Judge Thomas D. Long, Case Number: 24STCV02001, Date: 2024-12-10 Tentative Ruling

On May 21, 2024, Defendant Wei Huang filed a motion to quash service of summons.

On May 23, 2024, Defendants Shen Zhen New World I LLC, SNW Management (USA), Shen Zhen New World Investment (USA) Inc., and Russell Cox filed a motion to compel arbitration, a demurrer, and a motion to strike.

Defendant Wei Huang argues that this Court lacks jurisdiction over him because he was not properly served with the summons and complaint.

A defendant, on or before the last day of his or her time to plead or within any further time that the court may for good cause allow, may serve and file a notice of motion and motion to quash service of summons on the ground of lack of jurisdiction of the court over him or her. (Code Civ. Proc., § 418.10, subd. (a)(1).) “[I]f a defendant is not validly served with a summons and complaint, the court lacks personal jurisdiction.” (Lee v. An (2008) 168 Cal.App.4th 558, 564 (Lee).)

Substituted service requires leaving a copy of the summons and complaint either at the individual’s dwelling house or usual place of abode, usual place of business, or usual mailing address other than a United States Postal Service post office box. (Code Civ. Proc., § 415.20, subd. (b).) Plaintiff must also mail a copy of the summons and complaint by first-class mail, postage prepaid to the person to be served at the place where a copy of the summons and complaint were left. (Code Civ. Proc., § 415.20, subd. (b).)

According to the proof of service, Plaintiffs’ process server made three failed attempts at personal service at 266 S. Santa Maria Street, Orange, CA 92869, on January 29-31, 2024. Defendant was served via substituted service on Russell Cox (“representative/authorized to accept”) on February 7, 2024 at 4:00 p.m. at 333 Universal Hollywood Drive, Universal City, CA 91608, Defendant’s usual place of business. On the same day, the summons, complaint, and other documents were mailed via first class mail to Defendant at the same address. Substituted service therefore appears proper based on the face of the proof of service.

Defendant argues that personal service was never attempted, and the substituted service was completed at the wrong address and upon the wrong individual.

Russell Cox is the Owner’s Representative for Defendant Shen Zhen New World I LLC. (Cox Decl. ¶ 1.) He, not Defendant, resides at the Orange address. (Cox Decl. ¶ 2.) Defendant has never resided at that address or even stepped inside that home. (Cox Decl. ¶ 2.) The Universal City address is for the Sheraton Universal Hotel, which is not and never has been Defendant’s usual place of business. (Cox Decl. ¶ 3.) It has been a significant time since Defendant has even visited the property. (Cox Decl. ¶ 3.) Russell Cox is not and has never been authorized to accept service of process for Defendant, and he never told the process server that he was authorized. (Cox Decl. ¶ 4.) Accordingly, Defendant has shown that substituted service was not proper.

Plaintiffs argue that they were unable to personally serve Defendant “because he fled to China and is a known fugitive,” and he willfully evaded service. (Opposition at p. 6.) Plaintiffs “conducted diligent investigations and determined that the Universal City address was connected to Defendant’s business operations,” and “substituted service at this address was the most reliable method of notifying [Defendant] of the pending action.” (Ibid.) “Based on the information available to Plaintiffs, the Universal City address used for substituted service was reasonably believed to be connected to Defendant Wei Huang and served as a business headquarters for entities under his ownership or control. Plaintiffs reasonably relied on this information in directing substituted service at that address.” (Cirkveni Decl. ¶ 4.) According to Plaintiffs, Russell Cox “has throughout the parties relationship declared himself as the representative of Huang.” (Opposition at p. 6.) Russell Cox “admits that he is the representative of Defendant Shen Zhen New World I, LLC, an entity that [Defendant] is connected to.” (Ibid.)

It is undisputed that Plaintiffs did not attempt personal service on Defendant. Plaintiffs know that Defendant is residing in China, and no service attempts were made there. (See Complaint ¶ 8; Opposition at p. 6.) Plaintiffs provide no evidence that the Universal City address is indeed Defendant’s usual place of business for substituted service. Defendant has provided contrary evidence in the form of Russell Cox’s declaration that shows that it is not Defendant’s usual place of business. A business “connected to” Defendant is not the same as his usual place of business. Service on this incorrect address is not a mere procedural technicality or minor deficiency, as charactered by Plaintiffs. (Opposition at p. 7.)

