Judge: William D. Claster, Case: 21-01190139, Date: 2022-07-28 Tentative Ruling
1) Defendant’s Demurrer to Plaintiff’s Third Amended Complaint
2) Plaintiff’s Motion for Leave to File a Fourth Amended Complaint
3) Plaintiff’s Motion to Continue Trial
4) Status Conference
Before the Court are three motions:
The Court will first address the demurrer, then the motion for leave to file a 4AC, then the trial continuance motion. That is, the scope of permitted amendment for the 4AC will be informed by the Court’s ruling on the demurrer to the 3AC. In opposition to the demurrer, Olen argues that if the Court grants leave to amend, “this demurrer will be moot.” (Demurrer Opp. at p. 2.) The Court will not permit Olen to avoid a potentially meritorious demurrer to the 3AC by filing a 4AC that makes no changes to the allegations against TPG. (See Leave to Amend Reply at p. 5 [arguing no prejudice to TPG because there are no changes to allegations against TPG].)
Separately, the Court cautions the parties against the use of excessive footnotes in an attempt to avoid the page limits imposed by the Rules of Court. In particular, TPG’s opening demurrer memorandum has 50 footnotes, and its reply has 38 footnotes. If a party requires additional room to make its arguments, the proper remedy is to seek leave to file an overlong brief. If the parties continue to make excessive use of footnotes in future filings, the Court may exercise its discretion to ignore the footnotes entirely.
TPG’S DEMURRER
TPG’s demurrer to the first, fourth fifth, and sixth causes of action in Olen’s 3AC is SUSTAINED WITHOUT LEAVE TO AMEND. In evaluating the demurrer, the Court has not considered any legal argument set forth in TPG’s notice of demurrer, which TPG appears to have used in an improper attempt to circumvent the page limits for a memorandum of points and authorities.
I. Breach of the CC&Rs
Paragraph 64 of the 3AC sets forth TPG’s alleged breaches of the CC&Rs. As in the previous demurrer and motion for judgment on the pleadings, Olen’s arguments are insufficient to state a claim for breach of the CC&Rs against TPG.
Subparts (b) through (o) of this paragraph all state ways in which either (1) the Project allegedly violates the CC&Rs or (2) amendments to the Development Standards violate the CC&Rs because they were not properly adopted. None of these subparts alleges that TPG has done anything other than plan a project. To be clear, the Project ultimately may be found to violate the CC&Rs, and the amendments to the Development Standards may have been improperly adopted. But those issues will be decided in the upcoming trial on Olen’s declaratory relief claim, which is not at issue on this demurrer. As the Court previously observed, assuming the Project violates the CC&Rs, the party that breached the CC&Rs at this point isn’t TPG, but KCN, which has the duty under the CC&Rs to approve or disapprove the Project. Nothing in the CC&Rs bars TPG from asking KCN to approve a construction project. Indeed, the Court doesn’t see how asking permission to build even the most outlandish project violates the CC&Rs. Notably, Olen does not cite any case authority allowing such a claim against a project developer in these circumstances.
Subpart (a) of paragraph 64 is the only one that alleges acts by TPG. As with Olen’s previous allegations about “seeking” to build the Project or vaguely “taking other steps” to move the Project forward, subpart (a) is insufficient to state a breach. Olen alleges TPG has “continued” the Project “along the real estate development continuum,” which is just a longer way of saying “taking other steps.” Olen does offer two specifics: TPG has allegedly (1) sought and obtained financing for the Project, and (2) worked with consultants to prepare site plans, blueprints, and the like. But Olen never identifies a section of the CC&Rs that imposes a duty on TPG not to line up financing for a proposed construction project, or a duty not to work with architects, engineers, etc. to draw up designs for a construction project it wishes to pursue. Finally, Olen alleges that TPG has claimed the Project “will now be built” or will go “sticks in the ground” soon. As discussed in the prior demurrer ruling, the Court does not see how TPG saying something violates the CC&Rs.
For these reasons, the demurrer to the breach claim is sustained.
II. Nuisance
As before, Olen’s nuisance claim is based entirely on the alleged breach of the CC&Rs, which is separately actionable as a nuisance claim under § 10.02 of the CC&Rs. Because the breach claim fails, the nuisance claim fails.
III. Tortious Interference
Finally, Olen still has not cured the problem with its tortious interference claims identified in the Court’s previous demurrer ruling. The tortious interference claims remain, with one exception, founded on tortious breach of contract. A tortious breach exists when “one party intentionally breaches the contract knowing or intending that such breach will cause severe, unmitigable harm.” (Erlich v. Menezes (1999) 21 Cal.4th 543, 553-554.) That is, a claim for tortious breach of contact depends on an underlying breach. Because the breach claim fails, the tortious interference claims fail.
