Judge: Ronald F. Frank, Case: 20TRCV00847, Date: 2023-01-31 Tentative Ruling
Case Number: 20TRCV00847 Hearing Date: January 31, 2023 Dept: 8
Tentative
Ruling¿
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HEARING DATE: January 31, 2023¿¿
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CASE NUMBER: 20TRCV0000847
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CASE NAME: Drakk
Holdings, LLC v. PSIP SN Vermont, LLC, et al .¿¿¿
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MOVING PARTY: Defendant, Matthew R. Stall, as Administrator of the Estate
of Richard J. Stall Jr., and as Trustee of The Richard J. Stall Jr. Trust
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RESPONDING PARTY: Plaintiff,
Vincent M. Lucy
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TRIAL DATE: None set¿
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MOTION:¿ (1) Demurrer¿
(2)
Motion to Expunge Lis Pendens
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Tentative Rulings: (1) Defendant’s Demurrer is
OVERRULED
(2)
Defendant’s Motion to Expunge Lis Pendens is GRANTED. The Court will
hear argument on the attorney fee request, and will entertain a request to stay
the payment if Plaintiff intends to take a writ to the Second District.
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I. BACKGROUND¿¿
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A. Factual¿¿
On November 17, 2020,
Plaintiff DRAKK Holdings, LLC (“DRAKK”) filed this action against Defendant,
PSIP SN Vermont, LLC (“PSIP”). On September 29, 2021, Plaintiff filed a Second
Amended Complaint. On November 30, 2022, Plaintiff filed a Third Amended
Complaint (“TAC”) alleging cases of action for: (1) Specific
Performance/Express Written Contract; (2) Specific Performance/Promissory
Estoppel; (3) Specific Performance/Breach of Implied Covenant of Good Faith and
Fair Dealing; (4) Promissory Estoppel and Money Damages; (5) Fraud &
Deceit; and (6) Negligent Misrepresentation.¿
B. Procedural¿¿
¿
On January 4, 2023, Defendant
filed this Demurrer. On January 18, 2023, Plaintiff filed an opposition to
Defendant’s motion. On January 24, 2023, Defendant filed a reply in support
of its Demurrer.
On January 4, 2023, Defendant
filed its Motion to Expunge Lis Pendens. On January 19, 2023, Plaintiff filed
an opposition. On January 24, 2023, Defendant filed a reply brief.
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¿III. EVIDENTIARY
OBJECTIONS
Plaintiff’s Evidentiary
Objections to Defendant’s Evidence
Sustain: none.
Overrule: 2, 4, 6 – 34.
Defendant’s Evidentiary
Objections to Plaintiff’s Evidence
Objections to Declaration
of Keith A. Kenneally
Sustain: None.
Overrule: 1-26
Objections to Declaration
of Sean O’Donnell
Sustain: 3, 5, 7, 20
Overrule: 1-2, 4, 6, 8-19, 21-22
Objections to Declaration
of Daniel L. Goodkin
Sustain: None
Overrule: 1-22
Objections to Declaration
of Michael Seulemezian
Sustain: None.
Overrule: 1-4
IV. ANALYSIS¿
¿
A.
Demurrer
The TAC contains allegations of the implied covenant of
good faith and fair dealing (“ICCGFFD”) throughout the breach of contract claim
(e.g., ¶¶ 59, 60, and 66) as well as the separate ICGFFD claim. While unfortunate from the standpoint of
treating the two causes of action as distinct, these inclusions are telling as
to Plaintiff’s mindset or perhaps an attempt to tether the implied covenant to
an express covenant. Turning to the cause
of action for breach of the ICGFFD, ¶ 81 appears to plead in the alternative,
i.e., if Plaintiff fails on its express contract claim that the parties expressly
agreed upon a “reasonable closing date” or reasonable extension pending updated
inspection reports and environmental reports, then it should be able to pursue the
ICGFFD cause of action. California law enables
a plaintiff to plead in the alternative and to plead inconsistent theories. Plaintiff might not ultimately prevail on its
express contract claim on this point in light of the financing contingency and
inspection contingency and closing date provisions of the express terms of the written
contract. But prevailing at trial is not
at issue on this Demurrer. Rather, what
is at issue concerns whether the ICGFFD cause of action is adequately pleaded
or is barred at the pleading stage as a matter of law. The
Court finds it is adequately pleaded and is not barred at the pleading
stage.
