Judge: Loren G. Freestone, Case: 37-2023-00043181-CU-BC-CTL, Date: 2024-05-10 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - May 09, 2024

05/10/2024  10:30:00 AM  C-64 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Loren G. Freestone

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Civil - Unlimited  Breach of Contract/Warranty Demurrer / Motion to Strike 37-2023-00043181-CU-BC-CTL PRCCC INC VS SHIMAZU [IMAGED] CAUSAL DOCUMENT/DATE FILED:

TENTATIVE RULING Defendants California Bureau of Gambling Control Stephanie Shimazu, Luna Baker, and Yolanda Morrow's demurrer to Plaintiffs PRCCC Inc. and Donald Ezzell's first amended complaint is SUSTAINED IN PART and OVERRULED IN PART as set forth below.

Breach of Contract Plaintiffs' first cause of action is for breach of contract. It is alleged against the Bureau.

Plaintiffs allege three breaches of the Stipulated Settlement: (1) refusing to give the second buyer's application expedited review, (2) refusing to extend the end of the stay past August 30, 2022 so that the transaction with the second buyer could be completed, and (3) terminating the stipulated settlement and carrying out the emergency order after August 30, 2022.

The viability of this claims depends upon whether the Bureau was required to review the second buyer's application, and the impact of that second application on the stay. The Stipulated Settlement states, in pertinent part: '12. Upon the effective date of the Decision and Order issued by the Commission adopting this Stipulated Settlement (Effective Date), Respondents' pending state gambling license applications will be granted and their state gambling licenses will be renewed. Immediately thereafter, Respondents' state gambling licenses will be revoked. The revocations, however, shall be stayed as provided in paragraph 13 of this Stipulated Settlement. Each Respondent acknowledges, understands, and agrees that the stay of revoking his or its state gambling license is intended to preserve the Casino's existence for purposes of Business and Professions Code sections 19962 and 19963, to allow a possible sale of Mr.

Ezzell's shares in the Corporation or the Corporation's ownership interest in the Casino's assets or business, and to allow the Casino to be a going concern for whatever benefits that it may provide its employees, the community, and general public. . . .

13. Revocation of Respondent's license shall be stayed for 12 months from the Effective Date (the Stay Period) during which time Respondents shall make a good faith and diligent effort to sell Mr.

Ezzell's shares in the Corporation or the Corporation's ownership interest or the Casino's assets or business. Upon Respondents' showing of good cause and diligence, the Commission may extend the Stay Period for an additional 12 months. Except as provided here, under no circumstances may the Calendar No.: Event ID:  TENTATIVE RULINGS

3118355  37 CASE NUMBER: CASE TITLE:  PRCCC INC VS SHIMAZU [IMAGED]  37-2023-00043181-CU-BC-CTL Stay Period be extended or otherwise lengthened beyond 24 months from the Effective Date. At the end of 12 months and any extension not to exceed 12 months, the Stay Period will expire, except if a complete application for approval of a sale (the Sale Application) is pending before the Bureau or the Commission, in which case the Stay Period shall continue until the earliest of (a) August 31, 2022, or any license-extension period allowed by the Act, (b) the date the Commission denies the Sale Application, or (c) the date that a sales transaction is closed and ownership is transferred following the Commission's approval of the Sale Application. The Bureau recognizes and acknowledges that good cause exists to expedite review of any Sale Application because of Respondents' license revocation and the desire to preserve and protect the possible interests of the Casino's employees, the community, and the general public.' As alleged, the Effective Date was May 28, 2020. Plaintiffs allege that they diligently attempted to find a buyer, and in light of the COVID pandemic, the parties agreed to extend the stay. The stay period could only be extended until May 28, 2022, unless there was a pending application. Plaintiffs allege that based on the first sale application, the parties agreed that the stay would be extended until August 31, 2022.

Now comes the crux of the dispute. The second sale application was submitted after the May 28, 2022 but before August 31, 2022. The Bureau argues that Plaintiffs were not entitled to piggyback off of the extended stay based on the first sale application in order to submit the second sale application. Plaintiffs argue that the Bureau was required to expedite review of the second application because it was submitted before the extended stay expired.

'Where a complaint is based on a written contract which it sets out in full, a general demurrer to the complaint admits not only the contents of the instrument but also any pleaded meaning to which the instrument is reasonably susceptible.' (Schmier v. City of Berkeley (2022) 76 Cal.App.5th 549, 558.) 'So long as the pleading does not plead a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, [courts] must accept as correct plaintiff's allegations as to the meaning of the agreement.' (Id.; accord Aragon-Haas v. Family Security Ins.

