Judge Holly J. Fujie, Case 22STCV26855 2022-12-15 Tentative Ruling

This action arises out of an alleged breach of an agreement (the “Agreement”) to purchase real property (the “Property”) entered into by Moving Defendant as the seller of the Property and Plaintiff’s predecessor in interest, HSK Properties, LLC (“HSK” or “Buyer”). On August 18, 2022, Plaintiff filed a complaint (the “Complaint”) alleging: (1) breach of contract; (2) specific performance for breach of contract; and (3) damages for breach of contract. On October 3, 2022, Moving Defendant filed a motion to expunge lis pendens (the “Motion”), arguing that the Court should expunge the notice of pendency Plaintiff caused to be recorded against the Property in connection to this action because Plaintiff cannot establish the probable validity of its claims.[1]

Moving Defendant’s evidentiary objections numbers 2 and 4 are SUSTAINED. Moving Defendant’s objections numbers 1, 3, and 5 are OVERRULED.

Under California Code of Civil Procedure (“CCP”) section 405.20, a party to an action who asserts a real property claim may record a notice of pendency of action (lis pendens)[2] in which that real property claim is alleged. (CCP § 405.20.) In proceedings seeking to expunge a notice of pendency of action, the court shall order the notice expunged if it finds that the pleading on which the notice is based does not contain a real property claim or the claimant has not established the probable validity of the real property claim by a preponderance of the evidence. (CCP §§ 405.31, 405.32.) The claimant opposing a motion to expunge a notice of pendency bears the burden of showing that the notice of pendency is based on a real property claim and that the claimant has a probability of prevailing on that real property claim. (CCP § 405.30.)

In determining whether a real property claim is being asserted, the court must engage in a demurrer-like analysis. (Park 100 Investment Group II, LLC v. Ryan (2009) 180 Cal.App.4th 795, 808.) Rather than analyzing whether the pleading states any claim at all, as on a general demurrer, the court must undertake the more limited analysis of whether the pleading states a real property claim. (Id.) Probable validity, with respect to a real property claim, means that it is more likely than not that the claimant will obtain a judgment against the defendant on the claim. (CCP § 405.3.) The burden is on the party opposing the motion to expunge—i.e., the claimant-plaintiff—to establish the probable validity of the underlying claim. (Howard S. Wright Construction Co. v. Superior Court (2003) 106 Cal.App.4th 314, 319.) The claimant-plaintiff must establish the probable validity of the claim by a preponderance of the evidence. (Id.) Only admissible or verified evidence is permitted on the motion. (See Burger v. Superior Court (1984) 151 Cal.App.3d 1013, 1019.)

A real property claim is one in which the cause or causes of action in a pleading which would, if meritorious, affect: (1) title to, or the right to possession of, specific real property; or (2) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility. (CCP§ 405.4.) A buyer's action for specific performance of a real property purchase and sale agreement is an example of an action in which a lis pendens is both appropriate and necessary. (BGJ Associates, LLC v. Superior Court (1999) 75 Cal.App.4th 952, 967.)

Moving Defendant does not argue that Plaintiff has not asserted a real property claim, and the Court finds that Plaintiff’s allegations (both under the Complaint and FAC) allege a real property claim that is a proper basis for the recording of a lis pendens. Instead, Moving Defendant argues that Plaintiff cannot demonstrate the probable validity of its allegations because the terms of the Agreement allowed Moving Defendant to terminate the Agreement.

The court shall order that the notice be expunged if the court finds that the claimant has not established by a preponderance of the evidence the probable validity of the real property claim. (CCP § 405.32.) “Probable validity,” with respect to a real property claim, means that it is more likely than not that the claimant will obtain a judgment against the defendant on the claim. (CCP § 405.3.) Good faith and a proper purpose are no longer sufficient to maintain notice of¿lis¿pendens. (Hunting World, Inc. v. Superior Court¿(1994) 22 Cal.App.4th 67, 70.) The claimant must show a probably valid claim. (Id.) To establish “probable validity,” a plaintiff may offer evidence, declarations, or oral testimony. (See¿CCP § 405.30.) ¿The statute¿contemplates a “minitrial”¿on the merits in an abbreviated proceeding that parallels the procedure long used by a trial court in deciding whether¿to issue a writ of attachment or possession, or to grant a preliminary injunction. (Amalgamated Bank v. Superior Court¿(2007) 149 Cal.App.4th 1003, 1016.)¿

Plaintiff provides evidence that HSK and Moving Defendant entered into the Agreement, entitled the “Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate,” pursuant to which HSK would buy the Property from Moving Defendant for $7,350,000. (Declaration of Melody Eshadhian (“Eshadhian Decl.”) ¶ 3, Exhibit A.)

“The closing of this transaction is contingent upon the satisfaction or waiver of the following contingencies. IF BUYER FAILS TO NOTIFY ESCROW HOLDER, IN WRITING, OF THE DISAPPROVAL OF ANY OF SAID CONTINGENCIES WITHIN THE TIME SPECIFIED THEREIN, IT SHALL BE CONCLUSIVELY PRESUMED THAT BUYER HAS APPROVED SUCH ITEM, MATTER OR DOCUMENT. Buyer's conditional approval shall constitute disapproval, unless provision is made by the Seller within the time specified therefore by the Buyer in such conditional approval or by this Agreement, whichever is later, for the satisfaction of the condition imposed by the Buyer. Escrow Holder shall promptly provide all Parties with copies of any written disapproval or conditional approval which it receives. With regard to subparagraphs (a) through (m) the pre-printed time periods shall control unless a different number of days is inserted in the spaces provided.” (Id. at § 9.1.)

Section 9.2 provides that the contingencies enumerated in Section 9.1 (the “Buyer Contingencies”) are for the benefit of Buyer. (Id. at § 9.2.)

