Preview
1 Daniel Fox, Esq. (SBN: 268757)
K&L Gates LLP
2 4 Embarcadero Center, Suite 1200
San Francisco, CA 94111 1/28/2021
3 Telephone: 415.882.8200
Facsimile: 415.882.8220
4 daniel.fox@klgates.com
5 Daniel M. Eliades, Esq.(Admitted Pro Hac Vice)
Benjamin I. Rubinstein, Esq. (Admitted Pro Hac Vice)
6 K&L Gates LLP
One Newark Center, 10th Floor
7 Newark, NJ 07102
Telephone: 973.848.4018
8 Facsimile: 973.848.4001
daniel.eliades@klgates.com
9 benjamin.rubinstein@klgates.com
10 Attorneys for Plaintiffs CPI CHICO BENEFICIARY LLC
and TA CHICO LLC
11
12 SUPERIOR COURT OF CALIFORNIA
13 COUNTY OF BUTTE
14
15 CPI CHICO BENEFICIARY LLC and Case No.: 19CV01079
TA CHICO, LLC,
16
PLAINTIFFS CPI CHICO
Plaintiffs,
17 BENEFICIARY LLC AND TA
CHICO, LLC’S OPPOSITION TO
v.
18 DEFENDANT’S DEMURRER TO
PLAINTIFFS’ AMENDED
HK DELUXE, LLC
19 COMPLAINT
Defendant.
20
Dept.: 1
21 Date: February 10, 2021
Time: 9:00 a.m.
22 Judge: Hon. Tamara Mosbarger
[Unlimited Jurisdiction]
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 TABLE OF CONTENTS
2 Page
3 I. INTRODUCTION ........................................................................................... 1
4 II. FACTUAL AND PROCEDURAL BACKGROUND .................................... 2
5 III. ARGUMENT................................................................................................... 5
6 A. Legal Standard. ..................................................................................... 5
7 B. Defendant has no Right to Prohibit Termination of the Sublease. ....... 6
8 IV. CONCLUSION ............................................................................................... 8
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1
TABLE OF AUTHORITIES
2
3 Page(s)
4 Cases
5 Abers v. Rounsavell
6 (2010) 189 Cal.App.4th 348 ................................................................................. 7
7 Gerawan Farming, Inc. v. Lyons
(2000) 24 Cal.4th 468 ........................................................................................... 5
8
9 Stockton Dry Goods Co. v. Girsh
(1951) 36 Cal. 2d 677 ........................................................................................... 7
10
Vons Companies, Inc. v. United States Fire Ins. Co.
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(2000) 78 Cal.App.4th 52 ..................................................................................... 7
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 I. INTRODUCTION
2 Plaintiffs lease commercial real estate from Defendant in Chico, California pursuant to a
3 Lease, and Plaintiffs sublease that property to Walgreen Co. (“Walgreens”). Walgreens now seeks
4 consensual termination of its Sublease with Plaintiffs, in exchange for Walgreens paying to Plaintiffs
5 a termination fee consistent with a termination agreement between Plaintiffs and Walgreens,
6 pursuant to which Walgreens would pay a substantial portion of its remaining rent under the
7 Sublease in a one-time, lump-sum payment.
8 In turn, Plaintiffs have requested that Defendant consent to the termination of the Walgreens
9 Sublease. Although not required by the parties’ agreement, Plaintiffs offered to set aside, from the
10 termination fee paid by Walgreens, an amount equal to twelve months’ rent due to Defendant under
11 the Lease while Plaintiffs sought another subtenant to replace Walgreens. Defendant refused to
12 consent to termination of the Walgreens Sublease, and stated that, “[u]nder no circumstances will
13 [Defendant] consent to the termination of the Sublease with Walgreens.”
14 After the aforementioned unreasonable rejection of its request, Plaintiffs filed the instant
15 action seeking relief on three counts: declaratory judgment, breach of contract, and tortious
16 interference with contract. This Court subsequently dismissed Plaintiffs’ Original Complaint on the
17 grounds that the proposed termination agreement was outside the scope of the contractual provision
18 that required Plaintiffs to obtain Defendant’s consent prior to certain actions in connection with the
19 Sublease.
20 Following this Court’s determination that a proposed termination of the Walgreens Sublease
21 was not governed by the parties’ contract, Plaintiffs filed an Amended Complaint, in which Plaintiffs
22 sought for the first time a declaratory judgment declaring—in line with this Court’s November 22,
23 2020 decision—that Defendant has no right to prohibit the termination of the Walgreens Sublease
24 under any provision of any contract.
25 Without directing this Court or Plaintiffs to any contractual provision that prohibits the
26 termination of the Walgreens Sublease, Defendant suggests that such termination is prohibited.
27 Defendant, however, cannot have it both ways. Defendant cannot argue that Plaintiffs’ termination
28 of the Sublease is not governed by the parties’ contract, and therefore that Defendant’s withheld
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 consent does not give rise to a breach of contract, and subsequently argue that Defendant has the
2 unilateral right to prohibit a termination of the Walgreens Sublease because termination rights are
3 governed by the parties’ contract—particularly in the absence of any contractual provision
4 prohibiting such termination. Indeed, Defendant’s interpretation unilaterally empowers Defendant to
5 unreasonably withhold consent to terminate the Walgreens Sublease and to prohibit Plaintiffs from
6 terminating the Walgreens Sublease without Defendant’s consent, effectively depriving Plaintiffs of
7 any remedy in response to Defendant’s tortious conduct. Defendant cannot use the parties’ contract
8 as both a shield and a sword; as such, Defendant’s arguments, and its motion, must fail.
