Judge: Virginia Keeny, Case: 24STCV01236, Date: 2025-02-27 Tentative Ruling

Case Number: 24STCV01236    Hearing Date: February 27, 2025    Dept: 45

KIDS EMPIRE, LLC. v.DILLWAY ASSOCIATES, LP., et al.

 

DEMURRER to plaintiff’s complaint

 

Date of Hearing:        February 27, 2025                 Trial Date:       February 9, 2026

Department:              45                                            Case No.:        24STCV01236

 

Moving Party:            Defendants Dillway Associates, LP, and Reliable Properties

Responding Party:     Plaintiff Kids Empire Ontario, LLC  

Meet and Confer:      No

 

BACKGROUND

 

Plaintiff Kids Empire Ontario, LLC (“Plaintiff” or “Kids Empire”) entered into a lease agreement (“Lease”) with Defendants Dillway Associates, LP (“Dillway”) and Reliable Properties whereby Defendants, acting as landlords, agreed to rent the subject property to Plaintiff, as tenant. Pursuant to the Lease, Plaintiff was and/or is required to pay rent, as well as its share of common area maintenance (“CAM”) expenses. However, prior to the execution of the lease, Plaintiff alleges Reliable Properties conducted the underlying lease negotiations, fraudulently misrepresenting a monthly CAM expenses obligation of $5,040. (Compl., ¶ 9.)

 

Plaintiff alleges that while the Lease agreement was subsequently executed in February 2018, Plaintiff did not commence its occupancy and operations until after the pandemic commenced, in April 2021, at which time Defendants informed Plaintiff the monthly CAM charge was $8,367.37. Plaintiff contends it has spent the last two years attempting to negotiate and remedy the issue with Defendants, to no avail. Thus, Plaintiff filed the operative Complaint on January 17, 2024, for (1) fraud; (2) recission (mistake); and (3) declaratory relief.

 

On March 1, 2024, Defendants Dillway and Reliable Properties filed the instant Demurrer.

 

On May 17, 2024, Plaintiff filed a Notice of Related Case which the Honorable Mel Red Recana denied on May 30, 2024, finding the cases unrelated within the meaning of Rules of Court, Rule 3.300(a).

 

On November 12, Defendants filed a Cross-Complaint, followed by their First Amended Cross Complaint on November 18, 2024, alleging four causes of action for (1) breach of contract; (2) accounting; (3) breach of guaranty; and (4) declaratory relief.

 

On January 15, 2025, Plaintiff filed its Opposition to the instant motion, as well as a Request for Judicial Notice, and the Declaration of Plaintiff’s Counsel, Daniel M. Hayes with attached exhibits.

 

Also on January 15, 2025, Plaintiffs filed their second Motion to Relate Cases, arguing new grounds now warrant the Court’s second determination.

 

On November 17, 2025, Plaintiff filed its Answer to Defendants’ First Amended Cross-Complaint.

 

On January 22, 2025, Defendants filed their Reply.

 

On January 29, 2025, this Court continued the underlying hearing on the instant motion to February 27, 2025, on the grounds that there was a motion to relate cases which would not be heard until February 13, 2025.

 

On February 13, 2025, the Court denied Plaintiff’s motion to relate this underlying case with Kids Empire Pomona vs Royal Oak (24STCV01254).

 

[Tentative] Ruling

 

Defendants Dillway Associates and Reliable Properties’ Demurrer to the Complaint is OVERRULED.  Defendant to answer within 30 days.  

 

ANALYSIS

 

On March 1, 2024, Defendants Dillway and Reliable Properties filed the instant Demurrer as to Plaintiff’s entire Complaint, demurring to all three causes of action on the grounds Plaintiff fails to state facts sufficient to state a cause of action. On January 15, 2025, Plaintiff filed its Opposition. On February 22, 2025, Defendants filed their Reply.

 

Request for Judicial Notice

 

Plaintiff requests that this Court take judicial notice of Exhibits 1-7, 26-28, 29, 31, and 32, which seek notice of documents and court records from both this underlying action and other actions which Plaintiff argues are relevant and/or identical.

