Judge: Mark A. Young, Case: 21SMCV01693, Date: 2023-09-27 Tentative Ruling
Case Number: 21SMCV01693 Hearing Date: September 27, 2023 Dept: M
CASE NAME: Beroukhim, et
al., v. Beroukhim
CASE NO.: 21SMCV01693
MOTION: Demurrer
to the First Amended Complaint
HEARING DATE: 9/27/2023
Legal
Standard
A
demurrer for sufficiency tests whether the complaint states a cause of action.
(Hahn v. Mirda (2007)
147 Cal.App.4th 740, 747.) When considering demurrers, courts read the
allegations liberally and in context. In a demurrer proceeding, the defects
must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co.
(2004) 116 Cal.App.4th 968, 994.) A demurrer tests the pleadings alone and not
the evidence or other extrinsic matters. Therefore, it lies only where the
defects appear on the face of the pleading or are judicially noticed. (CCP §§
430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate
facts sufficient to apprise the defendant of the factual basis for the claim
against him. (Semole v. Sansoucie
(1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit
contentions, deductions or conclusions of fact or law alleged in the pleading,
or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen
(1964) 226 Cal.App.2d 725, 732, internal citations omitted.)
A
special demurrer for uncertainty is disfavored and will only be sustained where
the pleading is so bad that defendant cannot reasonably respond—i.e., cannot
reasonably determine what issues must be admitted or denied, or what counts or
claims are directed against him/her. (CCP § 430.10(f); Khoury v. Maly’s
of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if
the pleading is somewhat vague, “ambiguities can be clarified under modern
discovery procedures.” (Ibid.)
“Liberality in permitting amendment
is the rule, if a fair opportunity to correct any defect has not been given.” (Angie
M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.) It is an abuse of
discretion for the court to deny leave to amend where there is any reasonable
possibility that plaintiff can state a good cause of action. (Goodman v.
Kennedy (1976) 18 Cal.3d 335, 349.) The burden is on plaintiff to
show in what manner plaintiff can amend the complaint,
and how that amendment will change the legal effect of the pleading. (Id.)
Analysis
First Cause of Action: Breach of
Contract
To withstand demurrer, a plaintiff must plead the contract, plaintiff’s
performance or excuse for non-performance, defendant’s breach, and damage to
plaintiff therefrom. (Acoustics, Inc. v. Trepte Constr. Co. (1971) 14
Cal.App.3d 887, 913.) Contract
interpretation, even though it involves what might properly be called questions
of fact, is essentially a judicial function, exercised by the court pursuant to
accepted canons of interpretation, unless the interpretation turns on the
credibility of extrinsic evidence. (Sanchez v. Bally’s Total Fitness
Corporation (1998) 68 Cal.App.4th 62, 69.) Contract interpretation involves
the jury only if the court makes three determinations: (1) The wording of the
instrument is reasonably susceptible of the interpretation urged by the
proponent of the extrinsic evidence; (2) The extrinsic evidence is relevant to
prove the proposed meaning; and (3) The credibility of the proponent’s parol
evidence is disputed. (Equitable Life Assurance Society v. Berry (1989)
212 Cal.App.3d 832, 838.) “The question as to the intent of the
parties to an ambiguous agreement that does not clearly
express their intention is one of fact.” (Lewis Food Co. v. Fireman's Fund
Ins. Co. (1962) 207 Cal.App.2d 515, 524-525.)
“On a demurrer, the court must consider the sufficiency of the
allegations, including any parol evidence allegations, to determine whether the
contract is reasonably susceptible to the plaintiff’s alleged interpretation.”
(George v. Automobile Club of So. Cal. (2011) 201 Cal.App.4th 1112,
1128.) A pleader’s legal characterization of a contract is not controlling,
particularly when the contract is attached to the pleading. (Morris v.
Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1314.) However, courts will
defer to plaintiffs’ reasonable interpretations. (Performance Plastering v.
Richmond American Homes of Cal., Inc.¿(2007) 153 Cal.App.4th 659,
672.)
The first amended complaint (FAC)
alleges that in 2012, Plaintiffs advanced $3,000,000 to Defendant with the
understanding that this would be used for real estate investments and that
defendant would repay the money with interest. (FAC ¶ 7.) Defendant used a
portion of those funds to purchase property at 9430 Readcrest Drive, Beverly
Hills, California 90210 (the "Readcrest Property"), for the price of
$2,050,000. (FAC ¶8.) Defendant paid $1,450,000.00 towards the property, plus a
$600,000.00 loan that Defendant obtained from Behrouz Benouni (the “Benouni
Loan”), secured by the Readcrest Property and bearing monthly interest of
$2,500.00. (FAC ¶ 10.)
