Judge: Matthew C. Braner, Case: 37-2022-00046039-CU-MC-CTL, Date: 2024-04-19 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - April 18, 2024

04/19/2024  09:00:00 AM  C-60 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Matthew C. Braner

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Civil - Unlimited  Misc Complaints - Other Demurrer / Motion to Strike 37-2022-00046039-CU-MC-CTL SALT REWW LP VS SAN TOMAS LIMITED PARTNERSHIP [IMAGED] CAUSAL DOCUMENT/DATE FILED:

Defendants San Tomas Limited Partnership and J. Thomas, Inc.'s demurrer to the second amended complaint is OVERRULED.

Cross-Defendants SALT REWW, LP and Winslow Investments Limited, Inc.'s demurrer to the first amended cross-complaint is SUSTAINED.

A demurrer may be sustained if the pleading 'does not state facts sufficient to constitute a cause of action.' (Code Civ. Proc., § 430.10, subd. (e).) To test the sufficiency of a cause of action, the court treats as true 'all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.' (Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010.) The court may also consider matters that have been judicially noticed. (Id.) It is not necessary to 'plead evidentiary facts supporting [an] allegation of ultimate fact,' and a pleading 'is adequate so long as it apprises the defendant of the factual basis for the claim.' (Birke v. Oakwood Worldwide (2009) 169 Cal.App.4th 1540, 1549.) In considering whether a complaint or cross-complaint adequately states a claim, the court shall give it a 'reasonable interpretation, reading it as a whole and its parts in their context.' (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Demurrer to Second Amended Complaint Defendants demur to the second, third, and fourth causes of action in the SAC, all of which concern an oral management agreement alleged by Plaintiffs. Having read and considered the parties' supplemental briefing and responses, the court is persuaded Plaintiffs have adequately pled the existence of an oral collateral contract (i.e., the management agreement) consistent with Civil Code section 1698, subdivision (d).

'[A] prior or contemporaneous collateral oral agreement may be shown where it is not inconsistent with the terms of [an integrated written contract] even through it relates to the same subject matter.' (Skone v, Quanco Farms (1968) 261 Cal.App.2d 237, 243; see also Malmstrom v. Kaiser Aluminum & Chemical Corp. (1986) 187 Cal.App.3d 299, 318 ['An independent collateral agreement cannot contradict the terms of a prior written contract.'].) Here, Plaintiffs allege that following execution of the WW Associates Partnership Agreement in 1989, and while it was still in effect and governing the ongoing partnership, the parties entered a separate oral management agreement in 2001 to allocate day-to-day management duties of the four properties they jointly managed: the Pacific Inn, the Vermont Inn, the Mediterranean Inn, and the Belltown Inn. Pursuant Calendar No.: Event ID:  TENTATIVE RULINGS

3107280  19 CASE NUMBER: CASE TITLE:  SALT REWW LP VS SAN TOMAS LIMITED PARTNERSHIP [IMAGED]  37-2022-00046039-CU-MC-CTL to the purported management agreement, Thomas Wells (principal of San Tomas LP) would manage the Belltown and Vermont Inns, and Kenneth Winslow (principal of SALT) would manage the Mediterranean and Pacific Inns. In connection with these day-to-day management duties, the parties would also receive management fees at a 50-50 percent split.

Defendants characterize the management agreement as a modification of the original WW Associates Partnership Agreement, because that agreement was integrated, and stated 'the business of the partnership shall be conducted by the general partners jointly.' (SAC, Ex. A, § 8.1.) Thus, Defendants argue that an oral agreement to allocate management duties contradicts the agreement to manage the properties 'jointly.' Having considered the matter further, and in light of the authority concerning independent collateral agreements, the court disagrees. Notably, the partnership agreement is completely silent on what 'jointly' means in the context of day-to-day operations of the four properties.

(See, e.g., Skone v, Quanco Farms, supra, 261 Cal.App.2d at pp. 243-44.) Moreover, the partnership agreement contemplates a separate agreement to govern day-to-day activities, as it specifies 'either of the partners, . . ., may manage, conduct and operate the partnership business and affairs,' while ensuring that 'major' partnership decisions will be made by one partner 'acting alone,' such as 'actions to be voted upon by the partnership in its capacity as a general partner in Seattle Investors.' (SAC, Ex. A, § 8.1.) Thus, a separate management agreement that assists the parties in allocating day-to-day duties does not contradict the written partnership agreement.

Defendants also argue the management agreement's provision for management fees contradicts section 7 of the partnership agreement, which states: 'All items of loss and deduction ('Losses') income and gain ('Profits') and other taxable items of the partnership shall be allocated in accordance with the Profit Sharing Ratio as described in Section 5.1(a) above.' (SAC, Ex. A, § 7.) However, Defendants mischaracterize the management fees alleged in the SAC, which are not 'profits' or 'losses' that would fall within the meaning of section 7; rather, the most reasonable inference to be drawn from the SAC is that they are business expenses more closely resembling salary. Thus, this alleged term of the management agreement does not contradict the written partnership agreement.