Plaintiff’s Request for Judicial Notice is GRANTED pursuant to Evid. Code §452(d),(h). However, the Court emphasizes that such documents are judicially noticed only as to their existence. Thus, any contentions therein are not binding on this Court.

 

Time-Barred Claims

 

The statute of limitations for fraud is ordinarily three years. (CCP § 338(d).)  Yet, Defendants contend Plaintiff’s three causes of action are each time-barred, pursuant to Section 30 of the Lease, which sets forth a modified statute of limitations for one-year, as follows:

 

TENANT agrees that for any action or any cause of action directly or indirectly arising from or related to the lease including, but not limited to, its operation, negotiation, CAM charges, management or maintenance, legal suits must be brought within 12 months of the occurrence of such action or cause of action.” (Exhibit 1 to the Complaint, p. 12.)

(Dem., pgs. 4-5, emphasis added.)

As such, Defendants argue that the “instant action was commenced on January 17, 2024—more than two and a half years after Defendants allegedly informed Plaintiff how much the CAM charges would be.” Defendants contend that in April of 2021, Plaintiff commenced its occupancy of the Property, and thereafter, Defendants informed Plaintiff that the monthly CAM charge would be $8,367.37. (Dem., pg. 4.)

 

Plaintiff, however, argues that the Lease itself was procured by fraud, meaning its remaining provisions—including the clause modifying the statute of limitations (herein “modification clause”)—is void. Plaintiff agrees with Defendants that the statute of limitations began to run when Defendants informed Plaintiff of the $8,367.37. However, Plaintiff disagrees with Defendants that the relevant statute of limitations is one-year. Instead, Plaintiff argues that, per the discovery rule, Plaintiff had until April 2024 to file the underlying Complaint and it timely did so on January 17, 2024.

 

 The Court notes Plaintiff goes to great lengths to argue the Lease itself is fraudulent, as is its modification clause, based on further and additional legal argument. The Court finds these arguments persuasive. However, for purposes of the instant motion, the Court will focus on addressing the following two main arguments from Plaintiff which establish that the discovery rule (and not the modification clause) applies to the underlying causes of action: (1) Plaintiff alleges the Lease itself was procured by means of fraud because Plaintiff asserts Defendant Reliable Properties’ employee, David Gold, purposefully misrepresented the CAM estimate to mislead and induce Plaintiff to sign the Lease; and (2) the modification clause itself is void because it fails to expressly exempt fraud from the one-year statute of limitations which contravenes public policy.

 

With respect to the first argument, Plaintiff argues that the Complaint properly sets forth fraud in the inducement by alleging that Defendant Reliable Properties’ (now deceased employee), David Gold, fraudulently conducted the negotiations preceding the Lease:

 

[w]hen the Landlord Parties represented that Kids Empire’s estimated monthly CAM payment would be $5,040, they knew that representation was false, or made it recklessly and without regard for its truth . . . an employee of Reliable Properties claimed that Gold, who had since passed away, was known to underrepresent CAM expenses to induce potential tenants to sign leases . . .

(Compl., ¶ 13, 17, emphasis added.)

On Opposition, Plaintiff states that “Kids Empire opted to not identify the Reliable Properties employee who made this admission in the Complaint by name as a courtesy to that employee (who is akin to a whistleblower). But if the Court requires Kids Empire to identify the employee in an amended complaint, it will.” (Opp., pg. 7, footnote 5.) The Court finds the foregoing allegations properly allege fraud in the inducement.

Second, Plaintiff argues that the modification clause is void and inapplicable because it contravenes public policy by not expressly exempting fraud from its one-year limit:

In California, the discovery rule—not the occurrence rule—applies to fraud. Code Civ. Proc. § 338(d) (fraud claim “is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.”). Since “the delayed discovery rule is founded on important public policy considerations,” “contractual efforts to eviscerate the delayed discovery rule are thus void as against public policy.” Charnay v. Cobert, 145 Cal.App.4th 170, 183-84 (2006). See also Weatherly, 125 Cal.App.4th at 919 (“‘[N]o authority exists which sanctions a contractual provision permitting parties to opt out of the benefits of the discovery rule in situations where the discovery rule would otherwise apply.’”) (quoting Moreno v. Sanchez, 106 Cal.App.4th 1415, 1433 (2003)) (brackets in original).