In partial repayment of the $3
million advance, on September 12, 2013, Defendant transferred the Readcrest
Property to Plaintiffs by Quitclaim deed, which is still held by Plaintiffs’
trust. (FAC ¶ 11.) As a part of transferring the Readcrest Property to
Plaintiffs, Defendant remained solely responsible for the principal and
interest payments on the Benouni Loan, and payment of the real property taxes
and assessments on the Readcrest Property. (FAC ¶ 12.) Following the transfer,
there was a remaining balance of $1,400,000 on the $3 million advance. (FAC ¶
13.) In September 2013, Defendant paid $200,000 to Plaintiff, thereby reducing
the principal balance to $1,200,000. (¶ 13.) On September 12, 2013, Defendant
and Plaintiffs agreed that Defendant would continue to be solely responsible
for continuing to make monthly interest payments to Benouni of $2,500 per month
on the Benouni Loan, that Defendant would be solely responsible for paying the
entire principal of the Benouni Loan, and Defendant would be responsible for paying
property taxes and assessments on the Readcrest Property. (FAC ¶ 14.)
The FAC alleges that based thereon,
Defendant was obligated to pay interest and property tax installment payments
prior to the maturity date of the Note on March 1, 2029. (FAC ¶ 14.) Defendant
made interest payments on the Benouni Loan from October 1, 2012 through April
2019. (FAC ¶ 16.) Defendant also made partial payments on the principal of the Benouni
Loan in May 2019. (FAC ¶ 17.) After such payments, a principal of $400,000.00
remained on the Benouni Loan, with $1,666.67 in monthly interest payments. (FAC
¶ 18.) Defendant made monthly interest payments of $1,666.67 per month from May
2019 to November 2020. (FAC ¶19.) The last monthly interest payment made by
Defendant on the Benouni Loan was for the month of October 2020, after which he
stopped making tax payments on the Readcrest Property. (FAC ¶ 20.) Defendant
informed Plaintiff that he would no longer make interest payments to Benouni or
property tax payments on the Property. (FAC ¶ 20.)
Following Defendant’s failure to
pay the monthly interest payments Plaintiffs paid interest payments on the
Benouni Loan to avoid foreclosure on the Readcrest Property. (FAC ¶ 21.)
Plaintiff also borrowed $400,000.00 to pay off the principal of the Benouni Loan.
(FAC ¶ 22.) Plaintiff also had to pay the property taxes on the Property for
2020-2022. (FAC ¶ 23.) Pursuant to the payoff of the Benouni loan, Benouni
reconveyed the deed of trust to Plaintiffs. (FAC ¶ 24.)
Based on Defendant's failure to
make certain interest payments to Benouni on the Benouni Loan, Defendant's
failure to make certain property tax payments on the Readcrest Property, and on
the language in Section 1(b) of the Note, Defendant had the sole obligation and
responsibility to pay the full principal and interest on the Benouni Loan and
make the real property tax payments. (FAC ¶ 25.) The FAC further alleges that the
Note itself recognizes Defendant's obligation to make payments of principal or
interest “when due.” (See FAC ¶ 15, Ex. D, § 1(b) [contrary to the quotation by
Plaintiffs, this section does not make any reference to “installment”].) Alternatively,
this evidences an executed oral agreement by Defendant to be responsible under
the Note for making interest payments on the Benouni Loan when due, and
property tax payments on the Read crest Property when due, and to payoff the
Benouni balance, all before the Maturity Date of the Note. (FAC ¶ 25.)
The FAC defines the subject Note in
paragraphs 26-29. The Maturity Date and payment terms are as follows:
This Note shall
mature on the ten (10) year anniversary of the date of this Note (the
"Maturity Date"). Any principal and interest then unpaid shall be due
on the Maturity Date. All payments of interest and principal shall be made in
lawful money of the United States of America by check or by wire transfer of
immediately available funds to Behrouz Benouni ("Benouni") or Sormani
[a company controlled by Benouni] and The LA County Property Tax Department.