At the summary judgment stage or at the bifurcation motion
phase there may be a different determination, but for purposes of an amended
pleading which has been modified to account for specific concerns the Court
raised as to the previous pleading, the ICGFFD cause of action may proceed. Unlike the holding in one of the cases cited
in the Court’s ruling on the SAC, Careau
& Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d
1371, 1394, the allegations in the TAC do go “beyond the
statement of a mere contract breach” and the Court thus cannot disregard those
amended allegations “as superfluous as no additional claim is actually stated.”
Defendant’s
demurrer argues as it did as to the SAC that Plaintiff’s third cause of action
improperly seeks to impose an “implied” covenant contrary to the obligations
set forth in the parties’ contract. (Third
Story Music, Inc. v. Waits, 41 Cal. App. 4th 798, 804.) By
essentially pleading both express and implied promises, the TAC resolves this
potential issue, at least for the pleading stage. The Court concurs with Defendant that Ninety-Nine
Investments, LTD. V. Overseas Courier Service (Singapore) Private, LTD.
(2003) 113 Cal.App.4th 1118 is factually distinguishable, in that there is no
allegation here that PSIP itself caused the delay in recording the Tract Map or
that PSIP breached any of its express seller’s obligations in the attached
PSA. But that point of distinction does
not negate some of the propositions of law for which DRAKK cited the case.
B. Motion
to Expunge Lis Pendens
At the outset this Court notes that PSIP’s previous motion
to expunge the lis pendens was granted by Judge Tanaka, but his ruling was
vacated after the Second District Court of Appeal issued an alternative
writ. The Court of Appeal expressed no
opinion on the merits of the expungement motion and the Court draws no inference
bearing on its ruling on the renewed expungement motion from the appellate decision. The Court in Inglewood now has the benefit of
the TAC, not merely the FAC that before Judge Tanaka when he issued his September
13, 2021 order on the prior expungement motion.
DRADKK has thus had the opportunity to expand and update its allegations
from those before Judge Tanaka.
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Request for Judicial Notice
Plaintiff
requests that this Court take judicial notice of the following: (1) A true and
correct copy of Plaintiff’s operative First Amended Complaint (“FAC”) in
the Los Angeles Superior Court Case No. 20TRCV00847, filed June 22, 2021; and
(2) A true and correct copy of the California Department of Toxic Substances
Control (DTSC) Human and Ecological Risk Office (HERO) Human Health Risk
Assessment (HHRA) Note Number 3: DTSC-modified Screen Levels (DTSC-SLs) (the
“DTSC Modified Screening Levels”), released April 2019.
Pursuant to Plaintiff’s request,
this Court GRANTS its request to take judicial notice of the above documents.
Legal Standard
¿ A
Lis Pendens is a powerful tool in civil litigation since it has the effect of
restraining alienation of property. Because that tool may be utilized without a
hearing, and is capable of being wielded for improper motives, the law provides
a mechanism for the property owner affected by an adversary’s filing of a Lis
Pendens to have an early hearing challenging the propriety of its filing. Under
CCP § 405.30, at any time after a notice of pendency of action has been
recorded, any party with an interest in the pertinent real property may apply
to the court to expunge the notice. A lis pendens may be expunged either under
CCP § 405.31 if the pleadings do not contain a real property claim; or under
CCP § 405.32 if the court finds that the party claiming the Lis Pendens has not
established by a preponderance of the evidence the probable validity of the
real property claim. “Probable validity” exists when “it is more likely than
not that the claimant will obtain a judgment on the claim.” (Code Civ. Proc., §
405.3.) Under CCP § 405.30, the party claiming the Lis Pendens, i.e., the party
opposing the motion to expunge, has the burden of proof under sections 405.31
and 405.32.