9 II. FACTUAL AND PROCEDURAL BACKGROUND
10 Plaintiffs CPI Chico Beneficiary LLC and TA Chico, LLC (jointly, “Plaintiffs”) are the
11 successors in interest under a certain ground lease dated March 10, 2009 (the “Lease”), pursuant to
12 which Plaintiffs lease certain commercial property in Chico, California from Defendant HK Deluxe,
13 LLC (“Defendant”). Amended Complaint, ¶ 10. A copy of the Lease is attached to Plaintiffs’
14 Amended Complaint as Exhibit A.
15 The Lease does not require Defendant to sublease the premises, nor does the Lease require
16 Defendant to use the premises for a Walgreen Drug store. Section 1.9 of the Lease states that the
17 premises shall be “developed as a Walgreen Drug store, but the Leased Premises may be used for
18 any lawful purpose.” Amended Complaint, Ex. A at 1 (emphasis added).
19 The Lease similarly does not contain any restrictions on subleasing. Rather, the Lease states,
20 at Section 8.3:
21 Sublease. Landlord understands and agrees that Tenant shall sublet some or all of the Leased
Premises to Walgreens, and perhaps to others, and in the event of each such subletting of the
22 Leased Premises, upon the written request of Tenant, Landlord shall execute without charge
a non-disturbance and attornment agreement with Tenant’s sub-tenant as described in Section
23 10.6, or another form if mutually agreeable to the parties.
24 Amended Complaint, Ex. A at 6.
25 Consistent with the terms of the Lease, on January 28, 2009, Plaintiffs’ predecessors-in-
26 interest entered into a sublease agreement with Walgreens (the “Sublease”) for an initial term of 25
27 years. Amended Complaint, ¶¶ 12-13. A copy of the Sublease is attached to the Amended
28 Complaint as Exhibit B. As required by Sections 8.3 and 10.6 of the Lease, Defendant consented to
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 the Sublease pursuant to a Consent and Non-Disturbance Agreement dated July 30, 2009 (the “CND
2 Agreement”), which was entered into between Defendant, Plaintiffs, and Walgreens. Amended
3 Complaint, ¶ 14. A copy of the CND Agreement is attached to the Amended Complaint as Exhibit
4 C.
5 The Sublease expressly provides that Walgreens may discontinue the operation of its
6 business at the premises at any time and from time to time. Amended Complaint, Ex. B at 20,
7 Section 13(a). Critically, the Lease, Sublease, and the CND Agreement do not prohibit the
8 termination of the Sublease if Walgreens and Plaintiffs agree to the same, and nothing contained in
9 the Lease, Sublease, or CND Agreement allows Defendant to block or condition such termination.
10 Walgreens discontinued its business at the premises several years ago, and since that time, no
11 business has operated at the premises. Amended Complaint, ¶¶ 16-17. Walgreens has now
12 requested to terminate the Sublease, and has negotiated a deal in principle with Plaintiff, pursuant to
13 which the termination date of the Sublease will be accelerated, and Walgreens will pay nearly all
14 otherwise-owed rent in a one-time, lump sum payment. Amended Complaint, ¶ 18.
15 Originally believing that Plaintiffs’ and Walgreens’ agreement to alter the Sublease, such that
16 the termination date would be accelerated in exchange for an accelerated payment of substantially all
17 rent otherwise owed under the Sublease, constituted a “material amendment of the Sublease,” as that
18 term is found in Section 4 of the CND Agreement, on August 31, 2018, Plaintiffs requested
19 Defendant’s written consent to terminate the Sublease. Amended Complaint, ¶¶ 19-22. A copy of
20 Plaintiffs’ August 31, 2018 Request Letter is attached to the Amended Complaint as Exhibit D.
21 Although not required by the CND Agreement or the Lease, in the Request Letter, Plaintiffs advised
22 Defendant that Plaintiffs were willing to set aside, from the accelerated rent paid by Walgreens, an
23 amount equal to twelve months’ rent due to Defendant under the Lease. Amended Complaint, ¶ 25.
24 That is, Plaintiffs guaranteed one year’s worth of rent to Defendant under the Lease while Plaintiffs
25 sought a new subtenant.
26 On September 6, 2018, counsel for Defendant responded to Plaintiffs’ Request Letter and
27 advised that “[u]nder no circumstances will my client consent to the termination of the Sublease with
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 Walgreens.” Amended Complaint, ¶ 26. A copy of this “Rejection Letter” is attached to the
2 Amended Complaint as Exhibit E.
3 Following the aforementioned unreasonable rejection of its Request Letter without
4 explanation, Plaintiffs filed the instant matter seeking relief on three counts: declaratory judgment;
5 breach of contract; and tortious interference with contract. Plaintiffs argued, among other things,
6 that Defendant’s refusal to reasonably consider, and ultimately consent to, what Plaintiffs believed to
7 be a “material amendment” to the Sublease amounted to a breach of Section 4 of the CND
8 Agreement.
9 In response, Defendant moved for a judgment on the pleadings, arguing that, among other
10 things, its refusal to consent to Plaintiffs’ proposed termination agreement did not give rise to a
11 breach of Section 4 of the CND Agreement because a termination of the Sublease was outside the
12 scope of Section 4 of the CND Agreement, which requires Plaintiffs to obtain Defendant’s consent
13 for “material amendments.”
