Judge: James L. Crandall, Case: 22-1241813, Date: 2022-08-18 Tentative Ruling

Demurrer to Amended Complaint

Defendants, The Source At Beach, LLC, The Source Office, LLC, M+D Properties, The Source Hotel, LLC’s (Defendants) Demurrer to the First Amended Complaint is SUSTAINED in part as to the first, fourth, eighth and ninth causes of action and the third cause of action against Source Office and Source Hotel, with 20 days leave to amend.

The demurrer and otherwise OVERRULED as to all other causes of action against all other defendants.

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

Additionally, a defendant may demurrer on the grounds that the pleading is uncertain. (Code Civ. Proc., § 430.30, subd. (f).) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) The court “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . .” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452; see also Stevens v. Sup. Ct. (1999) 75 Cal.App.4th 594, 601.) “When a court evaluates a complaint, the plaintiff is entitled to reasonable inferences from the facts pled.” (Duval v. Board of Trustees (2001) 93 Cal.App.4th 902, 906.)

“Generally it is an abuse of discretion to sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment.” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.)

Defendants demurrer to the First Amended Complaint (FAC) as follows:

1. First cause of action against Source Office and Source Hotel

2. Third cause of action against Source Beach, Source Office and Source Hotel

3. Fourth cause of action against Source Beach, Source Office, Source Hotel

4. Fifth cause of action against Source Beach

5. Eighth cause of action against Source Office, Source Hotel and M+D

6. Ninth cause of action against Source Office, Source Hotel and M+D

Request for Judicial Notice

Defendants request judicial notice of the following in support of their demurrer:

Shady Bird Lending, LLC v. The Source Hotel, LLC, Case No. 30-2021-01183489-CU-OR-CJC (the “Other State Court Action”), filed by Shady Bird against Source Hotel, LLC, in the Superior Court of California, County of Orange, North Justice Center. (Exhibit 1 to Request for Judicial Notice)

Order (1) Approving Receiver’s Final Accounting; (2) Approving Receiver’s Fees and Expenses; (3) Approving Final Disbursement of Funds; (4) Exonerating Receiver’s and Plaintiff’s Bonds; and (5) Discharging the Receiver, entered on January 31, 2022, in Case No. 30-2021-01183489-CU-OR-CJC. (Exhibit 2 to Request for Judicial Notice).

Defendants’ request is granted. The existence and legal significance of these documents are proper matters for judicial notice. (Evidence Code § 452 (d).)

Meet and Confer Efforts

Defense counsel Patricia Cyerman attests that on April 7, 2022, she and Plaintiff’s counsel met and conferred telephonically regarding the arguments raised in Defendants’ demurrer. (Declaration of Patricia Cyerman, ¶ 2.)

The Cyerman Declaration fulfills the requirements of Code of Civil Procedure section 430.41.

First Cause of Action for Breach of Contract

A cause of action for breach of contract consists of the following elements: (1) the existence of a contract; (2) the plaintiff’s performance or excuse for nonperformance; (3) the defendant’s breach; and (4) the resulting damages to the plaintiff. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)

“The essence of a contract is the meeting of minds on the essential features of the agreement.” (Krasley v. Superior Court (1980) 101 Cal.App.3d 425, 431.) A contract “is unenforceable if the parties fail to agree on a material term or if a material term is not reasonably certain.” (Lindsay v. Lewandowski (2006) 139 Cal.App.4th 1618, 1623.)

A written contract must be pled verbatim in the body of the complaint, be attached to the complaint and incorporated by reference, or be pled according to its legal effect. (Bowden v. Robinson (1977) 67 Cal.App.3d 705, 718.) An allegation of an oral agreement must “set[] forth the substance of its relative terms.” (Gautier v. General Tel. Co. (1965) 234 Cal.App.2d 302, 305.)

