Judge: Mark C. Kim, Case: 21LBCV00083, Date: 2023-03-21 Tentative Ruling
Case Number: 21LBCV00083 Hearing Date: March 21, 2023 Dept: S27
1.
Background
Facts
Plaintiff, Fitness International,
LLC filed this action against Defendant, Palo Woods, LLC for declaratory relief
and common counts. The operative complaint
is the FAC, which was filed on 4/05/21. Plaintiff
operates fitness centers and one of its centers was located in a building owned
by Defendant and leased by Plaintiff.
The FAC includes two declaratory
relief causes of action and three common counts causes of action. The declaratory relief causes of action seek
declarations that (a) Plaintiff did not have to pay rent to Defendant, at all,
during the time it was not allowed to operate under Covid regulations, and (b) Plaintiff
only has to pay proportionate rent to Defendant during the time Plaintiff was subject
to maximum occupancy regulations due to Covid.
Plaintiff also seeks a return of monies it paid prior to determining it
did not need to pay monies to Defendant due to the above-mentioned restrictions.
Defendant filed a cross-complaint
against Plaintiff for breach of contract and declaratory relief, contending Plaintiff
is in breach of its contractual obligations to pay rent due under the parties’
contract, and seeking a declaration that the various Covid regulations do not
relieve Plaintiff of the obligation to pay rent. The operative cross-complaint is the FACC,
filed on 10/12/22. It includes causes of
action for breach of contract, declaratory relief, fraud, negligent misrepresentation,
and breach of the implied covenant of good faith and fair dealing.
2. Motion
for Reconsideration
a.
Hearing on Motion for Summary Adjudication
On 11/03/22, Palo Woods filed a motion
for summary adjudication. Fitness filed
timely opposition to the motion, and Palo Woods filed timely reply papers. Prior to the hearing, the Court issued a tentative
ruling denying the motion on various grounds, including:
At the conclusion of the hearing, the
Court adopted its tentative ruling as its final order. The Court issued its order on 1/17/23.
b. SVAP
III Poway Crossings, LLC v. Fitness International, LLC (2023) 87 Cal.App.5th
882
On 1/20/23, three days after this
court’s ruling on Palo Woods’s motion, the Court of Appeals issued its opinion
in SVAP III. In SVAP III, the landlord
brought the action against Fitness, and Fitness cross-complained against its
landlord (as opposed to this case, where Fitness brought the action against
Palo Woods, which in turn cross-complained against Fitness). The landlord sought summary judgment on its
complaint, and the trial court granted the motion. The Court of Appeals affirmed.
c. Issues
on Motion for Reconsideration
Palo Woods seeks reconsideration of
this Court’s 1/17/23 ruling on its motion for summary adjudication and issue a
new order granting summary adjudication.
Fitness argues the motion should be denied because (a) reconsideration
of summary judgment is not permissible under settled law, (b) the prior motion
was denied on various procedural grounds, none of which are addressed in the moving
papers, (c) collateral estoppel cannot be raised for the first time in a motion
for reconsideration, (d) the decision in SVAP III is based on different facts
from this case, and (e) SVAP III cannot be cited because Fitness has sought
review with the Supreme Court.
d. Supreme
Court Review of SVAP III
The threshold issue before the Court
is whether it can even consider the Court of Appeals’ ruling on SVAP III in
light of Fitness’s petition for review.
On 3/01/23, Fitness filed a petition for review. CRC 8.512(b) provides that the Supreme Court
has sixty days from 3/01/23 to order review (which the Supreme Court can extend
for an additional thirty days), and if it does not do so within sixty days, the
petition is deemed denied. CRC
8.1115(e)(1) provides that, while review is pending, “Pending review and filing
of the Supreme Court’s opinion, unless otherwise ordered by the Supreme Court
under (3), a published opinion of a Court of Appeal in the matter has no
binding or precedential effect, and may be cited for potentially persuasive
value only. Any citation to the Court of
Appeal opinion must also note the grant of review and any subsequent action by
the Supreme Court.”
Review is not currently “pending,”
as the Supreme Court has not granted review.
