Judge Teresa A. Beaudet, Case Number: 23STCV30940, Date: 2024-09-05 Tentative Ruling

SL RETAIL OWNER, LLC, Plaintiff, vs. NOWHERE SILVER LAKE, LLC, dba EREWHON., et al. Defendants.	Case No.:	22STCV30940
	Hearing Date:	September 5, 2024
	Hearing Time: 10:00 a.m. [TENTATIVE] ORDER RE: NOWHERE SILVER LAKE, LLC dba EREWHON’S MOTION FOR LEAVE TO FILE THIRD-AMENDED CROSS-COMPLAINT
AND RELATED CROSS-ACTION

Plaintiff SL Retail Owner LLC (“SL Retail”) filed this action on September 21, 2022 against Defendants Nowhere Silver Lake, LLC dba Erewhon (“Erewhon”) and Nowhere Holdco, LLC. The Complaint alleges causes of action for (1) breach of contract and (2) declaratory judgment.

On June 30, 2023, Erewhon filed the operative Second Amended Cross-Complaint (“SACC”) in this action against Cross-Defendants Sportsmen’s Lodge Owner, LLC, SL Retail, and Midwood Management Corp. aka Midwood Investment and Development (collectively, “Cross-Defendants”) The SACC alleges causes of action for (1) breach of contract (specific performance), (2) breach of contract, (3) breach of the implied covenant of good faith and fair dealing, (4) fraud (concealment), (5) negligent misrepresentation, (6) violation of Business and Professions Code section 17200 (unfair competition), (7) declaratory relief, and

In the SACC, Erewhon alleges, inter alia, that “Cross-Defendants are a New York developer…and its related entities, who acquired the land surrounding the historic Sportsmen’s Lodge Hotel in Studio City from a local developer. Once acquired, Cross-Defendants misrepresented and concealed material facts to/from Erewhon to induce Erewhon to enter into a lease for retail space in the to-be-built shopping center.” (TACC, ¶ 10.) Erewhon alleges that “[i]n or around April 2019 Erewhon became the first tenant to officially enter into a lease with the Cross-Defendants. Since entering into the lease – and since using Erewhon’s involvement to attract other tenants – Cross-Defendants have engaged in a pattern of behavior that is directly contrary to Erewhon’s rights under the lease.” (TACC, ¶ 11.)

Erewhon now moves for leave to file a third amended cross-complaint against Cross-Defendants. SL Retail opposes.

A motion to amend a pleading before trial must include a copy of the proposed amendment or amended pleading, which must be serially numbered to differentiate it from previous pleadings or amendments. (¿¿Cal. Rules of Court, rule 3.1324, subd. (a).)¿¿ The motion must also state what allegations are proposed to be deleted or added, by page, paragraph, and line number. (¿Cal. Rules of Court, rule 3.1324, subd¿. (a).) Finally, “¿[a] separate declaration must accompany the motion and must specify: (1)¿The effect of the amendment; (2)¿Why the amendment is necessary and proper; (3)¿When the facts giving rise to the amended allegations were discovered; and (4)¿The reasons why the request for amendment was not made earlier.¿” (Cal. Rules of Court, Rule 3.1324, subd. (b).)

Erewhon’s counsel attaches as Exhibit 1 to his declaration a copy of Erewhon’s proposed Third Amended Cross-Complaint (“TACC”). (Addison, Jr. Decl., ¶ 3, Ex. 1.) Erewhon’s counsel provides a copy of the redlined version of Erewhon’s proposed TACC, showing the changes made to the SACC. (Addison, Jr. Decl., ¶ 3, Ex. 2.)

Erewhon’s counsel states that the effect of the proposed TACC “is to plead two new causes of action for Fraud (Concealment and Intentional Misrepresentation) based on Cross-Defendants Sportsmen’s Lodge Owner, LLC, SL Retail Owner, LLC, and Midwood Management Corp. aka Midwood Investment & Development’s (collectively, ‘Cross-Defendants’) very recent production of internal email correspondence, as well as to refine and bolster the allegations set forth within Erewhon’s already pleaded cause of action for Breach of Contract based on other recently produced documents by Cross-Defendants.” (Addison, Jr. Decl., ¶ 6.)

In the new fourth cause of action for fraud-concealment in the proposed TACC, Erewhon alleges, inter alia, that “[b]oth in negotiations leading up to the execution of the Lease and in the Lease itself, Cross-Defendants falsely represented that their ‘good faith’ estimate of the amount of Operating Costs Rent for the first Operating Cost Year was based on an annual rate of $12.25 per square feet of floor space used by Erewhon.” (Addison, Jr. Decl., ¶ 3, Ex. 2, ¶ 77.) Erewhon alleges that “[i]n September 2022, Cross-Defendants presented Erewhon with a bill for Operating Costs Rent at a per-square-foot price of approximately $26.00 – more than 110% higher than the ‘good faith’ estimate previously provided.” (Ibid., ¶ 80.) Erewhon alleges that “Cross-Defendants at all relevant times knew that the $12.25 per square foot price communicated to Erewhon was not accurate, and that Cross-Defendants’ own internal calculations and market research (information available only to Cross-Defendants and not to Erewhon) reflected anticipated costs much higher than $12.25 per square foot.” (Ibid., ¶ 81.)