(Opp., pg. 9.)

Given Defendants’ modification clause includes the language of “occurrence” and makes no exception for fraud, Plaintiff concludes the modification clause is accordingly void. Thus, the three-year statute of limitations instead applies.

 

On Reply, Defendants argue that the courts regularly enforce contractual limitation clauses even when fraud in the inducement has been alleged. (Reply, pg. 2.) Defendants cite to numerous California courts and their Federal counterparts to demonstrate that shortened limitations clauses are enforced, even when plaintiffs allege fraudulent inducement into the lease. (Dibble v. Reliance Life Ins. Co. of Pittsburgh (1915) 170 Cal. 199, 205, 149 P. 171 [shortened limitations provision enforceable despite fraud allegations]). However, the Court finds Dibble both factually and legally distinguishable in that that Dibble court found the drafter of the contract (a life insurance company) could not contest their own incontestability policy after a period of one-year had elapsed. “Civ.Code, § 1688, does not invalidate an incontestable clause in a life policy, though construed to preclude defense of fraud by insured.” (Dibble v. Reliance Life Ins. Co. of Pittsburg, Pa., 170 Cal. 199, 149 P. 171 (1915).) As such, this Court finds that Dibble barred the insurer from contesting the validity and application of its own incontestability clause and policy via means of fraud. Meanwhile, the case as bar neither deals with an insurer, nor a party contesting its own clause via means of fraud. Plaintiff here is not the drafter of the modified statute of limitations. The Court further notes that while Defendants do cite to a number of cases, the majority of such cases are federal; thus, not binding on this Court.

 

While the Court is not ruling on the merits of Plaintiff’s allegations, the Court does recognize the existence of such allegations in Plaintiff’s Complaint and finds they are properly pled. If the facts of Plaintiff’s allegations therein are presumed as true, the three-year statute of limitations applies to Plaintiff’s causes of action. Thus, such claims are not effectively time barred.

 

First Cause of Action – Fraud

 

“A complaint for fraud must allege the following elements: (1) a knowingly false

representation by the defendant; (2) an intent to deceive or induce reliance; (3)

justifiable reliance by the plaintiff; and (4) resulting damages.” (Service by

Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1816 [52 Cal.Rptr.2d

650] [combining misrepresentation and scienter as a single element].)

 

Defendants argue that according to Plaintiff, the alleged misrepresentation occurred at some undetermined point before the Lease Agreement was executed in February 2018. (Dem., pg. 8.) Furthermore, Defendants contend that Plaintiff does not specifically plead that the estimate was inaccurate at the time when it was made and there is no reason to suspect that Mr. Gold could have possibly known that his estimate would allegedly be inaccurate when Plaintiff finally started occupying the property, three years (and a global pandemic) later. (Dem., pg. 8.) Defendants state the Complaint is silent as to whom Mr. Gold made this representation to, how he made it (verbally or in writing) and when he made it or the context in which it was made. (Id.) Finally, Defendants argue the Complaint fails to allege how Gold could have possibility known that his estimate was inaccurate. (Id.)

 

By way of contrast, Plaintiff argues that the allegations assert that Gold fraudulently underrepresented the CAM expenses “[i] the negotiations that preceded the execution of the Lease,” (Compl., ¶ 9) and that the Defendants “restated and confirmed this misrepresentation in the Lease itself.” (Opp., pg. 6.) Plaintiff also states in opposition that “Reliable Properties has admitted that he was known to underrepresent CAM expenses to induce tenants into signing leases.” (Opp., pg. 7.) Plaintiff alleges this notion is supported by the Complaint’s following allegation:

 

 “[w]hen the Landlord Parties represented that Kids Empire’s estimated monthly CAM payment would be $5,040, they knew that representation was false, or made it recklessly, and without regard for its truth.” (Compl., ¶ 17.)