Defendants assert that the first cause of action fails to state a claim against Source Office and Source Hotel because the first cause of action only alleges wrongdoing by Source Beach. (Demurrer, 4-6.) Further, Defendants assert that the FAC admits that Source Office and Source Hotel were only joined because they are parties to the CC&R, so that they would be bound to a judgment. (See FAC, ¶ 3.)

Plaintiff argues that Source Office and Source Hotel’s joinder on all causes of action is appropriate even though the FAC only alleges that Source Office and Source Hotel are parties to the CC&Rs. (Opposition, 2-4.) Thus, Plaintiff argues that the demurrer should be overruled because any judgment may incorporate the correct interpretation of the CC&Rs and it would be contrary to judicial economy for the court to sustain a demurrer by these defendants on this basis alone.

Plaintiff cites to Morrical v. Rogers, (2013) 220 Cal. App. 4th 438, 462 (Morrical) in support of the opposition to the first cause of action.

Here, the FAC alleges that Plaintiff, pursuant to the CC&Rs acquired certain rights and easements to develop the hotel. (FAC, ¶ 15.) Plaintiff has performed all conditions precedent pursuant to the CC&Rs. (FAC, ¶ 16.) Source Beach has committed various violations of the CC&Rs, including by shutting off electricity and cutting power to the hotel’s elevator. (see FAC, ¶ 17A-B.)

The court finds that the first cause of action is insufficiently pled. These allegations do not demonstrate that Source Hotel and Source Office, rather than Source Beach, engaged in any wrongdoing in violation of the CC&Rs. Plaintiff’s opposition arguments are unavailing, as whether or not joinder of Source Hotel and Source Office are appropriate has no bearing on whether Plaintiff has alleged a breach of contract claim against these defendants.

Finally, Defendants are correct that Morrical is not applicable to this action. Morrical examined the issue of “whether an action brought under section 709, which allows the court to determine the validity of an election of corporate directors, may be based on an alleged breach of fiduciary duty or more specifically a violation of section 310, which governs corporate transactions with companies in which one or more corporate directors have a material financial interest.” (Morrical, supra, 220 Cal.App.4th at 442.) This issue is not applicable in the instant action.

Therefore, Defendants’ demurrer to the first cause of action is SUSTAINED.

Third Cause of Action for Specific Performance

““[S]pecific performance and injunctive relief are equitable remedies and not causes of action for injuries.”” [citation] (Mesa Shopping Center East – LLC v. O Hill (2014) 232 Cal.App.4th 890, 901.)

“[S]pecific performance will not be decreed on a contract which calls for a series or succession of continuing acts which cannot be consummated in one operation and will require continuous and extended supervision.” (Bakersfield Country Club v. Pacific Water Co. (1961) 192 Cal. App. 2d 528.) Specific performance will only be granted “when the legal remedy, such as an action for damages, is inadequate.” (Palo Alto-Menlo Park Yellow Cab Co. v. Santa Clara County Transit Dist. (1976) 65 Cal. App. 3d 121, 133.)

Civil Code section 3390 provides:

The following obligations cannot be specifically enforced:

(a) An obligation to render personal service.

(b) An obligation to employ another in personal service.

(c) An agreement to perform an act which the party has not power lawfully to perform when required to do so.

(d) An agreement to procure the act or consent of the spouse of the contracting party, or of any other third person.

(e) An agreement, the terms of which are not sufficiently certain to make the precise act which is to be done clearly ascertainable.

(Cal. Civ. Code § 3390.)

Defendants contend that the third cause of action is insufficiently pled for the following reasons: (1) Source Office and Source Hotel are not parties to the Ground Lease, (2) specific performance is not available for continuing obligations under a contract, (3) the request for specific performance violates Civil Code section 3390, (4) the third cause of action does not allege the inadequacy of money damages to support a specific performance cause of action. (Demurrer, 7-11.)