Currently, Kian Beroukhim is the Borrower of $600,000 secured by the property
at 9430 Readcrest Drive, Beverly Hills, CA 90210 (the "Property")…
(FAC ¶ 27, Ex. D §1(b).) The Note provides that in the event
of a default, such as a failure to pay principal or interest “when due,” and
after the applicable grace period, the outstanding principal balance on the
Note shall immediately bear an increased interest at the rate of three percent
(3%) above the then applicable interest rate for so long as such Default
continues. (FAC ¶28, Ex. D § 1(c).) The Note provides an acceleration clause as
follows:
All unpaid
principal and all accrued but unpaid interest owed under this Note shall,
without any action of Lender, become immediately due and payable upon the
occurrence of any of the following (each, a "Default"): (i) Borrower
commences any proceeding in bankruptcy or for dissolution, liquidation,
winding-up, composition or other relief under state or federal bankruptcy laws;
(ii) such proceedings are commenced against Borrower, or a receiver or trustee
is appointed for Borrower or a substantial part of its property, and such
proceeding or appointment is not dismissed or discharged within thirty (30)
days after its commencement; provided, that all interest shall continue to
accrue as set forth above until all amount; owed under this Note are paid in
cash in full; (iii) any assignment for the benefit of the creditors of
Borrower; or (iv) Borrower fails to pay when due any principal, interest
or other amount owing under this Note, which failure to pay is not cured within
ten (10) days thereafter."
(FAC ¶29, Ex. D § 4.)
Defendant allegedly breached his
obligations to fully pay interest on the Benouni Loan, taxes on the Property,
and the Benouni Balance. (FAC ¶¶ 16-24, 30.) Plaintiff thus concludes that the
acceleration terms triggered under the Note. (FAC ¶ 30.) Defendant is therefore
liable for, (i) the outstanding principal balance of the Note in the amount of
$1,000,000, which includes the principal payment that Plaintiffs were forced to
make on the Benouni Loan in the amount of $400,000, plus accrued interest and
default interest thereon; (ii) the Advanced Interest Payments and the Advanced
Tax Payments, which Plaintiffs were forced to make when Defendant failed to do
so; (iii) accrued and default interest on the Note, and (iv) reasonable
attorneys' fees and costs pursuant to the Note. (FAC ¶30.) Defendant breached his obligations under the
Note by: (a) failure to pay the installments of real property taxes for the
Property for the years of 2020, 2021, or 2022 in the sum of $14,103.97,
$27,989.83, and $28,342.32; and (b) failure to pay interest installments on the
Note for November and December 2020, and January, February, March, April, May
and June 2021 in the sum of $31,666.64. (FAC ¶31.) On June 16, 2021, Plaintiffs
gave written default notice to Defendant in accordance with the Note. (FAC ¶¶
32, 34.) Defendant refused to cure said default. (FAC ¶¶ 33, 35.)
Plaintiff therefore brings a breach
of contract cause of action against Defendant for breach of the Note. Defendant
was obligated to perform all terms of the Note, which included timely curing
any default and making all payments due and owing to Plaintiffs pursuant to the
Note. (FAC ¶ 38.) However, after extensively analyzing the above allegations
and exhibits, Plaintiffs do not plead any conduct that constitutes default
under the Note.
The FAC cites to the following
breaches: Defendant's breach of his obligations pursuant to the Benouni Loan
(not the Note); Defendant's failure to cure said default (on the Benouni Loan,
which is not the Note); and Defendant's failure to remit full payment of the
principal balance of the Note, accrued and unpaid interest and other amounts
demanded by Plaintiffs in view of Defendant's failure to cure the said
defaults (on the Benouni Loan). (FAC ¶39.) None of these acts breach any
express term of the Note. Instead, Plaintiff pleads that because Defendant
breached obligations under the Benouni Loan, an agreement that existed six
years prior to the Note, he breached the terms of the Note. (¶ 39.) However,
the Note fails to expressly incorporate any term so the Benouni Loan, or
independently provide any of the payment conditions cited by Plaintiff, such as
the interest payments on the Benouni Loan or tax payments on the Readcrest
Property. (FAC ¶¶ 30-31.)
Plaintiff claims that Defendant was
responsible for making payments of interest on the principal balance of the
Note and payments of property taxes on the Readcrest Property. (FAC¶ 14.) Plaintiffs
argue that the FAC alleges extrinsic facts support a reasonable interpretation
of the Note as including Defendant's obligations to pay interest and property
taxes before the maturity date of the Note, such that Defendant's failure to
pay interest/taxes triggers the acceleration clause in the Note. However, the
Note never provides when any interest payments were to be made aside
from the Maturity Date. Section 1(a) of the Note provides that Defendant, as
borrower, was obligated to pay Plaintiffs, as lender, the principal amount of
the Note in the sum of $1,200,000.00, with simple interest thereon at the rate
of 4.75% per annum. The Note’s terms make no implication that interest is due
before the Maturity Date. Section 1(b) of the Note refers to "[a]ny
principal and interest then unpaid," which is logical since Defendant
could always make early payments. The Note also does not require Defendant to
pay taxes.
