Preview
1
STEVEN G. TERAOKA, SBN: 60094
2 ELIZABETH P. SHOEMAKER, SBN: 245577
TERAOKA & PARTNERS LLP
3 One Embarcadero Center, Suite 1020
9/21/2020
San Francisco, California 94111
4
Telephone: (415) 981-3100
5 Facsimile: (415) 981-0222
6 Attorneys for Defendant and Cross-Complainant
7 MARY’S GONE CRACKERS, INC.
8 SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 COUNTY OF BUTTE
10
JASWANT SINGH BAINS, Trustee of the Case No.: 19CV00527
11 Jaswant and Satwant Bains Family Trust; and
ROY LANZA, Trustee of the Roy and Sondra
12 Lanza Family Trust; MARY’S GONE CRACKERS, INC.’S
13 REPLY IN SUPPORT OF ITS
Plaintiffs, DEMURRER TO SECOND AMENDED
14 COMPLAINT
v.
15
16 MARY’S GONE CRACKERS, INC., a
Delaware corporation; and DOES 1 through
17 25, inclusive, Complaint Filed: February 14, 2019
Hearing Date: September 30, 2020
18 Defendants. Hearing Time: 9:00 a.m.
19 Department: 1
MARY’S GONE CRACKERS, INC., a Trial Date: December 14, 2020
20 Delaware corporation,
21
Cross-Complainant and
22 Defendant,
23 v.
24
JASWANT SINGH BAINS, Trustee of the
25 Jaswant and Satwant Bains Family Trust;
ROY LANZA, Trustee of the Roy and Sondra
26 Lanza Family Trust; and DOES 1 through 25,
inclusive,
27
Cross-defendants.
28
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DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
1 I. INTRODUCTION
2 The second amended complaint (the “SAC”) filed by plaintiffs in this action (“Plaintiffs”)
3 fails to cure the defects of the first amended complaint (the “FAC”). The SAC adds a few more
4 allegations about how Mary’s Gone Crackers, Inc. (“Defendant”) went about its alleged
5 underpayment of rent, but it does not state facts sufficient to constitute a cause of action for
6 breach of the implied covenant of good faith and fair dealing.
7 In their Memorandum of Points and Authorities in Opposition to Defendant’s Demurrer
8 to Second Amended Complaint (the “Opposition”) Plaintiffs claim to have cured the defects of
9 the FAC “by alleging a distinct claim for damages arising from a clear course of bad-faith
10 conduct that constitutes a breach of the implied covenant of good faith and fair dealing.”
11 (Opposition 2:17-18) In the SAC, Plaintiffs have further parsed their allegations to describe the
12 course of the alleged conduct, but the alleged conduct still remains failure to pay the correct
13 amount of rent. The defects of the FAC have not been cured.
14 A tenant has no duty to report to a landlord whether it believes the amount of rent paid
15 was correct. Accounting for collected rent is the landlord’s responsibility. Defendant’s failure to
16 help Plaintiffs perform does not create a separate cause of action for Plaintiffs. In the SAC,
17 Plaintiffs added three new allegations of conduct that were not included in the FAC. Those
18 allegations are that Defendant: 1) did not send an amendment draft, 2) did not inform Plaintiffs
19 that it believed the rent amount owed was not what was written in the MGC Lease, and 3) asked
20 Plaintiffs to issue invoices for rent. None of such conduct interfered with Plaintiffs’ rights.
21 In sum, the first cause of action in the SAC alleges Defendant breached the MGC Lease
22 by underpaying, and the second cause of action alleges Defendant failed to point out such
23 breach. It is well-settled law that the second cause of action is superfluous, so the demurrer to
24 the SAC should be sustained without leave to amend.
25 II. DEFENDANT’S ALLEGED CONDUCT DID NOT INTERFERE WITH
26 PLAINTIFFS’ RIGHTS TO RECEIVE THE CONTRACT BENEFITS.
27 As Defendant argues on page 3 of the Memorandum of Points and Authorities filed
28 concurrently with the demurer (the “MPA”) an essential factual element of the claim of breach of
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DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
1 the implied covenant of good faith and fair dealing (the “Covenant”) is interference with the
2 right of the other party to receive the benefits of the contract. Plaintiffs erroneously conclude
3 that a tenant’s failure to pay rent deprives a landlord of its rights to receive rent. Failure to pay
4 rent, of course, deprives a landlord of rent. However, failure to pay rent does not deprive a
5 landlord of its bargained-for right to such rent. This is a key point that Plaintiffs misrepresent by
6 conflating a benefit with a right to receive a benefit. Plaintiffs contend, "MGC incorrectly argues
7 that conscious, deliberate underpayment of rent does not interfere with the right of a landlord to
8 receive the full benefit of the bargain. That argument makes no sense." (Opposition 8:9-11)
9 Rather, Plaintiffs’ argument is the one that makes no sense. If Plaintiffs’ position were correct,
10 then any breach of contract (i.e., interference with contractual benefits) would take away rights
11 to the benefits and, therefore, result in an unenforceable contract. That is the argument that
12 makes no sense.
