Judge: Mary H. Strobel, Case: 22STCV14719, Date: 2022-09-06 Tentative Ruling

Case Number: 22STCV14719    Hearing Date: September 6, 2022    Dept: 82

            Defendant and Cross-Complainant City of Los Angeles (“City”) moves for a preliminary injunction enjoining Plaintiff and Cross-Defendant LAEC Incorporated (“LAEC”) from “[i]nterfering with the City’s contractual right pursuant to Section 15.03 of the Equestrian Agreement to inspect the City-owned Los Angeles Equestrian Center located at 480 Riverside Drive, Burbank, CA 90516 in Griffith Park … pursuant to Section 15.03 of the Amended and Restated Contract between the City of Los Angeles and LAEC Inc. for the Operation and Maintenance of the Los Angeles Equestrian Center.”  (OSC re: Preliminary Injunction filed 8/15/22.)   

Background

            City owns the Los Angeles Equestrian Center (“Equestrian Center”), which is overseen by the City’s Department of Recreation and Parks (“RAP”).  (Verified Cross-Complaint (“XC”) ¶ 6.)  The Equestrian Center is a seventy-five (75) acre public equine boarding and training facility and a banquet destination located north of the Los Angeles River and 134 Freeway within the boundaries of Griffith Park.  (Id. ¶ 7.)  Currently, about 400 horses board at the Equestrian Center.  (Salaices Decl. ¶ 3.) 

            LAEC is the current concessionaire and lessee of the Equestrian Center pursuant to an Amended and Restated Contract entered into May 20, 1993 (“Equestrian Agreement” or “Agreement”).  (XC ¶ 8; First Amended Complaint (“FAC”) Exh. 1.) 

            Pursuant to Section 4 of the Agreement, the initial term ran from May 25, 1990 to May 24, 2015.  (FAC ¶ 15; XC ¶ 9.)  Section 4 provided LAEC two five-year conditional options to extend the Equestrian Agreement’s term.  (XC ¶ 9.)  In particular, Section 4 states in relevant part:

In addition, CITY and CONCESSIONAIRE may agree to extend the term of the concession agreement to two additional five-year terms exercisable at the option of CONCESSIONAIRE; but subject to CITY'S verification of CONCESSIONAIRE'S compliance with the required standards of operation, adequate level of service to the public, adherence to City Policies and all other contractual obligations.  (FAC Exh. 1.)

In the FAC, LAEC alleges that it properly exercised both options pursuant to the terms of Section 4 and that the Agreement’s term as extended will expire on May 24, 2025. (FAC ¶¶ 37-92.)  City disagrees with LAEC’s interpretation of Section 4.  City contends that the options were not properly exercised or agreed to by City; that the lease converted to a month-to-month tenancy; and that City has terminated the tenancy effective September 5, 2022.  (Ex Parte Application filed 8/12/22 (“Ex Parte”) 9-10; XC ¶¶ 9-14.) 

The contractual dispute concerning interpretation of the option cause in Section 4, and whether LAEC properly exercised the options, is pending before the independent calendar court.  On July 6, 2022, the court (Judge William Fahey) sustained with leave to amend City’s demurrer to the complaint.  Based on the allegations of the complaint, Judge Fahey determined that LAEC had not alleged that it properly exercised the options and that the Agreement became a month-to-month tenancy.  (XC ¶ 2, Exh. 2 [“In the complaint there’s no allegation that the defendant [City] ever approved the first five-year option, and without those facts, I believe as a matter of law the contract becomes month to month.”].)  A demurrer to the FAC is set for hearing on September 14, 2022.  While having some relevance, the parties’ dispute concerning the options clause is not determinative of the OSC re: preliminary injunction, which concerns City’s inspection rights under a different part of the Equestrian Agreement.

Specifically, as relevant to the OSC set by the court, City alleges that LAEC has wrongfully interfered with its inspection rights set forth in section 15.03 of the Agreement.  (XC ¶¶ 17-31, 37-39.) 

