Judge: Joseph Lipner, Case: 22STCV14060, Date: 2023-10-03 Tentative Ruling

Case Number: 22STCV14060    Hearing Date: October 5, 2023    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Plaintiff and Cross-Defendant WM Sunset & Vine, LLC filed a demurrer to the first and second causes of action in the Amended Cross-Complaint (“ACC).

The demurrer to the ACC is SUSTAINED with 20 days leave to amend.

Background

          On April 28, 2022, Plaintiff WM Sunset & Vine, LLC (“Landlord”) filed a complaint against Defendant Gosh Enterprises, Inc. alleging a sole cause of action for breach of contract. The complaint arises from the breach of a guaranty agreement (the “Guaranty”) between Gosh and WM as to a premises located at 6333 Sunset Boulevard, Hollywood, California (the “Premises”).

          On February 23, 2023, Cross-Complainants Gosh and BBB Operating CA-1, LLC (“Guarantor” and “Tenant,” respectively) filed a cross-complaint against Landlord alleging causes of action for: (1) breach of contract; and (2) breach of contract. Landlord filed a demurrer to each cause of action in the cross-complaint. On April 11, 2023, after hearing and oral argument, the Court sustained the demurrer with 20 days leave to amend.

          On May 1, 2023, Cross-Complainants filed the operative Amended Cross-Complaint (“ACC”) alleging causes of action for: (1) breach of contract—lease (implied covenant of good faith and fair dealing); and (2) breach of contract—guaranty (implied covenant of good faith and fair dealing).

          As to the first and second causes of action, such causes of action are based on the allegation that Landlord breached the implied covenant of good faith and fair dealing. Cross-Complainants allege that Landlord: (1) unreasonably refused to work in good faith with Tenant and Guarantor to secure a replacement tenant for the Premises or to negotiate with an interested alternative tenant in good faith; (2) unreasonably refused to negotiate a workout/early termination of the Lease. (ACC, ¶¶ 33-34, 39-40, 50-51, 59-60, 67-68.)

          On May 12, 2023, Landlord filed and served a demurrer to the first and second causes of action in the ACC.

Judicial Notice

          The Court DENIES Cross-Complainants’ request for judicial notice in support of their opposition to the demurrer. Cross-Complainants’ request for judicial notice includes declarations and deposition testimony submitted with their opposition to Landlord’s withdrawn motion for summary adjudication. The Court, however, cannot take judicial notice of hearsay allegations as being true, just because they are part of a court record or file. (Bach v. McNelis (1989) 207 Cal.App.3d 852, 865.) Cross-Complainants intend for the Court to rely on evidence to find that the ACC is sufficient, which is improper. (Opposition at 1:12-15.)

Meet and Confer

          The Court finds that the meet and confer requirement is 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.) “[T]he court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded.”  (Ibid.)  In testing the sufficiency of the complaint, the court must assume the truth of (1) the properly pleaded factual allegations; (2) facts that can be reasonably inferred from those expressly pleaded; and (3) judicially noticed matters. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905.) Accordingly, “[w]hether the plaintiff will be able to prove the pleaded facts is irrelevant to ruling upon the demurrer.” (Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 609-10.) A general demurrer may be taken to a complaint where “[t]he pleading does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc. § 430.10(e).) Although Courts construe pleadings liberally, sufficient facts must be alleged to support the allegations plead to survive a demurrer. (Rakestraw v. California Physicians' Serv. (2000) 81 Cal.App.4th 39, 43.)  In the event of a conflict between the pleading and exhibit, the facts contained in the exhibit take precedence over and supersede any inconsistent or contrary allegations in the pleading. (Nealy v. County of Orange (2020) 54 Cal.App.5th 594, 597.)

          Where a demurrer is sustained, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the plaintiff to show the court that a pleading can be amended successfully. (Ibid.) However, “[i]f there is any reasonable possibility that the plaintiff can state a good cause of action, it is error to sustain a demurrer without leave to amend.” (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245). 