13 A. Breaching a Lease Does Not Make It Unenforceable.
14 If a tenant consciously and deliberately underpays rent, such failure to pay does not
15 interfere with the landlord’s right to receive payment (i.e., the benefit of the bargain.) The
16 landlord retains its right to payment and can pursue its rights by taking actions such as suing for
17 breach of contract or demanding that the tenant pay or quit. A tenant does not have the power to
18 defeat a lease agreement by underpaying and, thereby, stripping the landlord of its rights to the
19 bargained-for payment. If a tenant breaches an enforceable lease, the landlord retains the rights
20 to enforce it.
B. Plaintiffs Misrepresent the Essential Elements of a Claim for Breach of the
21
Covenant.
22 Plaintiffs allege, “MGC’s behavior was in bad faith, and stripped Bains/Lanza of the
23 benefits of the Lease – payment of the full rent due under the express terms of the Lease.”
24 (Opposition 6:4-6) They also claim, “The SAC alleges, in detail, that MGC’s bad-faith conduct
25 caused Bains/Lanza to lose the full measure of the benefits to which they were entitled under the
26 lease.” (Opposition 2:19-21) Apart from being ridiculous, such claims conveniently
27 misrepresent the law. An essential factual element of breach of the implied Covenant is unfair
28 interference with the right of a party to receive the benefits of the contract. (CACI No. 325, May
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DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
1 2020 supplement) None of Defendant’s alleged conduct served to strip Plaintiffs of their
2 rights to receive the rent set forth in the MGC Lease. Plaintiffs, in fact, seem to recognize
3 this point, because in quoting from the analogous Careau case, they conveniently end the quote
4 before the key phrase. Plaintiffs cite Careau as follows:
As explained in Careau & Co. v. Security Pacific Business Credit, Inc. (1990)
5 222 Cal.App.3d 1371 (“Careau”), where the allegations “show that the conduct of
6 the defendant, whether or not it also constitutes a breach of a consensual contract
term, demonstrates a failure or refusal to discharge contractual responsibilities,
7 prompted not by an honest mistake, bad judgment or negligence but rather by a
conscious and deliberate act, which unfairly frustrates the agreed common
8
purposes and disappoints the reasonable expectations of the other party. . .” they
9 do constitute a separate cause of action for a breach of the implied covenant
which is not superfluous. Id. at 1395.
10
(Opposition 6:16-23)
11
12 Plaintiffs substituted the ellipsis for the following end to the sentence: “thereby
13 depriving that party of the benefits of the agreement.” (Careau & Co. v. Sec. Pac. Bus.
14 Credit, Inc. (1990) 222 Cal. App. 3d 1371, 1395, emphasis added) The partial sentence from
15 Careau quoted by Plaintiffs had nothing to do with the whether or not the cause of action is
16 superfluous. That is a misrepresentation. The sentence discusses the essential elements of a
17 claim for breach of the implied Covenant. The key element is that the conduct must deprive the
18 other party of the benefits of the agreement. Here, as discussed above, Defendant’s alleged
19 conduct did not deprive Plaintiffs of the benefits of the MGC Lease, so Plaintiffs have not
20 properly alleged breach of the implied covenant – regardless of whether the claim is superfluous
21 to the breach of contract claim. The SAC itself demonstrates that the claim for breach of the
22 implied Covenant does not meet the required elements, because if Plaintiffs had been stripped of
23 their rights, there could be no cause of action for breach of contract.
24 The SAC is utterly devoid of any factual allegations that any action (or combined actions)
25 by Defendant interfered with Plaintiffs’ rights. Paragraph 27 of the SAC is a conclusory
26 allegation that a long list of rights were interfered with, but, critically, it contains no facts
27 sufficient to constitute a cause of action for breach of the implied Covenant. Plaintiffs fail to allege
28 any facts to show how any conduct by Defendant unfairly interfered with Plaintiffs’ rights to: a)
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DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
1 receive rent, b) issue a Notice of Default, c) terminate the lease after issuing a Notice of Default,
2 d) evict Defendant, e) require Defendant to surrender possession, f) exercise remedies under
3 section 1951.2, g) issue a request for an estoppel certificate, h) promptly seek payment of late
4 charges, i) approve an amendment, j) lease the premises to a different tenant, or k) prompt
5 performance. How did Defendant manage to strip Plaintiffs of those 11 rights? We do not
6 know, because Plaintiffs allege no facts connecting Defendant’s actions to the stripping of
7 Plaintiffs’ “full measure” of rights.
8 The complete lack of any allegations of facts in the SAC about how Defendant’s alleged
9 conduct allegedly interfered with the rights enumerated in paragraph 27 demonstrates that
10 Plaintiffs failed to plead facts sufficient to establish the essential factual elements of the cause of
11 action for breach of the implied Covenant. Plaintiffs claim, “The allegations in paragraph 27 of
12 the SAC detail the various rights under the Lease that but for MGC’s conduct Bains/Lanza could
13 have exercised.” (Opposition 8:7-9) There are zero facts giving rise to such “but for” causation.
14 Plaintiffs allege not a single fact to suggest how or why Plaintiffs were unable to exercise their
15 enumerated rights.
