TENTATIVE RULING

Calendar: 10

Date: 8/5/2022

Case No: 21 GDCV00645 Trial Date:     September 26, 2022

Case Name: S & N Properties, LP v. World Financial Group, Inc., et al.

JUDGMENT ON THE PLEADINGS

Moving Party: Defendants Artak Daldumyan and Goar Nersesyan  

Responding Party: Plaintiff S & N Properties, LP  

Relief Requested:

Entry of Judgment on the Pleadings as to each cause of action in the Complaint of Plaintiff S & N Properties, LP  

CAUSES OF ACTION FROM THE Complaint 

1) Breach of Contract 

2) Breach of the Covenant of Good Faith and Fair Dealing 

 

SUMMARY OF FACTS:

Plaintiff S & N Properties alleges that it is a real estate limited partnership, and that in October 2018 it entered into a Lease Agreement, as owner, with defendant World Financial Group, Inc. as tenant for commercial property in Glendale.  The complaint alleges that defendants Artak Daldumyan and Goar Nersesyan are principals of World Financial Group, who also executed the Lease Agreement in their individual capacities.  

Plaintiff alleges that beginning in late 2019 and continuing thereafter, World Financial Group failed to pay utilities and common area operating expenses deemed rent by the terms of the Lease Agreement, as well as rent, and holdover rent, and that defendants now owe the outstanding balance in the amount of $65,594.60 to plaintiff.   

The complaint alleges that in October of 2020, plaintiff made demand for payment to defendants, but did not receive a response, and that in August of 2020, World Financial Group unilaterally vacated the premises. 

Defendant World Financial Group filed a cross-complaint against the individual defendants as cross-defendants for breach of contractual indemnity and declaratory relief, alleging that cross-defendants were at certain relevant times independent contractors of cross-complainant, but at no time had authority to enter the subject Lease Agreement on behalf of World Financial Group. 

On April 4, 2022, plaintiff filed a Request for Dismissal of the action without prejudice as to defendant World Financial Group, which was entered as requested the same date. 

On April 11, 2022, defendant World Financial Group, Inc. filed a Request for Dismissal without prejudice of its cross-complaint, which was entered as requested the same date.   

 

ANALYSIS:

The remaining defendants, the individual defendants Artak Daldumayn and Goar Nersesyan, seek judgment on the pleadings as to each cause of action in the complaint, arguing that plaintiff is not a properly formed entity and is not qualified to do business in California, and that even if plaintiff has capacity to sue, its second cause of action for breach of implied covenant of good faith and fair dealing is superfluous.  

CCP § 438 establishes the procedures for moving for judgment on the pleadings, and provides, in pertinent part:

“(c)(1) The motion provided for in this section may only be made on one of the following 

grounds:...

(B) If the moving party is a defendant, that either of the following conditions exist:

(i) The court has no jurisdiction of the subject of the cause of action alleged in the complaint.

(ii) The complaint does not state facts sufficient to constitute a cause of action against that defendant.”

Subdivision (d) provides that “The grounds for the motion provided for in this section shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.”  

The motion may be granted with leave to file an amended complaint, or without leave to amend, in which case, judgment may be entered in favor of the moving defendant.   CCP § 438 (h).

First Cause of Action—Breach of Contract  

Defendants primarily argue that plaintiff S & N Properties, LP lacks capacity or standing to sue in this matter because it is not registered with the California Secretary of State and accordingly lacks capacity to sue in the name of S & N Properties, LP, a limited partnership.  Defendants also argue that plaintiff lacks standing to bring any cause of action because it is not the real party in interest to pursue the stated causes of action.   

Defendants have filed a Request for Judicial Notice, requesting judicial notice of a Certificate of No Record Limited Partnership issued by the State of California Secretary of State, dated July 8, 2022, stating that “there is no record in the limited partnership files of this office of a California or Foreign limited partnership, active or inactive, of the name:  S & N Properties, LP.”   [RFJN, Ex. 1].

Plaintiff in opposition argues that the issues of standing to sue and capacity to sue are separate issues, and that plaintiff clearly has standing to sue in this matter, as plaintiff has alleged in the pleading that it was the “owner” of the subject property which leased the subject property to defendants pursuant to a written Lease Agreement.  [Complaint, para. 1].  