Section 15.03 is discussed in the Analysis section below.  For reference, the court sets forth the entire section here:

15.03 Right of Inspection:

At CITY'S discretion, responsible representatives of CITY and CONCESSIONAIRE will confer for the purpose of making a complete inspection of CONCESSIONAIRE'S operations hereunder, including a review of the quality of service, merchandise and prices, maintenance of PREMISES, furnishings and equipment, and such other items as CITY may wish to review. It is intended that the standards, obligations and duties imposed by this Section 15 shall be maintained and complied with by CONCESSIONAIRE and its SUB-LICENSEES in addition to its compliance with all applicable governmental laws, ordinances and regulations. In the event that any of said laws, ordinances and regulations are more stringent than the standards, duties and obligations imposed on CONCESSIONAIRE hereunder, then CONCESSIONAIRE shall comply with such laws, ordinances and regulations in its operations under this Agreement.

CITY and the GENERAL MANAGER, their authorized representatives, agents and employees shall have the right to enter upon the concession PREMISES at any and all reasonable times for the purpose of inspection and observation of CONCESSIONAIRE'S and its SUB-LICENSEES’ operations. During these inspections, they shall have the right to utilize photographic devices and other instruments for recording conditions and events taking place upon the concession PREMISES. Said inspections may be made by persons identified to CONCESSIONAIRE as CITY Employees, or may be made by independent contractors engaged by CITY. Inspections may be made for the purpose set forth below, however, the enumerations below shall not be construed to limit CITY'S right of inspection for any purpose incidental to the rights of CITY.

In order to accommodate CITY inspections of concession events, CONCESSIONAIRE shall make available to the GENERAL MANAGER a minimum of six passes and three parking passes for each event held on the PREMISES regardless of the contractual arrangement with the event operator.

15.0301 To determine if the terms and conditions of the Concession Agreement or Permit are being complied with.

15.0302 To observe transactions between the CONCESSIONAIRE and SUB-LICENSEES and patrons in order to evaluate the quality and quantities of services provided or items sold or dispensed, the courtesy extended to and method of dealing with the public, the performance and caliber of employees, and the methods for recording receipts.

The information gathered on these inspections will be used to evaluate CONCESSIONAIRE in order to provide a basis for an action by CITY for the termination, renewal or denial of the concession.

(FAC Exh. 1.) 

Relevant Procedural History

On May 3, 2022, LAEC filed a complaint against City for declaratory relief.   

            On July 20, 2022, after the court sustained City’s demurrer, LAEC filed its operative first amended complaint for declaratory relief (“FAC”).

            On August 10, 2022, City filed a verified cross-complaint against LAEC for declaratory relief and injunctive relief.  The cross-complaint seeks “judicial declarations that [City] has the contractual right to inspect the public Equestrian Center located in Griffith Park and to inspect the books and records maintained by LAEC pertaining to its operation of the Equestrian Center.”  (Cross-Compl. ¶ 1.)

            On August 15, 2022, the court (Judge Mary Strobel) granted in part City’s ex parte application for a temporary restraining order (“TRO”) and order to show cause (“OSC”) re: preliminary injunction.  LAEC filed a written opposition to the ex parte (hereafter “Ex Parte Oppo.”).  The court issued the OSC set forth above, which was limited to a preliminary injunction against interference with City’s contractual right to inspect the Equestrian Center.  The court did not issue an OSC on the issue of whether LAEC should be enjoined from interfering with City’s contractual right to inspect books and records.  The court set a briefing schedule on the OSC.  The court also issued a TRO that stated, inter alia, “City may inspect the Equestrian Center for a maximum of 12 hours total during business hours between August 29, 30 and 31, allocating 4 hours per day to the inspection of the Equestrian Center…. The City is permitted to include up to four people in its inspection team….”  The TRO also stated that City “may not inspect books and records maintained on site ….”

            On August 26, 2022, the court granted City’s ex parte application to amend the TRO.  In particular, the court amended the TRO to specify that “City may include personnel or representatives of ASM Global in its inspection party.” 

            On August 29, 2022, LAEC filed and served its “Response” to the OSC and opposition brief (“Oppo.”).  In this opposition, LAEC refers to “concurrently-filed Objections to Evidence.”  (Oppo. 7.)  The court has not received any written evidentiary objections from LAEC for this OSC, and none have been properly filed with the court. 