16 The truth is that Plaintiffs could have exercised their rights. Rather, until they filed the
17 complaint in this action, Plaintiffs did not elect to exercise their rights. Such difference is not
18 semantic. Defendant did not stand in Plaintiffs’ way. Plaintiffs have now sued Defendant to
19 recover all unpaid rent plus interest plus late fees plus attorney fees. Plaintiffs cannot have it
20 both ways. Either their rights were stripped and they have a claim against Defendant for breach
21 of the implied Covenant or their rights were not stripped such that they can sue Defendant for
22 breach of contract. Claiming both makes one of the causes of action superfluous. As argued
23 below and in the MPA, if a cause of action for breach of the implied Covenant is superfluous, it
24 is correct to sustain a demurrer without leave to amend.
25 C. The MGC Lease Did Not Require Defendant to Put Plaintiffs
26 on Notice of Breach.
27 Plaintiffs also claim that Defendant’s actions did not put Plaintiffs “on notice” that they
28 could “exercise the rights available to them under the Lease.” (Opposition 4:16-17) Plaintiffs
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DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
1 seem to be promoting a new legal theory that any time a party breaches a contract and does not
2 expressly notify the other party of such, then the injured party has two causes of action – one for
3 breach of contract and another one for breach of the implied Covenant. Plaintiffs cite no
4 authority for such legal theory because there is none. The second cause of action is superfluous
5 to a claim for breach of contract. Plaintiffs’ theory is precisely contrary to the holding in
6 Careau, the analogous case cited by Defendant in the MPA and discussed below.
7 III. THE SECOND CAUSE OF ACTION IS SUPERFLUOUS.
8 As argued in the MPA, even if a plaintiff were to plead facts sufficient to establish the
9 essential factual elements of the cause of action for breach of the implied Covenant, such
10 allegations must also go beyond the cause of action for breach of contract such that they give rise
11 to tort damages based on a special relationship among the parties. If they do not, the cause of
12 action for the implied Covenant is deemed superfluous to the cause of action for breach of
13 contract, and it is correct to sustain a demurrer to such cause of action.
14 Plaintiffs concede they are not claiming tort damages. (Opposition 9:13) Therefore,
15 because Plaintiffs alleged a cause of action for breach of contract based on non-payment of rent,
16 Plaintiffs’ cause of action for breach of the implied Covenant based on actions related to non-
17 payment of rent is deemed superfluous.
18 It is certainly true that a cause of action for breach of the implied Covenant can be
19 alleged without a claim for tort damages. As noted by Plaintiffs in the Opposition, such line of
20 cases is one in which there has been no technical transgression of express covenants (and,
21 therefore, breach of contract has not been alleged), but a contracting party’s conduct unfairly
22 frustrates the other party’s rights to the benefits of the contract. (Opposition 8:16-18) Examples
23 include McWilliams v. Holton (1967) 248 Cal.App.2d 447, in which a landlord withdrew his
24 notice to the previous tenant to vacate the premises. By allowing the previous tenant to remain in
25 possession of the premises, the landlord breached the implied Covenant, because he rendered
26 performance of the contract with the new tenant impossible. In that case, because the condition
27 precedent to the lease agreement with the new tenant (i.e., vacating of the premises by the previous
28 tenant) had not occurred, the new tenant could not allege a breach of contract and had to rely on
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DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
1 breach of the implied Covenant.
2 Another example of a proper claim for breach of the implied Covenant without a claim
3 for tort damages is where a landlord unreasonably rejects a potential sublessee or lease
4 assignment, even though the lease allows a tenant to sublease or assign the premises with
5 landlord permission. (See, e.g., Cohen v. Ratinoff (1983) 147 Cal.App. 3d 321) In those cases,
6 too, there is no technical breach of contract, because the landlord had the right to withhold
7 consent. But when the denial of consent is found to be unreasonable, a tenant can claim breach
8 of the implied Covenant for unfairly frustrating the tenant’s rights under the lease.
9 The allegations in the SAC are not like the above types of cases in which one party is
10 alleging no technical transgression of express covenants. Here, the MCG Lease had an express
11 covenant to pay rent and Plaintiffs allege Defendant breached such covenant. In claiming breach
12 of the implied Covenant, Plaintiffs claim no tort damages, so the claim for breach of the implied
13 Covenant is superfluous.
14 A. “Going Beyond” Means Making a Claim for Tort Damages, Not Adding
15 Details and Using Synonyms.
16 As argued in the MPA, Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222
17 Cal.App.3d 1371 is analogous to the case here. Plaintiffs try to differentiate this case from
18 Careau by ignoring its holding. Careau holds that for cases in which breach of contract has
19 been claimed, unless the claim for breach of the implied Covenant seeks tort damages, the claim
20 for breach of the implied Covenant is superfluous.
If the allegations do not go beyond the statement of a mere contract breach and,
21
relying on the same alleged acts, simply seek the same damages or other relief
22 already claimed in a companion contract cause of action, they may be
disregarded as superfluous as no additional claim is actually stated. Thus, absent
23 those limited cases where a breach of a consensual contract term is not claimed
or alleged, the only justification for asserting a separate cause of action for
24
breach of the implied covenant is to obtain a tort recovery.
