Judge Robert S. Draper, Case 21STCV29349 2023-04-18 Tentative Ruling

In 2020, non-party John Park (“Park”), principal of defendant Parkwest Bicycle Casino, LLC (“Parkwest”), purchased a minority share in a Southern California casino with the intent to ultimately purchase the entire operation. (TAC ¶ 10.) Park was introduced to the principals of non-party Silverado Management and Holding Company, Inc. (“Silverado”). (TAC ¶ 11.) Park worked with Silverado’s principal, non-party Anthony Barkett (“Barkett”) to plan for the acquisition of the remaining shareholders’ interest in the casino. (Ibid.) This acquisition was comprised of two parts; the operating company that would own and operate the casino, and the purchase of the seller’s leasehold interest in the Ground Lease with the City. (Ibid.) Park and Bennet determined that Parkwest would need to obtain approximately $210,000,000 in financing for this acquisition. (TAC ¶ 12.)

The parties agreed to form a joint venture for the purchase of the casino and the real property. (TAC ¶ 13.) The joint venture (“Joint Venture”) consisted of the purchase of the leasehold interest in the Ground Lease, which would be operated by the Joint Venture and leased to the casino. (Ibid.) Silverado was to obtain financing for the Joint Venture. (Ibid.)

In furtherance of the Joint Venture, Silverado introduced Parkwest to Hilltop Securities, Inc. (“Hilltop”) to assist with the financing. (TAC ¶ 15.) On February 10, 2021, Hilltop, Silverado, and Parkwest entered into a Confidentiality and Non-Disclosure Agreement (“NDA”) for Park to deliver the necessary information to allow Silverado and Hilltop to explore financing options. (Ibid.) Shortly thereafter, Hilltop provided a letter of commitment, and the parties circulated a draft term sheet. (TAC ¶ 16.) Additionally, Parkwest provided a copy of its draft Asset Purchase Agreement to Silverado to commence the lending process. (Ibid.)

The parties agreed to form LLCs to be the venturers in the Joint Venture. (TAC ¶ 17.) Barkett formed plaintiff ABG Holdings-Bell Gardens LLC (“ABG”) for this purpose, and Park created defendant Monument Properties-Bell Gardens, LLC (“Monument”). (Ibid.)

Thereafter, Monument and ABG formed the Joint Venture for the purchase and ultimate operation of the Ground Lease from the City of Bell Gardens. (TAC ¶ 19.) The Joint Venture would be owned 80% by ABG and 20% by Monument, with profits and losses shared in that proportion. (TAC ¶ 20.) The property’s operation would be equally controlled by the parties. (Ibid.)

The Joint Venture sought to obtain joint financing such that Parkwest could obtain 100% interest in the casino’s operations, while ABG and Monument would purchase and maintain the Ground Lease. (TAC ¶¶ 21(a-b).)

As financing would have to be split between the casino operations and the ground lease, the investment banker needed a lease agreement between Parkwest and ABG. (TAC ¶ 24.) A written lease was ultimately prepared and entered into on May 13, 2021. (TAC ¶ 25.) Notwithstanding the lease, profits would be distributed pursuant to the Joint Venture, with 80% to ABG and 20% to Monument. (Ibid.)

The lease was to commence on the date ABG acquired its interest in the Property pursuant to the Asset Purchase Agreement, and under the terms of the lease, if the Asset Purchase Agreement was terminated prior to the close of the sale of assets, the lease would automatically terminate. (TAC ¶ 26.) The lease was fully integrated and contained all material terms. (Ibid.) However, as the parties had not yet received the financing for the purchase of the property, the lease terms were only approximations. (TAC ¶ 28.) Accordingly, the parties entered into a Side Letter by which either party could terminate the lease if the final base rent, final insurance requirements, or final amount of the Letter of Credit were not to either party’s liking. (TAC ¶ 28.)

On June 24, 2021, Hilltop committed to providing debt financing of up to $210,000,000 for the purchase of the business and ground lease. (TAC ¶ 32.) Parkwest then informed the seller that Parkwest had the requisite financing. (TAC ¶ 33.)

