Judge: Kristin S. Escalante , Case: 21STCV11603, Date: 2023-04-25 Tentative Ruling
Case Number: 21STCV11603 Hearing Date: April 25, 2023 Dept: 24
The Demurrer to Third Amended Cross-Complaint; reservation no.: 533774587199 filed by Cross-Defendants Akihiro Kondo, Keishi Ando, Meldia Investment Realty of America, Inc., and Sanei Architecture Planning Co. Ltd, on 02/24/2023 is SUSTAINED as follows: the demurrer as to the fourth cause of action (interference with business relations) is sustained without leave to amend as to Defendants Akihiro Kondo and Keishi Ando, but with leave to amend as to Meldia Investment Realty of America, Inc.. The demurrer as to the fifth (declaratory relief) cause of action is sustained with leave to amend as to Meldia Investment Realty of America, Inc..
The Motion to Strike Portions of Third Amended Cross-Complaint; reservation no.: 533774587199 filed by Cross-Defendants Akihiro Kondo, Keishi Ando, Meldia Investment Realty of America, Inc., and Sanei Architecture Planning Co. Ltd, on 02/24/2023 is GRANTED in part and DENIED in part. The motion to strike paragraph 74 granted with leave to amend as to Meldia Investment Realty of America, Inc. and denied as moot as to Akihiro Kondo and Keishi Ando. The motion to strike the prayer for punitive damages is granted with leave to amend as to Meldia Investment Realty of America, Inc. and denied as moot as to Akihiro Kondo and Keishi Ando.
Cross-Defendants Akihiro Kondo (“Kondo”), Keishi Ando (“Ando”), Meldia Investment Realty of America, Inc. (“Meldia”), and Sanei Architecture Planning Co. Ltd (“Sanei”) (collectively “Cross-Defendants”) demurrer to the fourth (interference with business relations) and fifth (declaratory relief) causes of action in the operative third amended cross complaint (“TAXC”) of Cross-Complainants Strategic Legacy Investment Group, Inc. (“Strategic Investment”), Legacy Gateway @ NOHO, LLC (“Legacy”), and Strategic Legacy Management Corp. (“Strategic Management”) (collectively “Cross-Complainants”). Cross-Defendants demurrer on the grounds that the causes of action fail to state facts sufficient to constitute causes of action or is uncertain. (Notice of Demurrer, at p. iii; see also Code Civ. Proc., §430.10, subd. (e), (f).) Cross-Defendants concurrently filed a motion to strike the punitive damages claim premised upon the intentional interference with business relations cause of action.
By way of background, on March 25, 2021, Sanei filed suit against Strategic Investment, Legacy, Michael Sabet (“Michael”); Emmanuel Sabet (“Emmanuel”); Pedram Abraham Mehrian (“Mehrian”) (collectively “Defendants”) regarding the sales agreement for two different real properties located at 11419 Killion St., North Hollywood, CA 91601 and 11410 Burbank Blvd., North Hollywood, CA 91601 (hereinafter “subject properties”). Sanei alleged that Defendants failed to comply with the agreement and deposit the necessary funds into an escrow account. Cross-Complainants, in turn, filed suit alleging it was Sanei who refused to comply with the parties’ agreements.
The allegations in the TAXC are as follows. Strategic Investment wished to develop the subject properties but lacked the necessary funding. Strategic Investment, therefore, approached Sanei and entered into three agreements concerning the subject properties: (1) the purchase and sale agreement which provided Strategic Investment or an assignee with an option to purchase the Property from Sanei (“Purchase Agreement”), (2) the Development Agreement which stated that Sanei could provide funding to Strategic Investment or its assignee for construction on the subject properties (“Development Agreement”), and (3) the Management Agreement giving Strategic Investment possession of subject properties while Sanei maintained control of them (“Management Agreement”).
Starting in 2019, Sanei refused to make payments through Ando and Kondo per the Development Agreement because Strategic Investment’s affiliate, Meldia, had not paid Sanei for monies owing on a different project. As a result, Strategic Investments could not pay third party subcontractors and the subcontractors refused to perform further work. Sanei offered to pay the subcontractors directly, but the agreements did not permit Sanei to do so. The lack of payment delayed work on the project for at least a year. Then, the pandemic caused further delays.
