Judge: Teresa A. Beaudet, Case: 22STCV28387, Date: 2023-08-09 Tentative Ruling

Case Number: 22STCV28387    Hearing Date: August 9, 2023    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

On August 31, 2022, Plaintiff Central Elk Properties, LLC (“Plaintiff”) filed this action against Defendants FI Automotive Group, Inc. (“FI Automotive Group”), Arthur Bakharyan, aka Artur Bakharyan, and George Bakharyan, aka Gevork Bakharyan, aka G. Bakharyan. The Complaint asserted causes of action for (1) breach of lease, (2) conversion, (3) violation of Penal Code section 496, (4) breach of guaranty, and (5) common count. 

On September 26, 2022, Plaintiff filed an amendment to the Complaint naming Formula Automotive Group, Inc. (“Formula Automotive Group”) in place of “Doe 1.”

FI Automotive Group, Arthur Bakharyan, George Bakharyan, and Formula Automotive Group (collectively, “Defendants”) demurred to each of the causes of action of the Complaint. On March 15, 2023, the Court issued an order sustaining Defendants’ demurrer to each of the causes of action of the Complaint, with leave to amend.

The Court’s March 15, 2023 minute order in this matter indicates, inter alia, that “Plaintiff filed an Amended Complaint prematurely on March 14, 2023. Pursuant to this order Plaintiff may file a Second Amended Complaint within 20 days of the date of this order.”

On April 13, 2023, Plaintiff filed the operative Second Amended Complaint (“SAC”). The SAC alleges causes of action for (1) breach of lease, (2) conversion, (3) violation of Penal Code section 496, (4) breach of guaranty, and (5) declaratory relief.

Defendants now demur to each of the causes of action of the SAC. Plaintiff opposes.

Discussion

A.    Legal Standard

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff's proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)

B.    Allegations of the SAC

            In the SAC, Plaintiff alleges that on July 1, 1992, Plaintiff’s predecessor-in-interest, Thomas C. Love, and defendant’s predecessors-in-interest Harry O. Evans, La Rue Evans, and William Evans, executed a Lease (the “Lease”) with respect to the premises located at 220-226 West Elk Avenue, Glendale, California 91204 (the “Premises”). (SAC, ¶ 13.) The Lease was for a term of twenty years, with two five-year options, for a total lease term commencing on July 1, 1992 and ending on June 30, 2022. (SAC, ¶ 13.)  

The Lease provided for the original tenant to construct at its own cost and expense a first-class Midas Muffler Franchise Shop. (SAC, ¶ 14.) Pursuant to paragraph 5.11 of the Lease, title to all improvements to be constructed on the Premises by the tenant shall automatically become Plaintiff’s property at the expiration of the term of the Lease. (SAC, ¶ 14.)

FI Automotive Group vacated the Premises on June 30, 2022. (SAC, ¶ 20.) Plaintiff alleges that the Lease states at paragraph 11.06 that “[o]n expiration or earlier termination of this lease, Tenant shall surrender the Premises and all improvements in or on the Premises to Landlord in as good, safe and clean condition as practicable, reasonable wear and tear excepted.” (SAC, ¶ 21.) Plaintiff alleges that Defendants breached the Lease by removing seven hydraulic lifts from the Premises before Defendants vacated the Premises. (SAC, ¶ 22.) Plaintiff alleges that Defendants also breached the terms of the Lease by “saw-cutting steel rods, which remained imbedded in the ground at the Premises when it [sic] removed the hydraulic lifts in breach of the Ground Lease…” (SAC, ¶ 25.) 

C.    First Cause of Action for Breach of Lease

Defendants note that “[t]he elements of a breach of contract claim are that a contract was formed; that the plaintiff did everything required by the contract; that the defendant did not do something required by the contract; and that the plaintiff was harmed as a result.” (CSAA Ins. Exchange v. Hodroj (2021) 72 Cal.App.5th 272, 276.) Defendants assert that the first cause of action for breach of lease fails because Plaintiff fails to allege that Defendants “did not do something required by the contract.” (Demurrer at p. 12:6-7.)

