Kingsbarn Realty Capital, LLC, et al. v. Keybank National Association 

DEFENDANT KEYBANK NATIONAL ASSOCIATION’S DEMURRER TO COMPLAINT

 

MOVING PARTY: Defendant KeyBank National Association 

RESPONDING PARTY(S): Plaintiffs Kingsbarn Realty Capital, LLC; Kingsbarn Real Estate Capital, LLC; KB Acquisitions, LLC; and KB Hollywood, DST

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

The Kingsbarn Plaintiffs are related entities that attempted to purchase the real property at 1601 Vine Street, Los Angeles, CA 90028 from seller Alysanne LLC. Plaintiff alleges that its lender for the purchase, Defendant KeyBank National Association, drastically reduced the loan amount right before the closing date, such that Plaintiffs lacked the requisite financing to close the deal. Plaintiffs were then unsuccessful in completing the deal with alternative financing. Plaintiffs assert causes of action for (1) promissory estoppel, (2) unjust enrichment, (3) negligent misrepresentation, and (4) interference with contract.

The matter is related to case number 24STCV09680, KB Acquisitions, LLC v. Alysanne, LLC, et al. In that case, Plaintiff KB Acquisitions asserts causes of action against Seller Alysanne for (1) breach of contract and (2) violations of the UCL based on Alysanne’s alleged failure to return a portion of Plaintiff’s initial deposit on the purchase once certain conditions were met. 

Defendant now demurrers to each cause of action in the Complaint. Plaintiff opposed.

TENTATIVE RULING:

Defendant’s Demurrer to the Complaint is OVERRULED in its entirety. 

Defendant is ordered to file an Answer to the Complaint within 21-days of this Ruling.

Plaintiff is ordered to give notice, unless waived.

DISCUSSION:

Demurrer

I. Meet and Confer

The declaration of attorney Robyn C. Crowther reflects that the meet and confer requirement was satisfied. 

II. Legal Standard

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.)

III. Analysis

Defendant Keybank demurrers to each cause of action in the Complaint. Each is addressed in turn.

A. First Cause of Action for Promissory Estoppel

First, Defendant argues the First Cause of Action for promissory estoppel fails because Plaintiffs failed to specifically plead (1) any clear and unambiguous promise by KeyBank, or (2) reasonable reliance.

related entities of Plaintiffs totaling $342,355,000” and “seven (7) preferred equity loans to affiliated and related entities of Plaintiffs totaling $77,832,500” over the years. (Id. ¶ 18.) 

indicated that a change in the offered loan terms would be forthcoming with no indication as to what the changes would consist of, and whether the changes would affect the senior loan or the preferred equity loan.” (Id. ¶ 25.) Then, on March 22, 2023—the scheduled closing date—KeyBank “verbally floated new loan terms” which reduced the total financing package from $96,000,000 to $60,600,000, a $35,400,000 (approximately 37%) reduction in loan proceeds.” (Id. ¶ 26.) “Plaintiffs were nonetheless told that KeyBank would continue to work to provide better terms.” (Id. ¶ 26.) 

“In the ensuing days, and despite the fact that the proposed acquisition was ‘out of contract,’ Plaintiffs attempted to obtain improved loan terms from KeyBank to no avail. KeyBank ultimately proffered a Promissory Note for a $50,000,000 loan, and verbally discussed providing a Preferred Equity Loan with terms and conditions so onerous that it knew would not be acceptable, which dramatically differed from prior Preferred Equity Loans made over past years.” (Id. ¶ 27.) This left Plaintiffs no reasonable opportunity to obtain financing from another lender.” (Id.) As a result of KeyBank’s “refusal to provide the required financing in the amount set forth in the Terms Sheet, or to negotiate in good faith anything remotely close to that amount,” Plaintiffs could not acquire the Property. (Id. ¶ 28.) 

Thus, in support of its First Cause of Action, Plaintiffs allege Defendants “expressly and impliedly promised to either provide financing on the terms and conditions set forth in the Term Sheet as well as in discussions, or to negotiate in good faith to provide the same by, among other things: [1] Proffering the extensively detailed Term Sheet after having reviewed the PSA and otherwise being made aware of the specifics of the proposed transaction, including the purchase price and closing date; [2] Requiring, in writing, in the Term Sheet that Plaintiffs work exclusively with KeyBank in obtaining financing for the subject transaction such that Plaintiffs were completely reliant on KeyBank to provide financing, or entirely lose the benefits of the transaction; and [3] Accepting $1,420,000 from Plaintiffs pursuant to the Swap Lock Agreement in order to specifically lock in the interest rate on a $71,000,000 loan scheduled to close by the end of March 2023.” (Id. ¶¶ 32-33.) Plaintiffs allege they “wholly and in good faith reasonably relied upon the promise of KeyBank” to “either provide financing on the terms in the Term Sheet or negotiate in good faith with Plaintiffs to provide Plaintiffs with sufficient financing to timely close the transaction.” (Id. ¶ 33.) By relying on these promises, Plaintiffs had no alternative sources of funding once Defendant refused to provide the requisite financing. (Id. ¶ 35.) 