Plaintiff asserts that the third cause of action is properly pled against Source Office and Source Hotel because it seeks specific performance of both the CC&Rs and Ground Lease. Thus, it does not matter that Source Office and Source Hotel are not parties to the Ground Lease. (Opposition, 4.)

Plaintiff next argues that paragraph 28.18 of the Ground Lease support specific performance because it specifically states that the other party “shall” be entitled to specific performance if either party to the Ground Lease fails to give consent under the conditions specified in this paragraph. (Opposition, 4-6.) Further, paragraph 18.28 of the CC&Rs supports specific performance because it states that the parties have a right to “enforce certain agreements by temporary restraining order or by preliminary or permanent injunction.” (Id.)

Plaintiff also argues that there is no issue of the FAC seeking specific performance for “continuing acts” because the FAC is seeking to remedy specific breaches of the Ground Lease and CC&Rs. Alternatively, the wording of the specific performance requested is an issue of the wording of the “ultimate judgment, which cannot be determined on demurrer.” (Id.)

Paragraph 28.18 of the Ground Lease states:

28.l8 Consent of Lessor and Lessee. Wherever in this Lease consent or approval is required, such consent or approval shall be given in writing and shall not be unreasonably withheld, unless otherwise provided (including without limitation where a different standard, such as "good faith" or "sole and absolute discretion," is provided). Lessor shall not be deemed to have withheld its consent unreasonably where Lessor's right to give its consent is conditioned on Lessor obtaining the consent of any person, agency or authority with the right to withhold its consent pursuant to any agreement, Law or tax, as described in Article IO and such person, agency or authority reasonably or unreasonably withholds its consent.

If Lessor or Lessee fails to give any such consent, the other party hereto shall be entitled to specific performance and shall have such other remedies as are reserved to it under this Lease, but in no event shall Lessor or Lessee be responsible for monetary damages or be entitled to terminate this Lease as a result of such failure to give consent (including any right to damages or termination under applicable Laws).

(FAC, Ex. A.)

The CC&R provides in pertinent part:

18.28 Specific Performance

“Each party agrees that, in the event of a breach of any provision hereof by the other party, the nonbreaching party would sustain irreparable injury that could not adequately be compensated by monetary damages. Accordingly, without prejudice to each party’s right to seek to recover monetary damages in the event of a breach by the other party, each party shall have the right to have a court of competent jurisdiction specifically enforce all of the other party’s covenants and agreements hereunder by temporary restraining order, preliminary and permanent injunction and other appropriate equitable remedies…”

(FAC, Ex. B.)

Here, the FAC alleges that the “actions of Source Beach as hereinabove described” will cause Plaintiff to sustain irreparable injury. (FAC, ¶ 26.) Paragraph 18.28 of the CC&Rs and paragraph 28.18 of the Ground Lease provide for specific performance to redress such injury. (Id.) Plaintiff is therefore allegedly entitled to specific performance of the CC&Rs and Ground Lease to allow Plaintiff and its contractors “access to the electrical rooms serving the Hotel to reestablish power to the Hotel, allowing Plaintiff and its contractors access to the emergency generator room, reactivating the service elevator, granting Plaintiff access to the domestic pump room, granting Plaintiff and the City inspectors access to any part of the Project they wish, providing Plaintiff with copies of the Construction Documents, and providing for ongoing cooperation between the various owners.” (FAC ¶ 27.)

The court finds that the third cause of action is insufficiently pled as to Source Office and Source Hotel because the FAC does not plead that these defendants engaged in any wrongdoing. Thus, there is no basis to request specific performance against them pursuant to the CC&Rs.

However, the court finds that the third cause of action is sufficiently pled as to Source Beach. Paragraph 17 of the FAC alleges that Source Beach engaged in specific actions in violation of the Ground Lease. The Ground Lease, paragraph 28.18, provides that specific performance is a remedy the other party is entitled to in the event of such a breach. Thus, Plaintiff has stated a claim for specific performance against Source Beach.