The sole exception is ¶ 123 of the 3AC, which alleges that TPG violated CEQA. The Court rejected this argument in its prior ruling: “Setting aside the Court’s ruling in the companion action that the Project complied with CEQA, Olen never explains how TPG, a private party, can violate CEQA.” (ROA 513, at pp. 9-10.) The Court accepts Olen’s current contention that the CEQA ruling is on appeal and therefore not final. But Olen still never explains how CEQA imposes any duties, let alone tort duties, on a private party such as TPG.
IV. Leave to Amend
Olen has had three attempts to plead the challenged claims—the 1AC (successfully challenged by a motion for judgment on the pleadings), the 2AC (successfully challenged by demurrer), and the current 3AC. Each time Olen has amended its claims to attempt to state a cause of action, the changes have been little more than wordsmithing. The Court therefore finds granting further leave to amend would be futile. Accordingly, TPG’s demurrer is sustained without leave to amend.
OLEN’S MOTION FOR LEAVE TO FILE A 4AC
Olen’s motion for leave to file a 4AC is DENIED.
Olen objects to the omnibus declarations of Krystal Anderson and Greg Nakahira, which are submitted in support of both this motion and the motion for a trial continuance. As pertains to this motion, the Court overrules objection 1 to the Anderson declaration and objections 4, 6, and 8 to the Nakahira declaration. The Court declines to rule on the remaining objections, which concern evidence irrelevant to the Court’s analysis here.
I. Brief Background
Olen’s proposed 4AC adds three parties to the case: VWX Newport Beach, LLC; Shopoff Land Fund II, L.P.; and SLF-KC Towers, LLC. (Shopoff Land Fund and SLF-KC are collectively referred to as “Shopoff” in the 4AC; the Court will do the same here unless their separate identities are relevant.) Olen contends these amendments are necessary because Shopoff and VWX have “direct roles in the Property and Project and should be added to this Action.” (Memo. at p. 2.) Specifically, Shopoff is apparently one of the members of the TPG (an LLC), and VWX—whose manager is TPG principal Ken Picerne—is the record owner of the property where TPG intends to construct its project. (TPG’s Greg Nakahira testifies by declaration that TPG purchased the subject property; his testimony that TPG purchased the property is not contradicted by VWX holding record title as part of that purchase, particularly when Olen alleges that VWX is a TPG affiliate.)
II. Standard of Review
A court “may, in the furtherance of justice . . . allow a party to amend any pleading.” (CCP § 473(a)(1).) “[C]ourts are bound to apply a policy of great liberality in permitting amendments to the complaint at any stage of the proceedings, up to and including trial.” (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 487.) But the policy of liberality does not apply “[w]here inexcusable delay and probable prejudice to the opposing party is shown.” (Estate of Murphy (1978) 82 Cal.App.3d 304, 311.) Leave to amend may be denied where amendment would be futile (see Foxborough v. Van Atta (1994) 26 Cal.App.4th 217, 230), but “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.” (Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048.)
In addition, any motion for leave to file an amended pleading must be accompanied by a declaration that satisfies the four factors of CRC 3.1324(b).
III. Delay and Prejudice
A. Timeline of Events
A recap of the history of this case and publicly available documents shows that Olen has delayed in bringing this motion.
Olen filed suit on March 16, 2021. Its original complaint (ROA 2) alleged that KCN sold the “Common Area Parcel”—the land where TPG intends to construct its Project—to SLF-KC, and that SLF-KC encumbered the Common Area Parcel with mortgages. (Id., ¶¶ 10-11.) Olen alleged that as an owner in the Koll Center, it had the right to use the Common Area Parcel, and that TPG’s project took away its rights. (Id., ¶¶ 7, 12.) That is, Olen alleged SLF-KC was the record owner of the property.
On June 9, 2021, Olen filed its 1AC, which contained the same allegations. KCN and TPG both answered the 1AC.
On June 22, 2021, TPG filed a status conference in the related CEQA matter, covering status conferences in both cases. (Anderson Decl., Ex. 3.) In this statement, TPG requested a trial on Olen’s declaratory relief claim in early 2022.
On October 29, 2021, SLF-KC transferred the property to VWX by recorded grant deed. (Anderson Decl., Ex. 28.) By operation of law, Olen was charged with knowledge of this transfer.
TPG then moved for judgment on the pleadings as to the damages claims in the 1AC, but not the declaratory relief claim. On February 23, 2022, the Court granted TPG’s motion.