Discussion

          Landlord identifies three grounds as to why the first and second causes of action in the ACC fail. Landlord asserts that: (1) the first and second causes of action fail to allege facts to establish that Landlord had any duty to negotiate an early termination of the Lease; (2) the first and second causes of action fail to allege that Landlord had no duty to assist the Tenant in procuring a potential subtenant or assignee; and (3) the first and second causes of action fail because  there are no allegations that the conditions precedent were satisfied for the Landlord to have any obligation to even consider a proposed subtenant or assignee.

          Cross-Complainants’ Concessions to Landlord’s Arguments

          Initially, the opposition fails to address the arguments raised in the demurrer that: (1) the first and second causes of action fail because there are no allegations that the conditions precedent were satisfied for the Landlord to have any obligation to even consider a proposed subtenant or assignee; and (2) the Tenant’s claim fails because the Lease does not permit the Tenant to recover damages as a result of any claim arising under Section 19 of the Lease. Thus, Cross-Complainants have conceded to such arguments as “[c]ontentions are waived with a party fails to support them with reasoned argument and citations to authority.” (Moulton Niguel Water Dist. v. Colombo (2003) 111 Cal.App.4th 1210, 1215.)

Duty to Negotiate an Early Termination of the Lease

Landlord contends that the first and second causes of action fail because they fail to allege facts that establish that Landlord had any duty to negotiate an early termination of the Lease. Cross-Complainants contend that Landlord’s negotiating stance with them was permeated by bad faith.

Every contract contains an implied covenant of good faith and fair dealing that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1120.) This covenant is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract’s purpose. (Ibid.)  The implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract. (Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094.)  The implied covenant of good faith and fair dealing cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement. (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349-350.)  There is no bad faith when a party does that which is explicitly allowed by an agreement, or declines to renegotiate an agreement. (Alameda County Flood Control & Water Conservation Dist. v. Department of Water Resources (2013) 213 Cal.App.4th 1163, 1203.)  When two parties, under no compulsion to do so, engage in negotiations to form or modify a contract neither party has any obligation to continue negotiating or to negotiate in good faith. (Copeland v. Baskin Robbins U.S.A. (2002) 96 Cal.App.4th 1251, 1260.)

Initially, the Court finds that Cross-Complainants’ reliance on Locke v. Warner Bros, Inc. (1997) 57 Cal.App.4th 354 is inapposite. The ACC cites to no provision in the Lease—which is attached thereto as Exhibit A—which requires Landlord to negotiate an early termination of the Lease. While the ACC cites to Section 19 of the Lease to support the allegation that Tenant has a right to assign or sublease the premises upon the written consent of the Landlord “which consent shall not be unreasonably withheld, conditioned, or delayed,” such section does not mandate that Landlord negotiate an early termination of the lease. Upon review of the Lease, the Court does not identify a provision requiring the mandated negotiation of an early termination of the Lease. The same analysis follows as to the Guaranty, which is attached to the complaint as Exhibit A. The Guaranty does not require that Landlord negotiate an early termination of the Lease. Also, the ACC does not cite to any provision of the Guaranty which requires such action on the part of Landlord. Cross-Complainants cannot allege a duty that does not exist in the Lease or Guaranty.

Duty to Assist the Tenant in Procuring a Potential Subtenant or Assignee

Landlord contends that the first cause and second causes of action fails because Landlord had no duty under the Lease or Guaranty to assist Tenant in procuring a potential subtenant or assignee. Landlord also contends that the claims of Cross-Complainants fail because they failed to allege that they satisfied the conditions precedent for Landlord to have any obligation to even consider a proposed subtenant or assignee. Cross-Complainants fail to address such argument as to the satisfaction of conditions precedent in their opposition and the Court finds that Cross-Complainants have conceded to such argument under Moulton Niguel Water Dist. v. Colombo (2003) 111 Cal.App.4th 1210, 1215. The Court, however, will address such argument despite Cross-Complainants’ waiver to such argument.

