Judge: Robert S. Draper, Case: 21STCV31147, Date: 2022-09-08 Tentative Ruling

Case Number: 21STCV31147    Hearing Date: September 8, 2022    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Cross-Defendant Beverly Blvd. Associate, L.P.’s Demurrer to the First Amended Cross-Complaint is SUSTAINED. Security Pacific Associates, Inc. is granted thirty days leave to amend.

FACTUAL BACKGROUND   

This is an action over a landlord-tenant dispute. The Complaint alleges as follows.

In 1994, Defendant Security Pacific Associates, Inc. (“SPA”) entered into a Commercial Office Lease Agreement (the “Original Agreement”) for a restaurant space (the “Restaurant Space”) in a larger property (the “Premises”) with Plaintiff Beverly Blvd Associates’s (“BBA”) predecessor in interest, Stan Herman. (Compl. ¶ 16.) The Restaurant Space was to be occupied by a restaurant, Madeo Ristorante (“Madeo”). (Ibid.) In 2012, BBA acquired the Premises. (Compl. ¶ 18.) In 2014, BBA began negotiations with SPA to renovate the Restaurant Space as part of a larger renovation of the Premises. (Ibid.) The renovations were largely based on SPA’s specifications. (Compl. ¶ 19.) The plan was for SPA to return to the Restaurant Space once renovations were complete. (Compl. ¶ 20.)

In 2017, the parties entered into a Construction Agreement and Amendment to Lease (the “CAA”) which confirmed both parties’ full agreement to the Tenant Improvement Construction Drawings. (Compl. ¶ 21.) Additionally, the CAA stated that should construction costs exceed $3.6 million, the parties would work together to find agreeable ways to lower the total cost. (Ibid.)

In 2018, the parties entered into the First Amended CAA, which extended the time for completion of renovations to the Restaurant Space and provided for a new location in which SPA would operate during this time. (Compl. ¶ 25.)

Work was scheduled to begin in March 2017, but due to delays caused partially by SPA, construction did not begin until Summer 2019. (Compl. ¶ 26.) Additionally, construction was delayed due to Madeo’s request for numerous material changes to the construction plans. (Ibid.)

In early 2020, when construction was nearly complete, Madeo requested more changes to the Restaurant Space that were not in accordance with the CAA. (Compl. ¶ 28.) While this dispute was occurring, there was also dispute among SPA’s ownership group. (Compl. ¶ 31.) In fact, prior to the commencement of construction, one of SPA’s owners filed a Complaint seeking involuntary dissolution of SPA; SPA did not immediately disclose this to BBA. (Ibid.) The 2017 lease explicitly lists the seeking of dissolution as an Event of Default. (Compl. ¶ 39.)

In February 2021, BBA sent SPA a written notice of termination due to the dissolution, as well as several additional defaults. (Compl. ¶ 40.) SPA contests this termination.

On July 28, 2022, SPA filed the operative First Amended Cross-Complaint (“FAXC”) alleging as follows.

In 2017, SPA and BBA entered into the CCA to memorialize SPA’s agreement to temporarily vacate the Restaurant Space so that BBA could complete renovations. (FAXC at p. 4, ¶ 2.) The CCA stated that, should BBA fail to complete construction and allow SPA to reenter the Restaurant Space by March 28, 2020, BBA would pay to SPA $11.5 million in liquidated damages. (FAXC at p. 5, ¶ 2(A).) Despite this, and despite multiple efforts by SPA to expedite the process, BBA has failed to allow SPA to reenter a substantially finished restaurant space. (FAXC at p. 5, ¶ 3.)

PROCEDURAL HISTORY 

On August 23, 2021, BBA filed the Complaint asserting four causes of action:

1.    Declaratory Judgment;

2.    Breach of Contract;

3.    Breach of Implied Covenant of Good faith and Fair Dealing; and,

4.    Unjust Enrichment.

On September 17, 2021, SPA filed an Answer.

On September 23, 2021, SPA filed a Cross-Complaint asserting three causes of action:

1.    Breach of Contract;

2.    Fraud by Negligent Misrepresentation; and,

3.    Breach of Implied Covenant of Good Faith and Fair Dealing.

On March 16, 2022, BBA filed a Demurrer to the Cross-Complaint.

On July 20, 2022, the Court sustained BBA’s Demurrer to the Second Cause of Action for Fraud with leave to amend. The Court found that “SPA’s Cross-Complaint fails to state facts distinguishing SPA’s claim for breach of contract from its claim for fraud. All the breaches that SPA alleges are breaches to the contract, and all of the damages resulting from those breaches are provided remedy in the contract.”

On July 28, 2022, SPA filed the First Amended Cross-Complaint asserting the same causes of action.

On August 16, 2022, BBA filed the instant Demurrer.

O August 23, 2022, SPA filed an Opposition.

