Judge: Mark A. Young, Case: 24SMCV03186, Date: 2025-01-29 Tentative Ruling
Case Number: 24SMCV03186 Hearing Date: January 29, 2025 Dept: M
CASE NAME: Resolution Escrow Inc., et
al., v. Ocean Park One LLC, et al.
CASE NO.: 24SMCV03186
MOTION: Demurrer to the
Complaint
HEARING DATE: 1/29/2025
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.)
REQUEST FOR JUDICIAL NOTICE
Defendant requests that the Court take judicial notice
of the following documents:
1. R&LS Investments, Inc.’s Notice of Motion and
Motion to Disallow Proof of Claim No. 4; Memorandum of Points and Authorities;
Declaration Of Richard Cunningham in Support Thereof filed with the United
States Bankruptcy Court for the Central District of California on July 2, 2024
with docket no. 177 in the case entitled In re R&LS Investments, Inc.,
Debtor and Debtor in Possession, Case No. 2:23-bk-14467-WB; and
2. The Complaint for Breach of Lease filed on
February 24, 2023 with the Superior Court of the State of California, Los
Angeles County in the case entitled Ocean Park One, LLC, a Delaware limited
liability company; Ocean Park Two, LLC, a Delaware limited liability company;
Ocean Park Three, LLC, a Delaware limited liability company, Plaintiffs vs.
R&LS Investments, INC., dba Keller Williams Realty Santa Monica, a
California corporation; and DOES 1-10, inclusive, Defendants, Case No.
23SMCV00802.
The documents are court records and judicial notice
is properly granted as to their existence and legal effect. (Evid. Code §
452(d).) Therefore, these requests are GRANTED.
ANALYSIS
Defendants Ocean Park One, LLC, Ocean
Park Two, LLC and Ocean Park Three, LLC (“Defendants”) demur to the complaint
filed by Plaintiffs Estate Coffee, LLC and Resolution Escrow, Inc.
Fraud-Based Causes
Defendants demur to the
first, second, and third causes of action for fraud on the grounds that the judicially
noticeable documents contradict and prove false the allegations of fraud.
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.)
Ordinarily,
whether or not reliance was justifiable is a question of fact that precludes
summary judgment. (Furla v. Jon Douglas Co. (1998) 65 Cal.App.4th
1069, 1077.)
Generally, the Complaint
alleges the elements of fraud. In 2017, when Defendants were eager to retain
Subtenant Escrow as a Building occupant, attract Subtenant Coffee, and entice
both to make significant investments to the interior spaces of the Building,
Defendants presented ambitious plans to Plaintiffs to renovate the Building and
elevate it to a higher-rated class. (Compl. ¶¶ 13, 39.) The plans included overhauling
the Building’s exterior, building out its courtyard, adding recreational
amenities, and other comprehensive upgrades. (Id.) Defendants knew those
representations were false (¶ 40) and made to induce Plaintiffs to sublease
Building space and improve the interior spaces (id. ¶¶ 41, 42). Plaintiffs
justifiably relied on Defendants’ promises and representations by subleasing
Building space and working tirelessly to upgrade the interior of their
subleased spaces. (¶¶ 15-23.)
Defendants call
attention to the allegations of ultimate fact that Defendants made material
misrepresentations. “Defendants made repeated promises to Subtenant Coffee and Subtenant
Escrow principal, Rick Cunningham, about the quality, timing, and extent of
their future renovations to the Building, including that the renovations would
be of a quality that would elevate the Building to a higher rated building
class. These promises were made repeatedly, including in 2018, 2019, and 2021.”
(Compl., ¶¶ 39, 48, 56). Defendants contend that the judicially noticeable Ninth
Amendment to the Master Lease “proves” these allegations false.
First, Defendant cites
paragraph 1 of the Ninth Amendment:
“1.