            On August 31, 2022, City filed its reply.

Legal Standard for Preliminary Injunction

In deciding whether or not to grant a preliminary injunction, the court looks to two factors, including “(1) the likelihood that the plaintiff will prevail on the merits, and (2) the relative balance of harms that is likely to result from the granting or denial of interim injunctive relief.”  (White v. Davis (2003) 30 Cal.4th 528, 553-54.) The factors are interrelated, with a greater showing on one permitting a lesser showing on the other.  (Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003) 105 Cal.App.4th 1414, 1420.)  However, the party seeking an injunction must demonstrate at least a reasonable probability of success on the merits.  (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 73-74.)  The party seeking the injunction bears the burden of demonstrating both a likelihood of success on the merits and the occurrence of irreparable harm.  (Savage v. Trammell Crow Co. (1990) 223 Cal.App.3d 1562, 1571.) Irreparable harm may exist if the plaintiff can show an inadequate remedy at law.  (CCP § 526(a).) 

Analysis

Likelihood of Success

City seeks a preliminary injunction based on its first cause of action for declaratory relief.  In that cause of action, City seeks a “judicial determination pursuant to Code of Civil Procedure 1060 that it and its authorized representatives and agents, including ASM Global, have the right to conduct inspections of the Equestrian Center pursuant to Section 15.03 of the Equestrian Agreement, at reasonable dates and times set by the City, and that the City’s inspection rights survive the termination of the Equestrian Agreement.”  (XC ¶ 39.)

City raises a question of contractual interpretation.  In construing a contract, the court “is to give effect to the parties' mutual intentions.”  (Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36 Cal.4th 495, 501.)  “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.”  (Civ. Code § 1641.) 

City contends that section 15.03 “provides the City a broad and unlimited right to inspect the Property at any reasonable time without notice.”  (Ex Parte 10; XC ¶ 17.)  City contends that its inspection rights are “unrestricted” and that section 15.03 does not limit inspections to “one enumerated purpose.”  (Ex Parte 8, 14.)  In the ex parte opposition, LAEC argued for a narrow construction of section 15.03 under which City’s inspection rights are constrained by the parties’ pending litigation.  LAEC argued that “the time to inspect was before staff asked the Board to terminate LAEC's Lease” and “if City wants to inspect, it needs to follow the procedures set forth in the Civil Discovery Act.”  (Ex Parte Oppo. 11.)  LAEC seems to maintain that position in its opposition to the OSC.  LAEC also highlights contractual provisions that it contends limit the City’s right to inspection or that may require advanced notice, including the quiet enjoyment clause in Section 8.  (Oppo. 9-12.)

City has a reasonable probability of success in prevailing on the declaratory relief claim set forth in the first cause of action in the cross-complaint.  Section 15.03 is worded broadly and states that City, and its “authorized representatives, agents, and employees … shall have the right to enter” the Equestrian Center “at any and all reasonable times for the purpose of inspection and observation of” LAEC’s operations.  Section 15.03 further states that “[i]nspections may be made for the purpose set forth below, however, the enumerations below shall not be construed to limit CITY'S right of inspection for any purpose incidental to the rights of CITY.”  (bold italics added.)  These general statements strongly suggest that City may inspect the Equestrian Center and observe LAEC’s operations for any purpose “incidental” to City’s rights under the Agreement, including to monitor LAEC’s performance of the contract.  The two examples given in section 15.0301 and 15.0302 are consistent with that interpretation, as is the final unnumbered paragraph of section 15.03.

The court does not necessarily agree with City’s position that section 15.03 provides for a right of inspection “without notice” at any reasonable time.  (Ex Parte 10; XC ¶ 17.)  As City points out, section 15.03 also permits inspection at “all reasonable times.”  (Reply 6.)  However, section 15.03 is silent as to whether notice must be given.  The quiet enjoyment provision in section 8, discussed below, provides some evidence that the parties’ intended for notice of inspections to be given, if possible, so as to not interfere with LAEC’s quiet enjoyment.  On the other hand, section 15.03 does not state that notice of the time of inspections must be given.  Furthermore, there could be circumstances in which giving notice of inspection may be impracticable or inconsistent with the purposes of section 15.03, including the right “to determine if the terms and conditions of the Concession Agreement ... are being complied with.”  City has some probability of success on its argument that notice of inspections need not be given, but LAEC also has some probability of success.  The circumstances of the inspections may matter in determining whether notice is required.  Whether or not notice is required, the inspections must occur “at reasonable times.”     

