Judge Upinder S. Kalra, Case Number: 23STCV28170, Date: 2024-03-26 Tentative Ruling

RESPONDING PARTY(S): Plaintiffs David Kagan, Judith Kagan, Frank Revere, and Rachel K. Revere

1. Demurrer to the entire First Amended Complaint for failure to state sufficient facts constituting a cause of action.

On November 16, 2023, Plaintiffs David Kagan, Judith Kagan, Frank Revere, and Rachel K. Revere (Plaintiffs) filed a Complaint against Defendants Gavin Newsom in his official capacity as the Governor of the State of California (Newsom); State of California[1]; and Gustavo Velasquez in his official capacity as the head of the Department of Housing and Community Development of the State of California (Velasquez) (collectively Defendants) with three causes of action for: (1) Declaratory Relief, (2) Restitution, and (3) Conversion.

On December 26, 2023, Plaintiffs filed a First Amended Complaint (FAC) with five causes of action for: (1) Declaratory Relief, (2) Restitution, (3) Conversion, (4) Quantum Meruit (Money Had and Received), and (5) Breach of Contract (Promissory Estoppel).

According to the FAC, Plaintiffs own a duplex located at 103 North Orange Drive, Los Angeles, California 90036 that is subject to rent control under the Los Angeles Municipal Code (the Property). Plaintiffs allege that their tenant obtained funds from Defendants under ERAP that should have been disbursed to Plaintiffs.

On February 5, 2024, Defendants Newsom and Velasquez filed the instant Demurrer to the FAC. On March 12, 2024, Plaintiffs filed an opposition. On March 19, 2024, Defendants filed a reply.

Prior to filing a demurrer, the demurring party is required to satisfy their meet and confer obligations pursuant to Code of Civ. Proc. §430.41, and demonstrate that they so satisfied their meet and confer obligation by submitting a declaration pursuant to Code of Civ. Proc. §430.41(a)(2) & (3). The parties met and conferred telephonically on January 25, 2024. (Wood Decl. ¶ 4.) Accordingly, the meet and confer requirement is met.

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.¿In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice.¿(Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.)¿“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. …. The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.”¿(Hahn¿147 Cal.App.4th at 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.) Courts also consider exhibits attached to the complaint and incorporated by reference. (See Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94 (Frantz).)¿

The court grants Defendants’ request for judicial notice as to Exhibit A attached to the Declaration of the Custodian of Record and Plaintiffs’ request for judicial notice as to Exhibit 1 and 2. (Evid. Code § 452(c), (d), (h); See Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 37.) However, the court only takes judicial notice of the foregoing documents only as to “the existence, content and authenticity of public records and other specified documents”; it does not take judicial notice of the truth of the factual matters asserted in those documents. (Dominguez v. Bonta (2022) 87 Cal. App. 5th 389, 400.)¿¿The court declines to take judicial notice of Plaintiffs’ Exhibits 3, 4, 5, and 6.

Erroneous Interpretation of Health & Safety Code § 50897.1 – Failure to State a Claim

Defendants contend that Plaintiffs based their FAC on a mistaken interpretation of Health & Safety Code § 50897.1. Plaintiffs argue that Defendants did not have discretion to disburse the funds to the tenant because tenant was still in possession of the Property at the time of disbursement.

It is well established that if statutory language is unambiguous, the court presumes the Legislature meant what it said, and the plain meaning of the statute governs. (People v. Toney (2004) 32 Cal.4th 228, 232.) Courts look at the statute in context. (Ibid.)

(d) Assistance for rental arrears may be provided as a payment directly to a landlord on behalf of an eligible household by entering into an agreement with the landlord, subject to both of the following:

(1) Assistance for rental arrears shall be set at compensation of 100 percent of an eligible household's unpaid rental debt accumulated on or after April 1, 2020.

