Judge: Theodore R. Howard, Case: 22-1247177, Date: 2022-10-20 Tentative Ruling
Defendants’ Demurrer
Defendants demur generally to all nine causes of action in the complaint.
Since the filing of the demurrer, plaintiffs filed a request for dismissal of the seventh cause of action for unfair business practices. Thus, the demurrer to the seventh cause of action is moot.
First cause of action for breach of implied-in-fact contract. The first cause of action is for breach of implied-in-fact contract. It does not identify the plaintiffs who are asserting this cause of action or the defendants against whom it is brought. See CRC 2.112. (“Each separately stated cause of action, count, or defense must specifically state: … [¶] [t]he party asserting it if more than one party is represented on the pleading (e.g., “by plaintiff Jones”); and … [¶] [t]he party or parties to whom it is directed (e.g., “against defendant Smith”).”
Moving defendants contend that this cause of action is defective because it does not show either mutual consent on the part of the parties or the terms of the contract. They also contend that the contract is not enforceable under the statute of frauds in Civ. Code § 1624.
Although plaintiffs contend in their opposition that the first cause of action is properly alleged, the defendants’ first argument has merit. Specifically, the first cause of action does not show that the parties formed a contract either by their conduct or otherwise.
The first cause of action alleges in ¶ 42 that, between February 2021 and December 2021, defendants Newport Harbor Investments, LLC, Wes Brown, and Carol Mays “repeatedly represented” to plaintiff Extended Care Hospital of Westminster, GP, that Newport Harbor Investments and Brown intended to extend the lease term beyond its termination date of February 28, 2022. Paragraph 42 further alleges that defendant Brown sent plaintiff Extended Care Hospital of Westminster multiple text messages about this and stated in telephone calls that he and Newport Harbor Investments were preparing documents to extend the lease term. Paragraph 43 then makes the conclusory allegation that this conduct on the part of Newport Harbor Investments, LLC, Brown, and Mays created an implied-in-fact contract whereby the landlord agreed with the tenant to extend the term of the existing lease past its termination date and that plaintiff Extended Care Hospital of Westminster would continue to pay to use the leased premises. It also alleges that because the parties had previously extended the term of the lease in five-year increments, plaintiffs reasonably expected the lease to be extended by another five years. (Complaint, ¶¶ 43 and 44.)
These allegations do not show a meeting of the minds. At most they show that defendants were considering an extension of the lease term.
Second cause of action for intentional interference with prospective economic advantage. The second cause of action is for intentional interference with prospective economic advantage. This cause of action has five elements, which are: (1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant's action. Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512.
Moving defendants contend that the second cause of action is defective because it does not show that they engaged in any independent wrongful conduct, i.e., an act proscribed by some constitutional, statutory, regulatory common law, or other determinable legal standard, or that any prospective or current economic relationship was disrupted. Plaintiffs contend that the cause of action is properly alleged.
The second cause of action alleges that the plaintiffs have economic relationships with the residents of the skilled nursing facility that they operate on the premises and that they also have economic relationships with the employees, who are highly skilled. (Complaint, ¶¶ 49 and 50.) It alleges that defendants had knowledge through the lease documents that plaintiffs intended to operate the skilled nursing facility and that they actually operated it and had economic relationships with the residents and employees. (Complaint, ¶ 51.)
The second cause of action alleges that defendants acted with the intent to interfere with Extended Care Hospital of Westminster and plaintiffs’ relationships with its residents and employees (complaint, ¶ 52) when they provided information to Extended Care Hospital of Westminster that misrepresented their intent to extend the lease. It alleges that Extended Care Hospital of Westminster will have to transfer residents to competing facilities because defendants misrepresented the intent of Newport Harbor Investments to extend the lease. (Complaint, ¶ 52.)
These allegations do not establish the cause of action. Not only do they not show any wrongful conduct other than the interference but they do not show that the interference actually resulted in disruption of the relationships – only possible disruption.
Third cause of action for negligent interference with prospective economic advantage. The third cause of action is for negligent interference with prospective economic advantage.
“The tort of negligent interference with prospective economic advantage is established where a plaintiff demonstrates that (1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship.” North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 786.
Like the second cause of action, the third cause of action alleges that the plaintiffs had economic relationships with residents and employees of the skilled nursing facility and that defendants were aware of these relationships. (Complaint, ¶¶ 56 and 58.) It alleges that defendants knew that withdrawal of their prior stated intention to extend the lease term less than three months before the end of the lease term would disrupt plaintiffs’ economic relationships with its residents and employees and result in economic harm. (Complaint, ¶¶ 60 and 61.)