Plaintiffs further argue that they would be unnecessarily burdened “by requiring a method of service that is both costly, time-intensive and most likely impossible given that service would have to be rendered upon a known fugitive who fled the United States to China in order to shield himself from responsibility.” (Opposition at p. 7.) “Plaintiffs would face significant prejudice resulting in substantial delays and costs and even the possibility of not being able to bring their claim against Defendant, further frustrating Plaintiffs’ ability to obtain relief in this matter.” (Cirkveni Decl. ¶ 8.) Plaintiffs’ prejudice is not a consideration when determining whether to quash service.

Because Defendant was not validly served with a summons and complaint, the Court lacks personal jurisdiction over him. (See Lee, supra, 168 Cal.App.4th at p. 564.)

Defendants SZNWLLC, SNWM, SZNWI, and Russell Cox (collectively, “Defendants”) move to compel arbitration of Plaintiff D’Camp’s claims pursuant to the September 27, 2019 lease.

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.) The burden then shifts to the plaintiff to prove the falsity of the agreement. (Ibid.) After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability. (Ibid.)

The Court must grant a petition to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.) Under California law and the Federal Arbitration Act (“FAA”), an arbitration agreement may be invalid based upon grounds applicable to any contract, including unconscionability, fraud, duress, and public policy. (Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, 165-166.)

D’Camp requests that the Court take judicial notice of four press releases/articles. These are not proper subjects of judicial notice, and they are irrelevant. The request is denied for Exhibits A-D.

D’Camp requests that the Court take judicial notice of a grand jury indictment, a judgment, and a sentencing memorandum These are irrelevant. The request is denied for Exhibits E-G.

“[W]hen a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement, the defendant may enforce the agreement even though the defendant is not a party thereto.” (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614.)

Here, the Complaint alleges that “each of the Defendants sued herein was the agent, servant, director, manager, representative, or alter ego of each Defendant, and in doing or omitting the things alleged in this Complaint, was acting within the course and scope of his/her/its authority or agency, and that such conduct was undertaken with the permission, consent and for the benefit of Defendants.” (Complaint ¶ 3.)

Accordingly, all moving Defendants may seek to enforce the arbitration agreement, even those who are not signatories to the lease.

D’Camp and SZNWLLC (under its former name New World/New Age I, LLC) entered into a commercial lease dated September 27, 2019. (Cox Decl. ¶ 2.) In the lease, the parties agreed that “[a]ny controversy or claim arising out of or related to this agreement, shall be subject to mediation as a condition precedent to the institution of legal or equitable or other binding dispute resolution proceedings by the parties. . . . Any controversy or claim subject to, but not resolved by, mediation shall be subject to binding arbitration before the Shenzhen Court of International Arbitration (SCIA).” (Cox Decl., Ex. 1, ¶ 35 [“Arbitration Agreement”].)

Defendants have satisfied their burden of showing the existence of an agreement to arbitrate. (See Motion at pp. 16-18.)

For an arbitration agreement to be unenforceable as unconscionable, both procedural and substantive unconscionability must be present. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.)

“The relevant factors in assessing the level of procedural unconscionability are oppression and surprise.” (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 997.) “‘The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party.’” (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 656.) “The circumstances relevant to establishing oppression include, but are not limited to (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party’s review of the proposed contract was aided by an attorney.” (Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. (2015) 232 Cal.App.4th 1332, 1348, fn. omitted.) “The component of surprise arises when the challenged terms are ‘hidden in a prolix printed form drafted by the party seeking to enforce them.’” (Ibid.) “The adhesive nature of the employment contract requires [the court] to be ‘particularly attuned’ to [Plaintiff’s] claim of unconscionability [citation], but [the court] do[es] not subject the contract to the same degree of scrutiny as ‘[c]ontracts of adhesion that involve surprise or other sharp practices’ [citation].” (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1245 (Baltazar).)

Plaintiff argues the Arbitration Agreement is procedurally unconscionable because it was not part of the negotiation of the lease, but was instead negotiated in connection with a Memorandum of Understanding (“MOU”). (Opposition at p. 5.)