25
(Careau at 1395)
26
27 In this case, Plaintiffs concede they are not seeking tort recovery. (Opposition 9:13)
28 Therefore, because the claim for breach of the implied Covenant relies on Defendant’s alleged
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DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
1 underpayment of rent, no claim for breach of the implied Covenant is actually stated. This is
2 well-settled law. Indeed, CACI No. 325’s “Directions for Use” cite the above quote from
3 Careau. Nevertheless, Plaintiffs argue that because the claims for damages for the first and second
4 causes of action are now worded differently in the SAC (i.e., semantically they are not “simply” the
5 same) and because the SAC has added some detail and nefarious-sounding descriptions regarding
6 Defendant’s alleged underpayment of rent, the SAC alleges “facts beyond the breach of the express
7 contractual duty to pay rent.” (Opposition 9:18-19) However, Careau does not stand for the
8 proposition that Plaintiffs can avoid a demurrer simply by adding details about the alleged breach of
9 contract such that the allegations for breach of the implied Covenant are not verbatim the same
10 allegations claimed in the breach of contract cause of action. As the Court recognized in sustaining
11 the demurrer to the FAC, “The allegations in paragraph 26 of the First Amended Complaint
12 amount to no more than a claim of failure to pay rent.” It remains true that the allegations for
13 breach of the implied Covenant in the SAC amount to no more than a claim of failure to pay rent.
14 Plaintiffs are misrepresenting what the court in Careau means by “going beyond.” Plaintiffs
15 try to persuade that “going beyond” the statement of a mere contract breach is a subjective matter of
16 degree such that if they provide enough details about the course of conduct related to the breach of
17 contract or characterize such conduct as in bad faith, the claim for breach of the implied Covenant
18 will not be superfluous. However, we know that is not what Careau means, because in the very next
19 sentence, the court explains that “going beyond” means claiming tort damages. (“Thus, absent those
20 limited cases where a breach of a consensual contract term is not claimed or alleged, the only
21 justification for asserting a separate cause of action for breach of the implied covenant is to obtain a
22 tort recovery.” (Careau at 1395)) Applying that rule to the facts here, breach of a consensual
23 contract is alleged. Therefore, the only justification for asserting a separate cause of action for the
24 implied Covenant is to obtain a tort recovery. Since Plaintiffs do not seek tort damages, the cause of
25 action for breach of the implied Covenant is superfluous.
26 ///
27 ///
28 ///
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DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
B. It Is Correct to Sustain a Demurrer without Leave to Amend When the
1
Cause of Action Is Duplicative of a Claim for Contract Damages.
2 In Careau, after determining that tort damages were not available, the court concluded
3 that plaintiffs’ had alleged nothing more than a duplicative claim for contract damages, so the
4 trial court was correct in sustaining a demurrer to this count without leave to amend to the claim
5 for breach of the implied Covenant. (Id., 1400-01) Similar to the plaintiffs in Careau, Plaintiffs
6 here have alleged nothing more than a superfluous claim for contract damages, so the Court
7 should sustain Defendant’s demurrer to the cause of action for breach of the implied Covenant
8 without leave to amend.
9 IV. CONCLUSION.
10
11 This Court should sustain Defendant’s demurrer to the SAC without leave to amend,
12 because it does not allege any unfair interference with any contractual right of Plaintiffs, and
13 thus, fails to plead facts sufficient to establish the essential factual elements of the cause of
14 action for breach of the implied Covenant. Moreover, there is no claim for tort recovery to
15 justify a separate cause of action. Therefore, the cause of action for breach of the implied
16 Covenant is nothing more than a duplicative claim for breach of contract. Accordingly,
17 Defendant respectfully requests that the Court sustain the demurrer to the cause of action for
18 breach of the implied Covenant without leave to amend.
19
20 DATED: September 21, 2020 Respectfully submitted,
21
22 TERAOKA & PARTNERS LLP
23
By: ________________________
24 Elizabeth P. Shoemaker
25 Steven G. Teraoka, Attorneys for Defendant and
Cross-Complainant
26 MARY’S GONE CRACKERS, INC.
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DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT
PROOF OF SERVICE
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2 I am a resident of the State of California, over the age of eighteen years, and not a party
to the within action. My business address is: Teraoka & Partners LLP, One Embarcadero
3 Center, Suite 1020, San Francisco, California 94111.
4
On September 21, 2020, I served the within document on Ralph R. Nevis, Esq., counsel
5 for Plaintiffs Jaswant Singh Bains, Trustee, and Roy Lanza, Trustee:
6 MARY’S GONE CRACKERS, INC.’S REPLY IN SUPPORT OF ITS DEMURRER TO
SECOND AMENDED COMPLAINT
7
8 I served the document by electronic mail by transmitting it to Ralph R. Nevis, Esq. by
email to rnevis@daycartermurphy.com on September 21, 2020 before 5:00 p.m.
