Judge: Teresa A. Beaudet, Case: 23STCV17644, Date: 2023-12-22 Tentative Ruling

Case Number: 23STCV17644    Hearing Date: December 22, 2023    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

On July 27, 2023, Plaintiff Seaker & Sons (“Plaintiff”) filed this action against Defendant Cushman & Wakefield of California, Inc. (“Defendant”).

Plaintiff filed the operative First Amended Complaint (“FAC”) on September 27, 2023, alleging causes of action for (1) professional negligence, (2) breach of fiduciary duty – trust and confidence, and (3) breach of contract.

 Defendant now demurs to each of the causes of action of the FAC. Plaintiff opposes. 

Request for Judicial Notice

The Court grants Defendant’s request for judicial notice of Exhibit 1 only as to the fact of the March 24, 2022 Order and the arbitration award attached thereto. The Court notes that it does not take judicial notice of the truth of factual representations within Exhibit 1. 

The Court grants Defendant’s request for judicial notice of Exhibit 2. Defendant’s request for judicial notice of Exhibits 1 and 2 are discussed in further detail below.

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 FAC

In the FAC, Plaintiff alleges that “[Plaintiff] is a California general partnership. [Plaintiff] owns commercial real estate located at 135 Post Street, San Francisco, CA 94108 (the ‘Gumps Building’). [Plaintiff] entered into a Management Agreement with [Defendant] on July 1, 1994, which was extended by various amendments. The Management Agreement appoints [Defendant] as the ‘sole Agent for the management of’ the Gumps Building and specifically contemplates that [Defendant] will provide construction management services for the building.” (FAC, ¶ 1.)

“On December 27, 2019, [Plaintiff] entered into a lease (the ‘Lease’) for office space in the Gumps Building with App Annie, Inc., a Delaware corporation (‘Tenant’). The Lease granted Tenant an allowance of $2,615,400 to complete Tenant Improvements (‘TIs’), but only after Tenant obtained [Plaintiff’s] consent and the required permits from the City of San Francisco.” (FAC, ¶ 1.) “On or about June 15, 2020, Tenant submitted TI permit applications to the San Francisco Department of Building Inspection concerning its proposed program of TIs. Those permits were never approved or issued.” (FAC, ¶ 16.)

Plaintiff alleges that “[i]n about July or August 2020, Tenant began construction work on its TIs. Tenant had substantially completed construction…by about December 2020, yet still failed to obtain the required permits. [Defendant] was aware of these facts at all material times.” (FAC, ¶ 17.) Plaintiff alleges that “[a]lthough fully aware that Tenant was undertaking a multimillion dollar construction project, without permits of any kind, at no time during the course of construction did [Defendant] inform Tenant that it must halt TI construction until Tenant had obtained the required permits. At no time during construction did [Defendant] inform [Plaintiff] that although Tenant was spending millions of dollars on unpermitted TIs, [Defendant] did not take any action to enforce Tenant’s and its contractor’s promises not to complete the TIs without obtaining required permits and inspections.” (FAC, ¶ 23.)

Plaintiff further alleges that “[o]n February 22, 2021, Tenant filed a complaint in the San Francisco Superior Court for rescission and damages. At that time…[Plaintiff] first learned that [Defendant] knew that Tenant spent millions of dollars on unpermitted TIs, including finishing the TI Project by installing new drywall and painting the structure, without objecting to this conduct, or informing [Plaintiff] of these facts.” (FAC, ¶ 24.)

“On May 14, 2021, [Plaintiff] filed a cross-complaint for anticipatory breach of the Lease. [Plaintiff] and Tenant then stipulated to submit their dispute to binding arbitration in San Francisco, California.” (FAC, ¶ 24.) Plaintiff alleges that “[o]n January 28, 2022, the Arbitrator issued a Final Award, awarding App Annie almost 8 million dollars in damages and excusing App Annie from millions of dollars in lease obligations, resulting in a net loss to Seaker & Sons of almost 20 million dollars. The nearly $8 million award compensated Tenant for its unpermitted TI construction. The award was confirmed, and judgment entered in March 2022, and [Plaintiff] paid this judgment under extreme protest. [Plaintiff] has appealed the judgment, which appeal is now resolved with the arbitration award confirmed.” (FAC, ¶ 24.) Plaintiff alleges that “[i]f [Defendant] informed Tenant, as required by the Lease and [Defendant’s] duties as Agent and Construction Manager, that it must cease construction, and refrain from closing out the rough work, without permits, [Plaintiff] would not have sustained the multimillion-dollar losses noted here.” (FAC, ¶ 25.)

C.     All Causes of Action of the FAC

In the demurrer, Defendant first asserts that the FAC fails to state any claim because Plaintiff fails to allege that Defendant caused the alleged harm.