Services, Inc. (1991) 231 Cal.App.3d 232, 239.) Here, Plaintiff's construction of the Stipulated Settlement is not 'clearly erroneous.' For example, the Stipulated Settlement obligates the Bureau to 'expedite review of any Sale Application,' (emphasis added) not only those applications that are submitted within 24 months from the Effective Date.

Moreover, the stated purpose of both the stay and the expedited review was to help ensure that the casino is sold. The Stipulated Settlement should therefore arguably be given an interpretation that promotes such a sale, rather than restricts it. Plaintiffs also allege that the Bureau initially acted consistent with their interpretation by, for example, encouraging them to look for and close the deal with the second buyer even after May 28, 2022. Although the Bureau presents colorable arguments in favor of its own interpretation, resolution of this issue cannot be resolved at the pleading stage.

The Bureau's demurrer to the first cause of action is therefore overruled.

Breach of the Implied Covenant of Good Faith and Fair Dealing Plaintiffs' second cause of action is for breach of the implied covenant of good faith and fair dealing. It is alleged against the Bureau.

Plaintiffs allege two breaches of the implied covenant: (1) failing to review the application for sale to the second buyer on an expedited basis, and (2) issuing the emergency order without first reviewing the pending sale application.

The Bureau demurs on the ground that it had no duty to review the second sale application because it was submitted after May 28, 2022. This is essentially the same argument the Bureau's makes in relation to the first cause of action for breach of contract. It therefore fails for the same reason. (See Barroso v. Calendar No.: Event ID:  TENTATIVE RULINGS

3118355  37 CASE NUMBER: CASE TITLE:  PRCCC INC VS SHIMAZU [IMAGED]  37-2023-00043181-CU-BC-CTL Ocwen Loan Servicing LLC (2012) 208 Cal.App.4th 1001, 1014–1015.) The Bureau's demurrer to the second cause of action is therefore overruled.

Fourth, Fifth, and Fourteenth Amendment Claims Plaintiffs' third, fourth, and fifth causes of action allege constitutional violations. Each cause of action seeks recovery pursuant to 42 U.S.C. § 1983, which allows actions against state officials for actions that have violated constitutional rights. These claims are alleged against the Individual Defendants.

Plaintiffs' third cause of action is based on a violation of their Fourteenth Amendment 'right to carry on a lawful business.' Plaintiffs allege that the Individual Defendants 'had no valid reason to delay their acceptance of the Plaintiffs' application' nor a 'valid reason to breach the Stipulated Settlement,' and that the 'Individual Defendants' decision to close the Casino despite Plaintiffs' performance of the Stipulated Settlement was arbitrary, capricious, excessive, and served no other purpose than to punish Plaintiffs.' Plaintiffs' fourth cause of action is based on a violation of their Fourth Amendment right against 'unreasonable searches and seizures.' Plaintiffs allege that the 'Individual Defendants' seizure (the armed shutdown) of the Casino was unreasonable, as it was not supported by probable cause or a warrant, but the Bureau's refusal to review the pending Sale Application before it.' Plaintiffs' fifth cause of action is based on a violation of their Fifth Amendment right to 'receive due process of law,' including 'notice and an opportunity to be heard.' Plaintiffs allege that the Individual Defendants 'forcibly shut[] down the Casino, in a non-emergency setting, without notice or an opportunity to challenge the legitimacy of the emergency order before its issuance.' Shimazu and Baxter Shimazu and Baxter demur on the ground that the complaint does not allege any facts showing that they were involved with the alleged constitutional violations.

Plaintiffs do not cite to any such allegations in their opposition. Rather, they assert that the 'FAC only intended to name Stephanie Shimazu and Stacey Luna Baxter as defendants in their official capacities, at this time, not as individuals liable for constitutional claims.' The first amended complaint specifically alleges that Shimazu and Baxter are sued in their 'individual capacity only.' As Plaintiffs have essentially abandoned these claims against Shimazu and Baxter as individuals, their demurrer is sustained. (See McAllister v. Los Angeles Unified School Dist. (2013) 216 Cal.App.4th 1198, 1211–1214 [plaintiff must make 'a minimal factual showing' that complaint alleging 1983 claim against official in their individual capacity is appropriate].) To the extent Plaintiffs intend to amend to allege these claims against Shimazu and Baxter in their official capacities, such claims are futile. An 'official sued in his official capacity is not subject to liability under section 1983.' (McAllister, supra, 216 Cal.App.4th at p. 1208.) Shimazu and Baxter's demurrer to the third, fourth, and fifth causes of action is sustained without leave to amend.