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10 I declare under penalty of perjury under the laws of the State of California that the above
11 is true and correct. Executed on September 21, 2020, at Sunnyvale, California.
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PROOF OF SERVICE
Case No.: 19CV00527
Preview
1 STEVEN G. TERAOKA, SBN: 60094 2 ELIZABETH P. SHOEMAKER, SBN: 245577 TERAOKA & PARTNERS LLP 3 One Embarcadero Center, Suite 1020 9/21/2020 San Francisco, California 94111 4 Telephone: (415) 981-3100 5 Facsimile: (415) 981-0222 6 Attorneys for Defendant and Cross-Complainant 7 MARY’S GONE CRACKERS, INC. 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF BUTTE 10 JASWANT SINGH BAINS, Trustee of the Case No.: 19CV00527 11 Jaswant and Satwant Bains Family Trust; and ROY LANZA, Trustee of the Roy and Sondra 12 Lanza Family Trust; MARY’S GONE CRACKERS, INC.’S 13 REPLY IN SUPPORT OF ITS Plaintiffs, DEMURRER TO SECOND AMENDED 14 COMPLAINT v. 15 16 MARY’S GONE CRACKERS, INC., a Delaware corporation; and DOES 1 through 17 25, inclusive, Complaint Filed: February 14, 2019 Hearing Date: September 30, 2020 18 Defendants. Hearing Time: 9:00 a.m. 19 Department: 1 MARY’S GONE CRACKERS, INC., a Trial Date: December 14, 2020 20 Delaware corporation, 21 Cross-Complainant and 22 Defendant, 23 v. 24 JASWANT SINGH BAINS, Trustee of the 25 Jaswant and Satwant Bains Family Trust; ROY LANZA, Trustee of the Roy and Sondra 26 Lanza Family Trust; and DOES 1 through 25, inclusive, 27 Cross-defendants. 28 -1- DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT 1 I. INTRODUCTION 2 The second amended complaint (the “SAC”) filed by plaintiffs in this action (“Plaintiffs”) 3 fails to cure the defects of the first amended complaint (the “FAC”). The SAC adds a few more 4 allegations about how Mary’s Gone Crackers, Inc. (“Defendant”) went about its alleged 5 underpayment of rent, but it does not state facts sufficient to constitute a cause of action for 6 breach of the implied covenant of good faith and fair dealing. 7 In their Memorandum of Points and Authorities in Opposition to Defendant’s Demurrer 8 to Second Amended Complaint (the “Opposition”) Plaintiffs claim to have cured the defects of 9 the FAC “by alleging a distinct claim for damages arising from a clear course of bad-faith 10 conduct that constitutes a breach of the implied covenant of good faith and fair dealing.” 11 (Opposition 2:17-18) In the SAC, Plaintiffs have further parsed their allegations to describe the 12 course of the alleged conduct, but the alleged conduct still remains failure to pay the correct 13 amount of rent. The defects of the FAC have not been cured. 14 A tenant has no duty to report to a landlord whether it believes the amount of rent paid 15 was correct. Accounting for collected rent is the landlord’s responsibility. Defendant’s failure to 16 help Plaintiffs perform does not create a separate cause of action for Plaintiffs. In the SAC, 17 Plaintiffs added three new allegations of conduct that were not included in the FAC. Those 18 allegations are that Defendant: 1) did not send an amendment draft, 2) did not inform Plaintiffs 19 that it believed the rent amount owed was not what was written in the MGC Lease, and 3) asked 20 Plaintiffs to issue invoices for rent. None of such conduct interfered with Plaintiffs’ rights. 21 In sum, the first cause of action in the SAC alleges Defendant breached the MGC Lease 22 by underpaying, and the second cause of action alleges Defendant failed to point out such 23 breach. It is well-settled law that the second cause of action is superfluous, so the demurrer to 24 the SAC should be sustained without leave to amend. 25 II. DEFENDANT’S ALLEGED CONDUCT DID NOT INTERFERE WITH 26 PLAINTIFFS’ RIGHTS TO RECEIVE THE CONTRACT BENEFITS. 27 As Defendant argues on page 3 of the Memorandum of Points and Authorities filed 28 concurrently with the demurer (the “MPA”) an essential factual element of the claim of breach of -2- DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT 1 the implied covenant of good faith and fair dealing (the “Covenant”) is interference with the 2 right of the other party to receive the benefits of the contract. Plaintiffs erroneously conclude 3 that a tenant’s failure to pay rent deprives a landlord of its rights to receive rent. Failure to pay 4 rent, of course, deprives a landlord of rent. However, failure to pay rent does not deprive a 5 landlord of its bargained-for right to such rent. This is a key point that Plaintiffs misrepresent by 6 conflating a benefit with a right to receive a benefit. Plaintiffs contend, "MGC incorrectly argues 7 that conscious, deliberate underpayment of rent does not interfere with the right of a landlord to 8 receive the full benefit of the bargain. That argument makes no sense." (Opposition 8:9-11) 9 Rather, Plaintiffs’ argument is the one that makes no sense. If Plaintiffs’ position were correct, 10 then any breach of contract (i.e., interference with contractual benefits) would take away rights 11 to the benefits and, therefore, result in an unenforceable contract. That is the argument that 12 makes no sense. 13 A. Breaching a Lease Does Not Make It Unenforceable. 