Real Property Claim
“‘Real property claim’ means the cause or causes of action
in a pleading which would, if meritorious, affect (a) title to, or the right to
possession of, specific real property . . . .” (Code Civ. Proc., § 405.4.)
Here,
Plaintiff’s causes of action for specific performance
are real property claims because, if meritorious, they would affect title to or
right to possession of the Property. In his specific performance causes of
action, Plaintiff alleges that he is entitled to specific performance of the against
Defendants, ordering them to complete the sale under the terms of the PSA. (TAC,
¶ 77.) The claimant, the party asserting the real property claim and recording
the lis
pendens, has the burden of proof on the motion for expungement. (Code Civ.
Proc., §§ 405.1, 405.30.)
Here, Plaintiff has the burden of showing by a
preponderance of the evidence the probable validity of his breach of contract,
promissory estoppel, and ICGFFD causes of action, each of which seek specific
performance. The specific performance allegations
rest in considerable part on the declaration of DRAKK’s principal Keith
Kenneally. Among other things, Mr.
Kenneally attests to the uniqueness of the subject property, his decade-long
quest for a suitable property in to which to relocate his business and
operations, as well as his asserted readiness to fund the purchase price. There appears to be no serious dispute that
the TAC alleges a real property claim which, if proven, would entitle DRAKK to
specific performance.
Probable Validity
“‘Probable validity,’ with respect to a real property
claim, means that it is more likely than not that the claimant will obtain a
judgment against the defendant on the claim.” (Code Civ. Proc., § 405.3; Mix
v. Superior Court (2004) 124 Cal.App.4th 987, 995 [describing probable
validity as a trial court judge trying to forecast, at some point before trial,
the probable outcome at trial].) The Court does not
weigh credibility; the witnesses are not subject to cross-examination. The procedure is thus a less comprehensive or
procedurally satisfactory one than a trial.
Here, probably validity specifically means that based on the declaration
and exhibits and judicially noticed evidence, by a preponderance of the evidence
it is likely DRAKK will succeed on any of its specific performance causes of
action.
For a specific performance cause of action: The plaintiff
must show that (1) his remedy at law is inadequate; (2) the contract must be
just and reasonable and must be supported by adequate consideration; (3) there
must be a mutuality of remedies, that is, the contract must be subject to
specific performance by both of the contracting parties; (4) the terms of the
contract must be sufficiently definite for the court to know what to enforce,
and (5) the performance which the court is asked to compel must be
substantially identical to that promised in the contract. (Henderson v.
Fisher (1965) 236 Cal.App.2d 468, 473.) Also,
for a finding of probable validity, the Court must also ascertain whether Defendant
is more likely than not going to prevail on any of its defenses to the specific
performance causes of action. The Court
makes no determination here as to the Plaintiff’s probability of success on a
cause of action for monetary damages.
1.
Inadequate Remedy
at Law
When it comes to a contract for the transfer of an interest
in land, a plaintiff does not need to show inadequate remedy at law because “it
is presumed that damages would not adequately compensate for the breach.” (Henderson
v. Fisher, supra, 236 Cal.App.2d at p. 473.) “Generally, a properly
verified complaint … may be treated as a declaration or affidavit.” (ViaView, Inc. v.
Retzlaff (2016) 1 Cal.App.5th 198, 217.) Here, in his verified Third Amended Complaint, Plaintiff
seeks transfer of an interest in the Property. (TAC, Prayer.) Therefore, the
presumption applies.
2.
Just and Reasonable
Contract
Plaintiff has offered evidence to show that the PSA is
just, reasonable, and supported by adequate consideration. “‘It is not
necessary, … that the complaint for specific enforcement should declare, in the
very words of the code, that there was “an adequate consideration for the
contract” and that it was “just and reasonable”. …. [Citations.]” (Wolf v.