As to the first cause of action for professional negligence, “[t]he elements of a claim for professional negligence are (1) the duty of the professional to use such skill, prudence, and diligence as other members of his profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the negligent conduct and the resulting injury; and (4) actual loss or damage resulting from the professional’s negligence.” (Paul v. Patton (2015) 235 Cal.App.4th 1088, 1095 [internal quotations omitted].)

As to the second cause of action for breach of fiduciary duty, “[t]he elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.” (Hodges v. County of Placer (2019) 41 Cal.App.5th 537, 546.) As to the third cause of action for breach of contract, Defendant notes that “[t]he test for causation in a breach of contract … action is whether the breach was a substantial factor in causing the damages.” (Jenni Rivera Enterprises, LLC v. Latin World Entertainment Holdings, Inc. (2019) 36 Cal.App.5th 766, 792 [internal quotations omitted].)

Defendant asserts that Plaintiff has not alleged that Defendant caused any of its claimed damages. As set forth above, Plaintiff alleges that “[o]n February 22, 2021, Tenant filed a complaint in the San Francisco Superior Court for rescission and damages,” and that “[o]n May 14, 2021, [Plaintiff] filed a cross-complaint for anticipatory breach of the Lease. [Plaintiff] and Tenant then stipulated to submit their dispute to binding arbitration in San Francisco, California.” (FAC, ¶ 24.) Plaintiff alleges that “[o]n January 28, 2022, the Arbitrator issued a Final Award, awarding App Annie almost 8 million dollars in damages and excusing App Annie from millions of dollars in lease obligations, resulting in a net loss to Seaker & Sons of almost 20 million dollars...” (FAC, ¶ 24.)

Defendant asserts that “the arbitrator’s decision to permit the rescission of the Lease and award associated damages to App Annie had nothing to do with [Defendant’s] purported failure to adequately supervise App Annie’s TI projects or its supposed obligation to inform [Plaintiff] and/or App Annie about the need for additional permitting before constructing those TIs. Rather, the arbitrator concluded that [Plaintiff] and App Annie had made a mutual mistake when they originally entered into their Lease: [Plaintiff] and App Annie assumed the Gumps Building was zoned for office use based on historical usage of the building, when in fact the local government had rezoned the building for retail use.” (Demurrer at p. 14:1-8.)

Defendant requests that the Court take judicial notice of a March 24, 2022 Order in the case App Annie Inc. v. Seaker & Sons, et al., Case No. CGC-21-589745, filed in San Francisco County Superior Court, in which the Court granted “App Annie’s Petition to Confirm Arbitration Award.” (Defendant’s RJN, Ex. 1.) The March 24, 2022 Order attaches a “Final Award of Arbitrator Phillip Neiman.” Defendant argues that “[t]he legal effect of that arbitral award…is properly subject to this Court’s judicial notice…” (Demurrer at p. 14:10-11.)

Defendant cites to Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 525, where the Court of Appeal noted that “[t]he trial court properly took judicial notice of the arbitration award.” Defendant also cites to Julian Volunteer Fire Co. Assn. v. Julian-Cuyamaca Fire Protection Dist. (2021) 62 Cal.App.5th 583, 600, where the Court of Appeal noted that “[w]e agree a court generally may not take judicial notice of the truth of facts asserted within documents. But this rule is inapplicable here because the judicially noticed documents were not admitted or relied upon for the truth of particular facts contained in the documents. At most, the trial court took judicial notice of the dates and nature of the official acts. This is permissible. In taking judicial notice of an official document, a court may take notice not only of the fact of the document but also facts that can be deduced, and/or clearly derived from, its legal effect, such as the names and dates contained in the document, and the legal consequences of the document. This is different from taking judicial notice of the truth of specific factual representations within a document.” (Internal citations omitted.)

But here, Defendant seeks judicial notice of factual representations within the subject arbitration award. (See Demurrer at p. 14:8-9, citing “Queen Decl., Ex. 1 (Exhibit A to Order confirming Arbitral Award) § 21.1 (discussing zoning), § 34 (discussing Seaker and App Annie’s mutual mistake)”.) As set forth above, the Court grants Defendant’s request for judicial notice only as to the fact of the March 24, 2022 Order and the arbitration award attached thereto. The Court does not “take judicial notice of the truth of facts asserted within” the subject arbitration award. (Julian Volunteer Fire Co. Assn. v. Julian-Cuyamaca Fire Protection Dist., supra, 62 Cal.App.5th at p. 600.)
            Defendant also asserts that “even putting the arbitral award aside momentarily, the FAC still fails to state a claim because nowhere does [Plaintiff] allege that it was ignorant of the ongoing construction…That omission is fatal to establishing liability under any of [Plaintiff’s] three causes of action. To allege causation in these circumstances, [Plaintiff] must allege that it was not aware of App Annie’s construction activities. For if that were not true—if [Plaintiff] independently knew what App Annie was doing and/or consented to those steps—[Defendant’s] purported failures to inform [Plaintiff] about facts [Plaintiff] already knew would be utterly inconsequential.” (Demurrer at p. 15:9-15.)