In support of its demurrer, Defendant argues Plaintiffs have not alleged a “clear and unambiguous” promise because Term Sheet expressly stated that no final agreement had been entered. The first paragraph of the Term Sheet, in relevant part, stated that “[t]his proposal is subject to [KeyBank’s] internal underwriting committee approval, due diligence and other conditions.” (Compl., Exh. 1, p. 1.) The last paragraph states, in relevant part, that “[t]his Term Sheet is provided for discussion purposes only and does not constitute a commitment to lend or an agreement to issue a commitment. Its terms are not all inclusive and are subject to Lender’s internal underwriting committee approval, Lender’s due diligence and other conditions, and satisfactory second market conditions. Additions and changes may be made as Lender and its counsel deem necessary, prudent or desirable. No agreement (oral or otherwise) that may be

reached during negotiations shall be binding upon the parties unless a commitment letter and final Loan documents have been executed by all parties.” (Id., Exh. 1, p. 11.) 

B. Second Cause of Action for Unjust Enrichment

The elements of an unjust enrichment claim are the “receipt of a benefit and [the] unjust retention of the benefit at the expense of another.” (Lectrodryer v. SeoulBank (2000) 77 Cal.App.4th 723, 726.) The modern trend appears to take the position that unjust enrichment is a claim for restitution rather than a standalone cause of action.  (See De Havilland v. FX Networks, LLC (2018) 21 Cal.App.5th 845.)

Plaintiffs allege they paid Defendants “$1,420,000 to lock the swap rate associated with the February 8, 2023 Term Sheet.” (Compl. ¶ 43.) Despite failing to provide financing to Plaintiffs for the purchase of the Property, Defendant “accepted and retained the benefit of Plaintiffs’ $1,420,000 deposit. (Id. ¶ 44.) Plaintiffs allege “it would be unjust and inequitable for Defendants…to retain the benefit of the $1,420,000 Lock-in Deposit.” (Id. ¶ 46.)

KeyBank suggests it was not unjustly enriched from the Lock-In Deposit because it still had to pay for “hedging instruments” even though the loan did not close. However, these contentions are outside the Complaint and cannot be considered for purposes of demurrer. (See SKF Farms, supra, 153 Cal. App. 3d at 905.) Therefore, Plaintiffs have stated a claim for unjust enrichment.

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

C. Third Cause of Action for Negligent Misrepresentation

Next, Defendant argues the cause of action for negligent misrepresentation fails for the same reasons as the promissory estoppel cause of action.

The elements of an action for negligent misrepresentation are “(1) misrepresentation of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce another's reliance on the fact misrepresented; (2) ignorance of the truth and justifiable reliance on the misrepresentation by the party to whom it was directed; and (3) resulting damage.” (Hydro-Mill Co. v. Hayward, Tilton & Rolapp Ins. Assocs., Inc. (2004) 115 Cal. App. 4th 1145.) “While there is some conflict in the case law discussing the precise degree of particularity required in the pleading of a claim for negligent misrepresentation, there is a consensus that the causal elements, particularly the allegations of reliance, must be specifically pleaded.”  (Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Servs. Grp., Inc. (2009) 171 Cal. App. 4th 35, 50.)

Plaintiffs allege that Defendant “represented to Plaintiffs that: 1) KeyBank would provide financing on the terms and conditions set forth in the Term Sheet as well as in discussions; or alternatively 2) KeyBank would negotiate in good faith to provide the same.” (Compl. ¶ 50.) Plaintiffs allege these representations were not true, that Defendant had no reasonable grounds for believing the representations were true when made, that Defendant knew it had not done sufficient diligence to even preliminarily approve the applicable loan amounts, that Defendant intended that Plaintiffs rely on its representation, and that Plaintiffs reasonably relied on Defendant’s misrepresentations. (Id. ¶¶ 51-54.) 

Here, for the same reasons discussed in the promissory estoppel cause of action, supra, Plaintiff has stated a cause of action for negligent misrepresentation. Plaintiffs have specifically pleaded their reasonable reliance on Defendant’s representations based on the parties’ past dealings, the Term Sheet and Swap Lock Agreement, and Plaintiffs’ deposits toward the funding. 

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

D. Fourth Cause of Action for Interference with Contract

Finally, Defendant argues the fourth cause of action fails because Plaintiffs cannot establish that Defendant was the cause of Plaintiffs’ harm.

“The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.”  (Pac. Gas & Elec. Co. v. Bear Stearns & Co. (1990) 50 Cal. 3d 1118, 1126.)  The defendant's conduct need not be wrongful apart from the interference with the contract. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55.)

Plaintiffs allege that Defendant was aware of the existing PSA between it and Alysanne. (Compl. ¶ 57.) Defendant was also aware that its failure to provide adequate financing would prevent performance of the PSA. (Id. ¶ 59.) Defendant then offered “insufficient loan terms on the day the transaction was scheduled to close, without any legitimate reason and offering no realistic alternative to avoid the disruption of the contractual relationship.” (Id. ¶ 60.)

As to causation, Plaintiffs allege “[b]ut for Defendants’ actions in interfering with and disrupting performance of the PSA, the transaction would have closed.” (Id. ¶ 62.) “[A]s a direct and proximate result of Defendants’ actions which were designed to interfere with performance of the PSA, Plaintiffs have been harmed by the loss of millions of dollars of deposits and the profits which would have been derived from the purchase and ownership of the Property…” (Id. ¶ 63.) Considering these allegations, Plaintiffs have stated a claim for interference with contract. 

Accordingly, Defendant’s Demurrer to the Fourth Cause of Action is OVERRULED.

IT IS SO ORDERED.

Dated:   November 22, 2024 ___________________________________