Cross-Complainants allege that not only did Cross-Defendants caused the delay making payment unattainable but then demanded that Strategic Investments perform. Sanei then renegotiate the deal and forced Strategic Investment to sign an addendum to the agreements under “duress, menace and fraud” to protect their investments. After the renegotiation, Cross-Defendants claimed the contracts were terminated and filed suit for breach of contract.
Previously, Cross-Defendants demurred to all causes of action in the first amended cross complaint (“FAXC”). The court overruled the demurrer as to the first (breach of contract), second (breach of covenant of good faith and fair dealing), third (specific performance) and ninth (declaratory relief) causes of action. The court sustained the demurrer with leave to amend as to the fourth (civil extortion), fifth (recission of contract), sixth (unfair business practices), seventh (constructive trust), eighth (interference with business relations), and tenth (injunctive relief) causes of action. (Minute Order, June 10, 2022)
Cross-Complainants filed a second amended cross-complaint (“SAXC”) alleging the same ten causes of action but adding a new defendant. Cross-Defendants demurred to the fourth through tenth causes of action. The court sustained the demurrer without leave to amend as to the fourth (civil extortion), fifth (recission of contract), sixth (unfair business practices), seventh (constructive trust), and tenth (injunctive relief) causes of action as to the demurring cross-defendants. The court overruled the demurrer as to the ninth (declaratory relief) cause of action. Finally, the court sustained with leave to amend the demurrer as to Cross-Defendants Ando and Kondo. (Minute Order, Dec. 20 2022.) Notably, the court did not address claims against Meldia because Meldia had not yet appeared in the action.
In the TAXC, Cross-Complainants allege that Meldia, Kondo, and Ando intentionally and wrongfully interfered with the Cross-Complainants contracts and relationships by having Sanei refuse to make payments under the Development Agreement and demanding excessive extension fees to cover the Meldia losses. (TAXC, ¶70.)
As discussed in the court’s prior minute order, Cross-Complainants claim against Ando and Kondo failed because the allegations were that Ando and Kondo were acting on Sanei’s behalf. However, as noted, corporate agents and employees acting for and on behalf of a corporation cannot be held liable for inducing a breach of the corporation’s contract or otherwise interfering with the contract. (Mintz v. Blue Cross of California (2009) 172 Cal. App. 4th 1594, 1604.) Cross-Complainant argues that the addition of the language Kondo and Ando “acting outside the course and scope of their duties as Officers for Sanei and solely on behalf of Meldia” means that they are no longer agents of Sanei when they took actions for Meldia’s behalf and the claim may be brought against them. Here, the complaint fails to remedy the issue. The general allegations are still that “Sanei, by and through Ando and/or Kondo, demanded that some of the funds might be paid but only if Sanei could make payments directly to the Third parties. . .” (TAXC, ¶22.) Further, the court disagrees that these allegations are not a contradiction of the prior allegations regarding the relationship between Sanei, Ando and Kondo.
Cross-Complainant has attempted to remedy the pleading issue by adding that Ando and Kondo were agents of Meldia during this period. However, by virtue of alleging Ando and Kondo were agents of Sanei at all relevant times, Cross-Complainants allege that Ando and Kondo were acting on Sanei’s behalf. (See Alvarez v. Felker Mfg. Co. (1964) 230 Cal.App.2d 987, 999 [describing the essential characteristics of an agency relationship].) Thus the new allegations that Ando and Kondo were acting on Meldia behalf means that they could not have been acting on Sanei’s behalf. The allegations are contradictory. Accordingly, the court sustains the demurrer to Ando and Kondo without leave to amend.
As to Meldia, Cross-Complainants allege it interfered with their “business, their relationship, their subcontractors, and then sought excessive fees to cover Meldia’s losses.” (TAXC, ¶71.) It is unclear whether the TAXC alleges a claim against Meldia premised on an interference with contractual relations or prospective economic advantage, as both seem implicated.
To prove the tort of intentional interference with prospective economic advantage, a plaintiff must establish the existence of an economic relationship with some third party that contains the probability of future economic benefit to the plaintiff’.” (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 509.) “Intentional interference with prospective economic advantage has five elements: (1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant's action.” (Id.)