Finally, Defendants contend the case law relied on by Plaintiffs concerning independent collateral agreements is irrelevant to the management agreement, because it was allegedly entered after the partnership was executed. However, the court disagrees with this interpretation of the caselaw, particularly the significance of the word 'contemporaneous,' which would be rendered meaningless under Defendants' interpretation. The alleged management agreement was entered during the period the partnership agreement was in effect and governing the rights and obligations of the parties; it was thus contemporaneous with the partnership agreement.

Accordingly, Defendants' demurrer is overruled.

Demurrer to First Amended Cross-Complaint Cross-Defendants demur to all six causes of action in the FACC, for declaratory relief, specific performance, injunctive relief, breach of the covenant of good faith and fair dealing, promissory fraud, and breach of fiduciary duty.

The first through fourth causes of action rely completely on Cross-Complainants' allegation that Cross-Defendants breached section 14 of the WW Associates Partnership Agreement by initiating the buy-sell procedures and then failing to complete the sale of Cross-Defendants' interest after Cross-Complainants elected to be the buyer. Cross-Defendants contend these causes of action fail to state a claim because the exhibits attached to the FACC demonstrate they did not make an election under section 14(a) to proceed with the Buy/Sell provisions. The court agrees.

The relevant clause of Section 14, subdivision (a) of the partnership agreement states: If, after receipt of the accountant's determination, the Triggering Partner elects to proceed with the Calendar No.: Event ID:  TENTATIVE RULINGS

3107280  19 CASE NUMBER: CASE TITLE:  SALT REWW LP VS SAN TOMAS LIMITED PARTNERSHIP [IMAGED]  37-2022-00046039-CU-MC-CTL Buy/Sell provisions, then within ten (10) days following such receipt by the Triggering Partner, the Triggering Partner shall deliver to the Receiving Partner (the date of such delivery being the 'Effective Date of the Offering Notice') a written irrevocable offer ('Offering Notice') to do either of the following at the Receiving Partner's election: (i) purchase the entire Partnership Interest of the Receiving Partner at the Receiving Partner Value, or (ii) sell the entire Partnership Interest of the Triggering Partner to the Receiving Partner at the Triggering Partner Value. Such Offering Notice shall set forth the Stated Value and shall contain the accountants' determination of the Triggering Partner Value and the Receiving Partner Value.

(FACC, Ex. 1, § 14, subd. (a).) Cross-Defendants' emphasize that the July 7, 2022 'Offering Notice' sent by Mr. Winslow to Mr. Wells contained additional terms not set forth in section 14, and therefore no contract was formed if Cross-Complainants did not accept all the terms of the offer (which they allege they did not). In other words, the offer sent by Cross-Defendants does not constitute the creation of the type of option contract contemplated in section 14 but was instead a different kind of offer. (See, e.g., Landberg v. Landberg (1972) 24 Cal.App.3d 742, 754-55.) Cross-Defendants' argument and reliance on the Landberg case has merit. However, the court concludes a contract was not formed (based on the allegations in the FACC and its attached exhibits) for a related but different reason: the July 7, 2022 letter does not employ the sole mechanism for an election to proceed with the Buy/Sell provisions. In order to make the election, the triggering partner needs to make a specific type of irrevocable offer which must include both the offer to sell and the alternative offer to buy. The July 7, 2022 offer lacks an offer to sell, both in the cover letter and in the proposed purchase agreement. (FACC, Ex. 5.) It therefore cannot be an election to proceed with the Buy/Sell provisions.

Thus, any arguable indications of an intent to proceed with those provisions (such as calling the letter an 'Offering Notice' and referencing section 14 of the partnership agreement in the proposed purchase agreement) are a nullity. (Landberg v. Landberg, supra, 24 Cal.App.3d at p. 755 ['Accordingly, since the offer was not made in the manner specified in the Agreement, it was a nullity insofar as it purported to create the option therein provided for and defendant was entitled to reject it or to ignore it.'].) Accordingly, with respect to the first through fourth causes of action, the demurrer is sustained without leave to amend.

As to the fraud cause of action, it is insufficiently pled, as it fails to allege a misrepresentation by Cross-Defendants, particularly in light of the court's finding that no breach of contract has been alleged or can be alleged. The FACC also fails to allege non-speculative damages proximately caused by the purported misrepresentation. Although the court has its doubts whether the FACC may be amended to allege a sufficient misrepresentation, the court will give leave to amend.

Accordingly, the demurrer is sustained as to the fifth cause of action, with leave to amend.

Finally, the sixth cause of action is not adequately pled. The FACC's conclusory allegation of a plan to subvert Cross-Complainant's partnership interest is not supported by requisite facts, as the allegations of wrongful conduct (asserting that Mr. Wells was incapacitated, insisting on installing an elevator, and investigating employees) do not actually allege violation of the partnership agreement or any other duty imposed on the parties to the partnership agreement.

Accordingly, the demurrer is sustained as to the sixth cause of action, with leave to amend.

Cross-Complainants have 30 days from entry of this order to file a second amended cross-complaint.

The minute order is the order of the court.

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