Donahue (1929) 206 Cal. 213, 219.) “‘The proper mode of pleading is to set
forth the facts from which the court may conclude that the contract is
supported by an adequate consideration and is, as to the defendant, fair and
just.’ [Citations.]” (Ibid.)
Here, the TAC alleges that Defendant offered to sell, and
Plaintiff agreed to buy the Property for $6,765,000. (TAC, ¶ 79; TAC, Exhibit
A. ¶ 1.1.3.) Plaintiff and Defendant
were both represented by real estate brokers. (TAC, ¶ 104; TAC, Exhibit A. ¶
1.1.7.) Further, the PSA required
Plaintiff to deposit $200,000 in escrow as consideration and it did so. (TAC, ¶
76; TAC, Exhibit A. ¶ 1.1.4.) Further,
Plaintiff alleges that it entered into the Vermont Lease by which it would pay
rent to be credited toward the purchase price. (TAC, ¶ 17.) The rent credit terms apparently changed over
time, but those facts do not change the fact that the PSA was supported by
adequate consideration. There are
factual disputes as to what the TAC and Mr. Kenneally assert were promises or representations
about map recordation, comparing the declarations of Messrs. O’Donnell and
Nadall.
3.
Mutuality of
Remedies
There is a mutuality of remedies in this case. The PSA is
subject to specific performance since it only requires Plaintiff to tender the
payment to buy the Property and Defendant to transfer title.
4.
Definite
Terms
“The material factors to be ascertained to support a
contract for the sale of real property are: (1) the seller; (2) the buyer; (3)
the price; (4) time and manner of payment; and (5) description of the property
sufficient to identify it.” (Blackburn v. Charnley (2004) 117
Cal.App.4th 758, 766.) Here, the PSA identifies the seller (PSIP SN Vermont LLC),
the buyer (DRAKK Holdings, LLC), the price ($6,765,000, with an initial deposit of $200,000),
and a description of the Property (19110 South Vermont Avenue, Gardena,
California). (PSA, p. 1.)
One of the disputes between the parties on this issue is in reference
to the tract map recordation. Plaintiff asserts that the terms are definite,
and that the Court can determine from the agreement that “Defendant is to sell
and Plaintiff is to purchase the Property for a price of $6,765,000, to be
offset by plaintiff’s Rent Payments and Closing cannot occur until the Tract
Map is recorded.” However, Defendant argues that DRAKK’s initial Complaint and
First Amended Complaint alleged only that Defendant had promised and
represented that map recordation would be completed by Los Angeles County
within a “reasonable” time frame, which recordation was a condition – but not
an obligation of Defendant – triggering DRAKK’s obligation to complete the
purchase. Defendant asserts it made no such promise or representation – let
alone a promise that was “clear and unambiguous” as the law requires – that the
County would record the map within any time frame, or at all. Defendant also
asserts that not until a year after DRAKK filed its lawsuit, and only after
reviewing the case law Defendant cited, did DRAKK first come up with an
allegation that when the parties entered into the Second Amendment (TAC,
Exhibit C) and related lease, Defendant also had “promised” that, contrary to
the PSA agreed upon by the parties, Defendant would agree to a “reasonable
time” to close escrow after map recordation. Defendant asserts that there is no
such evidence or documentation of such promise, and certainly there is no
express language in the four corners of the PSA that uses that language. There is a difference between definiteness of
allegation and definiteness of proof for purposes of determining probable
validity of a cause of action. Here, the
Court does not believe Plaintiff has met its burden of proof on this element of
the probable validity analysis as to any of the three causes of action for
specific performance.
There
also is potential ambiguity as to the amount or calculation of the rent payment
credit against the purchase price. However, any uncertainty or ambiguity of the PSA does not
prevent the Court from knowing what to enforce if DRAKK were able to carry its
burden of proof.
5.
Performance
Requested Similar to Promised Performance
Plaintiff is asking for the title of the Property upon him
paying the balance of the purchase price. Therefore, the performance that
Plaintiff is asking for is substantially identical to that promised in the
Purchase Agreement, again if the rental payment credit can be resolved.