However, the third cause of action does not show that the plaintiffs sustained actual harm as a result of the defendants’ conduct. As a result, the cause of action is not adequately alleged.
Fourth cause of action for tortious interference with contractual relations. The fourth cause of action is for tortious interference with contractual relations.
“Tortious interference with contractual relations requires ‘(1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.’ [Citations.]” Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1141.
Generally, the defendant’s conduct need not be wrongful apart from the interference with the contract itself. Ibid.
The fourth cause of action alleges that the plaintiffs have contractual relationships with the residents of the skilled nursing facility and that the defendants knew about these relationships. (Complaint, ¶¶ 64 and 65.) It alleges that the defendants interfered with the contracts between the plaintiffs and the residents of the skilled nursing facility “by misrepresenting an intent to renew and/or extend the Lease with Tenant for over eight months, then unilaterally withdrawing such an intent with less than three months left in the Lease Term.” (Complaint, ¶ 67.) It then alleges that, as a direct and proximate result of the defendants’ conduct, plaintiff’s “contractual relationships with their residents are currently being, and will continue to be disrupted, causing economic harm in an amount to be determined at trial.” (Complaint, ¶ 68.)
These allegations fail to show exactly how the contractual relationships were disrupted and what damages were caused. Further facts are necessary.
Fifth and sixth causes of action for intentional and negligent misrepresentation. The fifth and sixth causes of action are for intentional and negligent misrepresentation, respectively.
“The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage. [Citations.]” Chapman v. Skype, Inc. (2013) 220 Cal.App.4th 217, 230-231. “The essential elements of a count for negligent misrepresentation are the same except that it does not require knowledge of falsity but instead requires a misrepresentation of fact by a person who has no reasonable grounds for believing it to be true. [Citations.]” Id. at p. 231.
Each element of a fraud count must be pleaded with particularity so as to apprise the defendant of the specific grounds for the charge and enable the court to determine whether there is any basis for the cause of action, although less specificity is required if the defendant would likely have greater knowledge of the facts than the plaintiff. Ibid.
The fifth cause of action alleges that the defendants made false representations of an intent to renew or extend the lease to Extended Care Hospital of Westminster. (Complaint, ¶¶ 70 and 71.) It alleges that after defendants received plaintiffs’ confidential and proprietary information, they unilaterally withdrew their agreement to extend the lease term even though the information provided showed that plaintiffs operated a successful business. (Complaint, ¶ 72.) It alleges, based on information and belief, that defendants never intended to extend the lease but made the representations so that plaintiffs would provide their confidential information to defendants for them to use themselves or give to replacement tenants. (Complaint, ¶¶ 72-73.) It then alleges that plaintiffs have been damaged as a result of defendants’ conduct, although it does not specify how or what those damages are. (Complaint, ¶ 74.)
The sixth cause of action contains similar allegations, as well as an allegation that defendants never actually intended to extend the lease but wanted plaintiffs to rely on the misrepresentations to steal plaintiffs’ confidential financial information and client lists to use for themselves and provide to other potential tenants and competitors of plaintiffs. (Complaint, ¶ 78.)
Additional facts are needed to show that defendants actually agreed to extend or renew the lease rather than simply express an “intention” to extend or renew it. Additional facts are also needed to show how plaintiffs were damaged and what the damages consisted of.
Eighth cause of action for misappropriation and use of trade secrets. The eighth cause of action is for misappropriation and use of trade secrets.
Under the California Uniform Trade Secret Act, a prima facie claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff's trade secret through improper means, and (3) the defendant's actions damaged the plaintiff. Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665. “Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Id. at pp. 1665-1666.
The eighth cause of action alleges that, over the course of operating the skilled nursing facility on the premises, the plaintiffs developed their own financial strategies and built a successful business. (Complaint, ¶ 87.) It alleges that defendants asked plaintiffs for information about their business in anticipation of a five-year extension of the lease. (Complaint, ¶ 87.) It alleges that plaintiffs provided defendants with their proprietary and confidential information for the limited and express purpose of preparing the lease extension. (Complaint, ¶ 94.)