14 If a tenant consciously and deliberately underpays rent, such failure to pay does not 15 interfere with the landlord’s right to receive payment (i.e., the benefit of the bargain.) The 16 landlord retains its right to payment and can pursue its rights by taking actions such as suing for 17 breach of contract or demanding that the tenant pay or quit. A tenant does not have the power to 18 defeat a lease agreement by underpaying and, thereby, stripping the landlord of its rights to the 19 bargained-for payment. If a tenant breaches an enforceable lease, the landlord retains the rights 20 to enforce it. B. Plaintiffs Misrepresent the Essential Elements of a Claim for Breach of the 21 Covenant. 22 Plaintiffs allege, “MGC’s behavior was in bad faith, and stripped Bains/Lanza of the 23 benefits of the Lease – payment of the full rent due under the express terms of the Lease.” 24 (Opposition 6:4-6) They also claim, “The SAC alleges, in detail, that MGC’s bad-faith conduct 25 caused Bains/Lanza to lose the full measure of the benefits to which they were entitled under the 26 lease.” (Opposition 2:19-21) Apart from being ridiculous, such claims conveniently 27 misrepresent the law. An essential factual element of breach of the implied Covenant is unfair 28 interference with the right of a party to receive the benefits of the contract. (CACI No. 325, May -3- DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT 1 2020 supplement) None of Defendant’s alleged conduct served to strip Plaintiffs of their 2 rights to receive the rent set forth in the MGC Lease. Plaintiffs, in fact, seem to recognize 3 this point, because in quoting from the analogous Careau case, they conveniently end the quote 4 before the key phrase. Plaintiffs cite Careau as follows: As explained in Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 5 222 Cal.App.3d 1371 (“Careau”), where the allegations “show that the conduct of 6 the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, 7 prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common 8 purposes and disappoints the reasonable expectations of the other party. . .” they 9 do constitute a separate cause of action for a breach of the implied covenant which is not superfluous. Id. at 1395. 10 (Opposition 6:16-23) 11 12 Plaintiffs substituted the ellipsis for the following end to the sentence: “thereby 13 depriving that party of the benefits of the agreement.” (Careau & Co. v. Sec. Pac. Bus. 14 Credit, Inc. (1990) 222 Cal. App. 3d 1371, 1395, emphasis added) The partial sentence from 15 Careau quoted by Plaintiffs had nothing to do with the whether or not the cause of action is 16 superfluous. That is a misrepresentation. The sentence discusses the essential elements of a 17 claim for breach of the implied Covenant. The key element is that the conduct must deprive the 18 other party of the benefits of the agreement. Here, as discussed above, Defendant’s alleged 19 conduct did not deprive Plaintiffs of the benefits of the MGC Lease, so Plaintiffs have not 20 properly alleged breach of the implied covenant – regardless of whether the claim is superfluous 21 to the breach of contract claim. The SAC itself demonstrates that the claim for breach of the 22 implied Covenant does not meet the required elements, because if Plaintiffs had been stripped of 23 their rights, there could be no cause of action for breach of contract. 24 The SAC is utterly devoid of any factual allegations that any action (or combined actions) 25 by Defendant interfered with Plaintiffs’ rights. Paragraph 27 of the SAC is a conclusory 26 allegation that a long list of rights were interfered with, but, critically, it contains no facts 27 sufficient to constitute a cause of action for breach of the implied Covenant. Plaintiffs fail to allege 28 any facts to show how any conduct by Defendant unfairly interfered with Plaintiffs’ rights to: a) -4- DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT 1 receive rent, b) issue a Notice of Default, c) terminate the lease after issuing a Notice of Default, 2 d) evict Defendant, e) require Defendant to surrender possession, f) exercise remedies under 3 section 1951.2, g) issue a request for an estoppel certificate, h) promptly seek payment of late 4 charges, i) approve an amendment, j) lease the premises to a different tenant, or k) prompt 5 performance. How did Defendant manage to strip Plaintiffs of those 11 rights? We do not 6 know, because Plaintiffs allege no facts connecting Defendant’s actions to the stripping of 7 Plaintiffs’ “full measure” of rights. 8 The complete lack of any allegations of facts in the SAC about how Defendant’s alleged 9 conduct allegedly interfered with the rights enumerated in paragraph 27 demonstrates that 10 Plaintiffs failed to plead facts sufficient to establish the essential factual elements of the cause of 11 action for breach of the implied Covenant. Plaintiffs claim, “The allegations in paragraph 27 of 12 the SAC detail the various rights under the Lease that but for MGC’s conduct Bains/Lanza could 13 have exercised.” (Opposition 8:7-9) There are zero facts giving rise to such “but for” causation. 14 Plaintiffs allege not a single fact to suggest how or why Plaintiffs were unable to exercise their 15 enumerated rights. 16 The truth is that Plaintiffs could have exercised their rights. Rather, until they filed the 17 complaint in this action, Plaintiffs did not elect to exercise their rights. Such difference is not 18 semantic. Defendant did not stand in Plaintiffs’ way. Plaintiffs have now sued Defendant to 19 recover all unpaid rent plus interest plus late fees plus attorney fees. Plaintiffs cannot have it 20 both ways. Either their rights were stripped and they have a claim against Defendant for breach 21 of the implied Covenant or their rights were not stripped such that they can sue Defendant for 22 breach of contract. Claiming both makes one of the causes of action superfluous. As argued 23 below and in the MPA, if a cause of action for breach of the implied Covenant is superfluous, it 24 is correct to sustain a demurrer without leave to amend. 