The financing did not require the change of any material term of the lease, as was required under the side letter to terminate the lease. (TAC ¶ 36.) Nonetheless, Parkwest terminated the Parkwest lease, thereby terminating the Joint Venture and its sole purpose of purchasing and operating the Ground Lease. (TAC ¶ 38.)

ABG alleges that Parkwest and Monument’s intention from the outset was to use ABG’s expertise, knowledge, and diligence to obtain a financing commitment, then to terminate ABG’s rights, benefits and interest in the Joint Venture. (TAC ¶ 39.)

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) As is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. [Citation.]”)

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

Defendants contend that there are no facts alleged in the Third Amended Complaint that support the creation of a joint venture. This argument is not new to the Court, as it is the same basis upon which the Court sustained Defendants’ Demurrers to the First and Second Amended Complaints.

There are three basic elements of a joint venture: the members must have joint control over the venture (even though they may delegate it), they must share the profits of the undertaking, and the members must each have an ownership interest in the enterprise.” (Simmons v. Ware (2013) 21 Cal.App.4th 1035.)

“A joint venture usually involves a single business transaction, whereas a partnership may involve a continuing business for an indefinite or fixed period of time,” but the distinction between a partnership and a joint venture is not sharply drawn as a joint venture can be of no longer duration and greater complexity than a partnership. (Weiner v. Fleichman (1991)) 54 Cal.3d 476, 482.) “A joint venture may be formed orally and the courts freely apply partnership law to joint ventures when appropriate. (Id.)

Here, Defendants argue that the Third Amended Complaint does not allege the existence of a joint venture, but rather a lease lacking definite material terms. Accordingly, Defendants contend, there was no joint venture between any parties to be breached.

There is no allegation regarding the sharing of any attribute or the control of the alleged joint venture. The allegations, fairly read, speak of a business arrangement involving a lease. Throwing in the words ‘joint venture’ does not a joint venture make. . . The fact that the business relationship and lease was entered into because of the plan that John Park had to purchase the entire casino does not make the lease arrangement into a joint venture.

In the Third Amended Complaint, ABG clarifies the matter by alleging that the Joint Venture was entered into between Monument and ABG to purchase and operate the Ground Lease of the Casino only. (TAC ¶ 19.) ABG would control 80% of the Joint Venture, while Monument would control 20% of the Joint Venture, with profits and losses to be shared proportional to their ownership interest. (TAC ¶ 20.)

Further, the Third Amended Complaint clarifies that the lease was a necessary tool to obtain financing for the purchase of the Ground Lease, the Joint Venture’s purpose, but is separate and apart from the Joint Venture itself. (TAC ¶ 45.) By terminating the lease after financing was obtained, Parkwest terminated the Joint Venture. (TAC ¶ 47.)

The Court finds that ABG has sufficiently clarified the existence of the Joint Venture separate and apart from the lease such that the Third Amended Complaint does not simply allege the existence of an undefined lease.

Next, Defendants contend that Parkwest cannot be held liable for the breach of the Joint Venture Agreement as, according to the Third Amended Complaint, the only parties to the Joint Venture were Monument and ABG.

However, the Third Amended Complaint alleges that a unity of interest and ownership exists between Parkwest and Monument such that Monument and Parkwest should be subject to alter ego liability. (TAC ¶¶ 6-7.) Accordingly, at the pleading stage, Monument’s presence in the Joint Venture may be attributed to Parkwest, and Parkwest’s breach of the Joint Venture by termination of the lease may be attributed to Monument.

Finally, Defendants argue that, should the Court allow alter ego liability, an absurd result would follow by which Parkwest is alleged to lease the casino to itself. However, as the Third Amended Complaint alleges that the Joint Venture was formed to control the ground Lease, Parkwest would be tenant and the Joint Venture landlord. Though this may be an unorthodox arrangement, Defendants cite no authority stating that it is impermissible under the law.

Additionally, as Defendants Demurrer to the Second and Third Causes of Action is predicated entirely on ABG’s failure to allege a Joint Venture, Defendants’ Demurrer to those causes of action is OVERRULED.