On March 16, 2022, Olen filed its 2AC (ROA 440). The 2AC contained extensive allegations about Shopoff Land Fund and its prior attempts to build a residential project on the property. The 2AC also included allegations about the transfer of the property from KCN to SLF-KC, including a specific allegation that Olen was harmed because the transfer failed to include an allegedly required easement that would maintain Olen’s access to common areas. (Id., ¶ 33.) The 2AC alleges TPG acquired the property (id., ¶ 34), but makes no mention of VWX’s status as record owner.
On April 19, 2022, Olen hired new counsel.
Olen demurred to the damages claims in the 2AC. On May 6, 2022, the Court sustained the demurrer.
Olen filed the currently operative 3AC (ROA 526). It contains the same allegations about Shopoff Land Fund and SLF-KC as the 2AC. It makes no mention of VWX.
B. Olen Delayed in Seeking Amendment to Name Shopoff and VWX
As the foregoing makes clear, Olen has known that SLF-KC’s purchase of the property at issue from KCN allegedly affected Olen’s rights. Olen has known of Shopoff Land Fund’s general involvement in residential projects on the property for even longer, as there was prior litigation between Olen and Shopoff. And Olen has been legally charged with knowledge of VWX since October 29, 2021, when it became owner of record. Yet at no time until this motion has Olen sought to name any of these parties as defendants, even with a trial date already on calendar. The Court finds Olen delayed in seeking amendment.
C. Olen’s Amendment Is Motivated in Part by Delay
Of course, if Olen has good reason for the delay, the delay is of little importance. Olen insists in its papers that it was unable to discover several pertinent facts—such as Shopoff’s direct involvement in the TPG entity, not just its general interest in development—until recently. The Court credits this explanation to some extent. While Olen may have known of Shopoff’s general involvement and SLF-KC’s specific actions vis-à-vis the property, TPG and KCN’s discovery behavior has delayed Olen’s knowledge of Shopoff’s continuing, direct role. (This includes, without limitation, Defendants’ apparent over-designation of discovery information as confidential or AEO under the parties’ protective order.)
At the same time, Olen has no satisfactory explanation for failing to name VWX, the record owner of the property since October 2021, in an earlier pleading. By law, it is charged with knowledge of what property records show. And to the extent Olen might argue that it only recently discovered Ken Picerne was the manager of VWX, Olen admits it found that information in Secretary of State records—that is, publicly available records it could have searched at any time. And while the Court accepts that Olen only recently learned of Shopoff’s specific involvement in TPG, it has known of things like Shopoff’s ownership of the property, its encumbrance of the property with mortgage, and its failure to record easements on the property for quite some time.
The Court therefore does not entirely credit Olen’s explanation of the reasons for the delay. To the contrary, the Court finds the delay in seeking amendment, and the proposed amendment itself, is motivated at least in part by an intent to delay this case.
The Court is not writing on a blank slate. In the companion CEQA action, the Court required Olen to post a bond under CCP § 529.2 because the CEQA action was brought for the purpose of delaying the project. (See Olen Properties Corp. v. City of Newport Beach, No. 21-01185991, ROA 158, which the Court proposes to take notice of on its own motion.) As noted in that ruling, Olen general counsel Julie Ault sent TPG a letter threatening to file suit to delay the Project unless TPG met Olen’s demands, and Olen consultant Melanie Schlotterbeck, in discussions about strategy with another Project opponent, said “We want the delay.” (See id., at pp. 4-5. TPG’s Nakahira submits Ault’s letter in support of its opposition here. See Nakahira Decl., Ex. A.) That Olen seeks amendment in order to delay proceedings is further supported by its motion to continue the declaratory relief trial. Olen seeks a continuance to March 2023 based in part on its assumption that this motion for leave to amend will be granted.
D. TPG Will Be Prejudiced by Delay Associated With Amendment
Adding three new defendants to the case will result in delaying the currently scheduled trial on the declaratory relief cause of action as those defendants will need time to get up to speed on the case and file whatever responses and motions they deem necessary. Olen correctly notes that the delay of trial, standing alone, is not prejudice that would support denying leave to amend. But TPG claims additional prejudice: it cannot move forward with construction until resolution of the declaratory relief claim. As discussed in the bond order in the CEQA action, and as the Court necessarily found in later setting the bond at the statutory maximum (see Olen v. Newport Beach, ROA 173), TPG incurs considerable costs when construction is delayed. This is prejudice above and beyond the usual costs associated with a delayed trial, additional discovery, etc.