14 This Court accepted Defendant’s interpretation of the CND Agreement, and, on January 22,
15 2020, granted Defendant’s Motion for Judgment on the Pleadings. The Court concluded that
16 termination of the sublease was not governed by Section 4 of the CND Agreement, which is the only
17 potentially relevant contractual provision that requires Plaintiffs’ to obtain Defendant’s consent. The
18 Court further reasoned, “the parties did not intend ‘material amendment’ of the sublease to include
19 termination thereof.” Thus, the Court granted Defendant’s motion for judgment on the pleadings
20 because Plaintiffs’ Original Complaint was based on Defendant’s unreasonable withholding of
21 consent. This Court granted Plaintiffs leave to file an amended complaint.
22 In turn, on February 21, 2020, Plaintiffs filed an Amended Complaint, in which Plaintiffs
23 seek, among other things, and consistent with this Court’s January 22, 2020 Order, a declaratory
24 judgment stating that Defendant had no right under either the Lease, the Sublease, or the CND
25 Agreement, or any other governing document, to prohibit Plaintiffs or Walgreens from terminating
26 the Sublease. The basis for such relief is that this Court previously determined that the CND
27 Agreement did not require Plaintiffs to obtain or Defendant to provide Defendant’s consent to a
28 termination of the Sublease. Neither the Lease nor the Sublease affords Defendant the unilateral
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 right to prohibit the termination of the Sublease, and Defendant accordingly has no right to prohibit
2 the termination of the Sublease.
3 Thereafter, Plaintiffs and Defendant met and conferred on Defendant’s planned demurrer and
4 motion to strike the Amended Complaint. Based on the meet and confer discussions, Plaintiffs
5 agreed to further amend their Complaint in order to address Defendant’s stated issues with the
6 Amended Complaint or, at a minimum, narrow the issues. Plaintiffs proposed sending a draft
7 amended complaint to Defendant before Defendant filed any demurrer or motion to strike.
8 Defendant, however, refused to permit Plaintiffs to further amend and limit their Amended
9 Complaint, and instead filed its demurer of and motion to strike the Amended Complaint.
10 Thus, the lion’s share of Defendant’s demurrer and motion to strike are moot. Indeed,
11 Plaintiffs do not oppose Defendants’ motions with respect to the first three causes of actions and
12 related allegations in the Amended Complaint. Plaintiffs exclusively oppose Defendants’ arguments
13 relating to the fourth cause of action.
14 III. ARGUMENT
15 In pertinent part, Defendant argues that Plaintiffs’ Amended Complaint should be dismissed
16 in its entirety because neither Plaintiffs nor Walgreens has any right to terminate the Sublease
17 without Defendant’s prior approval. Defendant is wrong. As this Court previously indicated,
18 Defendant’s refusal to consent to a termination of the Sublease cannot give rise to a breach of the
19 CND Agreement because a termination is outside the scope of the CND Agreement’s provisions
20 relating to consent. And none of the agreements between the parties prohibits Plaintiffs or
21 Walgreens from terminating the Sublease or entitles Defendant to prevent the same. Indeed, nothing
22 in the language of the parties’ agreements prohibits the termination of the Sublease, and Plaintiffs
23 merely request that this Court declare what the parties’ agreements make plain.
24 A. Legal Standard.
25 The standard governing a general demurrer is the same as that governing a motion for a
26 judgment on the pleadings: a trial court must “accept[] as true factual allegations that the plaintiff
27 makes,” and afford a complaint a “liberal construction.” Gerawan Farming, Inc. v. Lyons (2000) 24
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 Cal.4th 468, 504. As shown herein, when analyzed under this standard, Defendant’s motion fails
2 and must be denied.
3 B. Defendant has no Right to Prohibit Termination of the Sublease.
4 Defendant contends that it possesses the exclusive right to determine whether either Plaintiffs
5 or Walgreens may terminate the Sublease primarily because the Lease and the CND Agreement,
6 when read together, impliedly require that Plaintiffs sublet the premises. Defendant is wrong. To
7 the contrary, the Lease provisions are unambiguous that Plaintiffs need not sublet the premises. For
8 example, Section 1.9 of the Lease, provides that Plaintiffs shall develop the Leased Premises as a
9 Walgreens. Amended Complaint, Ex. A, p. 1. Defendant does not dispute that Plaintiffs satisfied
10 this provision. Section 1.9 of the Lease, however, additionally provides that “the Leased Premises
11 may be used for any lawful purpose.” Ibid. Defendant notably does not contend that failing to
12 sublease the Leased Premises is unlawful.
13 Other sections of the Lease similarly indicate that Plaintiffs are not required to sublet the
14 premises. For example, Section 8.3 of the Lease states that “Landlord understands and agrees that
15 Tenant shall sublet some or all of the Leased Premises to Walgreens, and perhaps to others, and in
16 the event of each such subletting of the Leased Premises, upon written request of Tenant, Landlord
17 shall execute without charge a non-disturbance and attornment agreement . . . .” (emphasis added).