Plaintiff attaches as Exhibit 1 to the SAC the subject Lease. (SAC, ¶ 13, Ex. 1.) Defendants assert that Section 5.11 of the Lease states, inter alia, “Title to all Improvements… shall be owned by Tenant until expiration of the term or earlier termination of this lease.” The Court notes that certain portions of the Lease attached as Exhibit 1 to the SAC are still illegible, including portions of Section 5.11. (SAC, ¶ 13, Ex. 1.) The text that is legible in the first sentence of Section 5.11 provides, “[t]itle to all improvements to be const…the Premises by Tenant shall be owned by Tenant until expi…the term or earlier termination of this lease.” (Ibid.) In addition, Plaintiff alleges in the SAC that “pursuant to paragraph 5.11 of the [Lease] title to all improvements to be constructed on the Premises by the tenant shall automatically become at the expiration of the term of the [Lease] plaintiff’s property.” (SAC, ¶ 14.)

Defendants assert that under Section 5.11 of the Lease, “the Tenant’s exercise of ownership rights to its trade fixtures during the lease term, by itself, cannot constitute a breach of the Lease.” (Demurrer at p. 4:9-10.) In the breach of lease cause of action, Plaintiff alleges, inter alia, that “[d]uring Defendants’ occupancy and prior to Defendants’ vacating possession of the Premises [sic] breached the Ground Lease by removing the following seven (7) installed hydraulic lifts, which had been installed into the floor of the Premises. This removal was done without the consent or permission of Plaintiff.” (SAC, ¶ 22.) Defendants note that the SAC does not allege that Defendants removed the hydraulic lifts after the “expiration” or “earlier termination” of the subject Lease. Defendants assert that “[t]he SAC, like the Complaint before it, omits a necessary and material allegation that Tenant removed their trade fixtures after title vested in the Landlord.” (Demurrer at p. 12:12-13, emphasis in original.)

In the opposition, Plaintiff responds that “Defendant asserts that it could not have breached the contract/lease as it asserts that it had the right to remove such property, which it presumes was removable personal property. Plaintiff…asserted in this cause of action and in the fifth cause of action for declaratory relief the hydraulic lifts had become part of the real property and thus were required to remain at the premises when defendant vacated the premises.” (Opp’n at p. 3:20-24.) Plaintiff alleges in paragraph 25 of the SAC that “Defendants breached the terms of the Ground Lease by,” inter alia, “failing to restore to the Premises the hydraulic lifts, which had become part of the real property, at Defendant’s own cost and expense.” (SAC, ¶ 25.) 

The Court also notes that Defendants’ demurrer does not appear to address Plaintiff’s allegation that Defendants breached the Lease by “damaging the Premises by saw-cutting steel rods, which remained imbedded in the ground at the Premises when it removed the hydraulic lifts in breach of the Ground Lease…” (FAC, ¶ 25.) The Court notes that “a demurrer cannot rightfully be sustained to part of a cause of action or to a particular type of damage or remedy.” (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047; see also PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682 [“A demurrer does not lie to a portion of a cause of action.”].) 

            Based on the foregoing, the Court overrules the demurrer to the first cause of action. 

D.    Second Cause of Action for Conversion

            “Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages.” (IIG Wireless, Inc. v. Yi (2018) 22 Cal.App.5th 630, 650.)

            Defendants assert that the SAC fails to state a cause of action for conversion, because it fails to allege either Plaintiff’s ownership or right to possession at the time of the alleged conversion. As discussed, Defendants assert that “[t]he SAC merely alleges that Tenant removed trade fixtures while Tenant had title to, and possession of, the trade fixtures.” (Demurrer at        p. 5:10-11.) Defendants also assert that the SAC fails to allege a “wrongful” act or deprivation of property rights, “because Tenant acted in accordance with the Lease.” (Demurrer at p. 12:25-26.)

            In the opposition, Plaintiff asserts that “[b]y removing the hydraulic lifts which had become part of the realty defendants converted said property, which belonged to plaintiff.” (Opp’n at p. 4:4-5.) Plaintiff notes that the conversion cause of action alleges that “[w]hen Defendants, and each of them, vacated the Premises they intentionally removed the seven (7) hydraulic lifts from the Premises, knowing at all times that they were not entitled to same, and after having been advised by Plaintiff’s representative that they were not entitled to remove the seven (7) hydraulic lifts, as such hydraulic lifts had become part of the Plaintiff’s property, and if removed such removal was a destruction thus requiring Defendants to restore the improvements in accordance with the construction design of the original Midas Muffler tenant at the Premises, which has installed the hydraulic lifts at the Premises.” (SAC, ¶ 30.) Plaintiff further alleges that “[t]he Midas Muffler Franchise Shop constructed at the Premises by the original tenant included the installation of ten (10) hydraulic lifts for use at the Premises, which ten (10) hydraulic lifts were physically installed into the floor of the constructed Midas Muffler shop thus becoming one with the property, and thus not being removable by the tenant without the real property’s owners permission, which permission was never granted.” (SAC, ¶ 16.)