Morrow - Waiver Morrow demurs on the ground that Plaintiffs waived their constitutional claims. She relies on the following provision in the Stipulated Settlement: 'Upon expiration or termination of the Stay Period, Respondents' state gambling licenses shall be Calendar No.: Event ID:  TENTATIVE RULINGS

3118355  37 CASE NUMBER: CASE TITLE:  PRCCC INC VS SHIMAZU [IMAGED]  37-2023-00043181-CU-BC-CTL automatically revoked without hearing or any right to appeal. Each Respondent expressly waives any right to appeal, or to contest, such revocation. Each Respondent further expressly waives any right to hearing on such revocation.' Plaintiffs do not challenge the revocation of their license itself, but rather the allegedly unconstitutional conduct occurring thereafter in connection with the 'armed shutdown' of the casino ordered by Morrow that should not have occurred because the second sale application should have been approved. At a minimum, the scope of the purported waiver is ambiguous and therefore must be construed in favor of Plaintiffs for purposes of this demurrer. (See Health Net of California Inc. v. Department of Health Services (2003) 113 Cal.App.4th 224, 232–235 [contractual provision purporting to relieve public agency of liability for future statutory and regulation violations deemed invalid under Civil Code section 1668].) Morrow's demurrer to the third, fourth, and fifth causes of action based on waiver is therefore overruled.

Morrow - Qualified Immunity Morrow also demurs on the basis of qualified immunity.

'Qualified immunity shields public officials from liability only for decisions made in the good faith exercise of their official responsibilities. As a practical matter, such qualified immunity will seldom provide grounds for demurrer; a complaint alleging violation of § 1983 is not likely to reveal on its face the presence of good faith on the part of the offending officials.' (Newton v. County of Napa (1990) 217 Cal.App.3d 1551, 1562.) Here, Morrow allegedly issued the emergency order in bad faith. Morrow caused the order to be issued by armed agents during business hours. Morrow issued the order even though she knew the casino was not a threat to public safety. Morrow also knew that Plaintiffs had found a new buyer and knew the Bureau was obligated to extend the stay to facilitate the transaction. Yet even though she knew her actions were unlawful, she wanted to punish Plaintiffs and display the Bureau's force to the people of Paso Robles. As alleged, Morrow is not entitled to qualified immunity.

Morrow argues that Business and Professions code section 19931 expressly authorizes emergency orders, and when she 'issued the emergency order, she acted within statutory boundaries.' Section 19931 authorizes emergency orders when deemed 'reasonably necessary for the immediate preservation of the public peace, health, safety, or general welfare.' (Bus. & Prof. Code, § 19931, subd.

(a).) But again, as alleged, Morrow allegedly issued the order even though she knew the casino was not a threat to public safety and that doing so was unlawful. Those allegations must be accepted as true for present purposes.

Morrow's demurrer to the third, fourth, and fifth causes of action based on qualified immunity is therefore overruled.

Inverse Condemnation Plaintiffs' sixth cause of action is for inverse condemnation. It is alleged against the Bureau.

Plaintiffs allege that the Bureau 'seized-it physically appropriated-[their] property from September 1, 2022 through at least November 16 of 2022 for a period of 76 days or more.' The Bureau argues that this claim was waived. This argument fails for the reasons set forth above.

The Bureau also argues that 'the alleged revocation of a gambling license does not sound in inverse condemnation.' But as set forth above, this claim is not based on the revocation of the license but on the 2 ½ month physical seizure of the cardroom by armed agents. (See Surfrider Foundation v. Martins Beach 1, LLC (2017) 14 Cal.App.5th 238, 274, fn. 29 ['temporary total occupation of the property by the Calendar No.: Event ID:  TENTATIVE RULINGS

3118355  37 CASE NUMBER: CASE TITLE:  PRCCC INC VS SHIMAZU [IMAGED]  37-2023-00043181-CU-BC-CTL government' may constitute a per se taking entitling the property owner to compensation].) The Bureau further argues that Plaintiffs 'allege no facts, nor can they, that its gambling license was taken by the State for a public use or project which concerns the whole community.' But according to the operative complaint, 'The Bureau contends that it seized Plaintiffs' property for a public purpose, to protect the people of California.' And as set forth above, Morrow argues that she is entitled to qualified immunity because she was acting in good faith in issuing an emergency order to protect the public. The purpose of the alleged taking is a factual issue that cannot be resolved based on the pleadings alone.

The Bureau's demurrer to the sixth cause of action is therefore overruled.

Conclusion The Bureau's demurrer to the first, second, and sixth causes of action is overruled.

Shimazu and Baxter's demurrer to the third, fourth, and fifth causes of action is sustained without leave to amend.

Morrow's demurrer to the third, fourth, and fifth causes of action is overruled.

The Bureau and Morrow shall file an answer within 10 days.

Shimazu and Baxter are directed to submit a proposed judgment of dismissal within 10 days.

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