In order to plead an intentionally wrongful act, a plaintiff
must prove that the interfering act was unlawful, that is, “proscribed by some
constitutional, statutory, regulatory, common law, or other determinable legal
standard.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134,
1158-59.) “Conduct amounting to a breach of contract becomes tortious only when
it also violates an
independent duty arising from principles of tort law.” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515.) “Because a bare breach of contract, without more, is not tortious, such a breach cannot constitute independently wrongful conduct capable of giving rise to the tort of intentional interference with a prospective economic advantage. [citations]” (Drink Tank Ventures LLC v. Real Soda in Real Bottles, Ltd. (2021) 71 Cal.App.5th 528, 539–40.)
Cross-Complainants allegations against Meldia are insufficient. As discussed, the allegations that Ando and Kondo were acting on Meldia’s behalf contradicts prior allegations that they were agents of Sanei and are insufficient. The TAXC does not include any further allegations that Meldia specifically interfered in the contracts or any wrongfully conduct by Meldia. Instead, Cross-Complainants allege Sanei stopped paying them because they failed to pay Meldia in other contracts. (TAXC, ¶20.) Then Sanei demanded Cross-Complainants provide excessive fees which really served to cover Meldia losses. (TAXC, ¶70). The allegations as they stand, are that Sanei’s conduct was for the benefit of Meldia.
Cross-Complainant also do not state a claim for alleged interference with contractual relations against Meldia. To plead intentional interference with contractual relations Cross-Complainants must show “(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118.) Here, Cross-Complainant have not pled that they had a valid contract with any specific third-party. The underlying contracts and alleged breach or disruptions are not plead with sufficient detail. The only specific contracts discussed are those with Sanei. The allegations continue to be too vague. Additionally, the specific allegations as to Meldia do not include information about how Meldia acted to induce a breach or disruption of Cross-Complainants contractual relationships. As this is the first analysis of Cross-Complainants claim against Meldia, the court sustains it with leave to amend. Cross-Complainants may try once more to establish a claim against Meldia only.
Accordingly, the court sustains demurrer as to this claim without leave to amend as to Ando and Kondo, but with leave to amend as to Meldia.
The Sanei Defendants previously demurred to the Ninth Cause of Action for Declaratory Relief in the First Amended Cross-Complaint, and the court overruled the demurrer to this cause of action. Now Meldia demurrers to this causes of action.
In the claim for declaratory relief, Cross-Complainants seek a declaration regarding the parties’ specific right and duties under the contracts. (TAXC, ¶¶76-78.) However, there are no allegations that Meldia was a party to any of the contracts or that Meldia had any interest in the subject properties. There do not appear to be any grounds for relief against Meldia.
Accordingly, the demurrer is sustained with leave to amend only as to Meldia.
The court may strike out any “irrelevant, false, or improper matter inserted in any pleading” or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ. Proc., §437 subd., (b).) The grounds for a motion to strike are that the pleading has irrelevant, false or improper matter, or has not been drawn or filed in conformity with laws. (Code Civ. Proc., §436.) The defect must appear on the face of the pleading or by way of judicial notice. (Code Civ. Proc., §437.) “When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend.” (Vaccaro v. Kaiman (1998) 63 Cal.App.4th 761, 768.)
Cross-Defendant moves to strike paragraph 74 stating the facts for a claim for punitive damages and the prayer for relief, no. 3 for punitive and exemplary damages. Punitive damages are available in non-contract actions where a defendant is guilty of malice, fraud, or oppression. (Civ. Code, § 3294, subd. (c)(1).) The only claim for which Cross-Complainants may obtain punitive damages is interference with business relations. The court has sustained the demurrer on this claim.
Accordingly, the court rules as follows: the motion to strike paragraph 74 is granted with leave to amend as to Meldia because the court granted leave to amend on the interference claim. The motion to strike paragraph 74 is denied as moot as to Kondo and Ando by virtue of the court’s demurrer ruling. For the same reasons, the motion to strike the prayer for punitive damages is granted with leave to amend as to Meldia and denied as moot as to Kondo and Ando.
Moving parties are ordered to give notice.