25 C. The MGC Lease Did Not Require Defendant to Put Plaintiffs 26 on Notice of Breach. 27 Plaintiffs also claim that Defendant’s actions did not put Plaintiffs “on notice” that they 28 could “exercise the rights available to them under the Lease.” (Opposition 4:16-17) Plaintiffs -5- DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT 1 seem to be promoting a new legal theory that any time a party breaches a contract and does not 2 expressly notify the other party of such, then the injured party has two causes of action – one for 3 breach of contract and another one for breach of the implied Covenant. Plaintiffs cite no 4 authority for such legal theory because there is none. The second cause of action is superfluous 5 to a claim for breach of contract. Plaintiffs’ theory is precisely contrary to the holding in 6 Careau, the analogous case cited by Defendant in the MPA and discussed below. 7 III. THE SECOND CAUSE OF ACTION IS SUPERFLUOUS. 8 As argued in the MPA, even if a plaintiff were to plead facts sufficient to establish the 9 essential factual elements of the cause of action for breach of the implied Covenant, such 10 allegations must also go beyond the cause of action for breach of contract such that they give rise 11 to tort damages based on a special relationship among the parties. If they do not, the cause of 12 action for the implied Covenant is deemed superfluous to the cause of action for breach of 13 contract, and it is correct to sustain a demurrer to such cause of action. 14 Plaintiffs concede they are not claiming tort damages. (Opposition 9:13) Therefore, 15 because Plaintiffs alleged a cause of action for breach of contract based on non-payment of rent, 16 Plaintiffs’ cause of action for breach of the implied Covenant based on actions related to non- 17 payment of rent is deemed superfluous. 18 It is certainly true that a cause of action for breach of the implied Covenant can be 19 alleged without a claim for tort damages. As noted by Plaintiffs in the Opposition, such line of 20 cases is one in which there has been no technical transgression of express covenants (and, 21 therefore, breach of contract has not been alleged), but a contracting party’s conduct unfairly 22 frustrates the other party’s rights to the benefits of the contract. (Opposition 8:16-18) Examples 23 include McWilliams v. Holton (1967) 248 Cal.App.2d 447, in which a landlord withdrew his 24 notice to the previous tenant to vacate the premises. By allowing the previous tenant to remain in 25 possession of the premises, the landlord breached the implied Covenant, because he rendered 26 performance of the contract with the new tenant impossible. In that case, because the condition 27 precedent to the lease agreement with the new tenant (i.e., vacating of the premises by the previous 28 tenant) had not occurred, the new tenant could not allege a breach of contract and had to rely on -6- DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT 1 breach of the implied Covenant. 2 Another example of a proper claim for breach of the implied Covenant without a claim 3 for tort damages is where a landlord unreasonably rejects a potential sublessee or lease 4 assignment, even though the lease allows a tenant to sublease or assign the premises with 5 landlord permission. (See, e.g., Cohen v. Ratinoff (1983) 147 Cal.App. 3d 321) In those cases, 6 too, there is no technical breach of contract, because the landlord had the right to withhold 7 consent. But when the denial of consent is found to be unreasonable, a tenant can claim breach 8 of the implied Covenant for unfairly frustrating the tenant’s rights under the lease. 9 The allegations in the SAC are not like the above types of cases in which one party is 10 alleging no technical transgression of express covenants. Here, the MCG Lease had an express 11 covenant to pay rent and Plaintiffs allege Defendant breached such covenant. In claiming breach 12 of the implied Covenant, Plaintiffs claim no tort damages, so the claim for breach of the implied 13 Covenant is superfluous. 14 A. “Going Beyond” Means Making a Claim for Tort Damages, Not Adding 15 Details and Using Synonyms. 16 As argued in the MPA, Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 17 Cal.App.3d 1371 is analogous to the case here. Plaintiffs try to differentiate this case from 18 Careau by ignoring its holding. Careau holds that for cases in which breach of contract has 19 been claimed, unless the claim for breach of the implied Covenant seeks tort damages, the claim 20 for breach of the implied Covenant is superfluous. If the allegations do not go beyond the statement of a mere contract breach and, 21 relying on the same alleged acts, simply seek the same damages or other relief 22 already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated. Thus, absent 23 those limited cases where a breach of a consensual contract term is not claimed or alleged, the only justification for asserting a separate cause of action for 24 breach of the implied covenant is to obtain a tort recovery. 