Under CCP § 367, “Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.”  Plaintiff, as the owner of the subject property, and the named “Lessor,” in the Lease attached to the Complaint, clearly is a real party in interest to enforcement of the subject Lease Agreement and would have standing to pursue this matter.  

With respect to capacity to sue, plaintiff argues that this issue is not the proper subject of a motion for judgment on the pleadings.  

With respect to a demurrer to a pleading, CCP section 430.10 provides that a party against whom a complaint has been filed may object by demurrer on the ground "(b) The person who filed the pleading does not have the legal capacity to sue."

By contrast, as set forth above, with respect to a motion for judgment on the pleadings, the enumerated grounds permitted for a defendant to challenge a pleading are limited.  

Under CCP § 438 (c)(1): 

“The motion provided for in this section may only be made on one of the following grounds:...

(B) If the moving party is a defendant, that either of the following conditions exist:

(i) The court has no jurisdiction of the subject of the cause of action alleged in the complaint.

(ii) The complaint does not state facts sufficient to constitute a cause of action against that defendant.”

(Emphasis added). 

Those grounds, lack of jurisdiction, or the failure to state facts sufficient to constitute a cause of action, do not include the ground that a party lacks capacity to sue, and the motion is denied.  

In any case, even if the court were to consider the argument that plaintiff lacks capacity to sue due to the lack of a record in the limited partnership files of the Secretary of State concerning a limited partnership of the name S & N Properties, LP, the moving papers cite no statutory authority under which this circumstance would carry as a consequence the inability of such an entity to file a lawsuit.   

In fact, CCP § 369.5 provides, in pertinent part:

“(a) A partnership or other unincorporated association, whether organized for profit or not, may sue and be sued in the name it has assumed or by which it is known.”

Plaintiff points out that in the case cited by defendants in the moving papers, American Alternative Energy Partners II v. Windridge, Inc. (1996) 42 Cal.App. 4th 551, the court of appeal actually did not indicate that a failure to obtain a certification rendered a partnership without capacity to sue, stating, instead: 

“Under Code of Civil Procedure section 369.5, partnerships are granted authority to sue in the partnership name. Thus, AAEP, although legally a general partnership until it complied with the certification requirement, did not lack capacity to sue.”  

American Alternative Energy, at 561. 

 

In American Alternative Energy, the court of appeal noted that a partnership that had failed to file a Certificate of Limited Partnership could not enjoy the benefits afforded to entities operating as registered limited partnerships, such as limited liability, but found that the trial court had erred in determining that the failure to pursue formalities with respect to limited liability rendered the partnership a nonentity.   American Alternative Energy, at 559-561.   

Plaintiff relies on the following passage: 

“We know of no case addressing the capacity of a purported limited partnership to file a lawsuit. That such capacity exists, however, seems to follow logically from section 15044's provision that if a limited partnership is not formed because of noncompliance with the recordation requirement, the partnership is a general partnership. If, in addition to penalizing such noncompliance with the serious sanction of general liability, the Legislature had meant to deprive the partnership of its capacity to sue, we assume the Legislature would have said so. It did not. Under Code of Civil Procedure section 369.5 partnerships are granted authority to sue in the partnership name. Thus, AAEP, although legally a general partnership until it complied with the certification requirement, did not lack capacity to sue.”

American Alternative Energy, at 561.

The court of appeal relied on Corporations Code section 15044, which has since been repealed in a revision of the Corporations Code.   However, it would appear that consistent with the reasoning of this authority, any noncompliance by plaintiff with the requirements defendants rely on, although not without consequence, would not render plaintiff without the ability to exercise its capacity to sue under CCP § 369.5(a), a statute which has not been repealed. 

The moving papers point to no current statute under which a consequence of the failure of an entity to file a record with the Secretary of State in connection with its limited partnership status is that it cannot commence a lawsuit. 

A review of the statutes in the Uniform Limited Partnership Act concerning the requirements for a certificate of limited partnership, or concerning the failure to sign a record, do not appear impose such a consequence.