(2)(A) Acceptance of a payment made pursuant to this subdivision shall be conditioned on the landlord's agreement to accept the payment as payment in full of the rental debt owed by any tenant within the eligible household for whom rental assistance is being provided for the specified time period. The landlord's release of claims pursuant to this subparagraph shall take effect only upon payment being made to the landlord pursuant to this subdivision.

(e)(1) A member of an eligible household may directly apply for rental arrears assistance from the grantee.

(2)(A) Upon receipt of assistance, the eligible household shall provide the full amount of rental arrears to the landlord within 15 days, excluding Saturdays, Sundays, and judicial holidays, of receipt of the funds.

(B)(i) If the household does not comply with subparagraph (A), the landlord may charge a late fee not to exceed the amount that the landlord may charge a tenant for one late rental payment under the terms of the lease or rental agreement.

(C) A member of an eligible household described by this paragraph shall attest under penalty of perjury that the household will comply with the requirements of this paragraph.

(h)(1) Assistance provided under this chapter shall be provided to eligible households or, if applicable, to landlords on behalf of eligible households that are currently housed and occupying the residential unit for which the assistance is requested at the time of the application.

(B)(i) Subject to clause (ii), assistance provided pursuant to this paragraph shall be prioritized to participating landlords.

(ii) If the landlord does not participate, payments may be provided directly to the eligible household if the eligible household provides any amount received for rental assistance to the landlord. A member of the eligible household shall attest under penalty of perjury that the household will comply with the requirements of this clause. (emphasis added.)

Reviewing the FAC in its entirety, including the emails included in the factual allegations, Plaintiffs have not stated a violation of Health & Safety Code § 50897.1.[2] First, Plaintiffs claim Defendants were obligated to distribute $76,141.30 in rental arrears to them, not to their tenant. (See generally, FAC.) However, Plaintiffs acknowledge, as the statute provides, that a tenant may apply for funds and that a landlord may separately initiate an application for funds. (FAC ¶¶ 15, 16, 17, and 22.) As noted in the excerpts above, the ordinary language of Health & Safety Code § 50897.1 allows for either the tenant, as the eligible household, OR the landlord on behalf of the eligible household to apply for and receive assistance. The inclusion of “or” undercuts Plaintiffs’ argument that Defendants “must” provide payments to them in lieu of the tenant. Indeed, the mandatory provision of Health & Safety Code § 50897.1 provides that the tenant “shall provide” to their landlord any funds they receive within 15 days of receipt. (Health & Saf. Code § 50897.1((e)(2)(A).) Based on the FAC, briefing, and documents submitted with the parties’ requests for judicial notice, it is undisputed that the tenant did not do so. The statute even anticipates such situations by allowing landlords to tack on a penalty for their tenants’ failure to timely remit. (Health & Saf. Code § 50897.1(e)(2)(B)(i).) As such, Plaintiffs failed to state a cause of action against Defendants.

Accordingly, the court SUSTAINS Defendants’ demurrer to the FAC in its entirety.[3]

Leave to amend should be liberally granted if there is a reasonable possibility an amendment could cure the defect.¿ (County of Santa Clara v. Superior Court (2022) 77 Cal.App.5th 1018,1035.)¿ The Plaintiff has the burden of demonstrating that leave to amend should be granted, and that the defects can be cured by amendment. (“Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349).

Here, the court is skeptical that Plaintiffs can show amendment could cure the defects discussed above. Additionally, Plaintiffs briefly mentioned they would seek leave to add additional claims but did not request leave to amend any of the defects identified by Defendants. In an exercise of caution, the court will allow Plaintiffs to present oral argument at the hearing. However, the court is inclined to deny leave to amend.

[1] While State of California is named as a defendant in the caption, it is not named as a party in the allegations.

[2] The court notes that Plaintiffs allege inconsistent factual allegations as to whether they participated in the program. First, they allege they did not refuse to participate, but subsequently include an email correspondence stating “I did not agree to participate in this program . . . .” (FAC ¶¶ 22, 24.)

[3] The court declines to develop the other three arguments Defendants presented at this time including Judicial Estoppel.