The court finds less persuasive LAEC’s arguments in favor of a narrow construction of section 15.03.  (See Ex Parte Oppo. 11-13; Oppo. 9-10.) 

LAEC contends that the last paragraph of section of 15.03 shows that the inspection rights ended once City purported to terminate the lease.  (Ex Parte Oppo. 11.)  The last paragraphs is unnumbered and states that “[t]he information gathered on these inspections will be used to evaluate CONCESSIONAIRE in order to provide a basis for an action by CITY for the termination, renewal or denial of the concession.”  As discussed, other parts of section 15.03 are broadly worded and suggest that City that City may inspect and observe LAEC’s operations for any purpose “incidental” to City’s rights under the Agreement.  In context, the purpose of the final paragraph is, arguably, to give LAEC notice that information from the inspections will be used to evaluate LAEC’s performance.  Furthermore, other parts of the Agreement state that City’s contractual rights, including to enter the premises, and LAEC’s obligations, including to permit inspections, do not end upon termination.  (See § 16.02, 16.03, 16.04.)  City has a reasonable argument that the final paragraph of section 15.03 does not limit the right of inspection to a period of time before termination of the Agreement, especially where City has identified a need to inspect the premises to transition to a new operator. 

Moreover, LAEC disputes that a proper termination occurred.  That position is somewhat at odds with its argument that it can refuse to permit inspections on the grounds that the Agreement was terminated. 

LAEC cites no contract provision or legal authority that supports the proposition that, after litigation is filed, City may only inspect the Equestrian Center through inspection demands made under the Discovery Act.  Conducting inspections through the Discovery Act would place substantial limitations on the right to inspection, which are not stated in the Agreement.  LAEC’s interpretation is unpersuasive because it does not give effect to the plain language of section 15.03.

LAEC cites to the first paragraph of section 15.03 to argue that the Agreement requires advanced notice of inspections; gives LAEC the right to object; and intended limited inspections rights.  (Oppo. 9-10.)  The first paragraph, quoted in full in the Background section, discusses a meet and confer process that applies “at City’s discretion” and if City seeks a “complete inspection” of LAEC’s operations.  The first paragraph also discusses LAEC’s obligation to ensure that “the standards, obligations and duties imposed by this Section 15 shall be maintained and complied with … in addition to its compliance with all applicable governmental laws, ordinances and regulations.”  Because the meet and confer process is discretionary, and applies only in circumstances of a “complete inspection,” LAEC’s reliance on this provision to limit the broad inspection rights set forth in paragraph two of section 15.03 are not persuasive. 

While not entirely clear, LAEC appears to argue that the quiet enjoyment provision in section 8 trumps or supersedes the inspection rights set forth in section 15.03.  (Oppo. 11-12.)  The court is not persuaded.  Section 8 states in full:

CITY agrees that CONCESSIONAIRE, upon payment of the fees and charges specified herein, and all other charges and payments to be paid by CONCESSIONAIRE under the terms of this Agreement, and upon observing and keeping the required conditions and covenants of this Agreement, shall lawfully and quietly hold, use and enjoy the concession PREMISES during the term of this Agreement.  (bold italics added.)

Section 8 must be interpreted in context of the entire Agreement, “so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.”  (Civ. Code § 1641.)  Thus, Section 8 must be harmonized with section 15.03.  The bolded and italicized language from section 8 supports an interpretation that LAEC must comply with its obligations under section 15.03, including permitting City’s authorized inspections, in order to “quietly hold” the premises.  In a commercial lease the covenant of quiet enjoyment can be modified or waived by the parties. (Lee v Placer Title Co. (1994) 28 Cal.App.4th 503, 513.)  LAEC’s interpretation of section 8 to supersede City’s inspection rights is unpersuasive because it would render section 15.03 inoperative.  Courts “disfavor constructions of contractual provisions that would render other provisions surplusage.”  (Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36 Cal.4th 495, 501.) 