Under Corporations Code section 15902.01, governing the certificate of limited partnership, a limited partnership is “formed” when the Secretary of State files the certificate of limited partnership, but the effect of such filing is set forth in terms of the filed certificate documents prevailing as to persons that reasonably relied on such filed records to their detriment, those filed documents creating a conclusive presumption in favor of bona fide purchasers or encumbrancers, and specific acts which may be taken by the State for failure to provide payment.  The statute does not expressly set forth consequences which could be reasonably construed as affecting the capacity to sue or be sued. It would appear the technical overall consequence would remain that an entity which has not followed the certification requirements would not be entitled to claim “limited” liability partnership status. 

Under Corporations Code section 15902.05, governing failure to sign a record by a limited partnership, the statute indicates a person aggrieved by such failure may petition the superior court to order that the record be signed and filed and seek expenses for doing so.  The statute does not indicate that such procedural failures abrogate the entity’s ability to commence a civil action. 

Overall, given the failure of defendants to point to any legal authority which would create an exception to CCP § 369.5 (a)’s broad provision that “A partnership or other unincorporated association… may sue and be sued in the name it has assumed or by which it is known,” there is no lack of capacity established. 

The motion for judgment on the pleadings accordingly is denied.  

Second Cause of Action—Breach of Implied Covenant of Good Faith and Fair Dealing  

As discussed above, to the extent defendants argue that plaintiff lacks capacity or standing to pursue this cause of action, the motion is properly denied. 

Defendants also argue that the cause of action appears to base its allegations on the identical alleged wrongful acts which are alleged in the first action to be breaches of contract, so is superfluous.

Again, as discussed above, there are very limited grounds upon which a judgment for the pleadings can be made, only that the court has no jurisdiction, or the pleading fails to state facts sufficient to state a cause of action.  The statutory grounds do not include that a cause of action is superfluous, and the motion is denied on this ground.    

In any case, even if the court were to consider this argument, defendants rely on Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, which plaintiff points out is a case in which the Second District found that the trial court had properly sustained a demurrer to a cause of action for breach of implied covenant of good faith and fair dealing without leave to amend, where the cause of action requested tort recovery, and was not limited to contract recovery, as is the case here.  Careau, at 1393-1394.  

The cause of action here does not seek tort damages.  In any case, to the extent the cause of action appears duplicative, it is recognized that the covenant of good faith and fair dealing is implied “as a supplement to the express terms of the contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.”  Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-1032. 

This matter is currently at the pleading stage, and it does not appear to be improper for plaintiff to allege here that conduct which is alleged to breach the express covenants of the Lease Agreement in the alternative breaches the implied covenant, in the event discovery or future legal proceedings suggest a particular alleged breach, such as vacating the premises, for example, does not technically transgress the express terms of the Lease Agreement itself, but frustrates plaintiff’s rights to the benefit of the contract.   Under the liberal rules of pleading, parties are permitted to plead duplicative, alternative, or even inconsistent causes of action.   See, Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181.  The motion for judgment on the pleadings on this ground, and to this entire cause of action, will accordingly be denied.  

RULING:

Defendants Artak Daldumyan and Goar Nersesyan’s Motion for Judgment on the Pleadings is DENIED.  

Defendants Artak Daldumyan and Goar Nersesyan’s UNOPPOSED Request for Judicial Notice in Support of Motion for Judgment on the Pleadings is GRANTED.

  

 GIVEN THE CORONAVIRUS CRISIS, AND TO ADHERE TO HEALTH GUIDANCE THAT DICTATES SAFETY MEASURES, DEPARTMENT D IS ENCOURAGING AUDIO OR VIDEO APPEARANCES

Please make arrangement in advance if you wish to appear via LACourtConnect/Microsoft Teams by visiting www.lacourt.org to schedule a remote appearance.  Please note that LACourtConnect/Microsoft Teams offers free audio and video appearance. Counsel and parties (including self-represented litigants) are encouraged not to personally appear.  With respect to the wearing of face masks, Department D recognizes that currently, the Los Angeles Department of Public Health strongly recommends masks indoors, especially when interacting with individuals whose vaccination status is unknown; for individuals who have a health condition that puts them at higher risk for severe illness; individuals who live with someone who is at higher risk; and for individuals who are around children who are not yet eligible for vaccines.  In accordance with this guidance, it is strongly recommended that anyone personally appearing in Department D wear a face mask.  The Department D Judge and court staff will continue to wear face masks.  If no appearance is set up through LACourtConnect/Microsoft Teams, or otherwise, then the Court will assume the parties are submitting on the tentative.