Defendant’s Defenses to Enforcement of the Purchase
Agreement
Defendant advances several defenses to the enforcement of
the PSA. Defendant argues the following: (1) Specific Performance is not
available because DRAKK cannot meet its burden to prove that it was ready and
able to perform under the PSA, and also that it tendered payment of the
purchase price; (2) Defendant did not breach the parties’ contract; and (3)
DRAKK cannot meet its burden to prove promissory estoppel to support a specific
performance claim.
First, Defendant asserts that Specific Performance is not
available because DRAKK cannot meet its burden to prove that it was ready and
able to perform under the PSA, and also that it tendered payment of the
purchase price. Defendants assert that Plaintiff did not have its own funds to
purchase the property and could not obtain financing. Defendants argue that
Plaintiff admitted it did not have the funds to close on time under the PSA. (TAC
¶¶ 37 and 39 (emphasis in original: “DRAKK also informed escrow it will not
have the funding for Closing . . . .); see also, Declaration of Keith A.
Kenneally filed August 30, 2021 (“Kenneally Decl.”). at ¶ 21: “financing the
acquisition is authorized under the PSA,” and at ¶ 31: “On June 16, 2021,
Bernard [counsel for DRAKK] requested PSIP to extend Escrow to consummate the sale
delineated in the PSA.”) Based on this Defendants claim that Plaintiff cannot
meet its burden despite it claim it was ready, willing, and able to purchase
the Property. (TAC ¶ 56.) Defendant asserts that it is telling that Plaintiff
claims Defendant breached on June 16, 2021, not in October 2020, because the
June 16, 2021 date is seven and a half months after Plaintiff’s performance was
due, even under the additional time allowed by Defendant to accommodate.
In opposition, Plaintiff asserts in the January 19, 2023 Declaration
of Keith A. Kenneally that Plaintiff had multiple
avenues of funding available to purchase the Property and at all times was and
is ready, willing, and able to purchase the property from Defendant. Plaintiff
notes that it originally secured its own funds to purchase the property in
December 2018 by way of the Clayton exchange, but purchasing the Property with
those funds did not happen because of the delay in the recordation of the Tract
Map. Thereafter, Plaintiff argues that it secured financing through its lender
before and after recordation of the Tract Map. In 2020, Plaintiff also claims
it again secured funding through another unrealized IRC § 1031 Like-Kind
Exchange, the Cabot exchange, and through its lender after its lender obtained
an updated Phase II Report. Defendant argues Plaintiff was not ready, willing,
and able to purchase the Property on the Closing Date of October 30, 2020,
because Plaintiff did not literally have funds on hand from its lender and the Cabot
property had not yet sold. There is no evidence before the Court that DRAKK
actually tendered the purchase price at any time in 2020.
Second, Defendant argues that it did not breach the
parties’ contract. Defendants argue that the pleading and the PSA
demonstrate that PSIP Vermont was not in breach. Defendants put forth that the
PSA – including the parties’ initial Agreement, the First Amendment, and the
Second Amendment – is attached to the TAC as Exhibits A-C. Defendants note that
in response to PSIP Vermont’s prior expungement motion, DRAKK’s opposition
filed on August 30, 2021 declared – in bold highlighting – that its specific
performance claims are “not on the basis that Defendant breached an express or
implied covenant of the PSA . . . .” (Opp. 2:24-25, emphasis in original.)
Additionally, Defendants claim that the PSA does not contain a loan contingency
beyond the “Inspection Period,” which was allegedly extended only to July 30,
2018. (TAC, Exhibit A, Section 4.4 of initial Agreement; and Exhibit B, Section
1 of First Amendment.) Thus, Defendants assert that as of October 30, 2018,
DRAKK was contractually obligated to close the purchase under the terms of the
PSA and it cannot rely on a claim that it could get financing at the time its
performance was due.
In
opposition, Plaintiff contends that the express purpose of Section 4.4 of the
PSA, prescribing the Inspection Period, was for Plaintiff to conduct
inspections to “determine whether the Property is acceptable to Purchaser”.