“If any of Buyer’s Contingencies or any other matter subject to Buyer’s approval is disapproved as provided for herein in a timely manner (‘Disapproved Item’), Seller shall have the right within 10 days following the receipt of notice of Buyer’s disapproval to elect to cure such Disapproved Item prior to the Expected Closing Date (‘Seller’s Election’). Seller’s failure to give to Buyer within such period, written notice of Seller’s commitment to cure such Disapproved Item on or before the Expected Closing Date shall be conclusively presumed to be Seller’s Election not to cure such Disapproved Item. If Seller elects, either by written notice or failure to give written notice, not to cure a Disapproved Item, Buyer shall have the right, within 10 days after Seller’s Election to either accept title to the Property subject to such Disapproved Item, or to terminate this Agreement. Buyer's failure to notify Seller in writing of Buyer's election to accept tote to the Property subbed to the Disapproved item without deduction or offset shall constitute Buyer's election to terminate this Agreement. Unless expressly provided otherwise herein, Seller’s right to cure shall not apply to the remediation of Hazardous Substance Conditions or to the Financing Contingency. Unless the Parties mutually instruct otherwise, if the time periods for the satisfaction of contingencies or for Seller’s and Buyer’s elections would expire on a date after the Expected Closing Date, the Expected Closing Date shall be deemed extended for 3 business days following the expiration of: (a) the applicable contingency period(s), (b) the period within which the Seller may elect to cure the Disapproved Item, or (c) if Seller elects not to cure, the period within which Buyer may elect to proceed with this transaction, whichever is later.” (Id. at § 9.3.)

HSK and Moving Defendant agreed that the due diligence period would expire on August 1, 2022. (Eshadhian Decl. ¶ 5.) On July 30, HSK, through its agent, communicated to Moving Defendant that in light of learning of certain environmental and title issues affecting the Property, it would be willing to waive due diligence if Moving Defendant agreed to certain conditions. (See Eshadhian Decl., Exhibit C.)^{^[3]}

On August 3, 2022, HSK reiterated its disapproval and request for cure, and represented that it still wanted to close. (See Eshadhian Decl., Exhibit E.) Later on August 3, 2022, Moving Defendant communicated that it would not decrease the asking price and that it had elected to cancel the escrow. (See id.)

On August 13, 2022, Moving Defendant provided HSK with information regarding a franchise agreement that affected the Property and stated that HSK had until August 15, 2022 to make a decision. (See Eshadhian Decl., Exhibit F.) That day, HSK provided notice that it waived due diligence and requested that Moving Defendant proceed with closing pursuant to the Agreement. (Eshadhian Decl., Exhibit G.) Moving Defendant thereafter refused to proceed to close. (Eshadhian Decl. ¶ 14.)

Plaintiff argues that after HSK’s July 30, 2022 communication, Moving Defendant had 10 days to decide whether to cure or to require HSK to accept title pursuant to Section 9.3 and that its election to cancel escrow therefore constituted a breach of the Agreement. Moving Defendant, meanwhile, argues that Section 9.3 did not govern its authority to terminate the Agreement based on HSK’s expressed disapprovals to specific contingencies its failure to waive the contingencies. Moving Defendant argues that it was entitled to cancel the Agreement under Section 8.7 of the Agreement and was not bound by Section 9.3 because the Agreement contains a clause providing that time is of the essence, and HSK did not timely satisfy or waive the contingencies.

In particular, Moving Defendant argues that Section 9.3 did not restrict its ability to terminate the Agreement because HSK expressed disapproval of “environmental issues” related to the “Hazardous Substance Conditions Report” contingency (see Eshadhian Decl., Exhibit A § 9.1(c)), which Moving Defendant did not have the right to cure. The Court is persuaded by this argument. HSK’s August 1, 2022 email expressly identifies substances, such as trichloroethylene that qualify as hazardous substances under the Agreement. (See Declaration of Aren Ohanian (“Ohanian Decl.”), Exhibit D; 40 C.F.R. § 302.4.)

Moving Defendant further argues that the communications that occurred between August 13, 2022 through August 15, 2022 were not made in connection to the terms of the original Agreement but instead were negotiations in anticipation of a potential addendum that would reinstate the Agreement. (See Supp. Ohanian Decl. ¶ 4, Exhibit L.) Moving Defendant presents evidence that these discussions concern a tertiary agreement regarding a gas station which operates at the Property. (See Ohanian Decl. ¶¶ 3, 4.)

Upon weighing the evidence submitted by Plaintiff and Moving Defendant, the Court finds that Plaintiff has not met its burden to establish the probable validity of its real property claim. The Court therefore GRANTS the Motion.

Moving Defendant requests attorney’s fees in the amount of $9,975 in connection to the Motion. (Declaration of John Juenger (“Juenger Decl.”) ¶ 3.) This amount represents: (1) 13 hours preparing the moving papers; (2) an anticipated 8 hours reviewing opposition papers, preparing reply papers, and attending the hearing at a rate of $475 per hour. (Id.)

The Court awards Moving Defendant \ attorney’s fees in the reasonable amount of $2,850, which represents six hours of work at an hourly rate of $475 per hour. (See Moran v. Oso Valley Greenbelt Assn. (2004) 117 Cal.App.4th 1029, 1034.)

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.

[1] On December 5, 2022, Plaintiff filed the currently operative first amended complaint (the “FAC”) alleging: (1) breach of contract. The FAC requests specific performance as a remedy for the breach of contract claim. (See FAC 7:5-9.)

[2] The Court uses the terms “notice of pendency” and “lis pendens” interchangeably.

[3] The due diligence period was thereafter extended to August 2, 2022. (See Eshadhian Decl., Exhibit D.)