In an October 2, 2018 email, a representative of D’Camp stated that “the section in the MOU that pertains to arbitration in China will simply scare investors away.” (Cox Decl., Ex. 2.) Eight days later, a representative of Huang responded that they were “agreeable to have the arbitration location changed to Los Angeles provided that any such arbitration shall still be heard by an SCIA arbitrator pursuant to SCIA procedural rules.” (Cox Decl., Ex. 2.) The September 8, 2019 MOU set forth the parties’ intention “to enter into a lease agreement with Landlord to accomplish the goals and objectives as set forth in Section II of this MOU.” (Cox Reply Decl., Ex. 5.) The purpose of the MOU was for D’Camp “to establish, develop and operate a nightclub bar lounge (the ‘Bar’) on rooftop (above the 14th floor) of the Hotel (hereafter referred to as the ‘Bar Project’).” The lease was entered into for this purpose, with D’Camp renting “the rooftop of The L.A. Grand Hotel Downtown, located at 333 Figueroa Street, Los Angeles, CA 90071, upon which Tenant intends to build and operate a nightclub.” (Cox Decl., Ex. 1.) The MOU contains an arbitration agreement that is substantially similar to the one at issue in the lease. Other contract terms are also substantially similar in the MOU and the lease.

Although the referenced negotiations were indeed in connection with the MOU, D’Camp did negotiate the terms of an arbitration agreement that was memorialized in the MOU and quickly duplicated in the subject lease. The lease is dated September 27, 2019—less than three weeks after the MOU. The Court rejects D’Camp’s argument that “Defendants gave Plaintiff no choice” and “Plaintiff was given a ‘take it or leave it’ ultimatum.” (Opposition at p. 6.)

To the extent that D’Camp argues that it “was not provided with a ‘choice’ when it came to the lease,” the lack of choice was imposed by D’Camp itself. (Opposition at p. 6.) When signing the lease, D’Camp “had already incurred significant costs in its efforts to obtain building permits and to secure investors.” (Ibid.) “By the time it came to the signing of the lease, Plaintiff was already deeply invested in building Rome at the L.A. Grand Hotel, and to change those plans to build elsewhere would have been nothing but a huge financial loss to Plaintiff,” so “Plaintiff was not provided with a ‘choice’ when it came to the lease.” (Ibid.) This is not an unconscionable “absence of meaningful choice” that should invalidate the Arbitration Agreement.

D’Camp also argues that the Arbitration Agreement is procedurally unconscionable because it fails to include the applicable arbitration rules. (Opposition at pp. 6-7.) “[C]ourts will more closely scrutinize the substantive unconscionability of terms that were ‘artfully hidden’ by the simple expedient of incorporating them by reference rather than including them in or attaching them to the arbitration agreement.” (Baltazar, supra, 62 Cal.4th at p. 1246.) When a challenge to the enforcement of an arbitration agreement has nothing to do with the particular rules, the failure to attach the rules does not affect unconscionability. (Ibid.)

D’Camp contends that it never would have agreed to the arbitration language if it knew about “the oppressively high costs to initiate an arbitration” with SCIA. (Opposition at p. 6.) However, part of the negotiation of the arbitration provision included “hav[ing] the arbitration location changed to Los Angeles provided that any such arbitration shall still be heard by an SCIA arbitrator pursuant to SCIA procedural rules.” (Cox Decl., Ex. 2.) Arbitration using these rules was negotiated and agreed, and the rules should not have been a surprise. D’Camp also cites no authority for finding unconscionability solely based on the amount of the arbitration fees.

“‘Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided. [Citations.] A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be “so one-sided as to ‘shock the conscience.’”’ [Citation.]’” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 85.)

D’Camp argues that the Arbitration Agreement is substantively unconscionable due to the costs of arbitration. (Opposition at pp. 7-8.)

“Given Plaintiff’s claims, and based on SCIA’s fee schedule, Plaintiff would have to pay over $365,000 to initiate an arbitration; and amount which, frankly, is oppressive to Plaintiff who has already lost much more than that in attempting to build the Rome nightclub.” (Opposition at p. 8.) D’Camp’s “large amount in fees and expenses in obtaining financing, through investors, for a VIP rooftop club” (id. at p. 7) has no bearing on arbitration.

