Judge Randolph M. Hammock, Case Number: 23STCV28986, Date: 2024-10-02 Tentative Ruling

Plaintiff 3927 Van Buren LLC is the owner and operator of the Palihotel in Culver City. The Palihotel maintains offsite parking through a contract with the Culver City Unified School District. Plaintiff alleges that Defendants Legends Hospitality, LLC and Toast of LA, LLC rented out the entire hotel pursuant to a written contract during the 2022 Super Bowl. Plaintiff alleges that Defendants breached the contract by failing to abide by the parking terms or restrictions in the CCUSD lot. As a consequence, CCUSD allegedly cancelled the Palihotel’s parking agreement, forcing Plaintiff to obtain a new parking arrangement at an increased cost. Plaintiff now brings this action against Defendants for (1) breach of contract, (2) negligence, and (3) negligent interference with economic advantage.

Whether leave to amend is allowed will depend on any offer of proof made at the hearing as to how Plaintiff could potentially amend its complaint to state any viable cause of action, which is consistent with this ruling.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal. App. 4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (CCP § 430.30(a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Id.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, 147 Cal.App.4th at 747.)

First, Defendant agues Plaintiff’s first cause of action fails because Plaintiff has not alleged a breach of the contract. To establish a breach of contract, a plaintiff must plead and prove: (1) the existence of a contract; (2) Plaintiffs’ performance or excuse for nonperformance; (3) Defendant’s breach (or anticipatory breach); and (4) resulting damage. (Wall Street Network, Ltd. v. N. Y. Times Co. (2008) 164 Cal.App.4th 1171, 1178.)

Plaintiff owns and operates a boutique hotel in Culver City, California, called the Palihotel, Culver City. (FAC ¶ 6.) “Because the Palihotel has no on-site parking lot, its Conditional Use Permit (“CUP”) requires it to contract for off-site parking.” (Id. ¶¶ 8.) To satisfy some of its parking requirements, Plaintiff negotiated an agreement with the Culver City Unified School District to use the parking lot of a CCUSD property next door to the Palihotel. (Id.)

Defendants Legends and Toast are “well-established event promoters.” (Id. ¶ 10.) During the week of the 2022 Super Bowl in Los Angeles, Defendants contracted with Plaintiff to rent out the entire Palihotel (the “Hotel Contract”). (Id. ¶ 11.) After executing the Hotel Contract, Plaintiff informed Defendants “of issues related to limited parking and the relevant parking rules, restrictions and limitations regarding use of the CCUSD Parking Lot…” (Id. ¶ 14.) In response, Defendants “requested that Plaintiff secure variances from CCUSD regarding the use of the CCUSD Parking Lot and the CCUSD Parking Lot Agreement, including expanded time periods.” (Id. ¶ 15.) “Plaintiff presented Defendants' requests to CCUSD, and for additional consideration, CCUSD made certain concessions.” (Id.)

Thereafter, on January 18, 2022, “Plaintiff notified Defendants by email and in oral communications that their request to CCUSD had been conditionally approved, but that except for the certain specific conditions and restrictions addressed, the terms of the CCUSD Parking Lot Agreement controlled the use of the lot.” (Id. ¶ 16.) Plaintiff alleges this email confirming the terms of the parking arrangement was an amendment to the Hotel Contract. (Id. ¶ 19.)

Plaintiff alleges that Defendants breached the Hotel Contract, as amended, by failing to add Plaintiff as an additional insured an insurance policy for the lot and by committing various parking violations. (Id. ¶¶ 21-22.) “As a consequence of Defendants' actions violating the parking rules, on February 15, 2022, Plaintiff received notice from CCUSD that CCUSD was cancelling the CCUSD Parking Lot Agreement between it and Plaintiff. CCUSD expressly stated that Defendants' violation of the parking rules was the basis for cancelling the CCUSD Parking Lot Agreement.” (Id. ¶ 24.) As a result of CCUSD’s cancellation of the parking agreement, Plaintiff had to acquire another parking lot and valet contract that is “substantially more expensive than the CCUSD Parking Lot Agreement.” (Id. ¶ 26.)

Defendant contends the breach of contract cause of action fails because Defendant had no obligations in the Hotel Contract related to parking rules. Indeed, Plaintiff concedes in the FAC that the “Hotel Contract does not specifically address parking,” and does not allege any provision of the contract purported breached. (Id. ¶ 12.) Plaintiff alleges, however, that the parties modified the contract “by email and in oral communications.” (Id. ¶ 16.) The email is a writing from Plaintiff’s event manager, Nicole Casteneda, which set forth various “conditions” for Defendants use of the CCUSD parking lot. (Id. ¶ 17; Exh. C.)

The parol evidence rule “generally prohibits the introduction of any extrinsic evidence, whether oral or written, to vary, alter or add to the terms of an integrated written instrument intended by the parties thereto as the final expression of their agreement. [Citations.]” (Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912, fn. 4.) Thus, “in construing a contract which purports on its face to be the complete expression of the entire agreement between the parties, courts will not add another item about which the agreement is silent.” (Wm. E. Doud & Co. v. Smith (1967) 256 Cal.App.2d 552, 558.)

As Defendant argues in its Demurrer, Plaintiff’s contention that the Hotel Contract was amended by the Casteneda email or other “oral communications” is precluded by the Hotel Contract’s integration clause. The Contract, attached to the FAC as Exhibit A, includes a provision that states: “Entire Agreement: This Agreement contains all of the understandings between the parties and may only be modified in writing signed by both parties.” (FAC, Exh. A.) Plaintiff responds not by addressing the integration clause, but by contending that the “emails w[ere] sufficiently definite for Defendants' acceptance of the proposal to result in the formation of a written contract.” (Opp. 9: 15-17.)

