Judge: Mark A. Young, Case: 22SMCV00063, Date: 2023-02-28 Tentative Ruling
Case Number: 22SMCV00063 Hearing Date: February 28, 2023 Dept: M
CASE NAME: Cienega
Ventures LLC, v. 730 N. La Cienega LLC, et al.
CASE NO.: 22SMCV00063
MOTION: Demurrer
to the Second Amended Complaint
HEARING DATE: 2/28/2022
BACKGROUND
The operative Second Amended Complaint (SAC) states three
causes of action for breach of contract, fraud and waste (newly added without
permission). According to the SAC, Plaintiff
owns a commercial building, located at 730 North La Cienega Boulevard, Los
Angeles, California. On February 28, 2002, Haque personally assumed a lease
with Plaintiff’s predecessor (the “Assumed Lease”) to rent the Premises for the
purpose of operating a Koi restaurant. Later, the Assumed Leased was assigned
to defendant Koi LP. The Assumed Lease, including all extensions thereof, was
set to expire on July 23, 2012. In the summer of 2012, Haque represented he had formed 730 North to
operate the restaurant. On July
23, 2012, 730 North and Plaintiff entered into a new written lease for the
Premises (the “Lease”).
Defendants allegedly breached the Lease by failing to: a)
Pay rent, late fees, and interest when due, currently totaling $473,981.77 which
began to accrue with a missed payment in April 2020; b) Maintain with Plaintiff a security
deposit in the required sum; c) Maintain the Premises in good order and repair
(including unpermitted and shoddy work); d) Maintain the exterior of the
premises; e) Provide Plaintiff with access to the premises to inspect and
conduct needed repairs; f) Maintain and provide Plaintiff with the details of
required property and business interruption insurance coverage for the years
2019, 2020, and 2021; g) Give notice to the landlord before subleasing the
premises to Koi; and h) Allow Plaintiff to show the premises to prospective
purchasers/tenants.
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.)
Any party, within the time allowed
to respond to a pleading may serve and file a notice of motion to strike the
whole or any part thereof. (CCP § 435(b)(1); Cal. Rules of Court, Rule
3.1322(b).) The court may, upon a motion or at any time in its discretion and
upon terms it deems proper: (1) strike out any irrelevant, false, or improper
matter inserted in any pleading; or (2) strike out all or any part of any
pleading not drawn or filed in conformity with the laws of California, a court
rule, or an order of the court. (CCP §§ 436(a)-(b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a
pleading which is not essential to the claim is surplusage; probative facts are
surplusage and may be stricken out or disregarded”].)
“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.)
MEET
AND CONFER
Before filing a demurrer or motion to strike, the moving party must meet
and confer in person or by telephone with the party who filed the pleading to
attempt to reach an agreement that would resolve the objections to the
pleading. (CCP §§ 430.41, 435.5.) Counsel for the parties exchanged emails
regarding the issues raised in the Demurrer. (Sardaryan Decl., ¶¶ 2–4 & Ex.
1.) The Court will accept this meet and confer effort in this instance.
However, the Court notes that the parties must meet in confer “in person or by
telephone.” This email exchange does not meet this requirement.
Analysis
Fraud and Reasonable
Reliance
Defendant demurs to the fraud cause of action on the grounds that the
fraud claim fails to state reasonable reliance, fails to plead around the
statute of limitations, fails to establish damages, and is duplicative with the
contract claim. The elements of fraud
are: (1) misrepresentation (false representation, concealment, or
nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or
induce reliance; (4) justifiable reliance; and (5) damages. (Committee on
Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197,
216.)
“Fraud
must be pleaded with specificity rather than with ‘“‘general and conclusory
allegations.’”’ (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167,
184.) The specificity requirement means a plaintiff must allege facts showing
how, when, where, to whom, and by what means the representations were made,
and, in the case of a corporate defendant, the plaintiff must allege the names
of the persons who made the representations, their authority to speak on behalf
of the corporation, to whom they spoke, what they said or wrote, and when the
representation was made. (West v. JPMorgan Chase Bank, N.A. (2013) 214
Cal.App.4th 780, 793.) “Consistent with the rule requiring specificity in
pleading fraud, a complaint must state ultimate facts showing that the
defendant intended or had reason to expect reliance by the plaintiff or the
class of persons of which he is a member.” (Geernaert v. Mitchell (1995)
31 Cal.App.4th 601, 608.)
One of the elements of a claim for fraud, whether based on a
positive misrepresentation or concealment, is that the plaintiff justifiably
relied on the misrepresentations. (Engalla v. Permanente Medical Group, Inc. (1997) 15
Cal.4th 951, 974.) Reliance that is manifestly unreasonable in light of a
plaintiff’s own intelligence or information is not justifiable. (Seeger v.