A court cannot declare an arbitration provision unenforceable solely on the ground the arbitration fees are “prohibitively expensive” without undertaking an unconscionability analysis. (Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1579.) For this analysis, the court must consider “the amount of arbitration fees and costs, and the ability of the party resisting arbitration to pay them, as factors in assessing substantive unconscionability of a predispute arbitration agreement.” (Ibid.) This includes consideration of evidence of income, expenses, and savings showing an inability to pay the fees at the time the arbitration agreement was signed. (Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1574.)

D’Camp’s only relevant evidence is a declaration from its Manager and CEO in which he states that the arbitration costs are “well beyond my financial means.” (Smith Decl. ¶ 9.) As Defendants note, “Initially, Mr. Smith appears to be talking only about himself, not about Rome, so this assertion is irrelevant. And even if the word ‘my’ is a slip of the tongue (or an admission of alter ego), that conclusory statement is still insufficient to constitute actual evidence of financial hardship, as required.” (Reply at p. 9.)

Additionally, the SCIA Arbitration Rules also allow the parties to agree to apply other arbitration rules, so SCIA “may charge in accordance with the schedule of fees and costs of arbitration stipulated by such other arbitration rules.” (Spitser Reply Decl., Ex. 6.) When proceeding under the SCIA Arbitration Rules, “the arbitration fees and costs shall in principle be borne by the losing party,” or “the arbitral tribunal may decide to assign the arbitration fees and costs among the parties according to the proportions it deems appropriate for the circumstances.”

D’Camp has not shown any procedural or substantive unconscionability, and thus the Arbitration Agreement should not be invalidated.

A court must grant a motion to compel arbitration unless a party to the arbitration agreement is also a party to a pending court action with a third party arising out of the same transaction and there is a possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2, subd. (c).) If the court does determine that subdivision (c) applies, the court may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding, or may stay arbitration pending the outcome of the court action. (Code Civ. Proc., § 1281.2.)

The allegations relate to different contracts for each Plaintiff, with different breaches and interferences. The misrepresentations are presumptively different, at least with respect to the particularity of the misrepresentations. Because Defendants’ actions are separate for each Plaintiff, the Court finds that there is not a possibility of conflicting rulings on a common issue of law or fact, and no additional stay is necessary.

The motion to compel arbitration as to Plaintiff D’Camp is GRANTED. Plaintiff D’Camp Hospitality Group LLC’s claims are ordered to arbitration and are STAYED pending the completion of arbitration. The remainder of this action is not stayed.

A Status Conference re: Arbitration (Plaintiff D’Camp Hospitality Group LLC) is scheduled for December 11, 2025 at 8:30 a.m. in Department 48 at Stanley Mosk Courthouse. Five court days before, the parties are to file a joint report stating the name of their retained arbitrator and the status of arbitration.

Defendants SZNWLLC, SNWM, SZNWI, and Russell Cox (collectively, “Defendants”) demur to all causes of action. Because Plaintiff D’Camp’s claims are ordered to arbitration, the Court will address only Plaintiff Academy’s claims.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context, accepting the alleged facts as true. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.) A special demurrer for uncertainty under Code of Civil Procedure section 430.10, subdivision (f) is disfavored and will only be sustained where the pleading is so bad that defendant or plaintiff cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.)

“Because a demurrer challenges defects on the face of the complaint, it can only refer to matters outside the pleading that are subject to judicial notice.” (Arce ex rel. Arce v. Kaiser Found. Health Plan, Inc. (2010) 181 Cal.App.4th 471, 556.)

With their demurrer, Defendants provide a declaration from counsel with attached exhibits. Generally, the Court cannot consider outside evidence on demurrer. However, the Complaint refers to each Plaintiff’s lease and includes some of the relevant terms. Plaintiffs’ references to the leases make them appropriate matters for judicial notice. (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 956, fn. 6.) Moreover, Plaintiffs did not object to Defendants providing the leases. The Court therefore takes judicial notice of the two leases. (See Demurrer at p. 16.)

Defendants argue that all causes of action are uncertain because Plaintiffs refer to all five named Defendants and 50 Doe Defendants as “HUANG,” and there are no allegations as to what any of the particular defendants purportedly did. (Demurrer at pp. 13-15.)