In the reply, Defendants assert that “the Opposition’s argument that the trade fixtures constituted real property contradict its argument that the SAC states a cause of action for conversion.” (Reply at p. 4:15-17.) Indeed, Defendants cite to Munger v. Moore (1970) 11 Cal.App.3d 1, 7, where the Court of Appeal noted that “it is generally acknowledged that conversion is a tort that may be committed only with relation to personal property and not real property.” In the SAC, Plaintiff alleges that “[a]t all times relevant, the hydraulic lifts were installed into the floor of the constructed Midas Muffler shop thus becoming a part of the plaintiff-owners’ real property.” (SAC, ¶ 29.)

            Based on the foregoing, the Court sustains the demurrer to the second cause of action.

E.     Third Cause of Action for Violation of Penal Code Section 496 

            Penal Code section 496, subdivision (a) provides as follows:

“Every person who buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained, shall be punished by imprisonment in a county jail for not more than one year, or imprisonment pursuant to subdivision (h) of Section 1170. However, if the value of the property does not exceed nine hundred fifty dollars ($950), the offense shall be a misdemeanor, punishable only by imprisonment in a county jail not exceeding one year, if such person has no prior convictions for an offense specified in clause (iv) of subparagraph (C) of paragraph (2) of subdivision (e) of Section 667 or for an offense requiring registration pursuant to subdivision (c) of Section 290.”

In support of the third cause of action for violation of Penal Code section 496, Plaintiff alleges that “Defendants, and each of them, at all times knew that they were not entitled to the seven (7) hydraulic lifts, that they had no right to remove said seven (7) hydraulic lifts from the Premises when they vacated the Premises, and that at all times relevant the seven (7) hydraulic lifts belonged to Plaintiff.” (SAC, ¶ 38.)

Defendants assert that the cause of action for violation of Penal Code section 496 fails to state a claim, because “[t]he Lease reveals that the tenant had: (A) legal title, (B) possession, and (C) the right to immediate possession, for the entire duration of the Lease.” (Demurrer at p. 13:2-3.) In the opposition, Plaintiff contends that “Defendants as alleged obtained possession of the hydraulic lifts by removing same from the realty when they were not entitled to remove same. Conversion supports the maintenance of this cause of action. Conversion equals theft, which triggers Penal Code section 496 (c) liability.” (Opp’n at p. 5:15-18.)

As set forth above, the Court sustains Defendants’ demurrer to Plaintiff’s cause of action for conversion. In addition, Plaintiff does not address paragraph 5.11 of the alleged Lease. As discussed, Plaintiff alleges that “pursuant to paragraph 5.11 of the Ground Lease title to all improvements to be constructed on the Premises by the tenant shall automatically become at the expiration of the term of the Ground Lease plaintiff’s property.” (SAC, ¶ 14, emphasis added.) The SAC still does not appear to specifically allege whether the hydraulic lifts were removed before or after the expiration of the Lease term.

            Defendants also assert that the SAC fails to particularly allege a criminal intent on the

part of the Defendants beyond “nonperformance” of a contract. (Demurrer at p. 13:9-10.) Defendants cite to Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 361-362, where the California Supreme Court “observe[d] that not all commercial or consumer disputes alleging that a defendant obtained money or property through fraud, misrepresentation, or breach of a contractual promise will amount to a theft. To prove theft, a plaintiff must establish criminal intent on the part of the defendant beyond mere proof of nonperformance or actual falsity. This requirement prevents [o]rdinary commercial defaults from being transformed into a theft. If misrepresentations or unfulfilled promises are made innocently or inadvertently, they can no more form the basis for a prosecution for obtaining property by false pretenses than can an innocent breach of contract.” (Internal quotations and citations omitted.) The Court notes that Plaintiff does not address the foregoing authority in the opposition or address Defendants’ assertion that the SAC fails to allege a criminal intent on the part of Defendants.

            Based on the foregoing, the Court sustains the demurrer to the third cause of action.