            LAEC also contends that “Section 15.03 of the Lease does not permit ASM Global access to the Equestrian Center to inspect; ASM Global is not a contractor to City.”  (Oppo 6.)  LAEC contends that “City proffers no evidence that ASM Global is City's agent.”  (Ibid.) As LAEC seems to acknowledge, section 15.03 states, broadly, that City “shall” have the right to conduct inspections through its “authorized representatives, agents, and employees.”  The subsequent statement that inspections “may be made by independent contractors” does not appear to supersede the earlier, broader language authorizing inspections by agents. 

Contrary to LAEC’s assertion, there is evidence that ASM Global is an authorized agent of City for purposes of inspections of the Equestrian Center.  (See e.g. XC ¶ 13 [On May 5, 2022, “the RAP Board also approved entry into a contract with ASM Global to assume interim management of the Equestrian Center until such time as RAP issues a request for proposals for a new concessionaire to operate the Equestrian Center”]; XC ¶ 16 [“As interim manager, ASM Global’s work is designed to enable RAP to gain a clear understanding of all Equestrian Center operations and to determine the capital improvement needs and service enhancements necessary to return the Equestrian Center to being a world-class facility”]; XC Exh. 3 [Board report]; XC Exh. 7 [letter of City’s attorney referring to ASM Global as contractor of City].) 

Based on the foregoing, City has shown a reasonable probability of success its claim that “it and its authorized representatives and agents, including ASM Global, have the right to conduct inspections of the Equestrian Center pursuant to Section 15.03 of the Equestrian Agreement, at reasonable dates and times set by the City, and that the City’s inspection rights survive the termination of the Equestrian Agreement.”  (XC ¶ 39.)

Balance of Harms

For the second factor, the court must consider “the interim harm that the plaintiff would be likely to sustain if the injunction were denied as compared to the harm the defendant would be likely to suffer if the preliminary injunction were issued.”  (Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729, 749.)  “Irreparable harm” generally means that the defendant’s act constitutes an actual or threatened injury to the personal or property rights of the plaintiff that cannot be compensated by a damages award.  (See Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal.App.3d 405, 410.)

City contends that, without the preliminary injunction, “there is no way for the City to exercise its inspection rights under the Equestrian Agreement and thus there is no way for the City to plan for the future of the Equestrian Center and its transition to ASM Global’s operation.”  (Ex Parte 12.)  City submits evidence that on May 5, 2022, the RAP Board voted to terminate the Agreement with LAEC and on June 1, 2022, City served a 90-day notice to quit.  (XC ¶¶ 13-14, Exh. 3-4.)   Thus, City contends that the Agreement with LAEC terminates September 5, 2022.  (Id. ¶ 14.)  City submits evidence that, also on May 5, 2022, the RAP Board approved entry into a contract with ASM Global to assume interim management of the Equestrian Center.  (Id. ¶ 13, Exh. 3.)  City submits evidence that inspections of the Equestrian Center are required for ASM Global to assume managerial duties.  Among other things, property inspections will enable the City and ASM Global to assess what equipment will be needed for equestrian operations, the status of catering facilities, and how horse manure will be removed in the future.  (Salaices Decl. ¶¶ 3-4.)  Finally, City submits evidence that LAEC has barred all City access to the Equestrian Center and has indicated that it will continue to do so absent court intervention.  (Salaices Decl. ¶ 3; XC ¶¶ 18-26, Exh. 5-10; Walford Decl. ¶¶ 7-8, Exh. 5-10; Reply Walford Decl. ¶¶ 2-4, Exh. 1 at 22, Exh. 2, and Exh. 3.) 

The court finds irreparable harm to City from denial of the preliminary injunction.  Section 15.03 is reasonably interpreted to give City broad rights to inspect the Equestrian Center, including after termination.  City has taken action to terminate the Agreement and has shown a clear intent to transition operations to ASM Global as LAEC vacates the premises.  Inspections will materially support the City’s plans for the real property, while denial of inspections will harm City’s ability to transition operations to ASM Global and ability to protect its interests in the real property. More broadly, however, City has a reasonable argument that section 15.03 authorizes it to inspect the Equestrian Center to determine whether LAEC is complying with the contract.  The court finds irreparable harm to City from LAEC’s refusal to permit such inspections.