To the extent that Defendant is
obligated to pay for taxes on the Property or interest on the Benouni Loan, the
FAC’s allegations make it clear that this was pursuant to some other
pre-existing obligation than the Note. Indeed, such an agreement existed for at
least six years prior to the date the Note was executed.
The allegations and terms suggest
that this Note was one part of a larger agreement between the parties
concerning the financing of the Property. Indeed, the Note recognizes that
Defendant is the borrower of $600,000 secured by the Property and that once the
$600,000 loan is paid off in full, the subject Promissory Note will be reduced
to a $600,000 value. Further, when the $600,000 balance is paid in full, Defendant
would no longer be responsible to pay for the property taxes. Thus, the Note
does pertain to taxes, in that it alleviates Defendant’s pre-existing
obligation to pay taxes if he pays off the Benouni Loan. The note itself,
however, does not provide for any specific date that the $600,000.00 underlying
the Benouni loan must be paid off (aside from the Maturity date, if at all). Section
1(b) refers to payment to Benouni or the Los Angeles County Property Tax
Department, which is also consistent with there being a pre-existing agreement
between the parties concerning tax payments.
In addition, there is ambiguous
language in the Note. Section 1(d) also vaguely refers to prepayments, which “may
be prepaid at any time without penalty subject to satisfaction of payment of
the Minimum Interest Amount set forth in paragraph l(c).” However, there
is no defined “Minimum Interest Amount” or when the minimum amounts would be
paid. Section 2 of the Note refers to “any installment” of principal or
interest but does not provide when any “installments” might be paid. No
extrinsic facts exist showing what the parties intended this term to mean. Section
4(iv) refers to a default when the Borrower fails to pay any principal,
interest or other amount when due under the Note, which failure to pay
is not cured within ten (10) days after notice. Again, the same problem persists
– the Note never states “when” any amount “under the note” is “due” beyond the Maturity
Date or the three other default scenarios. The pled extrinsic facts do not
resolve this problem.
Additionally, with the attempt to
integrate the terms of the Benouni Loan or other unstated oral/implied terms,
the FAC is now susceptible to a special demurrer under Code of Civil Procedure
section 430.10(g). If the Court considers the oral/implied terms, the FAC does
not clearly establish that the contract is written, oral, or implied by
conduct. The FAC provides contradictory allegations that while the Note itself
was written, it alternatively could be seen as an oral agreement. (FAC ¶ 25.)
Based on such allegations, the contract that Plaintiff is actually suing on is
some form of an implied or oral contract, and not the Note or the Benouni Loan.
This leaves the Court with the question: Why are the full terms of the
agreement, beyond the Note, not pled? Plaintiff should clarify this theory.
In sum, Plaintiff has not alleged
any conduct by Defendant that could be considered a breach of the Note. If the
Note is not the full terms and there are oral/implied terms, Plaintiff needs to
expressly plead such terms.
Accordingly, Defendant’s demurrer
is SUSTAINED with leave to amend.
Second Cause of Action: Declaratory Relief
Code of Civil Procedure section 1060 provides that a person
may bring an action for declaratory relief if he or she “desires a declaration
of his or her rights or duties with respect to another, or in respect to, in,
over or upon property . . ..” To state a declaratory relief claim, the
plaintiff must allege a proper subject of declaratory relief and an actual
controversy involving justiciable questions relating to the party’s rights or
obligations. (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th
872, 909.)
“In general, if a complaint for
declaratory relief alleges the existence of an actual controversy . . . , the court should not sustain a general demurrer on the
theory that any declaration would necessarily be adverse to the plaintiff.” (Teachers Management &
Investment Cop. v. City of Santa Cruz (1976) 64 Cal.App.3d 438, 449.) “But if it is clear that the order sustaining the demurrer
amounted to a correct decision on the legal merits of the case, a reversal is
not required; instead, the appellate court may simply modify the judgment so as
to declare that plaintiff was entitled to no relief.” (Id.)
The
declaratory relief cause seeks to determine whether Defendant breached the
Note. The FAC alleges that an actual controversy has arisen under the Note
regarding the rights of Plaintiffs and the obligations of Defendant with
respect to Defendant's conduct, and whether it constitutes a default and breach
of the Note. (FAC ¶ 45.) To the extent that declaratory relief would still be
proper under the stated controversy, Plaintiff would only be entitled to a
declaration that Defendant has not breached the Note.
Accordingly, Defendant’s demurrer is SUSTAINED with leave to amend.