 

The Court finds that based on the foregoing, Plaintiff has properly pled that (1) Defendants made a knowingly false representation because Defendants’ now deceased employee (Gold), stated the figure of $5,040 for CAM expenses while knowing it would increase to over $8,000. (2) Plaintiff has pled facts establishing an intent to deceive or induce reliance by alleging Gold habitually underrepresented CAM expenses to motivate tenants to enter into Leases. (3) Plaintiff has pled justifiable reliance because Plaintiff states it relied on this sum because it was expressly stated and Defendants did not increase the CAM expense until after Plaintiff commenced occupancy of the Property. Thus, Plaintiff alleges Defendants did not disclose the increased expense before Plaintiff commenced occupation despite having ample and adequate time to do so. (4) Plaintiff claims resulting monetary damages, as pled in the Complaint’s prayer for relief praying for consequential damages in excess of $500,000. Accordingly, Defendants’ argument on Reply (that Plaintiffs falls short in pleading facts showing how, when, where, and to whom the fraudulent representations were made or in what context) is without merit.

 

The Lease attached to Plaintiff’s complaint clearly provides as follows:

 

TENANT’S estimated monthly CAM charge is $5,040.00

 

(Compl., ¶ 9, Ex. A, ¶ 18.1, pg. 7.)

 

Thus, Plaintiff has pled facts sufficient to state a cause of action for fraud and Defendant’s demurrer is OVERRULED as to this first cause of action.

 

Second Cause of Action – Recission (Mistake)

 

“A ‘mistake’ within the meaning of subdivision (b)(1) of section 1689 of the Civil Code can be either one of fact or of law. ‘Generally a mistake of fact occurs when a person understands the facts to be other than they are . . . .’ When both parties understand the facts other than they are, the mistake necessarily is mutual and thus becomes a basis for rescission.” (Crocker-Anglo Nat’l Bank v. Kuchman (1964) 224 Cal.App.2d 490, 496 [36 Cal.Rptr. 806], internal citations omitted.)

 

Here, Defendants argue that recission is a remedy and not a cause of action and cites to one federal case and one superior court case which the Court clarifies are not binding. Additionally, Defendants cite to one appellate case: Thompson v. Miller (2003) 112 Cal.App.4th 327, 334 (Recission is a remedy, not a separate cause of action.”) The Court notes the Thompson case is not published and not binding. While recission is a cause of action in this Court, the Court finds both Plaintiff and Defendants spend little time addressing it.

 

The Complaint alleges only that Plaintiff’s consent to the Lease was given by mistake, under the assumption that its monthly CAM expense obligation would be as represented by the Landlord Parties, i.e. approximately, $5040. (Compl., ¶ 24.) As such, Plaintiff concludes it is entitled to complete relief, including restitution of benefits conferred as a result of the Lease and consequential damages. (Id.) The court concludes that plaintiff has adequately plead mutual mistake and the basis for rescission, as an alternative cause of action and theory of damages.  

 

Thus, Defendants’ demurrer to the second cause of action for recission is OVERRULED. 

 

Third Cause of Action – Declaratory Relief

 

To state a declaratory relief claim, the plaintiff must allege a proper subject of declaratory relief and an actual controversy involving justiciable questions relating to the party’s rights or obligations. (See Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.)  Plaintiffs’ claim for declaratory relief cannot stand independently. (See Batt v. City and County of San Francisco (2007) 155 Cal.App.4th 65,82.)

 

As a preliminary matter, the Court notes that Defendants do not provide substantive argument as to why Plaintiff’s third cause of action for declaratory relief fails to sufficiently plead facts. Instead, Defendants conclude on demurrer that declaratory relief is time-barred along with fraud and recission. Plaintiff pleads that it “seeks a declaration that the Lease is rescinded due to fraud or, in the alternative, mistake, and that, as a result, it is entitled to complete relief, including benefits conferred by Kids Empire . . . in an amount in excess of $500,000. (Compl., ¶¶ 26-27.) Here, the Court finds Plaintiff has properly alleged a proper subject of declaratory relief because it is seeking the Court’s judgment regarding the Lease and it is based on the actual controversy involving the justiciable issues of fraud and the parties remaining obligations to one another.

 

Thus, Defendants’ demurrer as to Plaintiff’s third cause of action for declaratory relief is OVERRULED.