Façade Work. Landlord has submitted to the City of Santa Monica Architectural
Review Board (the “ARB”) and application for renovation of the exterior of the
Building under Application Number 20ARB-0237 (the “Façade Work”) which
application has been approved. Tenant warrants and represents that it has been
given access to and has reviewed the plans for the Facade Work as approved by
the ARB. Landlord shall as soon as commercially practicable submit appropriate
applications for building permits to the City of Santa Monica and diligently
prosecute such building permit application. In a commercially reasonable time
after receipt of all necessary permits required in order to commence the construction
for the Facade Work in an orderly fashion have been issued (the “Permits”),
Landlord shall notify Tenant of the scheduled date for the commencement of the
Facade Work. After receipt of the Permits, Landlord shall promptly commence
and diligently prosecute to completion in a commercially reasonable fashion the
Facade Work substantially in conformity with the Permits.”
Defendant argues that the underlined portion shows that the
tenant (R&LS) had notice that the work at the Building had been delayed and
would be completed in a “commercially reasonable fashion” after all necessary permits
were issued. Strictly construed, this section of the Ninth Amendment does not
disprove anything regarding misrepresentations Defendants made to Plaintiffs
in 2021 and prior. At best, this shows that Defendants promised
R&LS in 2021 to work in a commercially reasonable fashion on the façade.
This evidence not suggest, especially as a matter of law on demurrer, that
Defendants disclaimed or did not make any past or future misrepresentations to
Plaintiffs. In fact, the evidence is entirely consistent with the allegations that
in the Ninth Amendment, Defendants agreed to perform certain renovations to the
Building’s exterior and agreed to the design, permitting, fabrication, and
installation of certain exterior signage for Subtenant Coffee. (¶ 23.) Thus,
the demurrer on this point is unsupported.
Defendant argues that
sections 7 and 8.1 of the Ninth Amendment precludes the allegations of
justifiable reliance.
“7.
Certification. As an essential inducement to Landlord to execute this
Amendment, Tenant certifies and warrants to and agrees with Landlord that
(a) no event of default by Landlord under the Lease exists as of the date
hereof that is not remedied by this Amendment and the concurrently executed
Confidential Settlement and General Release Agreement (“Settlement”), nor has any
event occurred which, with the passage of time or the giving of notice, or
both, would constitute an event of default, (b) as of the date of this
Amendment, Landlord is not in any manner in default in the performance or
observance of any obligation or duty owed to Tenant, under the Lease or
otherwise, that is not remedied by this Amendment and the Settlement, and
(c) Tenant has no defenses, offsets, claims or counterclaims to the observance
and performance by Landlord of any provision of the Lease, or, if any such
defenses, offsets, claims or counterclaims exist, they are hereby forever
waived, released and settled in consideration of this Amendment and the
Settlement…
(See, RFJN, Ex. “1”, at pg. 193 of Ex. A.)
8.1
Entire Agreement; Remainder of Lease to Continue in Effect; Binding Effect;
Modification. This Amendment and the Settlement constitute the entire
understanding and agreement of Landlord and Tenant with respect to the specific
subject matter hereof, and shall supersede and replace all prior understandings
and agreements, whether verbal or in writing. Except as amended hereby, the
Lease shall in all other respects remain in full force and effect and is hereby
ratified and confirmed in all aspects by the Parties hereto. In the event of
any inconsistency between the Lease and this Amendment, the provisions of this
Amendment shall prevail. The Parties confirm and acknowledge that there are
no other promises, covenants, understandings, agreements, representations or
warranties with respect to the subject matter of this Amendment except as
expressly set forth herein.
(See, RFJN, Ex. “1” at pg. 194 of Ex. “A” thereto)
Defendants argue that
these paragraphs admit that they were not in default under any
provisions of the Lease and that there were no other representations or prior understandings
and agreements that were being relied upon by R&LS. Even assuming that
Plaintiffs are bound by the terms of the master lease, sections 7 and 8.1 would
not preclude Plaintiffs from pursuing their fraud theory against Defendants. Strictly
construed, this evidence shows that as of August 2021, Landlord was not in default
on the Lease and that there were no claims based on the provisions of the
Lease. Defendants do not show that Plaintiffs’ fraud claims could be considered
a default on the lease. Plaintiffs’ fraud claims are facially independent of
any of the Landlord’s lease obligations to R&LS. Moreover, Defendants do
not show that Plaintiffs are “Parties” as defined by the Lease. As such, it is
irrelevant that the Parties acknowledged that there are no other covenants,
understandings, agreements, representations or warranties with respect to the
subject matter of the Lease. In light of these factors, the court cannot
conclude that no reasonable person would rely on the alleged
misrepresentations due to Defendants and R&LS’s acknowledgement in the
master Lease. Thus, the alleged justifiable reliance remains a question of fact
left for beyond the pleading stage.