In California, when a lease requires prior consent of the lessor for assignment, such consent may be withheld only when the lessor has a commercially reasonable objection to the assignment, even absent a provision in the lease stating consent will not be unreasonably withheld. (John Hogan Enterprises, Inc. v. Kellogg (1986) 187 Cal.App.3d 589, 593.) A lessor’s refusal to consent to a lease assignment for the purpose of charging a higher rent or receiving part of the consideration for the lease is an arbitrary reason failing the test of good faith and reasonableness. (Ibid.) Where consent to assign or sublease is not properly sought, a claim for breach of good faith and fair dealing is not viable. (Thrifty Oil Co. v. Batarse (1985) 174 Cal.App.3d 770, 774-775.)  A request for consent to sublet or assign is not a mere formality, as it affords the lessor the opportunity to protect his interests and also minimizes the risk that a sublessee will place himself in jeopardy. (Id. at p. 775.)  In contract law, a condition precedent is either an act of a party that must be performed or an uncertain event that must happen before the contractual right accrues or the contractual duty arises. (Barroso v. Ocwen Loan Servicing, LLC (2012) 208 Cal.App.4th 1001, 1009.)

Initially, no express term of the Lease obligated Landlord to assist Cross-Complainants in finding a replacement tenant or assignee for the Premises. Here, the ACC alleges that: (1) Landlord refused to accept a replacement tenant because it was entitled to a higher amount of rent from Tenant (ACC, ¶ 34-35, 37); and (2) Landlord refused to work in good faith with Cross-Complainants to secure a replacement tenant for the Premises and sought to prevent Tenant from assigning or subleasing the space (ACC at ¶ 59). While such facts could be potentially be characterized as an arbitrary reason and not in good faith, the ACC does not make any allegation that Cross-Complainants actually submitted a written request to assign the Lease or sublease the Premises.  Section 19.2 of the Lease requires Tenant to notify Landlord in writing of the material terms and conditions on which Tenant proposes to make an assignment or sublease. (Lease at ¶ 19.2.) Such writing must set forth: (1) a statement setting forth the name and business of the proposed assignee or subtenant; (2) a copy of the proposed assignment or sublease; (3) financial statements of the proposed assignment or sublease; and (4) any other information reasonably requested by Landlord relating to the proposed assignee or subtenant. (Lease at ¶ 19.4.) Moreover, the Lease required Tenant to pay a processing fee as to any written request to for Landlord’s consent to transfer. (Lease at ¶ 19.8.)  

While the ACC alleges that Tenant has a right to assign or sublease the Premises pursuant to Section 19 of the Lease and that consent shall not be unreasonably withheld, conditioned, or delayed (ACC at ¶ 57), the ACC contains no allegations that Tenant requested consent by the mechanism set forth in Sections 19.2 and 19.8 of the Lease. Nor does it explain how the ACC can maintain its claims without such allegations.  The lack of allegations on this point appears to conflict with a claim that Landlord refused to refuse an assignment or sublease for arbitrary or commercially unreasonable reasons. Landlord cannot be liable for a failure to approve a sublease or assignment if a request was not properly presented to Landlord in accordance with the Lease. Thus, Cross-Complainants’ claim as pled does not appear appropriate under Thrifty Oil.

The demurrer to the first cause of action in the ACC is SUSTAINED with 20 days leave to amend.

The Guaranty

The second cause of action in the ACC is based on the same purported acts of bad faith by Landlord asserted in the first cause of action. The Court therefore references its discussion above and incorporates it herein. Additionally, upon review of the Guaranty, nothing therein requires Landlord to assist Tenant in securing a replacement tenant, negotiating with an interested alternative tenant, or requires Landlord to assist Tenant in procuring a subtenant or assignee. Cross-Complainants cannot place additional obligations on Landlord that are not expressly stated in the Lease or the Guaranty under Guz v. Bechtel Nat. Inc., supra, 24 Cal.4th 317. Also, Cross-Complainants have failed to address the argument that Landlord had no obligations under the Guaranty and have conceded to such argument under Moulton.

As the parties are aware, a series of related issues are under submission in connection with the pending summary judgment motion filed by Landlord.  In the context of the current demurrer, it would be helpful to have Cross-Complainants amend their claims to state them with as much precision and detail as possible, keeping Landlord’s legal contentions firmly in mind.  Therefore, Court sustains the demurrer but grants Cross-Complainants 20 days leave to amend.  

This is the second time that the pleadings of Cross-Complainants have been deemed defective. If and when Cross-Complainants filed a Second Amended Cross-Complaint, and such pleading is deemed defective on demurrer, the Court will consider sustaining such demurrer without leave to amend.

Landlord is ordered to give notice.