Contrary to LAEC’s suggestion (see Ex Parte Oppo. 9), money damages likely will not compensate City for loss of its right to inspect real property.  LAEC identifies no monetary remedy for loss of such rights. 

LAEC contends that City does not show irreparable harm because LAEC exercised its rights to the two options; the contract does not terminate until May 2025; and City could obtain the information it seeks through civil discovery.  The court is not persuaded.  The independent calendar court will determine the parties’ dispute concerning the options clause and the termination date.  While that issue has not been finally adjudicated, City has shown some possibility of prevailing as reflected in Judge Fahey’s ruling on the demurrer to the original complaint.  In any event, for purposes of this OSC, the critical issue is that City’s inspections rights appear broad and City has identified reasons for inspections that are incidental to City’s rights under the Agreement, including to monitor LAEC’s operations and contract performance.  The reasons for the inspections are not dependent on the date that the contract terminates or that LAEC vacates.  Finally, as discussed above and at the ex parte hearing on August 15, 2022, Defendant has not developed its argument that an inspection demand under the Discovery Act would offer the same rights as an inspection under the Agreement.

LAEC fails to show, with evidence, that it would suffer irreparable harm if the preliminary injunction is granted and the inspections permitted.  LAEC states that it will suffer harm in the form of “disruption,” but it does not submit any declarations or other evidence showing that inspections would actually cause disruption.  (Oppo. 8.)  Later in its brief, LAEC states: “[City] staff has gone out of its way to disrupt LAEC's operations in 2022, as amply demonstrated by correspondence from LAEC which City attached to the Walford Declaration. (See, e.g., Walford Decl. ¶7 and Exhs. 8-10.)”  (Oppo. 12.)  It is unclear what statements LAEC relies on in these exhibits.  Based on the court review, none of the correspondence cited by LAEC shows disruption has occurred or will result from future inspections. 

LAEC suggests that ASM Global is its “competitor” and that presence of ASM Global employees at the inspections will somehow cause competitive harm to LAEC.  (Oppo. 7 and 8:21-26.)  The argument is not fully developed.  LAEC cites no evidence that the inspections would reveal any sensitive information that could be used to its competitive determinant by ASM Global. 

Both the balance of harms and showing of likelihood of success on the merits weigh in favor of granting a preliminary injunction. 

Availability of Injunctive Relief; and Scope and Wording of Injunction

LAEC suggests that injunctive relief is not available because “City wants to "prevent the breach of a contract" that cannot be specifically enforced[.]"  (Ex Parte Oppo. 1, citing CCP § 526(b)(5).)  Specific provisions of the contract, including inspection rights appear susceptible to specific performance.  LAEC has not made a reasoned argument based on legal authority showing otherwise

The preliminary injunction requested by City in the OSC broadly seeks to enjoin LAEC from ““[i]nterfering with the City’s contractual right pursuant to Section 15.03 of the Equestrian Agreement to inspect the City-owned Los Angeles Equestrian Center located at 480 Riverside Drive, Burbank, CA 90516 in Griffith Park … pursuant to Section 15.03 of the Amended and Restated Contract between the City of Los Angeles and LAEC Inc. for the Operation and Maintenance of the Los Angeles Equestrian Center.”  (OSC re: Preliminary Injunction filed 8/15/22.)  

This proposed injunction is so broadly worded that it would be impractical to enforce it in contempt proceedings.  As worded, the injunction also would appear to require ongoing Court supervision.  City’s counsel should address this issue at the hearing and should propose a more narrowly worded injunction that would preserve its inspection rights pending trial.

Undertaking

As a public entity, City is exempt from the undertaking requirement for injunctions.  (CCP § 529(b)(3).) 

Conclusion

             City has shown a preliminary injunction is warranted, but the parties should discuss at the hearing the proper scope of any injunction.