The new fifth cause of action for fraud-intentional misrepresentation in the proposed TACC similarly alleges, inter alia, that “while the parties were negotiating the Lease, Cross-Defendants falsely represented to Erewhon that it would be responsible for paying Operating Costs Rent of approximately $12.25 per square feet of floor space used by Erewhon. These representations were made in, among other things, the LOI provided by Ron Bondy, a document provided by Ron Bondy which contained manipulated financial figures and purported to set forth a categorical breakdown and calculation of those costs, and in the parties’ Lease…Erewhon is informed and believes that Cross-Defendants knew that these representations were false at the time that they were made. For example, Erewhon is informed and believes that Cross-Defendants’ internal calculations and market research reflected operating costs much higher than $12.25 per square foot being represented to Erewhon.” (Addison, Jr. Decl., ¶ 3, Ex. 2, ¶¶ 90-91.)

Further, Erewhon’s cause of action for breach of contract in the proposed TACC contains additional allegations that, inter alia, “on or around August 17, 2021, Cross-Defendants entered into a written agreement with ACE to ‘assume primary and complete responsibility for all aspects of the daily operation, maintenance, and repair’ of the Center’s parking lots.” (Addison, Jr. Decl., ¶ 3, Ex. 2, ¶ 57.) Erewhon alleges that “in breach of Section 6.3 [of the Lease]…Cross-Defendants have charged operating costs they did not incur – namely, the operating costs incurred by ACE, which were netted out against the parking revenue collected by ACE.” (Ibid., ¶ 58.)[1] Erewhon also alleges that “Cross-Defendants have further breached the Lease, section 6.3, by including items not properly considered operating costs in its 2022 Operating Costs Rent items.” (Ibid., ¶ 59.)

Erewhon’s counsel’s supporting declaration provides that “Erewhon’s counsel discovered the facts giving rise to its proposed causes of action for Fraud (Concealment and Misrepresentation) beginning on June 24, 2024, when Cross-Defendants produced documents which confirmed the facts upon which these new causes of action are based.” (Addison, Jr. Decl., ¶ 8.) Erewhon’s counsel states that “[r]egarding Erewhon’s proposed amendments to its already pleaded cause of action for Breach of Contract, Erewhon received documents from Cross-Defendants beginning on June 10, 2024, and beginning approximately the week of June 24, 2024, became [sic] aware that these newly produced documents gave rise to additional claims for breaches of the parties’ written lease.” (Addison, Jr. Decl., ¶ 9.)

Erewhon’s counsel asserts that the instant “Request for Amendment is made as soon as reasonably practicable in light of the fact that Cross-Defendants only recently produced documents in this case, including the documents which provide the basis for the new allegations and causes of action alleged in Erewhon’s TAXC. These documents were provided in two voluminous productions, one on June 10, 2024 and a second on June 24, 2024…” (Addison, Jr. Decl., ¶ 10.) The instant motion was filed on July 3, 2024.

In the opposition, SL Retail asserts that “leave to amend should be denied because it will cause unwarranted delay.” (Opp’n at p. 9:26.) SL Retail argues that “it is Erewhon’s own lack of diligence in pursuing discovery that caused the delay. Erewhon should not be permitted to use its own lack of diligence as an excuse to get an 11th hour amendment and prejudice Cross-Defendants by re-opening discovery delaying trial [sic].” (Opp’n at p. 10:14-17.)

However, as noted by Erewhon, SL Retail does not appear to articulate how it would be prejudiced should Erewhon’s instant motion be granted. Nor does SL Retail appear to provide evidence to support any such prejudice. Erewhon notes that the opposition does not, for instance, “establish how, or to what extent, Erewhon’s request to amend will lead to the loss of critical evidence, increase the cost of preparing for trial, or burden Cross-Defendants through additional discovery.” (Reply at p. 5:18-20.)

As to SL Retail’s argument that Erewhon failed to diligently pursue discovery, SL Retail’s counsel states that “[w]hile Erewhon served certain written discovery in this action, Landlord’s responses were stayed pending the resolution of Landlord’s Demurrer, Motion to Strike, and Special Motion to Strike. Following the resolution of Landlord’s Special Motion to Strike, on August 15, 2023, I received an e-mail from Aaron Levine, counsel for Erewhon, stating: ‘It seems to me that a good portion of the outstanding discovery may have been mooted in light of the fact that certain issues have been resolved and the pleadings have been amended…Once we’ve determined what is still at issue we can set a date for a simultaneous exchange of responses / supplemental responses.’ Landlord’s counsel, Staci Tomita, responded, stating, ‘We are fine with your proposal regarding discovery,’ and Mr. Levine then stated on August 16, 2023, ‘I’ll circle back next week regarding the below-referenced meet and confer.’” (Hicks Decl., ¶ 2.) SL Retail’s counsel states that “Mr. Levine never ‘circle[d] back’ regarding Erewhon’s written discovery.” (Hicks Decl., ¶ 3.)