Olen argues that any such delay is caused by TPG’s choice not to begin construction until the declaratory relief trial is over. The Court disagrees. Olen raised an almost identical argument in opposition to the CEQA bond-setting motion, noting that once necessary approvals have been granted, a developer may move forward with a project regardless of whether a CEQA lawsuit is pending. The Court believed then, and believes now, that Olen elevates form over substance. It’s true that the Project is not formally enjoined, and that TPG could in theory move forward with construction. But the logical response to a claim seeking a declaration the Project violates the CC&Rs—like a claim that the Project approval violates CEQA—is to hold off until the claim is resolved. Otherwise, TPG could invest tens of millions of dollars only to be told it has to tear the Project down. Olen, itself a sophisticated property developer, knows this. This is why, as Schlotterbeck said, “We want the delay.”
E. Prejudice to Olen From Denial Will Be Minimal, if Any
Finally, Olen will not be prejudiced if amendment is denied, or if it is, any such prejudice will be minimal. The Court will soon conduct a trial of Olen’s claim for declaratory relief. If the Court declares the Project violates the CC&Rs for all the reasons Olen claims—it is inharmonious, it interferes with Olen’s parking rights, etc.—the Court does not see how the ruling could realistically be avoided by non-parties. Set aside the specifics of a res judicata analysis for judgment against an LLC vis-à-vis its members (Shopoff is apparently a member of TPG) or an LLC vis-à-vis its affiliates (VWX is allegedly an affiliate of TPG). If the Court declares the Project violates the CC&Rs, the Court very seriously doubts that any judge in Orange County would look kindly if VWX were to put a shovel in the ground the next morning and argue it can build the Project because it isn’t bound by the declaration. (And, of course, the declaration would still be binding as to KCN, meaning KCN’s approval of the Project would be undone regardless of any res judicata analysis between TPG, Shopoff, and VWX.)
It also appears that the statute of limitations may soon run on Olen’s damages claims against Shopoff. (The court expresses no opinion on that question, which may be disputed by the parties.) If this is true, denial of amendment may result in the loss of those claims. But as set forth above, Olen has known of harms allegedly caused by Shopoff (encumbrance of the Common Area Parcel with mortgages, effects on Olen’s common area rights, etc.) since it first filed suit. Olen may not have known the particulars of Shopoff’s involvement in TPG, but it has long been on notice that Shopoff’s conduct has allegedly injured it. It could have sought to name the Shopoff entities as parties months ago, or even in the original complaint, but it chose not to.
OLEN’S MOTION TO CONTINUE TRIAL
Olen’s motion to continue the trial of its declaratory relief claim is GRANTED IN PART. The Court will continue the trial, but only until November 7, 2022 not March of 2023 as requested.
The Court rejects Olen’s assertion that this matter is not at issue, at least as to declaratory relief. The Court has denied Olen’s motion for leave to amend, so there is no concern regarding Shopoff and VWX. As to TPG, it answered the declaratory relief claim as pled in both the original complaint and the 1AC. None of its subsequent pleadings challenges have attacked the declaratory relief claim. Olen has known of TPG’s response to the declaratory relief claim—a general denial with affirmative defenses—since no later than TPG answered the 1AC on July 14, 2021.
The addition of new parties by the 4AC is not good cause to continue trial, as the Court has denied Olen’s motion for leave to amend. Olen’s argument about Shopoff and VWX could be read to mean that regardless of whether they are formally made parties to this action, it needs discovery from them in order to prepare its case on the declaratory relief claim. This may be so, but Olen offers no reason why it couldn’t have conducted this discovery under the Civil Discovery Act’s provisions for third-party discovery (subpoenas, etc.) during the approximately 16 months this case has been pending.
The Court largely agrees with Olen that TPG and KCN’s conduct in discovery hasn’t been ideal. At the same time, Olen fails to make clear, and the Court struggles to see, how the disputed and delayed discovery is necessary for the upcoming declaratory relief trial. The Court’s job in the declaratory relief trial will be to determine (1) whether the Project substantively complies with various standards set forth in the CC&Rs, and (2) whether the proper procedures set forth in the CC&Rs were followed when KCN approved the Project. The Court does not understand why this would require, for example, detailed understanding of Shopoff’s apparent ownership interest in TPG. Either the Project is “inharmonious,” etc., or it is not, and either proper procedures were followed, or they were not.
That said, the Court understands that Olen has begun the formal process to challenge AEO and confidential designations on certain documents produced in discovery, and that process should be given time to play out. Furthermore, the Court agrees with Olen that it should be afforded the chance to depose Ken Picerne, TPG’s principal, before trial, and to have sufficient time to incorporate his deposition into its trial preparation. The Court will therefore grant a four-week continuance of the trial, from the current date of October 10, 2022 to November 7, 2022. The Court finds there will be no particular prejudice to TPG or KCN from this short continuance.