On August 29, 2022, BBA filed a Reply.

DISCUSSION 

                         I.          DEMURRER

BBA demurs to the Second Cause of Action for Fraud in the First Amended Cross-Complaint.

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.) 

A.  Second Cause of Action - Fraud

BBA demurs to the second cause of action for fraud, arguing that SPA failed to remedy the defects by which the Court sustained their previous demurrer to this cause of action. The First Amended Cross-Complaint indicates that SPA alleges negligent misrepresentation and fraudulent concealment.

The elements of negligent misrepresentation are “(1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage. [Citation.]” (National Union Fire Insurance Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 50.) 

Negligent misrepresentation has been described as being based on “a duty to communicate accurate information.” (Friedman v. Merck Co. (2003) 107 Cal.App.4th 454, 477.) It is for this reason that the first element of negligent misrepresentation requires that the fact misrepresented be a past or existing fact. (Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1252.) In other words, there is no claim for negligent misrepresentation where the misrepresentation is about a future fact. “Although a false promise to perform in the future can support an intentional misrepresentation claim, it does not support a claim for negligent misrepresentation. [Citation.]” (Stockton Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 458, emphasis in original.) 

The elements of fraud that give rise to a tort action for deceit are “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e. to induce reliance; (d) justifiable reliance; and (e) resulting damage. [Citation.]” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974; see also CACI No. 1900.) 

There are four scenarios “in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts. [Citation.]” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.) 

Here, BBA makes several arguments as to why SPA fails to state a claim for fraud.

1.    Duplicative of Breach of Contract

First, BBA argues that the Second Cause of Action, though reformatted, is still largely based on the same alleged promises, and the same damages, as SPA’s alleged breach of contract claim.

“A contractual obligation may create a legal duty and the breach of that duty may support an action in tort.” However, conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law. (Applied Equipment v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 515.” ‘ “An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty.” ’ ” (Ibid., quoting Jones v. Kelly (1929) 208 Cal. 251, 255, 280 P. 942.) 

Here, BBA contends that the gravamen of the Second Cause of Action “is still that the written contractual obligations became negligent misrepresentations because BBA allegedly breached them.”

The First Amended Cross-Complaint alleges that “BBA authorized representatives, John Irwin, Tyler Siegel and Does made written and verbal promises to Cross-Complainant to induce Cross-Complainant to allow Cross-Defendant to terminate a written lease between them some three years early so that BBA and Doe Cross-Defendants could pursue reconstruction and reconfiguration of the entire Beverly Propery. . .” (FAXC at p. 10.) The First Amended Cross Complaint then alleges that Irwin and Siegel told SPA that should BBA fail to restore SPA to the restaurant space, “BBA would pay to SPA substantial liquidated damages.” These allegations are substantially similar to those in the original Cross-Complaint, and merely recite breaches of contract for which the contract itself explicitly provides remedy.

Next, the First Amended Cross-Complaint alleges that BBA’s chosen architect, Nicola Valerio (“Valerio”), between December 2019 and March 2020, “advised said Cross-Defendants that the return-completion date for the remodeling of the Madeo space set by Cross-Defendants (March 28, 2020) was unrealistic, unreasonable and would not be met. (FAXC at p. 11.)   

BBA’s refusal to disclose material information pertaining to the contract to induce SPA to enter into same contract could constitute a cause of action for fraudulent concealment. However, as BBA argues, the First Amended Cross-Complaint fails to allege all elements of fraudulent concealment.

2.    Fraudulent Concealment

The allegations related to SPA’s claim for fraudulent concealment are that Valerio informed BBA at some point between December 2019 and March 2020 that BBA’s return date was unrealistic and would not be met. (FAXC at p. 11.)

However, this statement was made between December 2019 and March 2020, when SPA had already entered into both the CAA and the First Amended CAA. Accordingly, SPA cannot argue that it relied on BBA’s failure to disclose said information in entering the agreement. The First Amended Cross-Complaint fails to allege any other reliance on this alleged concealment.

Additionally, as BBA notes in its Demurrer, Valerio’s statement regarding the possibility of finishing the project on the suggested timeline is a prediction or an opinion, not a statement of a past or existing fact as needed to state a claim for fraudulent concealment.

Finally, an adequate remedy already exists in contract for BBA’s failure to complete the project on time; the liquidated damages provision.

Accordingly, while the First Amended Cross-Complaint does add allegations that could constitute a cause of action for fraudulent concealment, the allegations as stated fail to satisfy all elements of the cause of action.

Therefore, the Demurrer is SUSTAINED with thirty days leave to amend. However, the Court encourages SPA to consider whether its allegations can be adequately addressed by its successful breach of contract cause of action before filing a Second Amended Cross-Complaint again alleging fraud.

DATED: September 8, 2022 

____________________________

Hon. Robert S. Draper 

Judge of the Superior Court