SL Retail’s counsel states that “[i]t was not until March 29, 2024 – more than 7 months later – that Erewhon brought up its withdrawn written discovery again, indicating it intended to move in limine to exclude any evidence that would have been responsive to Erewhon’s withdrawn discovery.” (Hicks Decl., ¶ 4.) SL Retail’s counsel states that “[e]ven though Erewhon never set a deadline for Landlord to respond or re-serve the requests, I served objections to preserve Landlord’s rights on April 1, 2024.” (Hicks Decl., ¶ 6.)

In the reply, Erewhon counters that it did not “withdraw” its discovery to Cross-Defendants. Erewhon notes that its counsel’s August 15, 2023 email provides, inter alia, that “I propose that the parties meet and confer regarding the outstanding discovery so that we can evaluate whether anything can or should be withdrawn or limited.” (Hicks Decl., ¶ 2, Ex. 1.) Erewhon asserts that “[a]s the responding parties, Cross-Defendants bore the onus to confirm which of the remaining discovery requests were at-issue.” (Reply at p. 8:13-15.)

Erewhon also asserts that “Cross-Defendants’ attempt to ‘set the record straight’ has no bearing on the Motion, which hinges on Erewhon’s swiftness in bringing its Motion after receiving documents Erewhon was entitled to for many months. As articulated above, Erewhon brought the Motion in quick succession…” (Reply at p. 8:19-22.) Indeed, as discussed, Erewhon indicates that its counsel “discovered the facts giving rise to its proposed causes of action for Fraud (Concealment and Misrepresentation) beginning on June 24, 2024, when Cross-Defendants produced documents which confirmed the facts upon which these new causes of action are based.” (Addison, Jr., Decl., ¶ 8.) Erewhon’s counsel further states that “[r]egarding Erewhon’s proposed amendments to its already pleaded cause of action for Breach of Contract, Erewhon received documents from Cross-Defendants beginning on June 10, 2024, and beginning approximately the week of June 24, 2024, became [sic] aware that these newly produced documents gave rise to additional claims for breaches of the parties’ written lease.” (Addison, Jr., Decl., ¶ 9.) The instant motion was filed soon thereafter, on July 3, 2024. The Court does not find that Erewhon delayed in bringing the instant motion or that SL Retail has demonstrated that it has been prejudiced as a result of any claimed delay.

SL Retail also asserts that “the new allegations do not materially add new claims to the SACC. Erewhon’s Proposed TACC purports to add (i) a breach of contract claim regarding alleged overpayment of CAM and rent regarding parking expenses at the Center; and (ii) fraud and misrepresentation claims regarding the first Operating Year CAM charges assessed on Erewhon. The existing Second and Third Causes of Action of the SACC already encompass Erewhon’s belief that Landlord breached the Lease by overcharging it for rent and CAM charges – and the existing Fourth and Fifth Causes of Action of the SACC already encompass Erewhon’s belief that Cross-Defendants misrepresented or concealed the facts related to the true CAM charges that would be assessed on Erewhon in the first Operating Year, inducing Erewhon to sign the Lease. None of these claims are materially new.” (Opp’n at p. 11:13-22.)

In the reply, Erewhon counters that “[l]eave to amend does not hinge on whether the proposed amended pleading presents ‘material[] . . . new claims,’…which the Proposed TAXC does, and which is a new and unsupported standard Cross-Defendants improperly rely upon.” (Reply at p. 9:17-19.) To the extent SL Retail is asserting that the proposed new causes of action are not legally sufficient because they are not “materially new,” the Court of Appeal in Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048, noted that “the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer, motion for judgment on the pleadings or other appropriate proceedings.”

Based on the foregoing, the Court finds that Erewhon has demonstrated good cause to file the proposed TACC.

Based on the foregoing, Erewhon’s motion for leave to file a third-amended cross-complaint is granted. The Court orders Erewhon to file and serve the third-amended cross-complaint within 3 days of the date of this Order.¿¿¿¿

[1]Erewhon alleges that “Section 6.4(A) of the Lease…states that Erewhon ‘shall pay Landlord as Additional Rent a proportionate share of Landlord’s Operating Costs…which shall be computed by multiplying the amount of the Landlord’s Operating Costs less any Deductible Contributions (defined in Section 5.8) by [Erewhon’s] Proportionate Share.’” (Addison, Jr. Decl., ¶ 3, Ex. 2, ¶ 54.) Erewhon alleges that Section 6.3 of the Lease defines “Landlord’s Operating Costs.” (Ibid., ¶ 55.)

Superior Court of California

County of Los Angeles

Department 50