Judge Randolph M. Hammock, Case 22STCV31768 2023-04-21 Tentative Ruling

Plaintiff GNM, L.P., brings this action against Defendant 4930 Coldwater Canyon Venture, LLC. Plaintiff alleges the parties entered into a purchase and sale agreement for the property at 4930 Coldwater Canyon Ave, Sherman Oaks, CA 91423, with Plaintiff as purchaser and Defendant as seller. Plaintiff alleges it was ready to perform but that Defendant cancelled escrow and the contract. Plaintiff brings causes of action for (1) breach of written contract and (2) breach of the implied covenant of good faith and fair dealing.

Defendant 4930 Coldwater filed a Cross-Complaint against Plaintiff for (1) breach of contract and (2) fraud. Defendant/Cross-Complainant alleges in its First Amended Cross-Complaint that Plaintiff/Cross-Defendant failed to timely deposit money into escrow in breach of the purchase and sale agreement, and then obtained an extension based on alleged misrepresentations. Defendant seeks to rescind the purchase and sale agreement and retain Plaintiff’s initial escrow deposit as liquidated damages.

Both parties submit objections to evidence. This Court is unaware of any legal authority which requires a court to rule on evidentiary objections on a motion, except as to a motion for summary motion/adjudication (CCP § 437c (q)] or a special motion to strike (CCP § 425.16 (b)(2)); see also, Sweetwater Union High School Dist. v. Gilbane Building Co. (2019) 6 Cal.5th 931, 947-949.)

As such, this Court respectfully declines to rule on any of these objections. This Court is well aware of the rules of evidence, and how much weight, if any, should be given to any of the proposed evidence.

A lis pendens can be ordered removed from the record title based upon an argument that it is improper because it does not contain a real property claim (CCP § 405.31) or that the plaintiff cannot establish its probable validity by a preponderance of the evidence (CCP § 405.32; see also Kirkeby v. Superior Court (2004) 33 Cal.4th 642, 648.). “Unlike most other motions, the burden of proof is on the party opposing the motion to expunge. The lis pendens claimant (plaintiff) bears the burden of establishing the existence of a ‘real property claim’ and that it is ‘probably valid.’ (CCP § 405.32)

It is undisputed that Plaintiff, as buyer, and Defendant, as Seller, entered into a “Residential Income Purchase Agreement” (“RIPA”) on or about June 11, 2022, for an apartment complex at 4930 Coldwater Canyon Ave., Sherman Oaks, CA. (Compl. ¶ 6.) The RIPA required Plaintiff to make an initial deposit of $300,000, with close of escrow to be completed within 60-days of acceptance. (See Compl., Exh. A.)

The parties also executed Addendum No. 1 to the RIPA. As relevant here, the Addendum permits Plaintiff “one 15-day option to extend the Close of Escrow.” (See Compl., Exh. A, “Text Overflow Addendum No. 1.”) To exercise that extension option, “Buyer shall provide written notice to Adrienne Barr/Berkadia no less than 5 days prior to the then scheduled Close of Escrow.” (Id.) Thus, under the unmodified terms of the RIPA, Plaintiff had 60 days to close escrow, plus the option for a 15-day extension—or 75-days total. Counting the extension, this made the last day to close escrow on or about August 25, 2022.

On June 17, 2022, however, the parties executed a “Contingency Removal” extending the time to close escrow beyond that initially stated in the RIPA. (Barr Decl. ¶ 35; Exh. L.) That Contingency Removal stated, in part, that “escrow started on June 11, 2022, and shall [now] close on or before September 9, 2022.” (Id.) In effect, this extended the maximum 75-day escrow period allowed under the RIPA for another 15-days—90 days total. Notably, the Contingency Removal did not mention whether the 15-day extension option under the RIPA Addendum remained valid. (Id.)

As the modified September 9, 2022, closing date approached—and for reasons perhaps in dispute—Plaintiff did not have its funds in place. (Barr Decl. ¶ 43.) It was also unwilling to take out a bridge loan to cover the necessary funds. It made this known to Defendant. (Id. ¶ 53.) In response, Defendant served Plaintiff with a Notice to Buyer to Perform which required Plaintiff to close escrow by September 9 and a Demand to Close Escrow which required Plaintiff to close escrow by September 12. (Barr Decl. ¶¶ 58-60; Exhs. Y & Z.) Defendant ultimately cancelled escrow on September 19, 2022, after Plaintiff failed to render the necessary funds. (Barr Decl. ¶ 59.) This action followed.

To avoid a motion to expunge under CCP § 405.32, the burden is on the lis pendens claimant (Plaintiff) to establish the probable validity of the real property claim “by a preponderance of the evidence.” (CCP § 405.32). “Preponderance of the evidence” means “it is more likely than not that the (Plaintiff) will obtain a judgment against the defendant on the claim.” (CCP § 405.3).