Defendants are three entities and two individuals. (Complaint ¶ 1.) The Complaint alleges that HUANG (all Defendants) purchased the hotel, made certain representations, and entered into the contracts. (E.g., Complaint ¶¶ 5, 15-18, 22, 32, 41.) There are no distinct allegations about each Defendant, creating uncertainty about which Defendant participated in which alleged wrongdoing. The defined term “HUANG” does not “provide[] clarity and consistency throughout the Complaint, ensuring that Defendants are fully apprised of the allegations against them.” (See Opposition at p. 9.) There are no “detailed alter ego allegations.” (See id. at p. 10.) The sole allegation that all Defendants were “the agent, servant, director, manager, representative, or alter ego of each Defendant” is insufficient and contains no facts for these theories of liability. (Complaint ¶ 3.)

C. The Contract-Based Claims Do Not Sufficiently Allege the Relevant Terms (First, Third, Seventh Causes of Action).

Defendants argue that the Complaint does not sufficiently set forth the contract terms. (Demurrer at pp. 15-16.)

“A written contract may be pleaded by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference—or by its legal effect.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.) To plead a contract by its legal effect, a plaintiff must “allege the substance of its relevant terms. This is more difficult, for it requires a careful analysis of the instrument, comprehensiveness in statement, and avoidance of legal conclusions.” (Ibid.)

The first cause of action alleges that Plaintiff Academy and “HUANG” entered into a lease, under which Academy would pay monthly rent and other expenses in consideration and in exchange for quiet enjoyment of the premises. (Complaint ¶ 32.) Defendants also made four specific representations that are quoted only in part. (Complaint ¶ 33.) Defendants breached the lease by “fail[ing] to maintain all systems building and common areas in good and working order,” “fail[ing] to provide a safe, sanitary and secure environment,” “fail[ing] to respond to multiple incident reports,” “repeatedly fail[ing] to correct, prevent, or mitigate dangerous and unsafe conditions,” and “fail[ing] to enforce the rules and regulations necessary to ensure the first-class operation, maintenance, reputation or appearance of the L.A. Grand Hotel.” (Complaint ¶ 35.) Academy alleges that it has “fulfilled any and all conditions precedent to commencing this action against HUANG,” but those conditions precedent are not alleged. (Complaint ¶¶ 36-37.) These allegations do not fully set forth the substance of relevant terms.

The third cause of action for breach of the covenant of good faith and fair dealing and the seventh cause of action for negligence are also based on breaches of the lease. (See Complaint ¶¶ 53, 92-93.) Without the relevant contract terms, these claims are uncertain.

The demurrer to the first, third, and seventh causes of action is sustained on this ground.

(The second cause of action alleges breach of D’Camp’s lease, which is no longer at issue in this action due to the forthcoming arbitration.)

D. The Contract-Based Claims Do Not State a Claim Against Three Defendants (First, Third, Seventh Causes of Action).

Defendants argue that only Academy and SZNWLLC were parties to the lease, so the other Defendants cannot be liable for the contract-based claims. (Demurrer at pp. 16-17.)

The lease is “Between SHEN ZHEN NEW WORLD I, LLC a California limited liability company as Landlord and ACADEMY OF MEDIA ARTS, a California non-profit public benefit corporation as Tenant.” (Spitser Decl., Ex. 2, formatting omitted.) SNWM, SZNWI, and Cox are not parties to the lease.

Plaintiffs argue that they sufficiently allege that the entities are alter egos of Huang, and Cox acted as Huang’s agent and managed the premises. (Opposition at pp. 12-13.) The facts stated in the Opposition are not alleged in the Complaint, and the alter ego and agency allegations are insufficient.

The demurrer to the first, third, and seventh causes of action (as to SNWM, SZNWI, and Cox) is sustained on this ground.

Defendants argue that the fraud claim is not pleaded with specificity. (Demurrer at pp. 17-20.)

“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.] 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.]” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230-231.)

Fraud must be pleaded with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “‘This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.] A plaintiff’s burden in asserting a fraud claim against a corporate employer is even greater. In such a case, the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’ [Citation.]” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645 (Lazar).)

Plaintiffs allege that “HUANG represented that HUANG would continue to operate the L.A. Grand Hotel as a first-class hotel, that HUANG would do nothing to interfere with Defendants’ quiet enjoyment of their rights and interests, and that Defendants’ plans were consistent with HUANG’s intentions.” (Complaint ¶ 58.) Additionally, “HUANG presented as a successful trustworthy and honorable businessman.” (Complaint ¶ 59.) There are no allegations about “how, when, where, to whom, and by what means the representations were tendered,” nor allegations about “who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written” for the entity Defendants. (See Lazar, supra, 12 Cal.4th at p. 645.)