Accordingly, the
demurrer is OVERRULED as to the fraud causes of action.
Fourth, Fifth, Eleventh and Twelfth Causes of Action
Defendants demur to the
Nuisance, Breach of Covenant of Quiet Enjoyment, Constructive Eviction, Breach
of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing on
the grounds that the Ninth Amendment has an indemnification, waiver and
exculpation clause. Defendants make similar arguments as to the fraud-based
causes, citing to the following sections of the Ninth Amendment:
10.1 Indemnification and Waiver. Tenant
Indemnity of Landlord. To the extent not prohibited by law, Landlord, its
partners, members and their respective officers, agents, servants, employees,
and independent contractors (collectively, “Landlord Parties”) shall not be
liable for any damage either to person or property or resulting from the loss
of use thereof, which damage is sustained by Tenant or by other persons
claiming through Tenant.
[…]
28.15
Landlord Exculpation. It is expressly understood and agreed that
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord and the Landlord
Parties hereunder (including any successor landlord) and any recourse by Tenant
against Landlord or the Landlord Parties shall be limited solely and
exclusively to an amount which is equal to the interest of Landlord in the
Building, and neither Landlord, nor any of the Landlord Parties shall have any personal
liability therefor, and Tenant hereby expressly waives and releases such
personal liability on behalf of itself and all persons claiming by, through or
under Tenant. Notwithstanding any contrary provision herein, neither Landlord
nor the Landlord Parties shall be liable under any circumstances for injury or
damage to, or interference with, Tenant’s business, including but not limited to,
loss of profits, loss of rents or other revenues, loss of business opportunity,
loss of goodwill or loss of use, in each case, however occurring.
Defendants reason that
sections 10.1 and 28.15 apply to bar all of Plaintiffs’ claims and damages. The
Court is not persuaded that the sections apply to bar Plaintiffs claims at the
pleading stage, where Plaintiffs have alleged intentional and fraudulent
conduct by Defendants.
“Generally,
‘a limitation of liability clause is intended to protect the wrongdoer
defendant from unlimited liability.’ ” (Food Safety Net Servs. v. Eco Safe
Sys. USA, Inc., (2012) 209 Cal. App. 4th 1118, 1126.) Clauses of this type
“have long been recognized as valid in California.” (Markborough California,
Inc. v. Superior Court (1991) 227 Cal.App.3d 705, 714.) With respect to
claims for breach of contract, limitation of liability clauses are enforceable
unless they are unconscionable, that is, the improper result of unequal
bargaining power or contrary to public policy. (Id. at 714; see Sonic-Calabasas
A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133 [unconscionability refers to
“an absence of meaningful choice on the part of one of the parties together
with contract terms which are unreasonably favorable to the other party” and consists
of procedural and substantive components, “the former focusing on oppression or
surprise due to unequal bargaining power, the latter on overly harsh or
one-sided results.”].) Such clauses are enforceable with respect to claims for
ordinary negligence unless the underlying transaction “affects the public
interest”. (Food Safety, supra, 209 Cal.App.4th at 1126, citing Tunkl
v. Regents of University of California (1963) 60 Cal.2d 92, 98-100.) Civ. Code section 1668 defies one such exception: “All contracts
which have for their object, directly or indirectly, to exempt any one from
responsibility for his own fraud, or willful injury to the person or property
of another, or violation of law, whether willful or negligent, are against the
policy of the law.” Accordingly, a party “may not contract away liability for
fraudulent or intentional acts or for negligent violations of statutory law.” (Manderville
v. PCG&S Grp., Inc., (2007) 146 Cal. App. 4th 1486, 1500.)