In the first cause of action for professional negligence, Plaintiff alleges, inter alia, that “[Defendant] failed to honor its obligation to [Plaintiff] to notify Tenant and its contractors that they were required to obtain required permits and inspections before completing the TI Project. [Defendant] also failed to inform [Plaintiff] that Tenant and its contractors completed the TI Project without obtaining required permits or inspections. Had [Defendant] informed [Plaintiff] of the unpermitted construction, [Plaintiff] could have ordered Tenant to cease construction.

Or, had [Defendant] ordered Tenant to cease such work itself, [Plaintiff] could have avoided—or at least substantially mitigated—the losses it sustained as a result of the now-worthless tenant improvement project, Tenant’s rescission, and the unfavorable arbitration award. Therefore, [Defendant’s] actions with respect to the Gumps Building were professionally negligent, resulting in harm to [Plaintiff] that exceeds $25,000 in an amount to be proven at trial.” (FAC, ¶ 28.)

In the second cause of action for breach of fiduciary duty, Plaintiff alleges, inter alia, that “[b]y failing to notify Tenant and its contractors that governing law and the Lease forbade Tenant from completing the TI project without obtaining required permits and instructions, and failing to inform [Plaintiff] that Tenant and its contractors were completing the TI Project without obtaining required permits, despite promising not to complete the TIs without permits, [Defendant] failed to (i) honor its duty to assure that the Tenant’s TIs were completed consistent with the requirements of governing law, (ii) report to [Plaintiff] that Tenant completed its multi-million dollar TI Project in violation of governing law, and/or (iii) enforce the terms of the Lease which required App Annie to secure permits and deliver them to [Defendant] or [Plaintiff] before undertaking and finishing the TI Project. In so doing, [Defendant] failed to act in [Plaintiff’s] best interest. As a result of [Defendant’s] breaches of its fiduciary duties, [Plaintiff] suffered substantial—and avoidable—losses exceeding $25,000 in an amount to be proven at trial.” (FAC, ¶ 32.)

In the third cause of action for breach of contract, Plaintiff alleges, inter alia, that “[d]espite knowing that Tenant had not obtained the required permits, and despite knowing that Tenant completed the TI construction, [Defendant] failed to instruct Tenant to cease illegal TI construction activity and failed to notify [Plaintiff] of the violation of governing law requiring that permits be issued before construction begins. Therefore, [Defendant] breached the terms of the Management Agreement.” (FAC, ¶ 37.)

Defendant argues that “all of [Plaintiff’s] causes of action require sufficient allegations that [Defendant] proximately caused (or was a substantial factor in causing) the claimed damages. In circumstances such as these—where the alleged misconduct turns on failing to inform [Plaintiff] of certain facts— the causation element necessarily requires an allegation that [Plaintiff] did not know those certain facts. The FAC glaringly omits such an allegation…” (Demurrer at p. 16:12-16.) This does not appear to be disputed by Plaintiff in the opposition, and the FAC does not appear to allege that Plaintiff was not aware of the Tenant’s alleged construction activities.

As set forth above, in addition to the allegations that Defendant failed to notify Plaintiff of the alleged unpermitted construction, Plaintiff also alleges that Defendant failed to notify the Tenant and its contractors that they were required to obtain required permits and inspections before completing the TI Project. (See, e.g., FAC, ¶¶ 28, 32.) In addition, Plaintiff alleges that Defendant “failed to instruct Tenant to cease illegal TI construction activity…” (FAC, ¶ 37.) Defendant asserts that “to the extent [Plaintiff’s] claim is predicated on [Defendant’s] purported failure to inform App Annie of the need for permits or to cease construction until such permits were procured, [Plaintiff’s] own Work Agreement states that it was WZ Architecture and not [Defendant] that was charged with handling these issues.” (Demurrer at p. 16:17-20.)

Defendant requests that the Court take judicial notice of a “Cross-Complaint of Seaker & Sons” filed on May 14, 2021 in the matter App Annie Inc. v. Seaker & Sons, et al., Case No. CGC-21-589745. (Defendant’s RJN, Ex. 2.) This Cross-Complaint alleges, inter alia, that “Landlord and Tenant entered into Lease made and entered into as of December 27, 2019 (the ‘Lease’) for 26,154 rentable square feet comprised of the 3rd and 4th floors of 135 Post Street/30 Maiden Lane (the ‘Premises’). The Lease is attached hereto as Exhibit A and incorporated by this reference herein.” (Defendant’s RJN, Ex. 2, ¶ 3.)