18 Amended Complaint, Ex. A, p. 6. This language does not obligate Plaintiffs to sublet; rather, it
19 imposes an obligation on Defendant in the event that Plaintiffs do so. The same understanding
20 between the parties can be found at the beginning of Section 10.5, which states that “Landlord
21 understands and agrees that Tenant may sublet all of the Leased Premises to Walgreens, or to one or
22 more sub-tenants. In the event that Tenant so sublets any or all of the Leased Premises” then, in
23 such event, Defendant has certain obligations to give notices to such subtenants. (emphasis added).
24 Id. at p. 7. Again, this provision assumes the occurrence of a condition precedent—the subletting of
25 the Leased Premises—and necessarily contemplates that such subletting may never occur with the
26 language “[i]n the event that.” Ibid.
27 Critically, there is no provision in the Lease, or in any other agreement between Plaintiffs
28 and Defendant, which requires Plaintiffs to sublet the Leased Premises. And Defendant points
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 neither this Court nor the Plaintiffs to any such provision. In the absence of such a provision, and in
2 the face of clear contractual language indicating the intent of the parties not to require subletting,
3 Defendant attempts to cobble together an implied obligation to sublet. But this Court’s task is to
4 construe the Lease as it is, not as Defendant wishes it to be. See Abers v. Rounsavell (2010) 189
5 Cal.App.4th 348, 361 (“Our task is to construe the ground leases as they are, not as the trustees want
6 them to be.”). This court does not “have the power to create for the parties a contract that they did
7 not make and cannot insert language that one party now wishes were there.” Vons Companies, Inc.
8 v. United States Fire Ins. Co. (2000) 78 Cal.App.4th 52, 59. Even in the event that such an implied
9 intent existed, which it does not, that implication would be insufficient to impose upon Plaintiffs the
10 undue restrictions that Defendant seeks to impose. See Stockton Dry Goods Co. v. Girsh (1951) 36
11 Cal. 2d 677, 680-81 (“[An] implication however cannot rest solely upon an inference to be drawn
12 from the facts surrounding the execution of the lease. It must have a basis in the contract itself. A
13 condition cannot be read into a contract as to which the parties might well be deemed to have
14 remained intentionally silent.”).
15 Not only do the express terms of the parties’ agreements make plain that the premises need
16 not be sublet, but the express language of the CND Agreement and the Sublease also make plain that
17 the parties unambiguously agreed that all potential subleases with respect to the premises may be
18 terminated. To be sure, Defendant concedes that it “expressly consented to the terms of the Sublease
19 when it signed the CND Agreement.” Defendant’s Demurrer, p. 15:16-17. The Sublease
20 contemplates that Plaintiffs may terminate the sublease. For example, Section 17(a) provides that
21 Plaintiffs may terminate the sublease and re-enter the Leased Premises in the event of default.
22 Amended Complaint, Ex. B, p. 22. Section 13(c) similarly permits Plaintiffs to terminate the
23 sublease after receiving notice from a tenant of the tenant’s intention to sublease or assign all or a
24 portion of the premises. Id. at 20. Defendant’s argument that Plaintiffs must never terminate its
25 Sublease with Walgreens is directly contradicted by the express terms of the Sublease.
26 Finally, Defendant spills much ink arguing that this Court has previously rejected Plaintiffs’
27 request for relief, however, it is Defendant’s argument that has been previously rejected by this
28 Court. Indeed, in seeking to dismiss Plaintiffs’ Original Complaint on the pleadings, Defendant
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 repeatedly argued to this Court that no contract—neither the CND Agreement, the Lease, nor the
2 Sublease—required Defendant to consent to a termination of the Sublease because none of the
3 aforementioned agreements governed the parties’ rights or ability to terminate the Sublease. And
4 Defendant persuaded this Court, which ultimately determined that Plaintiffs’ since-dismissed breach
5 of contract claim was not viable in light of the fact that nothing in the CND Agreement required
6 Defendant to consider, and consent to, a termination of the Sublease, and without such an obligation
7 to consent to termination, Defendant could not breach any such agreement by unreasonably
8 withholding consent to terminate. Defendant cannot utilize the lack of a governing termination
9 provision as both a shield and a sword: Defendant cannot argue that a request to terminate the
10 Sublease is outside the scope of the CND Agreement’s consent requirement to escape a claim for
11 breach of contract, and subsequently argue that the CND Agreement squarely prohibits Plaintiff
12 from terminating the Sublease without Defendant’s approval. Indeed, an alternative ruling would
13 empower Defendant to collect rent from Plaintiffs under the Lease, but impair Plaintiffs’ ability to
14 satisfy such an obligation to Defendant by prohibiting it from successfully executing a new sublease
15 on a premises that has been rendered vacant for approximately three years as a result of Defendant’s
16 I-win-you-lose interpretation of the CND Agreement.
17 Accordingly, because the Lease does not require that the Leased Premises be sublet, and
18 because no agreement between Plaintiffs and Defendant prohibits Plaintiffs’ ability to terminate the
19 Sublease (and, in fact, expressly contemplates termination), Plaintiffs respectfully request that this
20 Court declare what the CND Agreement, the Lease, and the Sublease make plain: Plaintiffs are
21 entitled to terminate the Sublease.