Therefore, Plaintiff’s allegations that an oral agreement modified the Hotel Contract must fail because the “[t]erms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence…of a contemporaneous oral agreement.” (CCP 1856(a).) Second, the emails likewise cannot modify the Hotel Agreement because they are not “writing[s] signed by both parties.” There is no indication from the FAC or exhibits attached thereto that Defendants ever agreed to the parking restrictions set forth in the Castaneda email. (See FAC, Exh. C.) Therefore, the integration clause bars any of the amendments raised by Plaintiff.

Next, Defendant argues Plaintiff’s negligence cause of action is barred by the “economic loss” rule. “The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise. [Citation.] Quite simply, the economic loss rule ‘prevent[s] the law of contract and the law of tort from dissolving one into the other.’ [Citation.] (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988). Thus, tort claims “are barred when they arise from — or are not independent of — the parties’ underlying contracts.” (Sheen v. Wells Fargo, N.A. (2022) 12 Cal. 5th 905, 923.)

Plaintiff alleges that “Defendants failed, refused, and neglected to conduct their activities at the Palihotel in accordance with the terms of the Hotel Contract, including as it was amended by the parties and confirmed in writing by communications including Exhibit C, thereby breaching that contract and the CCUSD Parking Lot Agreement and the Parking Rules Addendum.” (FAC ¶ 41.)

In Sheen v. Wells Fargo, N.A. (2022) 12 Cal. 5th 905, 919, the California Supreme Court addressed whether a lender owes a tort duty sounding in general negligence principles to “process, review and respond carefully and completely to” a borrower's application. (Id. at 948.) The Court answered in the negative, holding that the borrower’s claim was barred by the economic loss rule “because it [was] based on an asserted duty that [was] contrary to the rights and obligations clearly expressed in the loan contract.” (Id. at 925.) Sheen focused on duty in the limited context of the borrower’s attempt to renegotiate her mortgage. Because the loan agreement, however, did not expressly require the lender to do so, the borrower could not bring tort claims.

In opposition, Plaintiff argues that the economic loss rule cannot apply where, as here, Defendant contends there is no contractual obligation. Accusing Defendants of “trying to have their cake and eat it too,” Plaintiff contends that application of the economic loss rule would leave Plaintiff without a remedy in contract or tort. This contention certain has a certain logic to it.

However, as stated in Sheen, “there does not need to be a viable breach of contract claim for the economic loss rule to apply.” (Sheen, supra, 12 Cal. 5th at 933.) The court in Sheen rejected the same argument, concluding that the plaintiff had remedies available other than a general claim of negligence or breach of contract. (Id. at 942.)

Plaintiff also argues that the existence of a “special relationship” between the parties precludes the economic loss rule. (See J'Aire Corp. v. Gregory (1979) 24 Cal. 3d 799, 804 [applying the factors from Biakanja v. Irving (1959) 49 Cal.2d 647, 650].) However, as stated in Sheen, this “multifactor test finds application only when the plaintiff is a ‘third person not in privity’ with the defendant. [Citation]. Under its terms, Biakanja does not apply when the plaintiff and defendant are in contractual privity for purposes of the suit at hand.” (Sheen, supra, 12 Cal. 5th at 937.) Thus where, as here, the parties are in contractual privity, the special relationship test is inapplicable.

The court therefore concludes that Plaintiff’s negligence cause of action is barred by the economic loss rule.

Accordingly, Defendant’s Demurrer to the Second Cause of Action is SUSTAINED.

Finally, Defendant demurrers to the third cause of action for negligent interference, arguing it is also barred by the economic loss rule. There exists a cause of action for negligent interference with prospective economic advantage. (See J'Aire Corp. v. Gregory (1979) 24 Cal. 3d 799, 805.) Like intentional interference, a claim for negligent interference requires a plaintiff to prove an “independent wrong.” (See Nat'l Med. Transp. Network v. Deloitte & Touche (1998) 62 Cal. App. 4th 412, 440.) The tort “arises only when the defendant owes the plaintiff a duty of care.” (Lange v. TIG Ins. Co. (1998) 68 Cal. App. 4th 1179, 1187.)

Plaintiff alleges that Defendants “failed, refused, and neglected to conduct their activities at the Palihotel in accordance with the terms of the Hotel Contract, including as it was amended by the parties and confirmed in writing by communications including Exhibit C, thereby breaching that contract.” (FAC ¶ 52.)

This cause of action, rooted in negligence and requiring the existence of a duty owed to the Plaintiff, is also barred by the economic loss rule.

Accordingly, Defendant’s Demurrer to the Third Cause of Action is SUSTAINED.

Defendant Toast of LA also demurrers to each cause of action in the First Amended Complaint. Because the arguments raised by Defendant Legends in support of its demurrer apply equally to Defendant Toast of LA, the court incorporates its discussion on the Legends demurrer (supra) in full here.

Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) To be given leave to amend, Plaintiff must make an offer of proof at the hearing establishing this probability. If it does not, no leave to amend will be given.

Although the Plaintiff requests leave to amend at the end of its opposition pleadings, it does not adequately state a sufficient offer of proof as to how Plaintiff would do so. Plaintiff would be given such an opportunity at the hearing.

This Court certainly recognizes the Maxim of Jurisprudence that “[f]or every wrong there is a remedy.” Civil Code §3523. It would seem that there should be a viable cause of action in this case to allow the Plaintiff to address its grievances against these defendants, other than the causes of action currently stated, or alternatively, a cause of action can be successfully amended to do the same.