Judge: Malcolm Mackey, Case: 21STCV39486, Date: 2023-08-25 Tentative Ruling

Case Number: 21STCV39486    Hearing Date: August 25, 2023    Dept: 55

LEWIS v. UPCHURCH                                                       21STCV39486

Hearing Date:  8/25/23,  Dept. 55

#3:   MOTION FOR SUMMARY JUDGMENT OR IN THE ALTERNATIVE FOR SUMMARY ADJUDICATION.

Notice:  Okay

Opposition

MP:  Defendant JASON UPCHURCH.

RP:  Plaintiff

Summary

On 10/26/21, Plaintiff TONY LEWIS filed a Complaint against defendants, JASON E. UPCHURCH, personal representative of the Estate of DARLENE J. UPCHURCH-FRIEDMAN and  JEFFERSON LA BREA D&J PROPERTIES, LLC, alleging that this is an action for Declaratory Relief, Breach of Contract and related claims, arising out of a written one-page partnership agreement entered into in 2011, between Plaintiff and the decedent DARLENE UPCHURCH-FRIEDMAN, providing Plaintiff with a 30% ownership and partnership interest in commercial real property at Jefferson and La Brea Boulevards.

On 8/18/22, Defendant JEFFERSON LA BREA D&J PROPERTIES, LLC filed a notice of bankruptcy stay, but UPCHURCH-FRIEDMAN’s estate did not.

MP Positions

Moving party requests an order granting summary judgment or adjudication of the claims, against Plaintiff, on grounds including the following:

·         Plaintiff seeks to revive time-barred claims against the estate of Darlene Upchurch-Friedman and the limited liability company that she owned at the time of her death, Jefferson La Brea D&J Company LLC. 

·         The claims are all time-barred, and were for years before Ms. Upchurch-Friedman’s death in March 2021.

·         Lewis’s causes of action accrued no later than June 2015, when Lewis unequivocally “declar[ed]” Ms. Upchurch-Friedman “to be in breach of the agreements” and complained that “everything [Ms. Upchurch-Friedman] did with the company was being run as if my partnership with her did not exist.” [Glazer Decl. ¶¶15, 17, Exh. 14, Exh. 16 at 3.] The four-year statute of limitations for contract breach and declaratory relief, and three-year statute of limitations applicable to fiduciary duty breach, expired no later than June 2019, which is more than two years before Lewis filed suit.

·         Lewis relinquished his minority interest in the LLC on May 15, 2014.

·         Lewis waited until after Ms. Upchurch-Friedman died and then filed this untimely action seeking an order requiring the defendants “to restore Plaintiff to the position of LLC manager.”

·         Lewis claims that the Membership Purchase Agreement was a sham transaction designed to commit “loan fraud.” [Glazer Decl. ¶ 3, Exh. 2 at 39:11-12.] But a party cannot avoid an agreement when he signed it to defraud a bank. Brown v. Grimes, 192 Cal. App. 4th 265, 284 (2011) (“as a general rule, equity will not aid one party or another to an illegal transaction where they stand in pari delicto, but will leave them just where it finds them, to settle these questions without the aid of the court”).

·         On May 7, 2015, Lewis sent Ms. Upchurch-Friedman a letter purporting to “repurchase” his interest and insisting that “the exact terms of the Operating Agreement of Jefferson La Brea D&J Properties, LLC” would govern. [Glazer Decl. ¶8, Exh. 7.] Yet Ms. Upchurch-Friedman did not execute any documents readmitting Lewis to the LLC, as required for Lewis’s admission by the terms of the very LLC Operating Agreement that Lewis claimed must apply. [Glazer Decl. ¶8, Exh. 7.]

·         The subject property is owned by the LLC and governed by the LLC Operating Agreement.

·         Promissory fraud must be based on more than evidence that Friedman did not perform her contractual obligations.

·         “Injunctive relief is a remedy, not a cause of action.” Guessous v. Chrome Hearts, LLC, 179 Cal. App. 4th 1177, 1187 (2009).

RP Positions

Opposing party advocates denying the motion, for reasons including the following:

·         The statute of limitations on Plaintiff’s claim has not begun to accrue and is subject to various exceptions such as the delayed discovery rule.

·         In 2015, after minor business disputes, a lawsuit would not have involved significant, if any, monetary damage, because there were no profits.  The LLC Agreement (Section 4.1 and 4.2 of the LLC Operating Agreement) specifically gives Plaintiff the right to receive “distributions” of “net cash from operations” and “net cash from sale or refinancing” prior to any dissolution. See Declaration of Tony Lewis, Exhibit “B”, p.9-10. However, Plaintiff does not know and does not believe that there have ever been any profits or distributions since 2011.. Mrs. Friedman, a party owing another partner fiduciary duties, repeatedly told Plaintiff that the Property did not make profits and was losing money due to vacancies. Declaration of Tony Lewis ¶ 13. Plaintiff asked for the information, but was never privy to the books and records. Since there was no breach causing monetary damages, Plaintiff’s cause of action did not begin to accrue.