The first issue is this: Following the Contingency Removal, did Plaintiff retain the option to extend the escrow period another 15-days, pursuant to the extension option in the RIPA? Or instead, did the Contingency Removal already extending the escrow period nullify that provision? The question is important, because another 15-day extension, if validly exercised, could have allowed Plaintiff to obtain the necessary funding within the period required to perform.

Thus, Plaintiff must do two things: show that the 15-day option remained, and that it was validly exercised. Otherwise, Plaintiff was in breach of the RIPA by its failure to provide the necessary purchase funds before close of escrow.

As discussed below, this court finds that Plaintiff has not demonstrated that it ever validly exercised the 15-day extension. For that reason, this Court need not determine at this time if that extension option still remained to begin with.

During the relevant period, the close of escrow had been extended to September 9, 2022, by operation of the Contingency Removal. To exercise the 15-day extension option (assuming one still existed), the Addendum provided that Plaintiff “provide written notice to Adrienne Barr/Berkadia no less than 5 days prior to the then scheduled Close of Escrow.” (See Compl., Exh. A, “Text Overflow Addendum No. 1.”) This means that Plaintiff had to provide written notice no later than September 4, 2022. (Id.)

Plaintiff alleges in the Complaint that it gave the required written notice on September 1 when it “drafted and emailed to its real estate broker under the PSA a request to extend the Escrow by 15 days.” (Compl. ¶ 7.) Plaintiff further alleges on information and belief “that its broker informed [Defendant’s] broker, and the Escrow Company, of such extension request.” (Id.) But as explained below, the facts belie this contention.

In opposition, Plaintiff submits the Declaration of Lynette Gridley, one of Plaintiff’s general partners. Gridley states that on September 1, 2022, she “typed a simple document entitled ‘Extension of Escrow,’” dated and signed it for September 1, and “had the same hand-delivered that day to GNM's real estate agent, Hirsch Sherman, to handle.” (Gridley Decl. ¶ 8.) She also informed Hartunian that she had prepared, signed, and delivered the Extension of Escrow Document to Sherman. (Id. ¶ 9.)

But importantly, nowhere in Hirsch Sherman’s declaration does he contend that he received the Extension of Escrow from Gridley. Most important, nor does he contend that he ever forwarded that document on to Barr—or to any of Defendant’s representatives or agents. And in perhaps a form of artful language, Sherman’s Declaration and Plaintiff’s opposition brief do state to have exercised a written extension option. (Sherman Decl. ¶¶ 4, 5.) But on closer inspection, the referenced extension is the original September 9, 2022, extension, not the 15-day extension option under the RIPA Addendum that is at issue now.

Defendant disputes that Adrienne Barr/Berkadia ever received notice from Plaintiff’s broker. Barr submits an extensive declaration in support of Defendant’s motion. Barr disputes that she ever received notice from Plaintiff that it was exercising an extension within the period required to do so.

Notable is that on September 1—the same day Plaintiff contends it gave notice of exercising its extension—the escrow holder emailed a “Needs List” to several individuals for Plaintiff “in anticipation of closing escrow next week…” (Barr Decl., Exh. N [emphasis added].) No one for Plaintiff apparently objected to the representation that escrow would close “next week,” or otherwise objected to the status of the closing. This would seem to render it unlikely that, as Plaintiff would suggest, it exercised the extension on that very same day. Presumably, someone on Plaintiff’s end would have raised that point if it were true.

It was apparently not until September 7, 2022, that Barr received an email from Landmark’s in-house counsel, Mitchell Nelson, suggesting for the first time that Plaintiff needed more time to close. (Barr Decl. ¶ 43.) That email read, in relevant part:

Also, has Gary contacted you regarding [the Property]? We spoke with the Lender yesterday, and they are running behind and will need more time to prepare the docs. Wont [sic] be able to close this week. I know that we mentioned previously about the possibility of needing more time… its definitely necessary.

Later that day, recapping her conversation with Plaintiff’s mortgage broker, Joe Anatian, Barr sent an email to Anatian, Hartunian, Nelson, and Sherman, among others, which stated: “I am not sure why we are not hearing until today that there is going to be a problem funding the loan by the extended closing date of September 9th. The contract was finalized months ago (on June 10th).” (Barr Decl., Exh. W.)

On these facts, Plaintiff has failed to present evidence that it ever properly exercised the 15-day extension as required under the RIPA Addendum. Instead, that contention seems to be a contrived, after-the-fact justification to extend the close of escrow. Defendant, on the other hand, presents evidence that it never received the extension request, and that the parties were operating on the joint-belief that escrow would close on or about September 9, 2022.

Considering the above, a preponderance of the evidence suggests that Plaintiff breached the RIPA by failing to render the funds necessary by the required closing date and without validly obtaining an extension. Thus, Plaintiff has failed to show “it is more likely than not” that it will prevail on its claims, and therefore has not met its burden to demonstrate the probable validity of the claims. (CCP § 405.3).

Because this alone defeats the claim, this court need not go further to determine whether the 15-day extension option was extinguished by operation of the Contingency Removal.