22 IV. CONCLUSION
23 For the foregoing reasons, Defendant’s Demurrer should be denied with respect to the Fourth
24 Cause of Action in Plaintiffs’ Amended Complaint.
K&L Gates LLP
25
26 Dated: By:
Daniel W. Fox
27 Attorneys for Plaintiffs CPI CHICO
28 BENEFICIARY LLC and TA CHICO LLC
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
1 PROOF OF SERVICE
2
3 I am employed in the county of San Francisco, State of California. I am over the age of 18
4 and not a party to the within action; my business address is K&L GATES LLP, Four Embarcadero
5 Center, Suite 1200, San Francisco, California 94111.
6 On January 28, 2021, I served the documents described as:
7 PLAINTIFFS CPI CHICO BENEFICIARY LLC AND TA CHICO, LLC’S
8 OPPOSITION TO DEFENDANT’S DEMURRER
9 together with an unsigned copy of this declaration on the interested parties in this action by
10 delivering a true copy thereof enclosed in sealed envelope(s) addressed as follows:
11
Dennis M. Wilson dwilson@wilsonlawfirmca.com
12 Wilson Law Firm, A Professional
Corporation Telephone: (916) 608-8891
13 Facsimile: (916) 608-8892
50 Iron Point Circle, Suite 115
14 Folsom, California 95630
15
16 BY ELECTRONIC SERVICE: by transmitting a true copy of the foregoing document(s) to
the e-mail addresses set forth as stated on the attached mailing list.
17
18 I declare under penalty of perjury under the laws of the State of California that the above is
19 true and correct.
20 Executed on January 28, 2021, at San Francisco, California.
21
22 MICHELLE CRAWFORD
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT
Preview
1 Daniel Fox, Esq. (SBN: 268757) K&L Gates LLP 2 4 Embarcadero Center, Suite 1200 San Francisco, CA 94111 1/28/2021 3 Telephone: 415.882.8200 Facsimile: 415.882.8220 4 daniel.fox@klgates.com 5 Daniel M. Eliades, Esq.(Admitted Pro Hac Vice) Benjamin I. Rubinstein, Esq. (Admitted Pro Hac Vice) 6 K&L Gates LLP One Newark Center, 10th Floor 7 Newark, NJ 07102 Telephone: 973.848.4018 8 Facsimile: 973.848.4001 daniel.eliades@klgates.com 9 benjamin.rubinstein@klgates.com 10 Attorneys for Plaintiffs CPI CHICO BENEFICIARY LLC and TA CHICO LLC 11 12 SUPERIOR COURT OF CALIFORNIA 13 COUNTY OF BUTTE 14 15 CPI CHICO BENEFICIARY LLC and Case No.: 19CV01079 TA CHICO, LLC, 16 PLAINTIFFS CPI CHICO Plaintiffs, 17 BENEFICIARY LLC AND TA CHICO, LLC’S OPPOSITION TO v. 18 DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED HK DELUXE, LLC 19 COMPLAINT Defendant. 20 Dept.: 1 21 Date: February 10, 2021 Time: 9:00 a.m. 22 Judge: Hon. Tamara Mosbarger [Unlimited Jurisdiction] 23 24 25 26 27 28 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 TABLE OF CONTENTS 2 Page 3 I. INTRODUCTION ........................................................................................... 1 4 II. FACTUAL AND PROCEDURAL BACKGROUND .................................... 2 5 III. ARGUMENT................................................................................................... 5 6 A. Legal Standard. ..................................................................................... 5 7 B. Defendant has no Right to Prohibit Termination of the Sublease. ....... 6 8 IV. CONCLUSION ............................................................................................... 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 TABLE OF AUTHORITIES 2 3 Page(s) 4 Cases 5 Abers v. Rounsavell 6 (2010) 189 Cal.App.4th 348 ................................................................................. 7 7 Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468 ........................................................................................... 5 8 9 Stockton Dry Goods Co. v. Girsh (1951) 36 Cal. 2d 677 ........................................................................................... 7 10 Vons Companies, Inc. v. United States Fire Ins. Co. 11 (2000) 78 Cal.App.4th 52 ..................................................................................... 7 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 I. INTRODUCTION 2 Plaintiffs lease commercial real estate from Defendant in Chico, California pursuant to a 3 Lease, and Plaintiffs sublease that property to Walgreen Co. (“Walgreens”). Walgreens now seeks 4 consensual termination of its Sublease with Plaintiffs, in exchange for Walgreens paying to Plaintiffs 5 a termination fee consistent with a termination agreement between Plaintiffs and Walgreens, 6 pursuant to which Walgreens would pay a substantial portion of its remaining rent under the 7 Sublease in a one-time, lump-sum payment. 8 In turn, Plaintiffs have requested that Defendant consent to the termination of the Walgreens 9 Sublease. Although not required by the parties’ agreement, Plaintiffs offered to set aside, from the 10 termination fee paid by Walgreens, an amount equal to twelve months’ rent due to Defendant under 11 the Lease while Plaintiffs sought another subtenant to replace Walgreens. Defendant refused to 12 consent to termination of the Walgreens Sublease, and stated that, “[u]nder no circumstances will 13 [Defendant] consent to the termination of the Sublease with Walgreens.” 14 After the aforementioned unreasonable rejection of its request, Plaintiffs filed the instant 15 action seeking relief on three counts: declaratory judgment, breach of contract, and tortious 16 interference with contract. This Court subsequently dismissed Plaintiffs’ Original Complaint on the 17 grounds that the proposed termination agreement was outside the scope of the contractual provision 18 that required Plaintiffs to obtain Defendant’s consent prior to certain actions in connection with the 19 Sublease. 