Defendants
argue that the causes of action are based on claims of ordinary negligence that
Defendants did not complete their renovations timely. This ignores the
allegations of Defendants’ intentional conduct. For example, the alleged
nuisance was “intentional.” (Compl., ¶ 67.) The complaint also incorporates
intentional and fraudulent conduct into the alleged breach of the covenant of
quiet enjoyment, including a forcible detainer. (¶¶ 33, 74-76.) Defendants
intentionally did not perform the promised renovations in breach of their contract
and the implied covenant of good faith. (¶¶ 25, 113-118, 126-127.) Thus, the
Complaint does not show that the claims are entirely grounded in ordinary
negligence. As the court must presume these allegations as true, the limitations
of liability would not apply at this stage. Moreover, there would be a question
of fact as to whether application of the limitation of liability would be
unconscionable. Notably, Plaintiffs are not direct parties to the master lease.
As such, Plaintiffs apparently did not have any meaningful opportunity to
negotiate or accept this provision. This weighs in favor of procedural unconscionability.
Further, the limitation of liability is completely one-sided, putting forth a
factor of substantive unconscionability. Thus, this issue must be resolved
outside of the pleading stage.
Accordingly, the demurrer is OVERRULED.
Failure
to Attach Contract
Defendants note that Plaintiffs have failed to attach any
contract to the pleading. “A written contract may
be pleaded by its terms—set out verbatim in the complaint or a copy of the
contract attached to the complaint and incorporated therein by reference—or by
its legal effect.” (McKell v. Washington Mutual, Inc. (2006) 142
Cal.App.4th 1457, 1489.) Plaintiffs contend that they may plead the lease and
subleases legal effect. However, to plead a contract’s legal effect, the
plaintiff must allege “the substance of its relevant terms. This is more
difficult, for it requires a careful analysis of the instrument,
comprehensiveness in statement, and avoidance of legal conclusions, and it
involves the danger of variance where the instrument proved differs from that
alleged.” (4 Witkin, Cal. Proc. (6th ed. 2022) Pleading § 527.)
Here,
Plaintiffs have not alleged the legal effect of the combined leases and
subleases. Plaintiffs instead plead legal conclusions concerning their third-party
beneficiary status to leases and their unspecified terms. The complaint pleads
that on February 27, 2007, R&LS entered into a Master Lease in which Build
America leased to R&LS various suites within the Building. (Compl., ¶ 10.) The
Master Lease was amended several times thereafter to provide for, among other
things, greater allowances for tenant improvements, the deferral of certain
rents, and the leasing of additional Building space by R&LS. (Id.) On May
2, 2013, R&LS and Subtenant Escrow signed a sublease agreement, under which
Subtenant Escrow subleased certain Building space. (¶ 11.) The parties also
entered a Landlord Consent to Sublease, dated May 23, 2013, signed by BRCP,
R&LS, and Subtenant Escrow wherein Landlord agreed to the sublease. (¶ 12.)
The complaint provides the most detail regarding the Seventh Amendment to the
Master Lease. Under the Seventh Amendment, R&LS agreed to lease additional
first-floor space while terminating its lease of certain second-floor space, to
extend the leases by twelve years, to acknowledge R&LS’s subleasing space
to Subtenant Coffee, to waive “certain Master Lease provisions” should the
sublease occur, that Subtenant Coffee could install signage on the Building
subject to certain unspecified conditions, and that Defendants would perform
and complete their renovations to the Building in 2019.. (¶¶15-16.) As alleged
in the breach of contract cause of action, Subtenant Coffee was a third-party
beneficiary to a Master Lease, as amended, between Defendants and R&LS,
under which Defendants intended to confer certain, but unspecified, benefits
onto Subtenant Coffee. (Compl., ¶114.) Subtenant Escrow and Defendants were
parties to a Landlord Consent to Sublease, dated May 23, 2013. (¶115.) Both
Subtenant Escrow and Subtenant Coffee were also third-party beneficiaries of
the Ninth Amendment. (¶ 116.) While the above averments
contain some of material terms of the contract, the substance of all the
relevant terms is not comprehensively pled. For instance, Plaintiffs do not
plead the “conditions” that allowed them to have signage or which Master Lease
provisions were waived, if any. Thus, the complaint fails to plead the
existence of a written contract. Further facts are required to establish the
legal effect of the contract. Alternatively, Plaintiffs should attach the
relevant contract documents, including the relevant master lease and subleases.
Accordingly,
the demurrer to the contract-based causes of action (eleventh and twelfth) are
SUSTAINED with leave to amend. Plaintiffs have 20 days to file an amended
complaint.