Therefore, Defendants’ demurrer is SUSTAINED as to the third cause of action against Source Office and Source Hotel and OVERRULED as to the third cause of action against Source Beach.

Fourth Cause of Action for Breach of Implied Covenant of Good Faith and Fair Dealing

“A “ ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself’ [citation]” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394.) “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.” (Id. at 1395.)

Defendants argue that the fourth cause of action is insufficiently pled because it is derivative of the first cause of action, which is insufficiently pled as to Source Office and Source Hotel. (Demurrer, 6-7.) The fourth cause of action is also insufficiently pled as to Source Beach because it does not allege that Source Beach engaged in any actions beyond breach of contract, which would be required to sustain a claim for breach of implied covenant of good faith. (Id.) Defendants cite Careau & Co. v. Sec. Pac. Bus. Credit, Inc. (1990) 222 Cal. App. 3d 1371, 1395 (Careau) for the argument that Plaintiff was required to allege more than mere breach of contract in order to state a claim for breach of the implied covenant of good faith.

Plaintiff argues that a breach of contract may also constitute a breach of the implied covenant of good faith and fair dealing. (Opposition, 6-7.) A breach of a specific provision of the contract is not necessary to state a claim for breach of the implied covenant of good faith. Plaintiff cites to Thrifty Payless, Inc. v. The Americana at Brand, (2013) 218 Cal. App. 4th 1230 (Thrifty) for the argument that it was not required to plead an independent act beyond breach of contract in order to sustain its claim for breach of the covenant of good faith and fair dealing.

Thrifty does not support Plaintiff’s position because it does not contradict Careau. The Plaintiff in Thrifty alleged that Defendants were liable for breach of contract and breach of the implied covenant of good faith and fair dealing based on different facts. (Id. at 1236.)

Here, the FAC incorporates the first 28 paragraphs into the fourth cause of action. (FAC, ¶ 29.) The CC&Rs have an implied covenant of good faith and fair dealing. (FAC, ¶ 30.) Source Beach breached this implied covenant of good faith by, among other things, preventing Plaintiff from completing construction of the hotel. (FAC, ¶ 31.)

The court finds that the fourth cause of action is insufficiently pled as to all defendants. Pursuant to Careau, Plaintiff was required to plead something more than breach of contract to sustain a claim for breach of the implied covenant of good faith and fair dealing. Plaintiff has not done so as to any of the defendants. As discussed above, Plaintiff has not alleged that Source Office and Source Hotel has engaged in any wrongdoing. Plaintiff’s only allegations against Source Beach are that it breached the Ground Lease, which is insufficient to state a claim for breach of the implied covenant of good faith.

Therefore, Defendants’ demurrer is SUSTAINED as to the fourth cause of action.

Fifth Cause of Action for Breach of Implied Covenant of Quiet Enjoyment

Defendants argue that the fifth cause of action is insufficiently pled because the FAC does not allege that Plaintiff was actually or constructively evicted, which is required to stat ea claim for breach of the implied covenant of quiet enjoyment. (Demurrer, 11-12.) Defendants cite Standard Livestock Co. v. Pentz (1928) 204 Cal.618, 625 (Standard) for the argument that breach of the implied covenant of quiet enjoyment requires constructive or actual eviction.

In Standard, the California Supreme Court stated: “[t]he law is too well settled to require extensive comment or citation of authority that the covenant of quiet possession in a lease is not breached until there has been an actual or constructive eviction.” (Id. at 625.)

In opposition, Plaintiff argues that it was not required to plead eviction to state a claim for breach of the implied covenant of quiet enjoyment. (Opposition, 7-8.) Plaintiff cites the following cases in the opposition for the proposition that eviction is not require to state a claim for breach of the covenant of quiet enjoyment.