20 Following this Court’s determination that a proposed termination of the Walgreens Sublease 21 was not governed by the parties’ contract, Plaintiffs filed an Amended Complaint, in which Plaintiffs 22 sought for the first time a declaratory judgment declaring—in line with this Court’s November 22, 23 2020 decision—that Defendant has no right to prohibit the termination of the Walgreens Sublease 24 under any provision of any contract. 25 Without directing this Court or Plaintiffs to any contractual provision that prohibits the 26 termination of the Walgreens Sublease, Defendant suggests that such termination is prohibited. 27 Defendant, however, cannot have it both ways. Defendant cannot argue that Plaintiffs’ termination 28 of the Sublease is not governed by the parties’ contract, and therefore that Defendant’s withheld 1 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 consent does not give rise to a breach of contract, and subsequently argue that Defendant has the 2 unilateral right to prohibit a termination of the Walgreens Sublease because termination rights are 3 governed by the parties’ contract—particularly in the absence of any contractual provision 4 prohibiting such termination. Indeed, Defendant’s interpretation unilaterally empowers Defendant to 5 unreasonably withhold consent to terminate the Walgreens Sublease and to prohibit Plaintiffs from 6 terminating the Walgreens Sublease without Defendant’s consent, effectively depriving Plaintiffs of 7 any remedy in response to Defendant’s tortious conduct. Defendant cannot use the parties’ contract 8 as both a shield and a sword; as such, Defendant’s arguments, and its motion, must fail. 9 II. FACTUAL AND PROCEDURAL BACKGROUND 10 Plaintiffs CPI Chico Beneficiary LLC and TA Chico, LLC (jointly, “Plaintiffs”) are the 11 successors in interest under a certain ground lease dated March 10, 2009 (the “Lease”), pursuant to 12 which Plaintiffs lease certain commercial property in Chico, California from Defendant HK Deluxe, 13 LLC (“Defendant”). Amended Complaint, ¶ 10. A copy of the Lease is attached to Plaintiffs’ 14 Amended Complaint as Exhibit A. 15 The Lease does not require Defendant to sublease the premises, nor does the Lease require 16 Defendant to use the premises for a Walgreen Drug store. Section 1.9 of the Lease states that the 17 premises shall be “developed as a Walgreen Drug store, but the Leased Premises may be used for 18 any lawful purpose.” Amended Complaint, Ex. A at 1 (emphasis added). 19 The Lease similarly does not contain any restrictions on subleasing. Rather, the Lease states, 20 at Section 8.3: 21 Sublease. Landlord understands and agrees that Tenant shall sublet some or all of the Leased Premises to Walgreens, and perhaps to others, and in the event of each such subletting of the 22 Leased Premises, upon the written request of Tenant, Landlord shall execute without charge a non-disturbance and attornment agreement with Tenant’s sub-tenant as described in Section 23 10.6, or another form if mutually agreeable to the parties. 24 Amended Complaint, Ex. A at 6. 25 Consistent with the terms of the Lease, on January 28, 2009, Plaintiffs’ predecessors-in- 26 interest entered into a sublease agreement with Walgreens (the “Sublease”) for an initial term of 25 27 years. Amended Complaint, ¶¶ 12-13. A copy of the Sublease is attached to the Amended 28 Complaint as Exhibit B. As required by Sections 8.3 and 10.6 of the Lease, Defendant consented to 2 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 the Sublease pursuant to a Consent and Non-Disturbance Agreement dated July 30, 2009 (the “CND 2 Agreement”), which was entered into between Defendant, Plaintiffs, and Walgreens. Amended 3 Complaint, ¶ 14. A copy of the CND Agreement is attached to the Amended Complaint as Exhibit 4 C. 5 The Sublease expressly provides that Walgreens may discontinue the operation of its 6 business at the premises at any time and from time to time. Amended Complaint, Ex. B at 20, 7 Section 13(a). Critically, the Lease, Sublease, and the CND Agreement do not prohibit the 8 termination of the Sublease if Walgreens and Plaintiffs agree to the same, and nothing contained in 9 the Lease, Sublease, or CND Agreement allows Defendant to block or condition such termination. 10 Walgreens discontinued its business at the premises several years ago, and since that time, no 11 business has operated at the premises. Amended Complaint, ¶¶ 16-17. Walgreens has now 12 requested to terminate the Sublease, and has negotiated a deal in principle with Plaintiff, pursuant to 13 which the termination date of the Sublease will be accelerated, and Walgreens will pay nearly all 14 otherwise-owed rent in a one-time, lump sum payment. Amended Complaint, ¶ 18. 15 Originally believing that Plaintiffs’ and Walgreens’ agreement to alter the Sublease, such that 16 the termination date would be accelerated in exchange for an accelerated payment of substantially all 17 rent otherwise owed under the Sublease, constituted a “material amendment of the Sublease,” as that 18 term is found in Section 4 of the CND Agreement, on August 31, 2018, Plaintiffs requested 19 Defendant’s written consent to terminate the Sublease. Amended Complaint, ¶¶ 19-22. A copy of 20 Plaintiffs’ August 31, 2018 Request Letter is attached to the Amended Complaint as Exhibit D. 21 Although not required by the CND Agreement or the Lease, in the Request Letter, Plaintiffs advised 22 Defendant that Plaintiffs were willing to set aside, from the accelerated rent paid by Walgreens, an 23 amount equal to twelve months’ rent due to Defendant under the Lease. Amended Complaint, ¶ 25. 24 That is, Plaintiffs guaranteed one year’s worth of rent to Defendant under the Lease while Plaintiffs 25 sought a new subtenant. 