Thus, SVAP III is a published opinion and is currently citable. However, as will be further addressed below,
if the Court grants reconsideration, it must then re-set the hearing for
summary adjudication on regular statutory notice, which means the hearing will
not be held for at least 75 days after the Court grants reconsideration. During that time, the Supreme Court will
either deny the petition for review, in which case SVAP III will remain citable,
or the Supreme Court will grant the petition for review, in which case SVAP
will no longer be citable.
The Court will consider this
procedural conundrum further in its “conclusion” section below.
e. Torres
v. Design Group Facility Solutions, Inc. (2020) 45 Cal.App.5th 239,
243
The parties disagree concerning whether
it is ever proper to grant reconsideration in connection with a summary judgment
(or, as here, adjudication) motion. In
Torres, the trial court denied summary judgment, and then the defendant moved
for reconsideration based on “new facts.”
The trial court granted the motion for reconsideration AND granted
summary judgment the same day. The Court
of Appeals held that this was procedurally incorrect; the trial court should
have granted reconsideration, but then set the hearing on the new motion for
summary judgment based on new facts on regular notice and allowed full
briefing.
f.
Procedural Issues
Fitness argues Palo Woods cannot
move for reconsideration because its moving papers do not even address the
procedural issues that formed the partial basis for the prior denial of its motion
for summary adjudication. However,
pursuant to Torres, if the Court grants reconsideration, it must require
entirely new papers to be filed, with time to oppose and reply. The procedural issues can be remedied by way of
the new notice of motion, which Palo Woods must file if the Court grants
reconsideration.
g. Collateral
Estoppel
Fitness argues Palo Woods cannot
argue collateral estoppel by way of its motion for reconsideration, as the
issue was not raised in the original papers.
The issue, on reconsideration, is whether there are new facts,
circumstances, or law. SVAP III
constitutes new law (this will be discussed further below), and collateral estoppel
is merely a legal argument arising out of the new law. If the Court grants the motion for
reconsideration, it will permit Palo Woods to raise all legal issues it chooses
to raise that arise out of the new law (SVAP III) in its new moving papers.
h. New
Facts, Circumstances, or Law
CCP §1008(b) permits a motion for
reconsideration if the moving party shows there are new facts, circumstances,
or law. SVAP III, while it may have very
minor differences from the case at bar, is clearly new law that directly affects
the prior summary adjudication ruling in this case. The Court therefore finds the standard in
§1008(b) is met, and grants the motion for reconsideration.
i. Final
Note
On 3/15/23, Fitness filed a “notice
of supplemental authority” in support of its opposition. On 3/16/23, Palo Woods filed an objection to
the document. The document is a trial
court order denying a similar motion for reconsideration. The order is, of course, not binding
authority. The Court has reviewed it,
but does not adopt its reasoning.
j. Conclusion
The motion for reconsideration is
granted. The hearing on the summary judgment
motion is scheduled for Thursday, 7/13/23 at 8:30 a.m. in Department S27 of the
Long Beach Courthouse. All papers must
be filed timely per CCP §437c.
The trial date is continued from
4/03/23 to Monday, 8/21/23 at 8:30 a.m. in S27.
The FSC is continued from 3/30/23 to 8/17/23 at 8:30 a.m. in S27.
3. Demurrer
to FACC
a.
FACC
Palo Woods filed its FACC on
10/12/22. The FACC includes causes of
action for breach of contract, declaratory relief, fraud, negligent misrepresentation,
and breach of the implied covenant of good faith and fair dealing.
b.
Demurrer
Fitness demurs to the causes of
action for fraud, negligent misrepresentation, and breach of the implied
covenant of good faith and fair dealing.
c. Breach
of Implied Covenant of Good Faith and Fair Dealing
Palo Woods’s fifth cause of action is
for breach of the implied covenant of good faith and fair dealing. Palo Woods alleges, at ¶68 of the FACC, that
Fitness acted in bad faith because it “prevented Landlord from receiving the
benefit of the rent relief agreement by refusing to honor the agreement and
taking the position, among others, that the rent relief agreement did not
resolve any dispute over whether Tenant is obligated to pay rent for the months
of March, April, May, June, July and August 2020.”