Plaintiff makes the alternative argument that even if it did not exercise its 15-day extension option, its failure to timely render the funds was not a breach of the RIPA. It appears to rely on substantial performance or another equitable doctrine.

“What constitutes substantial performance is a question of fact, but it is essential that there be no willful departure from the terms of the contract, and that the defects be such as may be easily remedied or compensated, so that the promisee may get practically what the contract calls for.” (Murray's Iron Works, Inc. v. Boyce (2008) 158 Cal. App. 4th 1279, 1291 [citing 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, 818, p. 908].)

The RIPA contained a “time of essence” provision. (Compl., Exh. A, ¶ 34.) But a “time is of the essence provision in a contract does not always make untimely performance a breach.” (Magic Carpet Ride LLC v. Rugger Inv. Grp., L.L.C., 41 Cal. App. 5th 357, 367.) Modern courts have “tempered” the traditional rule that failure to perform within the time specified is a material breach of the contract. (Id.)

For example, in Williams Plumbing Co., a case relied on by Plaintiff, the contract for land called for payment in three installments, with time being of the essence. (Williams Plumbing Co. v. Sinsley (1975) 53 Cal.App.3d 1027.) Before the buyer paid the second installment, the buyer proposed to obtain a loan and pay the remaining price that month rather than when the third installment was due. The seller threatened to cancel the deal and keep the first installment. The buyer then paid the second installment and filed an action for specific performance. The appellate court concluded that the seller’s “tacit approval” of the buyer’s proposal to delay the second installment but pay the entire purchase price through a loan meant that there was no right to terminate the contract and that buyer was entitled to specific performance. (Id. at pp. 1032-1034.)

Relying on this and related authorities, Plaintiff makes the broad argument that “[i]f there is substantial performance by a buyer on a real estate contract, regardless of the exact timing thereof, that buyer will be allowed to perform under the contract.” (Opp. 18: 26-27.) But Plaintiff cites no authority applying substantial performance to facts similar to these. (Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1341 [“Our review of the authorities reveals that California courts generally do strictly enforce time deadlines in real estate sales contracts, permitting the seller to cancel after the time specified where time is specifically made of the essence unless there has been a waiver or potential forfeiture.”].)

Here, the contract had already been extended once by agreement of the parties. Although the exact consequences of another extension are unclear, it is reasonable to conclude that another delay would frustrate the purposes of the agreement—at least from Defendant’s angle. There is also little evidence that Defendant “tacitly approved” another extension. Instead, the evidence suggests that the parties were acting on the joint-belief that escrow would close on or about September 9.

Moreover, as it currently stands, the only forfeiture here (if any) is the loss of Plaintiff’s $300,000.00 deposit put in escrow. That number is a small percentage of the total purchase price of the Property. This is not the situation of a Plaintiff making installment payments toward a total purchase price as is often seen in the cases applying substantial performance. (See Williams Plumbing Co., supra, 53 Cal.App.3d 1027.)

Thus, the Plaintiff has not shown that substantial performance applies to this case. (See Fogarty v. Saathoff (1982) 128 Cal. App. 3d 780, 787 [Seller did not breach agreement where “escrow was cancelled according to its express terms”].)

The court is required to direct an award of the prevailing party’s attorneys’ fees and costs of making or opposing the motion unless it finds that either the other party acted with substantial justification or other circumstances make the imposition of sanctions unjust. (CCP § 405.38.) The prevailing party on a motion to expunge is entitled to an award only against the losing party, not against its counsel. (Doyle v. Superior Court (1991) 226 Cal. App. 3d 1355, 1359.)

The court declines to award attorney’s fees under these circumstances, as it finds that the parties acted with substantial justification and/or other circumstances make the imposition of sanctions unjust.

Additionally, even if an award of attorney’s fees was somehow mandatory in this situation, without exception, this Court would still deny such an award based upon one single fact: The moving party is requesting $90,000. Let me repeat: Ninety-thousand Dollars! This is based upon a reasonable hourly rate of $500, times an inherently unreasonable and excessive amount of 160 hours. One-hundred and sixty hours! Whether counsel actually spent that number of hours or not in connection with this motion is not the main concern, the simple point is that is a grossly unreasonable number of hours for this particular motion. [FN 1]

It is well established that a trial court has the discretion to deny a request for attorney’s fees altogether, even though it may be required by law, whenever the request for attorney’s fees is grossly excessive and/or shocks the conscience of the court.

“A fee request that appears unreasonably inflated is a special circumstance permitting the trial court to reduce the award or deny one altogether.” (Serrano v. Unruh (1982) 32 Cal.3d 621, 635 [186 Cal. Rptr. 754, 652 P.2d 985]; accord, Ketchum v. Moses (2001) 24 Cal.4th 1122, 1137 [104 Cal. Rptr. 2d 377, 17 P.3d 735].)

FN 1 -This Court does admit, though, that the motion was well written and prepared and was high in quality. Be that as it may, an experienced counsel such as Mr. Carden is expected to act in a more efficient manner.