25 (Careau at 1395) 26 27 In this case, Plaintiffs concede they are not seeking tort recovery. (Opposition 9:13) 28 Therefore, because the claim for breach of the implied Covenant relies on Defendant’s alleged -7- DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT 1 underpayment of rent, no claim for breach of the implied Covenant is actually stated. This is 2 well-settled law. Indeed, CACI No. 325’s “Directions for Use” cite the above quote from 3 Careau. Nevertheless, Plaintiffs argue that because the claims for damages for the first and second 4 causes of action are now worded differently in the SAC (i.e., semantically they are not “simply” the 5 same) and because the SAC has added some detail and nefarious-sounding descriptions regarding 6 Defendant’s alleged underpayment of rent, the SAC alleges “facts beyond the breach of the express 7 contractual duty to pay rent.” (Opposition 9:18-19) However, Careau does not stand for the 8 proposition that Plaintiffs can avoid a demurrer simply by adding details about the alleged breach of 9 contract such that the allegations for breach of the implied Covenant are not verbatim the same 10 allegations claimed in the breach of contract cause of action. As the Court recognized in sustaining 11 the demurrer to the FAC, “The allegations in paragraph 26 of the First Amended Complaint 12 amount to no more than a claim of failure to pay rent.” It remains true that the allegations for 13 breach of the implied Covenant in the SAC amount to no more than a claim of failure to pay rent. 14 Plaintiffs are misrepresenting what the court in Careau means by “going beyond.” Plaintiffs 15 try to persuade that “going beyond” the statement of a mere contract breach is a subjective matter of 16 degree such that if they provide enough details about the course of conduct related to the breach of 17 contract or characterize such conduct as in bad faith, the claim for breach of the implied Covenant 18 will not be superfluous. However, we know that is not what Careau means, because in the very next 19 sentence, the court explains that “going beyond” means claiming tort damages. (“Thus, absent those 20 limited cases where a breach of a consensual contract term is not claimed or alleged, the only 21 justification for asserting a separate cause of action for breach of the implied covenant is to obtain a 22 tort recovery.” (Careau at 1395)) Applying that rule to the facts here, breach of a consensual 23 contract is alleged. Therefore, the only justification for asserting a separate cause of action for the 24 implied Covenant is to obtain a tort recovery. Since Plaintiffs do not seek tort damages, the cause of 25 action for breach of the implied Covenant is superfluous. 26 /// 27 /// 28 /// -8- DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT B. It Is Correct to Sustain a Demurrer without Leave to Amend When the 1 Cause of Action Is Duplicative of a Claim for Contract Damages. 2 In Careau, after determining that tort damages were not available, the court concluded 3 that plaintiffs’ had alleged nothing more than a duplicative claim for contract damages, so the 4 trial court was correct in sustaining a demurrer to this count without leave to amend to the claim 5 for breach of the implied Covenant. (Id., 1400-01) Similar to the plaintiffs in Careau, Plaintiffs 6 here have alleged nothing more than a superfluous claim for contract damages, so the Court 7 should sustain Defendant’s demurrer to the cause of action for breach of the implied Covenant 8 without leave to amend. 9 IV. CONCLUSION. 10 11 This Court should sustain Defendant’s demurrer to the SAC without leave to amend, 12 because it does not allege any unfair interference with any contractual right of Plaintiffs, and 13 thus, fails to plead facts sufficient to establish the essential factual elements of the cause of 14 action for breach of the implied Covenant. Moreover, there is no claim for tort recovery to 15 justify a separate cause of action. Therefore, the cause of action for breach of the implied 16 Covenant is nothing more than a duplicative claim for breach of contract. Accordingly, 17 Defendant respectfully requests that the Court sustain the demurrer to the cause of action for 18 breach of the implied Covenant without leave to amend. 19 20 DATED: September 21, 2020 Respectfully submitted, 21 22 TERAOKA & PARTNERS LLP 23 By: ________________________ 24 Elizabeth P. Shoemaker 25 Steven G. Teraoka, Attorneys for Defendant and Cross-Complainant 26 MARY’S GONE CRACKERS, INC. 27 28 -9- DEFENDANT’S REPLY IN SUPPORT OF DEMURRER TO SECOND AMENDED COMPLAINT PROOF OF SERVICE 1 2 I am a resident of the State of California, over the age of eighteen years, and not a party to the within action. My business address is: Teraoka & Partners LLP, One Embarcadero 3 Center, Suite 1020, San Francisco, California 94111. 4 On September 21, 2020, I served the within document on Ralph R. Nevis, Esq., counsel 5 for Plaintiffs Jaswant Singh Bains, Trustee, and Roy Lanza, Trustee: 6 MARY’S GONE CRACKERS, INC.’S REPLY IN SUPPORT OF ITS DEMURRER TO SECOND AMENDED COMPLAINT 7 8 I served the document by electronic mail by transmitting it to Ralph R. Nevis, Esq. by email to rnevis@daycartermurphy.com on September 21, 2020 before 5:00 p.m. 9 10 I declare under penalty of perjury under the laws of the State of California that the above 11 is true and correct. Executed on September 21, 2020, at Sunnyvale, California. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -2- PROOF OF SERVICE Case No.: 19CV00527