Guntert v. City of Stockton, (1976) 55 Cal. App. 3d 131, 141 (Guntert); Ginsberg v. Gamson, (2012) 205 Cal. App. 4th 873, 898-899 (Ginsberg); Cunningham v. Universal Underwriters, (Cunningham) 98 Cal. App. 4th 1141, 1152; Nativi v. Deutsche Bank, (2014) 223 Cal. App. 4th 261, 291-292. (Nativi)

Guntert discussed Standard, but stated that the rule in Standard, “stated in these flat terms, the rule would preclude a tenant from seeking damages for a breach of quiet enjoyment not amounting to an eviction. Stated in these terms, the rule is incomplete, for it fails to recognize the tenant's choice of remedies for breach of the lease, namely, his option to stand upon the lease and sue for damages.” (Guntert, supra, 55 Cal.App.3d at 140.)

In Ginsberg, the court stated: “breach of the implied covenant of quiet enjoyment can be understood as a title encompassing claims for wrongful eviction, and also claims in which the tenant's use of the premises is disturbed, but the tenant remains in possession.” (Ginsberg, 205 Cal.App.4th at 898.)

Cunningham cites Guntert for the argument that a breach of covenant of quiet enjoyment does not require that a tenant be actually or constructively evicted. (Cunningham, supra, 98 Cal.App.4th at 1152.)

In Nativi, the Court of Appeal stated: “ In recent years, the covenant of quiet enjoyment has been expanded, and in this state, for example, it insulates the tenant against any act or omission on the part of the landlord, or anyone claiming under him, which interferes with a tenant's right to use and enjoy the premises for the purposes contemplated by the tenancy.” (Nativi, supra, 223 Cal.App.4th at 291-292.)

Based on Guntert, Ginsberg, Cunningham and Nativi, the court agrees with Plaintiff that it did not have to allege actual or constructive eviction in order to state a claim for breach of the implied covenant of quiet enjoyment. The FAC alleges that Source Beach breached the implied covenant of quiet enjoyment by “among other things, preventing Plaintiff from completing construction of the Hotel, which was the express purpose of the CC&Rs and the Ground Lease.” (FAC, ¶ 35.) This is sufficient to state a claim for purposes of demurer.

Therefore, Defendants’ demurrer to the fifth cause of action is OVERRULED.

Eighth Cause of Action for Injunction

Defendants Source Office, Source Hotel and M+D demurrer to the eighth cause of action on the grounds it is insufficiently pled because the FAC failed to plead any wrongdoing by these defendants. The court agrees.

The only allegation against M+D is that M+D is a “manager” of Source Office, Source Hotel and Source Beach. (See FAC, ¶ 4.) As discussed above, the FAC also does not allege that Source Office or Source Hotel engaged in any wrongdoing towards Plaintiff.

Thus, because Source Office, Source Hotel and M+D are not alleged to have engaged in any wrongdoing towards Plaintiff, Plaintiff has not stated a claim for injunction against these Defendants.

Therefore, Defendants’ demurrer to the eighth cause of action is SUSTAINED.

Ninth Cause of Action for Appointment of Receiver

Defendants Source Office, Source Hotel and M+D demurrer to the ninth cause of action on the grounds it is insufficiently pled because the FAC failed to plead any wrongdoing by these defendants. The court agrees and will sustain Defendants’ demurrer to the ninth cause of action for the same reasons stated as to the eighth cause of action.

Therefore, Defendants’ demurrer to the ninth cause of action is SUSTAINED.

In summary, Defendants, The Source At Beach, LLC, The Source Office, LLC, M+D Properties, The Source Hotel, LLC’s (Defendants) Demurrer to the First Amended Complaint is SUSTAINED in part as to the first, fourth, eighth and ninth causes of action and the third cause of action against Source Office and Source Hotel. The demurrer and otherwise OVERRULED as to all other causes of action against all other defendants.

Plaintiff is granted 20 days leave to amend.

Defendants are to give notice.

Future hearing dates

7/14/23 – MSC

8/14/23 – Jury Trial