Fitness argues the cause of action
for breach of the implied covenant of good faith and fair dealing fails is
subject to demurrer because it is based on allegedly false promises made prior
to entering into the contract, and such false promises cannot form the basis of
a bad faith claim per McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th
784, 798-799.
Palo Woods, in opposition to the
demurrer, correctly notes that the cause of action is not premised on an
allegation of fraud in the inducement, but rather on the acts that constitute
refusal to honor the parties’ agreement.
Fitness does not, in reply, address this argument. The demurrer on the ground that the cause of
action is improperly based on fraud in the inducement of the contract is therefore
overruled.
Fitness also argues the cause of
action fails to state a cause of action because Palo Woods is not alleging
something over and above the breach of the contract itself as the basis for
relief, which is required per Careau & Co. v. Security Pacific Business
Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394.
In Careau, the Court held:
“Breach of the implied covenant of
good faith and fair dealing involves something beyond breach of the contractual
duty itself, and it has been held that ‘[b]ad faith implies unfair dealing
rather than mistaken judgment’… For example, in the context of the insurance
contract, it has been held that the insurer's responsibility to act fairly and
in good faith with respect to the handling of the insured's claim ‘is not the
requirement mandated by the terms of the policy itself to defend, settle, or pay. It is the obligation . . . under which the
insurer must act fairly and in good faith in discharging its contractual
responsibilities.’
“Thus, allegations which assert
such a claim must show that the conduct of the defendant, whether or not it
also constitutes a breach of a consensual contract term, demonstrates a failure
or refusal to discharge contractual responsibilities, prompted not by an honest
mistake, bad judgment or negligence but rather by a conscious and deliberate
act, which unfairly frustrates the agreed common purposes and disappoints the
reasonable expectations of the other party thereby depriving that party of the
benefits of the agreement. Just what
conduct will meet these criteria must be determined on a case by case basis and
will depend on the contractual purposes and reasonably justified expectations of
the parties.
“If the allegations do not go
beyond the statement of a mere contract breach and, relying on the same alleged
acts, simply seek the same damages or other relief already claimed in a
companion contract cause of action, they may be disregarded as superfluous as
no additional claim is actually stated.
Thus, absent those limited cases where a breach of a consensual contract
term is not claimed or alleged, the only justification for asserting a separate
cause of action for breach of the implied covenant is to obtain a tort
recovery.” (Careau & Co. v. Security
Pacific Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394-1395.)
The Court finds Palo Woods’s cause
of action for breach of the implied covenant of good faith and fair dealing
fails to set forth anything over and above a breach of the contract itself, and
fails to seek damages separate and apart from those for breach of contract. The demurrer is therefore sustained on this
ground. Because this is a purely legal
issue, leave to amend is denied.
d. Fraud
I.
Fraud Allegations
Palo Woods’s third cause of action
for fraud alleges Fitness, in mid-March of 2020, announced to its 700+ landlords
that it was not obligated to pay rent while the pandemic affected its ability
to operate its health clubs. Those landlords
generally disputed the claim, and collectively commenced negotiating rent
relief agreements with Fitness. Thereafter,
the parties negotiated rent abatement, rent deferment, and combinations of the
two, ultimately culminating in a fully executed rent relief agreement signed in
August of 2020. Palo Woods alleges it
relied on the negotiations and resulting agreement to its detriment, but Fitness
never intended to honor the agreement, and instead intended to reassert its
right not to pay the agreed-upon rent, even demanding Palo Woods return rent
paid by Fitness per the agreement. Palo
Woods alleges Fitness internally referred to the rent deferral agreements as
litigation deferral agreements, which reflected the intent to later sue over
the very agreements it entered into.
II.