·         Plaintiff refrained from filing a lawsuit in 2015 and instead attempted to resolve issues informally without litigation. In 2021, Mrs. Friedman passed away and her son, as the administrator of her estate, plans to sell the property and pay Plaintiff nothing.

·         A "cause of action accrues ‘when [it] is complete with all of its elements'—those elements being wrongdoing, harm, and causation." (Pooshs v. Philip Morris USA, Inc., (2011) 51 Cal.4th 788, 797.) This is the "last element" accrual rule: ordinarily, the statute of limitations runs from "the occurrence of the last element essential to the cause of action." (Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 187.)  The continuing violation doctrine reflects the reality that some injuries are the product of a series of small harms, any one of which may not be actionable on its own. Aryeh v. Canon Business Solutions, Inc. (2013), 55 Cal.4th 1185, 1197.  "When an obligation or liability arises on a recurring basis, a cause of action accrues each time a wrongful act occurs, triggering a new limitations period." ( Hogar Dulce Hogar v. Community Development Commission (2003) 110 Cal.App.4th 1288, 1295.)  The doctrine of delayed discovery also precludes the application of the statute of limitations, especially as to fiduciaries. (April Enterprises Inc. V. KTTV (1983) 147 Cal.App.3d 828, 832).

·         Plaintiff did not relinquish his interest in the LLC. 

·         In 2014, through a sham “buy-out” agreement imposed on Plaintiff, Darlene Friedman purportedly claimed that TONY LEWIS was no longer a partner, member or manager. See Declaration of Tony Lewis ¶ 8. By that artifice, Darlene Friedman was able to refinance the Property by obtaining a new loan from Mega Bank in 2014, which TONY LEWIS was initially not aware of. Since TONY LEWIS was never paid the consideration set forth in the buy-out agreement and the buy-out agreement was never intended to be consummated, TONY LEWIS and Darlene Friedman agreed in 2015 that his purportedly stopped interest as a partner, member, and manager of the LLC, was reinstated. See Declaration of Tony Lewis ¶ 8-9.  Mr. Lewis and Mrs. Friedman agreed verbally to modify the buy-out agreement and reinstate Mr. Lewis’ interest, which was valid for a performed agreement.

·         In 2015, 2016, 2017, TONY LEWIS continued to function as an owner, partner, the property manager, and dealt with construction and maintenance of the property.

·         California Civil Code § 1698(b) provides that “[a] contract in writing may be modified by an oral agreement to the extent that the oral agreement is executed by the parties.” Civil Code section 1698(b) applies if an oral modification is executed regardless of whether the contract required that modification to be in writing. Thus, it is irrelevant that the LLC Agreement required any modifications to be in writing. See Miller v. Brown (1955) 136 Cal.App.2d 763, 775 ["under section 1698 of the Civil Code, an executed oral agreement may alter an agreement in writing, even though . . . the original contract provides that all changes must be approved in writing"].

·         Plaintiff spent close to a million dollars in the property and completed fire restoration and obtained a certificate of occupancy. In addition, he lent Darlene Friedman substantial amounts of money to cure defaults on the mortgage for her condo, unpaid property taxes, property repairs, car repairs, medical bills, and rehabilitation treatment for alcoholism. See Declaration of Tony Lewis ¶ 7.

Tentative Ruling

The motion for summary judgment is denied.

The motion for summary adjudication is denied as to all noticed issues.

The Court determines that there are triable issues of material fact, as to each issue raised, including whether (1) the Statute of Limitations expired as to any entire Cause of Action, (2) the Membership Purchase Agreement was a sham transaction done to qualify UPCHURCH-FRIEDMAN for a loan, not relinquishing Plaintiff’s minority interest in partnership profits, and (3) fraudulent promises were made based on inferences from entering into agreements with severe financial problems and alcoholism adversely impacting ability to perform  (e.g.,  Plaintiff’s decl., ¶¶ 4, 8-13; versus Defendant’s separate statement and proof referenced thereat).

            Statutes of Limitations

A Statute of Limitations does not necessarily accrue upon a contract breach.

“[U]nder the theory of continuous accrual, a series of wrongs or injuries may be viewed as each triggering its own limitations period, such that a suit for relief may be partially time-barred as to older events but timely as to those within the applicable limitations period.”  Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1192.

Where a contract is divisible, as shown by parties’ manifested intent, including course of performance, the statute of limitations begins to run at the time of each breach.  Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co. (2004) 116 Cal. App. 4th 1375, 1389.  Generally, as to agreements involving installments or severable obligations, the applicable time limitation to accrues after each particular installment becomes payable pursuant to the terms.  Tsemetzin v. Coast Fed. Sav. & Loan Ass'n (1997) 57 Cal. App. 4th 1334, 1344 (“four-year limitations period … would permit a recovery for all unpaid rental installments falling due during the four-year period….”)

