13, 2021, Moving Defendant informed Plaintiff that it would assume control over its separate settlement negotiations in the CEQA Litigation.  (SAC ¶ 32.)  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 SAC ¶ 172.) 

Moving Defendant filed a demurrer (the “Demurrer”) to the FAC on the ground 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 and Second Causes of Action

As a preliminary matter, on December 15, 2022, the Court overruled Moving Defendant’s demurrer to the first and second causes of action alleged in the first amended complaint (the “FAC”).  The Court therefore OVERRULES the current Demurrer to the first and second causes of action alleged in the SAC. 

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 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.)

The SAC alleges that Moving Defendant breached the implied covenant of good faith dealing by failing to issue Plaintiff a necessary permit and using the permit as the justification for taking control of the Property.  (See SAC ¶¶ 165-66.) 

The Court finds that the SAC includes allegations that the FAC lacked which are sufficient to state the third cause of action under Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes 191 Cal.App.4th 435, 457 (“Mammoth Lakes”).  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.)

The third cause of action arises out of Moving Defendant’s allegedly bad faith conduct that it used as justification for denying Plaintiff its rights under the Development Agreement.  The failure to issue permits in and of itself is not the basis for the cause of action.  The Court therefore OVERRULES the Demurrer to the third cause of action.

Fourth through Sixth Causes of Action

The SAC alleges that Moving Defendant breached the Settlement Agreement by delaying and improperly processing Plaintiff’s permit applications, subsequently seizing control of the Property, and failing to implement proper safety measures after it took control of the Property.  (See SAC ¶¶ 71-72.) 

The Second Amendment to the Settlement Agreement includes a provision which states:

“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 SAC sufficiently alleges that Moving Defendant breached the Settlement Agreement.  In addition, the Court is not persuaded by Moving Defendant’s argument that it is not a party to the Settlement Agreement.  Although the City Entered into the Settlement Agreement on behalf of the People, the document separately identifies Moving Defendant and the People and imposes duties directly on Moving Defendant.  Further, the Settlement Agreement does not preclude Plaintiff from filing a separate action for breach.  The statutory procedure for enforcing settlement agreements under California Code of Civil Procedure section 664.6 is not exclusive. It is merely an expeditious, valid alternative statutorily created.  (Nicholson v. Barab (1991) 233 Cal.App.3d 1671, 1681.)  Settlement agreements may also be enforced by motion for summary judgment, by a separate suit in equity or by amendment of the pleadings to raise the settlement as an affirmative defense.  (Id.)  The Court therefore OVERRULES the Demurrer to the fourth through sixth causes of action.

Moving Defendant is ordered to file an answer within 20 days of the date of this order.

Moving party is ordered to give notice of this ruling.

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 24th day of April 2023