Intent to Commit Fraud
Fitness argues the cause of action fails
to allege facts showing it intended, at the time it entered into the contract,
not to perform as promised. Fraudulent
intent must often be established by circumstantial evidence. Fraudulent intent has been inferred from such
circumstances as defendant's insolvency, his hasty repudiation of the promise,
his failure even to attempt performance, or his continued assurances after it
was clear he would not perform. The defendant's intent not to perform may also
be shown by direct evidence, such as: (1) a defendant's admission in documents
showing defendant planned not to perform; (2) circumstantial evidence that the
defendant could not have performed, such as defendant had already been denied
necessary permits; or (3) that defendant had demonstrated a pattern of making
representations that were never performed.
(Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30-31.)
The Court finds Palo Woods’s
allegation, at ¶48 of the FACC, that Fitness internally referred to the
agreement as a “litigation deferral agreement” is a fact suggesting Fitness did
not intend to honor the agreement at the time it entered into the agreement. The demurrer on this ground is therefore
overruled.
III.
Belief that Representations Were True
Fitness argues Palo Woods failed to
allege it believed the representations were true at the time the
representations were made. While this allegation
is not expressly made, it is implied by all of the surrounding allegations at
¶¶44-50. The Court finds sustaining the demurrer
merely to require this allegation to be expressly made is not in the interest or
justice.
IV.
Damages
Fitness argues the only claimed
damages arising out of the alleged fraud are the damages for breach of contract. Fitness cites no case holding that separate damages
must be suffered as a result of the fraud in order for a fraud claim to be
stated. If a party successfully pleads
fraud in the inducement, the damages will typically be those for breach of
contract, but the fraud element brings punitive damages into the case. The demurrer on this ground is overruled.
V. Specificity
Fitness argues Palo Woods’s allegations
concerning what Mr. Roberts, on behalf of Fitness, said over the course of three
days are not pled with sufficient specificity because Palo Woods failed to
plead Roberts’s capacity within Fitness and/or to whom the allegations were
made. At ¶35, Palo Woods alleges Roberts
was an “employee” of Fitness; the allegations are clearly that he was speaking in
that capacity. The Court finds the
parties can further explore issues concerning Roberts’s communications by way of
discovery. The demurrer on this ground is
overruled.
V.
Omission
Fitness argues that, to the extent the
cause of action is based on omission, facts regarding the omission are not
sufficiently pled. The cause of action
is clearly premised primarily on affirmative inducement, not on omissions. The demurrer is overruled.
e. Negligent
Misrepresentation
Palo Woods includes a cause of
action for negligent misrepresentation in its FACC, which is premised on
substantially the same allegations discussed above in connection with the fraud
cause of action.
Fitness demurs, correctly noting
that there is no cause of action for negligent false promise. There can be no cause of action for a
negligent false promise. (See, e.g., Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th
471, 481-482.)
A false promise is actionable on
the theory that a promise implies an intention to perform, that intention to perform
or not to perform is a state of mind, and that misrepresentation of such a
state of mind is a misrepresentation of fact. The allegation of a promise
(which implies a representation of intention to perform) is the equivalent of the
ordinary allegation of a representation of fact. To maintain an action for deceit based on a
false promise, one must specifically allege and prove, among other things, that
the promisor did not intend to perform at the time he or she made the promise and
that it was intended to deceive or induce the promisee to do or not do a
particular thing. Given this
requirement, an action based on a false promise is simply a type of intentional
misrepresentation, i.e., actual fraud.
The specific intent requirement precludes pleading a false promise claim
as a negligent misrepresentation. Simply
put, making a promise with an honest but unreasonable intent to perform is
wholly different from making one with no intent to perform and, therefore, does
not constitute a false promise. California
courts have declined to establish a new type of actionable deceit: the
negligent false promise. (Tarmann v.
State Farm Mut. Auto. Ins. (1991) 2 Cal.App.4th 153, 158-159.)
Palo Woods did not address this argument
in opposition to the demurrer. The demurrer
is sustained without leave to amend as to the negligent misrepresentation cause
of action.
f. Conclusion
Fitness’s demurrer to the breach of
the implied covenant of good faith and fair dealing and negligent
misrepresentation causes of action is sustained without leave to amend. The demurrer to the fraud cause of action is
overruled.