F.     Fourth Cause of Action for Breach of Guaranty

            In support of the fourth cause of action, Plaintiff alleges that “in order to induce Plaintiff to consent to the assignment, assumption and consent, Defendants Arthur Bakharyan and George Bakharyan hereinafter collectively referred to as ‘guarantor’, executed for valuable consideration, in writing, and delivered to Plaintiff, the Guaranty of Lease…whereby said guarantor agreed to pay to unconditionally and irrevocably guarantee the prompt payment by the lessee and the faithful and prompt performance by lessee of each and every one of the terms, conditions and covenants of the Lease.” (SAC, ¶ 45.) Plaintiff further alleges that “[t]he Guaranty of Lease…additionally provides that the guarantor agrees without demand to pay and reimburse Plaintiff for all costs, attorneys’ fees, and other expenses which Plaintiff expends or incurs in the enforcement of the Guaranty of Lease. Plaintiff has retained the Law Offices of Henry N. Jannol, A Professional Corporation, to represent Plaintiff herein. Accordingly, Plaintiff is entitled to recover its reasonable attorneys fees incurred herein in an amount according to proof at time of trial.” (SAC, ¶ 47.)

            In the demurrer, Defendants assert that “[s]ince the SAC fails to allege a breach of contract against Tenant, by parity of reasoning, the SAC fails to allege a breach of guarantee.” (Demurrer at p. 7:25-26.) As set forth above, the Court overrules the demurrer to the first cause of action for breach of lease. Thus, the Court also overrules the demurrer to the fourth cause of action for breach of guaranty.

G.    Fifth Cause of Action for Declaratory Relief

            In the fifth cause of action for declaratory relief, Plaintiff alleges that he “seeks a declaration that Defendants had no rights to the seven (7) hydraulic lifts at the Premises as such had become part of the real property and thus were at all times relevant to remain at the Premises when Defendant vacated the Premises.” (SAC, ¶ 51.)

            In the demurrer, Defendants assert that “[t]he SAC fails to allege any new or different facts with respect to the cause of action for declaratory relief. A declaratory relief action cannot be used as a substitute for a breach of contract claim.” (Demurrer at p. 14:6-8.) Defendants cite to Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 373, where the Court of Appeal noted that “Ermolieff was reviewing whether it was proper for the trial court to retain an action filed by the plaintiff for declaratory relief without stating a breach of contract action, even though the defendant had already committed the allegedly improper conduct of distributing a film in Ireland….Ermolieff did not opine that a trial court would abuse its discretion under section 1061 by dismissing such a case due to the availability of the remedy of breach of contract. (Ermolieff, supra, 19 Cal.2d at p. 549 [“It may well be that by reason of the discretion vested in the trial court in the granting of declaratory relief … the court may under proper circumstances deny that relief where other remedies will serve as well or better.’” The Osseous Court further noted that “[s]everal other cases are worth noting for their analysis of trial court discretion in dismissing declaratory relief actions. Though dismissal of declaratory relief was an appropriate exercise of discretion, the plaintiff was entitled to proceed with other well-pleaded claims in the same action or in another action. (See, e.g., Leach v. Leach (1959) 172 Cal.App.2d 330, 333 [341 P.2d 758] [affirms dismissal of declaratory relief cross-complaint because claims under divorce settlement could be fully litigated in divorce action]; Adams v. County of San Joaquin (1958) 162 Cal.App.2d 271, 274 [328 P.2d 250] [affirms dismissal of declaratory relief cause of action because action for money due from county agricultural board is ‘available to plaintiff and … speedy and adequate or as well suited to the plaintiff’s needs as declaratory relief’]; Schessler v. Keck (1954) 125 Cal.App.2d 827, 836–837 [271 P.2d 588] [court within its discretion dismissing plaintiff’s declaratory relief cause of action when cause of action for slander against defendants would fully determine all necessary issues in controversy].).” (Id. at pp. 373-374.)

Plaintiff does not respond to the foregoing point in the opposition.
            Based on the foregoing, the Court sustains the demurrer to the fifth cause of action for declaratory relief.

Conclusion

Based on the foregoing, Defendants’ demurrer to the second, third, and fifth causes of action are sustained, without leave to amend. The Court sustains the demurrer to the second and third causes of action without leave to amend because the Court previously sustained Defendants’ demurrer to the causes of action for conversion and violation of Penal Code section 496 in the original Complaint (see March 15, 2023 Order), and Plaintiff has failed to remedy these causes of action. The Court sustains the demurrer to the fifth cause of action without leave to amend, as Plaintiff has not proffered any basis for such amendment.

The Court overrules Defendants’ demurrer to the first and fourth causes of action.

The Court orders Defendants to file and serve an answer to the SAC within 10 days of the date of this Order. 

Defendants are ordered to give notice of this order.  

DATED:  August 9, 2023                               ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court