26 On September 6, 2018, counsel for Defendant responded to Plaintiffs’ Request Letter and 27 advised that “[u]nder no circumstances will my client consent to the termination of the Sublease with 28 3 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 Walgreens.” Amended Complaint, ¶ 26. A copy of this “Rejection Letter” is attached to the 2 Amended Complaint as Exhibit E. 3 Following the aforementioned unreasonable rejection of its Request Letter without 4 explanation, Plaintiffs filed the instant matter seeking relief on three counts: declaratory judgment; 5 breach of contract; and tortious interference with contract. Plaintiffs argued, among other things, 6 that Defendant’s refusal to reasonably consider, and ultimately consent to, what Plaintiffs believed to 7 be a “material amendment” to the Sublease amounted to a breach of Section 4 of the CND 8 Agreement. 9 In response, Defendant moved for a judgment on the pleadings, arguing that, among other 10 things, its refusal to consent to Plaintiffs’ proposed termination agreement did not give rise to a 11 breach of Section 4 of the CND Agreement because a termination of the Sublease was outside the 12 scope of Section 4 of the CND Agreement, which requires Plaintiffs to obtain Defendant’s consent 13 for “material amendments.” 14 This Court accepted Defendant’s interpretation of the CND Agreement, and, on January 22, 15 2020, granted Defendant’s Motion for Judgment on the Pleadings. The Court concluded that 16 termination of the sublease was not governed by Section 4 of the CND Agreement, which is the only 17 potentially relevant contractual provision that requires Plaintiffs’ to obtain Defendant’s consent. The 18 Court further reasoned, “the parties did not intend ‘material amendment’ of the sublease to include 19 termination thereof.” Thus, the Court granted Defendant’s motion for judgment on the pleadings 20 because Plaintiffs’ Original Complaint was based on Defendant’s unreasonable withholding of 21 consent. This Court granted Plaintiffs leave to file an amended complaint. 22 In turn, on February 21, 2020, Plaintiffs filed an Amended Complaint, in which Plaintiffs 23 seek, among other things, and consistent with this Court’s January 22, 2020 Order, a declaratory 24 judgment stating that Defendant had no right under either the Lease, the Sublease, or the CND 25 Agreement, or any other governing document, to prohibit Plaintiffs or Walgreens from terminating 26 the Sublease. The basis for such relief is that this Court previously determined that the CND 27 Agreement did not require Plaintiffs to obtain or Defendant to provide Defendant’s consent to a 28 termination of the Sublease. Neither the Lease nor the Sublease affords Defendant the unilateral 4 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 right to prohibit the termination of the Sublease, and Defendant accordingly has no right to prohibit 2 the termination of the Sublease. 3 Thereafter, Plaintiffs and Defendant met and conferred on Defendant’s planned demurrer and 4 motion to strike the Amended Complaint. Based on the meet and confer discussions, Plaintiffs 5 agreed to further amend their Complaint in order to address Defendant’s stated issues with the 6 Amended Complaint or, at a minimum, narrow the issues. Plaintiffs proposed sending a draft 7 amended complaint to Defendant before Defendant filed any demurrer or motion to strike. 8 Defendant, however, refused to permit Plaintiffs to further amend and limit their Amended 9 Complaint, and instead filed its demurer of and motion to strike the Amended Complaint. 10 Thus, the lion’s share of Defendant’s demurrer and motion to strike are moot. Indeed, 11 Plaintiffs do not oppose Defendants’ motions with respect to the first three causes of actions and 12 related allegations in the Amended Complaint. Plaintiffs exclusively oppose Defendants’ arguments 13 relating to the fourth cause of action. 14 III. ARGUMENT 15 In pertinent part, Defendant argues that Plaintiffs’ Amended Complaint should be dismissed 16 in its entirety because neither Plaintiffs nor Walgreens has any right to terminate the Sublease 17 without Defendant’s prior approval. Defendant is wrong. As this Court previously indicated, 18 Defendant’s refusal to consent to a termination of the Sublease cannot give rise to a breach of the 19 CND Agreement because a termination is outside the scope of the CND Agreement’s provisions 20 relating to consent. And none of the agreements between the parties prohibits Plaintiffs or 21 Walgreens from terminating the Sublease or entitles Defendant to prevent the same. Indeed, nothing 22 in the language of the parties’ agreements prohibits the termination of the Sublease, and Plaintiffs 23 merely request that this Court declare what the parties’ agreements make plain. 24 A. Legal Standard. 25 The standard governing a general demurrer is the same as that governing a motion for a 26 judgment on the pleadings: a trial court must “accept[] as true factual allegations that the plaintiff 27 makes,” and afford a complaint a “liberal construction.” Gerawan Farming, Inc. v. Lyons (2000) 24 28 5 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 Cal.4th 468, 504. As shown herein, when analyzed under this standard, Defendant’s motion fails 2 and must be denied. 3 B. Defendant has no Right to Prohibit Termination of the Sublease. 