Defendants argue that all claims are contradicted by the terms and the date of the lease. (Demurrer at pp. 20-22.)

Plaintiffs allege that they and their students “have been subjected continuously to trash, assaults, hypodermic needles, violence, and safety threats,” which interfered with “Plaintiffs’ rights of quiet use and enjoyment of the leased premises.” (Complaint ¶ 19-20; see Complaint ¶¶ 33-35.) Defendants also violated the lease’s provision that they would not lease of any other space hotel “to a tenant whose intended use is inconsistent with the operation of a public school.” (Complaint ¶ 24.) Defendants do not identify any provision of the lease that contradicts and bars a claim for breach of contract (and the related breach of implied covenant). The demurrer to the first and third causes of action is overruled on this ground.

Similarly, the seventh cause of action alleges that Defendants’ “negligence includes a complete lack of maintenance and security near and around the school premises which resulted in garbage, refuse, and drug paraphernalia left or discarded in, near and/or around the School Premises,” creating a harmful environment. (Complaint ¶ 94.) There is no provision of the lease that contradicts and bars this claim. The demurrer to the seventh cause of action is overruled on this ground.

The fourth cause of action alleges fraud based on Defendants’ representations “[a]t all pertinent times prior to and at the time of executing leases with the Plaintiffs.” (Complaint ¶ 58; see Complaint ¶ 59.) However, in the integrated lease, Academy “(i) accepts the Premises in their ‘as-is’ condition; [and] (ii) acknowledges that no Landlord Party has made any representation or warranty, express or implied, regarding the condition, suitability or usability of the Premises or the Building for the purposes intended by Tenant.” (Spitser Decl., Ex. 2 at p. 1, ¶ 1.1; see id. at p. 39, ¶ 21.1 [integration clause].) Additionally, “the City of Los Angeles paying for guests at the L.A. Grand Hotel as part of Project Roomkey was a condition that existed at the time the [Academy] Lease was executed, [Academy] knew or should have known of that condition, and acknowledged that Landlord made no other representation to the contrary.” (Demurrer at p. 21.) The demurrer to the fourth cause of action is sustained on this ground.

The fifth and sixth causes of action for interference with economic advantage and contractual relations arise from Defendants’ intentional maintenance of “a homeless shelter” at the hotel, which caused a significant drop in existing enrollment and a lack of new enrollment for Academy. (Complaint ¶¶ 77-80, 87.)

The lease provides, “[A]fter the date of execution of this Lease, Landlord will not lease any other space in the Building to a tenant whose intended use is inconsistent with the operation of a public school in the Building as reasonably mutually determined by Landlord and Tenant using their good faith best efforts. Notwithstanding the foregoing, Tenant acknowledges and agrees that (a) Landlord’s primary business at the Building and the adjacent areas thereto is the operation of a hotel . . . .” (Spitser Decl., Ex. 2 at p. 1, ¶ 1.1; see Complaint ¶ 24.)

Defendants argue that the landlord “continues to operate a hotel. The rooms happen to be paid for by the City of Los Angeles, but that does not change the fact that they are still hotel rooms being provided to guests, with payments of the room rates to Landlord.” (Demurrer at p. 21.) Defendants state that they have not “leased any space in the Building” to the City of Los Angeles or to anyone else as part of Project Roomkey because the City of Los Angeles’s payment for hotel rooms is not a “lease” of space but is merely the operation of the hotel. (Ibid.) This requires factual support outside the scope of what the Court can consider for this demurrer.

Defendants also argue that because the City’s payment for rooms at the hotel preceded Academy’s lease by nearly two years, the lease cannot reasonably be read to forbid something that was already happening at the time the parties signed the lease, after Academy’s full opportunity to inspect the building. (Demurrer at p. 22.) The Court cannot determine on this demurrer whether it was reasonable for Academy to expect that “Landlord will not lease any other space in the Building” would forbid existing or future leases after the date of Academy’s lease.

The demurrer to the fifth and sixth causes of action is overruled on this ground.