The eighth cause of action alleges that defendants’ request for the information was based on a false pretense (complaint, ¶ 95) and that defendants “disclosed the information to others for purposes beyond preparing documents to extend the terms of the Lease, and to steal the value of the business at the Leased Premises and bring in a new operator” (complaint, ¶ 96). It alleges that, as a direct and proximate result of the defendants’ misappropriation of plaintiffs’ confidential, proprietary, and trade secret information, plaintiffs have sustained damages. (Complaint, ¶ 97.)
Again, the cause of action fails to contain facts showing exactly how plaintiffs were damaged.
The ninth cause of action for breach of the covenant of good faith and fair dealing. The ninth cause of action is for breach of the covenant of good faith and fair dealing and apparently relates to the lease agreement. It provides no facts and simply alleges that, “[a]s alleged herein, Landlord [Newport Harbor Investments] breached the covenant of good faith and fair dealing.” (Complaint, ¶ 103.)
The allegations provide no information whatsoever, and additional facts are needed to state a claim.
TENTATIVE RULING ON MOTION #1: The general demurrer of defendants Newport Harbor Investments, LLC, Wes Brown, Carol Mays, and Dennis M. Sandoval, as trustee of the Mays Revocable Family Trust dated March 1, 1990 and complete restatement on November 7, 2001 to the first, second, third, fourth, fifth, sixth, eighth, and ninth causes of action in the complaint of plaintiffs Extended Care Hospital of Westminster, GP, Riverside Magnolia Corporation, and Mark and Fred Enterprises, LLC, is SUSTAINED with 30 days’ leave to amend.
The demurrer to the seventh cause of action is MOOT by the dismissal of that cause of action.
Any amended complaint should comply with CRC 2.112 and specify the plaintiffs bringing each cause of action and the defendants against whom each cause of action is directed.
Motion to Strike
The motion of defendants Newport Harbor Investments, LLC, Wes Brown, Carol Mays, and Dennis M. Sandoval, as trustee of the Mays Revocable Family Trust dated March 1, 1990 to strike portions of the complaint of plaintiffs Extended Care Hospital of Westminster, GP, Riverside Magnolia Corporation, and Mark and Fred Enterprises, LLC, is MOOT.
Moving parties to give notice.
Demurrer to Cross-Complaint
Cross-defendants Extended Care Hospital of Westminster, GP, Riverside Magnolia Corporation, and Mark and Fred Enterprises, LLC, demur specially to the cross-complaint of cross-complainant Dennis M. Sandoval, as trustee of the Mays Revocable Family Trust dated March 1, 1990 and complete restatement on November 7, 2001, on the ground that the cross-complainant lacks standing. They also demur generally to all eleven causes of action in the cross-complaint.
a. Request for Judicial Notice
The cross-defendants ask for judicial notice of facts surrounding the status of Newport Harbor Investments, Ltd., a California corporation, and Newport Harbor Investments, LLC. (Requests 1 and 2.) They also ask for judicial notice of certain checks (request 3) and a document of the California Department of Public Health that is available on its website (request 4). The Court can take judicial notice of the matters in requests 1, 2, and 4, but it does not take judicial notice of the matters in request 3.
b. Analysis
Standing. Moving cross-complainants contend that the cross-complainant lacks standing to bring the claims in the cross-complaint because: (1) the exhibits to the cross-complaint, including the lease and the amendments thereto, show only that the only landlord for the leased premises was Newport Harbor Investments and that Bennie Joe and Bobbie Ann Mays were only officers for this entity; and (2) the cross-complaint does not contain any facts showing that he is a successor-in-interest with a right to possession of the leased premises.
Both of these contentions lack merit. First, the lease, which is exhibit 1 to the cross-complaint, clearly states in the first paragraph that it is being entered into by Newport Harbor Investments, Ltd., Bennie Joe Mays, and Bobbie Ann May, who are to be collectively referred to as “landlord” in the lease, and Care Rehabilitation, who is to be referred to as “tenant.” Likewise, both the amendment to the lease that is exhibit 2 to the cross-complaint and the assignment of June 16, 1989 that is exhibit 3, reference the lease as being between Newport Harbor Investments, Bennie Joe Mays, and Bobbie Ann May as lessor and Care Rehabilitation as lessee. The second amendment to the lease dated April 30, 1992 that is exhibit 4 to the cross-complaint similarly refers to Newport Harbor Investments, Bennie Joe Mays, and Bobbie Ann May as lessor and FHP as lessee.