The continuing violation doctrine permits recovery for actions that take place outside the limitations period that are sufficiently linked to unlawful conduct occurring within the limitations period, based on a continuing pattern and course of conduct, as opposed to unrelated, discrete acts.  Komarova v. National Credit Acceptance, Inc. (2009) 175 Cal.App.4th 324, 343.

"Delayed accrual of a cause of action is viewed as particularly appropriate where the relationship between the parties is one of special trust such as that involving a fiduciary, confidential or privileged relationship."  Moreno v. Sanchez (2003) 106 Cal. App. 4th 1415, 1424.  With regard to a statute of limitations, plaintiffs asserting a reduced requirement of diligence based on a fiduciary relationship with defendants, are still required to show actual discovery of unknown information within the limitations period in order to satisfy the duty of diligence, and to investigate if facts have come to plaintiffs’ attention sufficient to arouse the suspicions of a reasonable person.  Czajkowski v. Haskell & White, LLP  (2012) 208 Cal.App.4th 166, 176-77.  “Where … a defendant moving for summary judgment shows … the applicable limitations period ran out before the complaint was filed and the plaintiff relies on the delayed discovery rule the plaintiff has the burden ‘to show that a triable issue of one of more material facts exists as to that ... defense....’”  Gryczman v. 4550 Pico Partners, Ltd. (2003) 107 Cal.App.4th 1, 7   (concluding that, “reasonable minds could differ as to the sufficiency of plaintiff's diligence in discovering … and therefore whether plaintiff exercised reasonable diligence under the circumstances is a question of fact for a jury to decide.”).

The Statute of Limitations does not accrue until the claiming party was entitled to prosecute an action, which is when the last element essential to the cause of action has occurred, including appreciable harm.  County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal. App. 4th 292, 316-17.  Merely nominal damages will not trigger accrual of a Statute of Limitation requiring injury, but instead the infliction of appreciable and actual harm, however uncertain in amount, commences the statutory period.  Miller v. Lakeside Vill. Condominium Ass'n (1991) 1 Cal. App. 4th 1611, 1622.

Sham Contract

Evidence of a sham contract can be admissible and the basis of claims to enforce or to avoid the contract.

"[E]vidence that parties never intended a writing to constitute a contract, but that in lieu thereof another contract was entered into between them, is not objectionable under the parol evidence rule."  P. A. Smith Co. v. Muller (1927) 201 Cal. 219, 222.  Accord  Halldin v. Usher (1958) 49 Cal. 2d 749, 752.  Where contract interpretation is an issue, and parol evidence is admissible and in conflict, summary judgment must be denied.  Wolf v. Sup. Ct. (2004) 114 Cal.App.4th 1343, 1359 n. 27;  Fischer v. First Internat. Bank  (2003) 109 Cal.App.4th 1433, 1443;  Byrne v. Laura (1997) 52 Cal. App. 4th 1054, 1066;   Money Store Inv. Corp. v. S. Cal. Bank (2002) 98 Cal. App. 4th 722, 730;  Rogers v.  Prudential Ins.  Co.  (1990) 218 Cal.App.3d 1132, 1136-37 (policy was ambiguous where there was no copy of the policy in the record showing its terms);  Butler v. Vons Companies, Inc. (2006) 140 Cal.App.4th 943, 949-50 (triable issues existed based upon parol testimony as to scope of release agreement). 

As explained in the opinion excerpt below, the doctrine of in pari delicto is flexible, with exceptions that depend on the factual circumstances:

"The rule that the courts will not lend their aid to the enforcement of an illegal agreement or one against public policy is fundamentally sound. The rule was conceived for the purposes of protecting the public and the courts from imposition. It is a rule predicated upon sound public policy. But courts should not be so enamored with the Latin phrase 'in pari delicto' that they blindly extend the rule to every case where illegality appears somewhere in the transaction. The fundamental purpose of the rule must always be kept in mind, and the realities of the situation must be considered. Where, by applying the rule, the public cannot be protected because the transaction  has been completed, where no serious moral turpitude is involved, where the defendant is the one guilty of the greatest moral fault, and where to apply the rule will be to permit the defendant to be unjustly enriched at the expense of the plaintiff, the rule should not be applied."

Jacobs v. Universal Development Corp. (1997) 53 Cal.App.4th 692, 699, 700

            Promissory Fraud

Circumstances involved in the contractual relations sometimes can infer a contemporaneous intent not to perform contracts.

“ ‘[B]ecause the real intent of the parties and the facts of a fraudulent transaction are peculiarly in the knowledge of those sought to be charged with fraud, proof indicative of fraud may come by inference from circumstances surrounding the transaction, the relationship, and interest of the parties.’"   Miller v. National American Life Ins. Co. (1976) 54 Cal. App. 3d 331, 338.   See also   Tenzer v.  Superscope, Inc. (1985) 39 Cal.3d 18, 30 (mere contract breach is not sufficient circumstantial evidence to infer fraudulent intent).