Odell (1941) 18 Cal.2d 409, 414-415.) Reliance may be unreasonable as a
matter of law where the plaintiff has a sufficient level of sophistication, a
significant amount of money is at stake, information exists to alert the
plaintiff to the need for further investigation, and the plaintiff has the ability to
uncover that information. (General American Life Insurance Co. v. Castonguay
(9th Cir. 1993) 984 F.2d 1518, 1520-1521.) Whether or not reliance was justifiable is a question of fact. (Furla
v. Jon Douglas Co. (1998) 65 Cal.App.4th 1069, 1077.)
The SAC alleges that during “a
telephone call, in or about the summer of 2012, Haque, acting on behalf of
Defendants, represented to Patrick Bertranou, a principal of Plaintiff, that Haque
had formed a new business to operate the Koi restaurant on the Premises.
That business was defendant 730 North.” (SAC ¶27, emphasis added.) “[A]t the
time Haque made the representation set forth above, it was false. The truth was
that Defendants had no intention of having 730 North operate the Koi
restaurant. Instead, Defendants intended for 730 North to remain an empty
shell, without any active business, funding, or assets of any kind.” (SAC ¶ 28.)
At the time, Haque “knew it was false. He made the representation to defraud
Plaintiff and induce it to enter into the Lease with 730 North, instead of
Haque or Koi LP, or any person or company with assets, and to avoid providing a
personal guaranty. The intent was to have a lessee that was without resources
to respond in damages, should there be damage to the Premises or a breach of
the Lease.” (¶ 29.) Plaintiff was ignorant of its falsity. (¶ 30.) In reliance
upon the representation, Plaintiff entered into the Lease with 730 North,
instead of Haque or Koi LP, and did not require a guaranty. Had Plaintiff known
the truth, Plaintiff would not have entered into the Lease with 730 North or
would have required a personal guaranty. (Id.) 730 North is in fact without the
resources to pay the damages sought by this complaint. (¶ 31.) As a result,
Plaintiff has been damaged. (Id.)
The Court previously held that paragraph 55 of the Addendum raises a reliance issue. This paragraph
states that “any transaction or series of transactions that results in a
transfer of interests as of the Commencement Date shall not constitute an
assignment or subletting for the purposes of section 12 if [Haque]… retains
majority voting and/or managerial control over Lessee either directly or
indirectly.” (SAC, Ex. A at p. 34.) The Court found that Plaintiff would need
to explain how its reliance on Haque’s statement that specifically 730 North
would operate the restaurant would be reasonable, considering that the parties
specifically agreed that Defendants would have the ability to transfer
interests under the lease so long as Haque retains control over the Lessee, directly
or indirectly.
Paragraph 33 attempts to address this issue. The
SAC explains that Plaintiff’s reliance on the representation was reasonable,
despite the fact that the Addendum authorized 730 North to assign its rights
and obligations under the lease or sublet the Premises to a third party. “Haque
and Patrick Bertranou specifically discussed this concept during their phone
call in the summer of 2012… Haque stated that: a possibility existed that 730
North would not be the Lessee; he might want to transfer the Lease to some
entity with additional owners; and he would know shortly. Bertranou responded
that such a transaction would be acceptable, so long as: (i) the restaurant
business was transferred to the new entity; (ii) Nick Haque or a blood sibling
retained voting or managerial control; and (iii) the transfer took place before
the commencement date of the Lease (January 1, 2013.) Haque agreed, and that
agreement was reflected in paragraph 55, quoted above. The key line is that the
transaction had to ‘result[] in a transfer of interests’. That phrase is
vague, but based on the discussions of the parties, it was intended to mean the
transfer, not only of the Lease, but the restaurant business as well.
(Otherwise, the Landlord’s prior written consent would be required to the
transfer.)” (SAC ¶ 33, emphasis added.) Plaintiff “did not want to be left with
an ‘empty shell’ for a tenant and made this point absolutely clear. As matters
turned out, no transaction or transfer of interests ever took place. The fraud
here, however, lies in the fact that Haque represented that 730 North owned the
restaurant business, but it never did; 730 North always was, and always was
intended to be, nothing but an empty shell – exactly what the Landlord did not
want.” (¶ 33.) Plaintiff argues that it could reasonably have relied on the
representation as meaning 730 North would be the Lessee and own the restaurant,
or some other entity would be substituted in as the Lessee and own the
restaurant.