Academy is granted 30 days’ leave to amend the first (breach of contract), third (breach of implied covenant), fifth (interference with prospective economic advantage), sixth (interference with contractual relations), and seventh (negligence) causes of action.

Academy is not granted leave to amend the second cause of action because it relates only to D’Camp’s lease, and that matter will be arbitrated.

Academy is not granted leave to amend the fourth cause of action (fraud) because it is barred by the integrated lease.

The court may, upon a motion or at any time in its discretion: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc., § 436, subds. (a)-(b).)

Defendants move to strike portions of Paragraphs 4-8, 11, 56, 60, 62, 71, 83, and 90 as irrelevant, false, or improper. These allegations relate to Wei Huang’s criminal allegations, proceedings, and convictions that are irrelevant to Academy’s lease with Defendants. Plaintiffs argue that “Defendant Huang’s criminal conduct and fugitive status directly demonstrate his propensity for dishonest and evasive behavior, supporting Plaintiffs’ allegations of fraudulent intent.” (Opposition at pp. 5-6.) However, the alleged criminal wrongdoing of bribery and financial misconduct is not related to the alleged wrongdoing in this action. The motion is granted for Paragraphs 4-8, 11, 56, 60, 62, 71, 83, and 90.

Defendants move to strike portions of Paragraphs 1, 4-8, 11, 13-18, 22, 24, 27, 31-36, 39, 41, 42, 45, 48, 53-56, 59, 60, 62, 71, 74, 83, 90, 92, and 93 as false due to the collective term “HUANG” for all Defendants. This request is now moot after the Court sustained the demurrer on a similar ground and granted leave to amend.

Defendants move to strike portions of Paragraphs 29, 56, 71, 83, and 90, relating to punitive damages, as well as the prayer for punitive damages. A plaintiff can recover punitive damages in tort cases where “the defendant has been guilty of oppression, fraud, or malice.” (Civ. Code, § 3294, subd. (a).) Punitive damages thus require more than the mere commission of a tort. (Taylor v. Superior Court (1979) 24 Cal.3d 890, 894-895.) A corporate employer can be liable for punitive damages only when an officer, director, or managing agent of the corporation authorized or ratified the wrongful conduct or was personally guilty of oppression, fraud, or malice. (Civ. Code, § 3294, subd. (b).)

Paragraph 56 improperly requests punitive damages for breach of the implied covenant of good faith and fair dealing. (See, e.g., Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1054-1055 [“in noninsurance cases such as this one, breach of the implied covenant of good faith and fair dealing will not give rise to punitive damages”].) Paragraph 71 requests punitive damages for fraud; the Court sustained the demurrer to the fraud cause of action without leave to amend. For the other paragraphs, allegations that Defendants are “a criminal fugitive whose actions were despicable, oppressive, in conscious disregard of Plaintiffs’ rights, for profit and to curry favor with City officials very aware of HUANG’s bribery convictions” do not contain relevant facts about oppression, fraud, or malice in connection with these claims. The motion is granted for Paragraphs 29, 56, 71, 83, and 90, and the prayer for punitive damages.

Academy is granted 30 days’ leave to amend Paragraphs 29, 83, and 90, as well as the prayer for punitive damages. Academy is not granted leave to amend the other stricken allegations.

Defendants’ Motion to Compel Arbitration is GRANTED. Plaintiff D’Camp Hospitality Group LLC’s claims are ordered to arbitration and are STAYED pending the completion of arbitration. The remainder of this action is not stayed. A Status Conference re: Arbitration (Plaintiff D’Camp Hospitality Group LLC) is scheduled for December 11, 2025 at 8:30 a.m. in Department 48 at Stanley Mosk Courthouse. Five court days before, the parties are to file a joint report stating the name of their retained arbitrator and the status of arbitration.

Defendants’ Demurrer is SUSTAINED IN PART (with leave to amend some claims) as set forth above.

Defendants’ Motion to Strike is GRANTED. Academy is granted 30 days’ leave to amend Paragraphs 29, 83, and 90, as well as the prayer for punitive damages. Academy is not granted leave to amend the other stricken allegations.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. If all parties in the case submit on the tentative ruling, no appearances before the Court are required unless a companion hearing (for example, a Case Management Conference) is also on calendar.

Hon. Thomas D. Long

Judge of the Superior Court