4. Motion
to Strike
Fitness moves to strike the prayer
for punitive damages and ¶53, which relates to punitive damages, from the
FACC. A well-pled cause of action for
fraud will support a prayer for punitive damages, as Civil Code §3294
contemplates imposition of punitive damages in cases involving fraud, malice,
or oppression. The motion to strike is therefore
denied.
Fitness is ordered to file an answer
to the FACC, with the causes of action for breach of the implied covenant of
good faith and fair dealing and negligent misrepresentation deemed stricken,
within five days.
5. Motion
for Protective Order
a.
Timeliness
Fitness filed this motion for a protective
order on 9/30/22, setting it for hearing on 3/21/23. Trial in this case is scheduled for
4/03/23. CCP §2024.020 requires
discovery motions to be scheduled for hearing at least fifteen days prior to
trial. The motion is therefore not timely
scheduled for hearing. Because the trial
date is continued, as detailed above, the Court will rule on the motion on its
merits.
b. Law
Governing Apex Depositions
The seminal case concerning apex
depositions is Liberty Mutual Ins. Co. v. Superior Court, (1992) 10 Cal. App.
4th 1282. In that case, the plaintiff
had suffered personal injuries on the job.
Liberty Mutual was the workers’ compensation carrier. The plaintiff was suing Liberty Mutual for
fraud and IIED concerning the claims handling process. The plaintiff sought to depose the CEO of
Liberty Mutual and cited, as a reason, the fact that the CEO had been CC’d on
correspondence. The trial court denied a
motion for a protective order, and the Court of Appeals reversed. It held that a deposition of the CEO was not
appropriate unless the plaintiff showed the CEO had unique and superior
knowledge of the facts, and the discovery could not be obtained by less intrusive
means. It held that the “head of a large
national corporation will generally not have knowledge of a specific incident
or case handled several levels down the corporate pyramid.”
c. Unique
and Superior Knowledge
Palo Woods seeks to depose Fitness’s
President and Co-CEO Louis Welch, and well as its CFO Kathy Polson. Palo Woods must show Welch and Polson have
unique and superior knowledge before it can depose them. Palo Woods explains, in opposition to the
motion, that the very crux of its fraud claims is its allegation that Fitness,
through its highest level officers, entered into settlement agreements with and
then subsequently litigating against its landlords throughout the country. Palo Woods also explains that it cannot prove
up its fraud claims with showing someone at the top of the corporate ladder
personally participated in, authorized, and/or ratified the fraud.
In reply, Fitness contends it has
fully performed under the parties’ settlement agreement, and there is no
evidence it failed to do so in connection with any other settlement
agreement.
Fitness, in its First Amended
Complaint against Palo Woods, seeks a declaration that the payments it made
pursuant to the parties’ settlement agreement should be refunded. At ¶67 of its FAC, Fitness seeks an order
that it had no obligation to pay rent during closure periods, which includes
the periods of time governed by the parties’ settlement agreement. At ¶67(g), it seeks an order requiring Palo
Woods to return all monies already paid in rent during the subject period.
The essence of Palo Woods’s theory
is that Fitness entered into the settlement agreement with the intent to delay
its rental obligations, and at the time it entered into the agreement, it
intended to file litigation in order to circumvent the obligations created by
its rental agreement and also by its settlement agreement. Fitness can call the theory “far-fetched,” but
Palo Woods has the right to explore the theory, and Fitness’s top officers are
the persons most likely to have the necessary information concerning Fitness’s
intent at the time it was negotiating the settlement agreement.
d. Less
Intrusive Means
Palo Woods shows, in opposition to
the motion, that it has attempted to conduct written discovery into the issues
and Fitness has responded by stating that there are no documents relating to
the negotiation of the settlement agreement.
It is not clear what other “less intrusive means” Palo Woods could use
at this point.
e. Sanctions
No sanctions are imposed, both because
the motion is denied and also because the notice of motion fails to comply with
CCP §2023.040.
f. Conclusion
The motion for a protective order
is denied. The parties must work together
to schedule the depositions on a date, time, and location convenient for the
parties.
The Court asks Counsel to
make arrangements to appear remotely at the hearing on this matter.