Under
this pled interpretation of the term, Defendants could not have substituted in a
Lessee that did not own the restaurant even with consent from Plaintiff,.
Generally, 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.) For pleading purposes, the
SAC establishes that this phrase is ambiguous as to whether the parties
understood this term to mean that the restaurant business would necessarily be owned
by the named Lessee. As such, the existence of reasonable reliance rests on a
dispute of fact.
Statute of
Limitations
Defendant
also demurs on statute of limitations grounds. They observe that the pled
conduct occurred in 2012. The statute of limitations
for fraud is three years. (Code Civ. Proc. § 338, (d).) Unless a complaint affirmatively discloses on its face that
the statute of limitations has run, a demurrer must be overruled. (Lockley
v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001)
91 Cal.App.4th 875, 881 [“It must appear clearly and affirmatively that, upon
the face of the complaint, the right of action is necessarily barred”].)
“Generally, a
cause of action accrues and the statute
of limitation begins to run when a suit may be maintained. Ordinarily this is
when the wrongful act is done and the obligation or the liability arises . . .. In other words, a
cause of action accrues upon the occurrence of the last element essential to
the cause of action. [Citation.]” (Cobb v. City of Stockton (2011)
192 Cal.App.4th 65, 72-73, alterations and internal quotation marks omitted.)
An exception is the discovery rule, which postpones accrual of a cause of
action until the plaintiff discovers, or has reason to discover, the cause of
action, until, that is, he at least suspects, or has reason to suspect, a
factual basis for its elements. (Norgart v. Upjohn Company (1999) 21
Cal.4th 383.) The discovery rule protects those who are ignorant of
their cause of action through no fault of their own. (April Enterprises, Inc.
v. KTTV (1983) 147 Cal.App.3d 805, 832.) Under this rule, the accrual of the statute is tolled until
a plaintiff discovers, or has reason to discover, the cause of action.
“To overcome an
apparent limitations bar, the plaintiff claiming delayed discovery of the facts
constituting the cause of action has the burden of setting forth pleaded facts
to show (1) the time and manner of discovery and (2) the inability to have made
earlier discovery despite reasonable diligence. The burden is on the plaintiff
to show diligence, and conclusory allegations will not withstand demurrer.” (Czajkowski
v. Haskell & White, LLP (2012) 208 Cal.App.4th 166, 175 [citations and
quotations omitted].)
As pled, the action
accrued in 2012, when Plaintiff entered the lease with 730 North, instead of
the operators of the Koi restaurant. (SAC ¶¶27-30.) This lawsuit
was not filed until January 18, 2022, almost ten years after the representations,
Plaintiff’s reliance on those representations, and resultant damage. Plaintiff contends in opposition that it did
not discover that 730 North was in fact an empty shell until “some time prior
to January 18, 2019.” Plaintiff asserts it had no occasion to learn of
Defendants’ fraud until shortly after the breaches started occurring sometime
in 2019, which was when “Plaintiff began to sense that he was dealing with an
empty shell with a blasé attitude towards its contractual commitments” or when
Defendants “started skipping rent payments.”
The Court
notes that these factual allegations are absent from the SAC. Thus, Plaintiff would need to plead
additional affirmative facts showing that the claim is not barred by the
statute of limitations due to Plaintiff’s delayed discovery of the truth.
Duplicative Cause of Action
The Court would not find
that the duplicative nature of the fraud cause of action as a proper basis to
sustain the demurrer without leave to amend. A demurrer may be sustained when a cause of action is
duplicative of another cause of action and “thus adds nothing to the complaint
by way of fact or theory of recovery.” (Rodrigues v. Campbell Industries
(1978) 87 Cal.App.3d 494, 501; see Palm Springs Villas II Homeowners
Association, Inc. v. Parth (2016) 248 Cal.App.4th 268, 290.) The fraud in the inducement cause of action is not duplicative,
as it adds to the complaint by way of theory of liability.
For these reasons, Defendant’s
demurrer is SUSTAINED to the fraud cause of action with leave to amend.
Waste
Moreover, Defendant’s demurrer to
the waste cause of action is SUSTAINED without leave to amend. Plaintiff
recognizes that this cause of action was added without Court permission. Thus,
the unopposed demurrer must be sustained.
Motion to Strike
The motion to strike is moot
considering the sustained demurrer to the fraud cause of action, which forms
the basis of the punitive damages claim.
Plaintiff has ten days to file an
amended complaint.