Defendant asserts in the demurrer that “[t]he Lease included a ‘Work Agreement’ that ‘set[ ] forth the terms and conditions relating to the construction’ of App Annie’s TIs. Declaration of Daniel D. Queen (Queen Decl.) Ex. 2, at D-1. The Work Agreement expressly designated [Plaintiff’s] architect—WZ Architecture—as the entity that ‘must be used for permitting and any and all communications with the City of San Francisco (including the City’s planning department),’ and designated Koonshing Wong of WZ Architecture as [Plaintiff’s] ‘sole representative with respect to the matters set forth in this Work Agreement . . . who shall have full authority and responsibility to act on behalf of Landlord [Plaintiff].” (Id. §§ 2.1, 4.2.).” (Demurrer at p. 10:9-17.)

As discussed, “a court generally may not take judicial notice of the truth of facts asserted within documents.” (Julian Volunteer Fire Co. Assn. v. Julian-Cuyamaca Fire Protection Dist., supra, 62 Cal.App.5th at p. 600.) However, Defendant also asserts that “even if the Court were to consider the Lease’s contents to be out-of-court statements offered for their truth, the Lease still would not be hearsay because it is the statement of a party opponent (i.e., Plaintiff Seaker & Sons).” (Defendant’s RJN at p. 3:21-23.) Defendant cites to Evidence Code section 1220, which provides that “[e]vidence of a statement is not made inadmissible by the hearsay rule when offered against the declarant in an action to which he is a party in either his individual or representative capacity, regardless of whether the statement was made in his individual or representative capacity.” Plaintiff does not appear to dispute this point in the opposition. Rather, Plaintiff states that “[Defendant] asks the Court to judicially notice the Lease Agreement. [Plaintiff] does not object but includes additional clarifying references.” (Opp’n at p. 6, fn. 1.)

The subject “Work Agreement” attached as “Exhibit D” to the lease provides, inter alia, that “WZ Architecture must be used for permitting and any and all communication with the City of San Francisco (including with the City’s planning department),” and that “Landlord has designated Koonshing Wong as its sole representative with respect to the matters set forth in this Work Agreement, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of Landlord as required in this Work Agreement.” (Defendant’s RJN, Ex. 2, Work Agreement, §§ 2.1, 4.2.) Defendant argues that “while [Plaintiff] continuously relies upon its…statement throughout the FAC that [Defendant] was its ‘sole agent’ for the project (e.g., FAC ¶¶ 1, 3, 14, 18, 29, 33), that conclusory characterization is meaningless because it is directly contradicted by the judicially noticeable provisions of the Lease.” (Reply at p. 6:2-5.)[1]

In the opposition, Plaintiff asserts that “[Defendant] argues that the provision in the Work Agreement (included in App Annie/Seaker Lease) which designated Mr. Wong as [Plaintiff’s] ‘sole representative [with] full authority’ concerning the TI project abrogated all of [Defendant’s] duties under the Management Agreement. Assuming arguendo that [Defendant] is right, [Defendant] was duty bound to tell [Plaintiff] that it would not provide building management services. This [Defendant] did not do.” (Opp’n at p. 1:22-27.)

Plaintiff argues that “[Defendant] attended weekly or bi-weekly construction meetings as [Plaintiff’s] building manager, facilitated multiple site visits for App Annie and its contractors and acted as the primary channel of communication between Tenant and [Plaintiff]. Having voluntarily assumed these duties, [Defendant] was obligated to instruct App Annie’s contractors to stop work without permits and to ensure that App Annie’s contractors kept Mr. Wong fully informed and did not undertake construction activity beyond the soft work that was permissible without permits.” (Opp’n at p. 2:1-6.) Plaintiff argues that “by staying on as building manager and [Plaintiff’s] agent, [Defendant] voluntarily assumed the responsibility to insist that App Annie halt construction beyond permits and keep Mr. Wong fully informed of all aspects of the construction activity.”  (Opp’n at p. 12:19-21.) But Plaintiff does not appear to point to any allegations in the FAC stating that Defendant voluntarily assumed such duties.  

In light of the foregoing, the Court sustains Defendant’s demurrer to each of the causes of action of the FAC, with leave to amend.[2]

Conclusion 

Based on the foregoing, the Court sustains Defendant’s demurrer to each of the causes of action of the FAC, with leave to amend.

The Court orders Plaintiff to file and serve an amended complaint, if any, within 20 days of the date of this order. If no amended complaint is filed within 20 days, the Court orders Defendant to file and serve a proposed judgment of dismissal within 30 days of the date of this order.¿ 

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Defendant is ordered to give notice of this order.¿ 

DATED:  December 22, 2023                                                                                     

________________________________ 

Hon. Rolf M. Treu

Judge, Los Angeles Superior Court