Thus, Plaintiff argues that the ‘inspections’ expressly limited to the
Inspection Period are those done by Plaintiff for the purposes of making a
determination on waiving contingencies. Plaintiff notes it conducted those
inspections and chose to fully commit to the purchase of the Property. However,
Plaintiff asserts that its lender needed an updated report, not an inspection,
in order for Plaintiff to obtain funding and meet Defendant’s unilaterally set
deadline to close escrow. Plaintiff describes this request as an administrative
task (required by Plaintiff’s lender, not Plaintiff) rather than an
‘inspection’ purportedly limited by the Inspection Period. Plaintiff claims the
updated report required had nothing to do with whether Plaintiff was fully
committed, per the express terms of the contract, to purchasing the Property.
Thus, Plaintiff claims that once Defendant denied Plaintiff’s lender this
requisite report, Defendant breached the express language of the PSA. Plaintiff
argues that it was Defendant’s own delays which necessitated the updated report
due to a change in law.
Additionally,
Plaintiff’s opposition argues that section 12.14 of the PSA, Further
Assurances, reasonably gave Plaintiff the belief Defendant had a duty to
cooperate with extending the Closing Date, and did in fact require Defendant to
cooperate. Cooperating with Plaintiff’s lender was not only a simple task (that
any objectively reasonable party would have done absent exploitative intent),
it was required by the express terms of the contract. As such, Plaintiff claims
that Defendant was and is in breach of, at least, the Further Assurances
provision of the PSA. The Court’s
reading of the Further Assurance provision is that its terms are not reasonably
susceptible of the meaning argued by Plaintiff.
Third, Defendant argues that DRAKK cannot meet its burden
to prove promissory estoppel to support a specific performance claim.
Defendants argue that specific performance is not an available remedy because
Plaintiff cannot provide it was at all times ready and able to perform its
obligation to pay the purchase price when due in October 2020, and also when it
filed its lawsuit in November 2020. Defendants also argue that despite the
inadequate conclusory assertion of a “promise” and “representation,” Plaintiff
cannot prove any such promise or representation as alleged in the TAC.
Defendants assert that the recording of the map was up to the County, and even
various estimates relayed to Plaintiff by Defendant that recordation was
anticipated within any time period do not rise to the level of a clear and
unambiguous “promise” that the map would be recorded by any definite time.
In opposition, Plaintiff argues that Defendant’s
contractual obligation to secure recordation of the Tract Map does constitute a
clear and unambiguous promise and recording the tract map was Defendant’s
obligation and a condition precedent to Plaintiff’s performance. Plaintiff
asserts that Defendant represented to Plaintiff in September 2018 (and
again in December 2018) that recordation would occur sometime between June and
September 2019. Thus, Plaintiff argues that knowing Plaintiff needed to take
possession of the Property quickly because of its expiring La Cienega Lease,
Defendant reasonably expected that its promise to secure the Tract Map would
induce Plaintiff to enter into the Second Amendment and Vermont Lease before
Defendant obtained the recorded Tract Map. Plaintiff notes that the agreements
called for Plaintiff’s Rent payments to be credited toward the Purchase Price,
and Plaintiff to spend millions on TIs.
Overall,
the Court finds that at this stage of the case, Defendant is more likely to
prevail on one or more of its defenses than Plaintiff is to prevail on any of
its three specific performance causes of action. Viewing the evidence presented, the Court thus
determines that Plaintiff cannot carry its burden of establishing probable
validity of a specific performance cause of action. The motion to expunge the lis pendens is thus
granted.
Defendants request attorney’s fees pursuant to Code of
Civil Procedure section 405.38 in the amount of $16,940. The Court will hear argument
on the request and will entertain a request to stay the payment if Plaintiff
intends to take a writ to the Second District.
V. CONCLUSION¿¿
¿¿¿
For the foregoing reasons,
Defendants’ Demurrer is OVERRULED.
For the foregoing reasons, Defendants Motion to Expunge Lis Pendens is GRANTED