With regard to the second point, the cross-complaint alleges in ¶ 1 that the cross-complainant is the successor trustee of the Mays Revocable Family Trust. In addition to detailing the documents relating to the lease of the property and the status of Bennie Joe Mays and Bobbie Ann Mays as co-lessors of the property, the cross-complaint alleges that Bennie Joe Mays passed away on May 24, 2017 and that all of his interest in the real property vested in Bobbie Ann Mays. (Cross-complaint, ¶ 23.) The cross-complaint further alleges that Bobbie Ann Mays subsequently transferred the property to the Mays Family Trust. (Cross-complaint, ¶ 26.)
c. The causes of action
The first four causes of action for breaches of contract and the covenant of good faith and fair dealing. The first three causes of action in the cross-complaint are all for breach of lease:
The first cause of action alleges that the cross-defendants breached the lease by performing significant construction work on the premises. (Cross-complaint, ¶ 33.)
The second cause of action alleges that cross-defendants breached the lease by failing to surrender the premises to the cross-complainant when the lease term ended on February 28, 2022. (Cross-complaint, ¶ 39.)
The third cause of action alleges that cross-defendants breached the lease by failing to cooperate with the lessors in transitioning the operation of the skilled nursing facility to a new operator at the expiration of the lease. (See cross-complaint at ¶ 59.)
The fourth cause of action in the cross-complaint is for breach of the covenant of good faith and fair dealing.
The demurrer does not challenge any of the first four causes of action specifically, although it does argue that allegations in the second cause of action are contradicted by judicially noticeable facts, i.e., the checks for rent that moving cross-defendants have asked the Court to take judicial notice of. They contend that these checks show that the tenancy converted to a month-to-month tenancy when the lease expired because the lessor is cashing those checks.
However, the checks are not something that the Court can properly take judicial notice of, and the challenge fails.
The demurrer also argues that the allegations of non-cooperation in transferring the skilled nursing facility cannot be true because of regulations governing skilled nursing facilities. However, Exhibit 4 to the cross-complaint is a second amendment to the lease dated April 30, 1992 that adds a new paragraph 41. This paragraph states that, at the expiration of the lease, the tenant “shall have caused the Premises to be certified as a Medi-Cal provider under the applicable laws, rules, and regulations and shall surrender the Premises to Landlord with such Medi-Cal certification in full force and effort.”
The demurrer contends that the 1992 amendment is not binding on the cross-defendants because this amendment is not mentioned in the 1996 assignment, which is exhibit 5 to the cross-complaint. There is no explicit language in exhibit 5 supporting this argument. Furthermore, exhibit 5 refers to the master lease as being amended.
Moving cross-defendants have not established that the first four causes of action do not state claims.
Fifth and sixth causes of action for intentional and negligent interference with prospective economic advantage. The fifth and sixth causes of action are based on allegations that the cross-defendants are holding over on the property and that they will not cooperate in transitioning the skilled nursing facility to a new operator and, additionally, have disrupted the relationship between the lessor and the prospective new tenant. (See cross-complaint at ¶¶ 70-73. and 77-81.)
These allegations are sufficient to set forth claims.
Seventh through eleventh causes of action for tortious breach of contract, negligence, violation of Bus. & Professions Code § 17200, specific performance, and injunction. With the exception of the ninth cause of action for violation of Bus. & Prof. Code § 17200, the moving papers do not specifically address the remaining causes of action.
The demurrer contends that the ninth cause of action for violation of Business & Professions Code § 17200 is not pled with specificity and does not indicate which prong it is being brought under.
The ninth cause of action alleges that the cross-defendants performed substantial construction work on the skilled nursing facility without obtaining permits, inspections, or approval, which was a violation of the California Administrative Code and the Health and Safety Coe. (Cross-complaint, ¶ 92(a).) It also alleges that the cross-defendants threatened to take actions to allow the Medicare, Medicaid, and Medi-Cal certifications and licenses applicable to the premises to lapse. (Cross-complaint, ¶ 92(d).)
These actions are sufficient to set forth a claim.
The special demurrer of cross-defendants Extended Care Hospital of Westminster, GP, Riverside Magnolia Corporation, and Mark and Fred Enterprises, LLC, to the cross-complaint of Dennis M. Sandoval, as trustee of the Mays Revocable Family Trust dated March 1, 1990 and complete restatement on November 7, 2001, on the ground that the cross-complainant lacks standing is OVERRULED. The general demurrer to all eleven causes of action in the cross-complaint is also OVERRULED.
The request for judicial notice is granted only as to items 1, 2, and 4.