4 Defendant contends that it possesses the exclusive right to determine whether either Plaintiffs 5 or Walgreens may terminate the Sublease primarily because the Lease and the CND Agreement, 6 when read together, impliedly require that Plaintiffs sublet the premises. Defendant is wrong. To 7 the contrary, the Lease provisions are unambiguous that Plaintiffs need not sublet the premises. For 8 example, Section 1.9 of the Lease, provides that Plaintiffs shall develop the Leased Premises as a 9 Walgreens. Amended Complaint, Ex. A, p. 1. Defendant does not dispute that Plaintiffs satisfied 10 this provision. Section 1.9 of the Lease, however, additionally provides that “the Leased Premises 11 may be used for any lawful purpose.” Ibid. Defendant notably does not contend that failing to 12 sublease the Leased Premises is unlawful. 13 Other sections of the Lease similarly indicate that Plaintiffs are not required to sublet the 14 premises. For example, Section 8.3 of the Lease states that “Landlord understands and agrees that 15 Tenant shall sublet some or all of the Leased Premises to Walgreens, and perhaps to others, and in 16 the event of each such subletting of the Leased Premises, upon written request of Tenant, Landlord 17 shall execute without charge a non-disturbance and attornment agreement . . . .” (emphasis added). 18 Amended Complaint, Ex. A, p. 6. This language does not obligate Plaintiffs to sublet; rather, it 19 imposes an obligation on Defendant in the event that Plaintiffs do so. The same understanding 20 between the parties can be found at the beginning of Section 10.5, which states that “Landlord 21 understands and agrees that Tenant may sublet all of the Leased Premises to Walgreens, or to one or 22 more sub-tenants. In the event that Tenant so sublets any or all of the Leased Premises” then, in 23 such event, Defendant has certain obligations to give notices to such subtenants. (emphasis added). 24 Id. at p. 7. Again, this provision assumes the occurrence of a condition precedent—the subletting of 25 the Leased Premises—and necessarily contemplates that such subletting may never occur with the 26 language “[i]n the event that.” Ibid. 27 Critically, there is no provision in the Lease, or in any other agreement between Plaintiffs 28 and Defendant, which requires Plaintiffs to sublet the Leased Premises. And Defendant points 6 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 neither this Court nor the Plaintiffs to any such provision. In the absence of such a provision, and in 2 the face of clear contractual language indicating the intent of the parties not to require subletting, 3 Defendant attempts to cobble together an implied obligation to sublet. But this Court’s task is to 4 construe the Lease as it is, not as Defendant wishes it to be. See Abers v. Rounsavell (2010) 189 5 Cal.App.4th 348, 361 (“Our task is to construe the ground leases as they are, not as the trustees want 6 them to be.”). This court does not “have the power to create for the parties a contract that they did 7 not make and cannot insert language that one party now wishes were there.” Vons Companies, Inc. 8 v. United States Fire Ins. Co. (2000) 78 Cal.App.4th 52, 59. Even in the event that such an implied 9 intent existed, which it does not, that implication would be insufficient to impose upon Plaintiffs the 10 undue restrictions that Defendant seeks to impose. See Stockton Dry Goods Co. v. Girsh (1951) 36 11 Cal. 2d 677, 680-81 (“[An] implication however cannot rest solely upon an inference to be drawn 12 from the facts surrounding the execution of the lease. It must have a basis in the contract itself. A 13 condition cannot be read into a contract as to which the parties might well be deemed to have 14 remained intentionally silent.”). 15 Not only do the express terms of the parties’ agreements make plain that the premises need 16 not be sublet, but the express language of the CND Agreement and the Sublease also make plain that 17 the parties unambiguously agreed that all potential subleases with respect to the premises may be 18 terminated. To be sure, Defendant concedes that it “expressly consented to the terms of the Sublease 19 when it signed the CND Agreement.” Defendant’s Demurrer, p. 15:16-17. The Sublease 20 contemplates that Plaintiffs may terminate the sublease. For example, Section 17(a) provides that 21 Plaintiffs may terminate the sublease and re-enter the Leased Premises in the event of default. 22 Amended Complaint, Ex. B, p. 22. Section 13(c) similarly permits Plaintiffs to terminate the 23 sublease after receiving notice from a tenant of the tenant’s intention to sublease or assign all or a 24 portion of the premises. Id. at 20. Defendant’s argument that Plaintiffs must never terminate its 25 Sublease with Walgreens is directly contradicted by the express terms of the Sublease. 26 Finally, Defendant spills much ink arguing that this Court has previously rejected Plaintiffs’ 27 request for relief, however, it is Defendant’s argument that has been previously rejected by this 28 Court. Indeed, in seeking to dismiss Plaintiffs’ Original Complaint on the pleadings, Defendant 7 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 repeatedly argued to this Court that no contract—neither the CND Agreement, the Lease, nor the 2 Sublease—required Defendant to consent to a termination of the Sublease because none of the 3 aforementioned agreements governed the parties’ rights or ability to terminate the Sublease. And 4 Defendant persuaded this Court, which ultimately determined that Plaintiffs’ since-dismissed breach 5 of contract claim was not viable in light of the fact that nothing in the CND Agreement required 6 Defendant to consider, and consent to, a termination of the Sublease, and without such an obligation 7 to consent to termination, Defendant could not breach any such agreement by unreasonably 8 withholding consent to terminate. Defendant cannot utilize the lack of a governing termination 9 provision as both a shield and a sword: Defendant cannot argue that a request to terminate the 10 Sublease is outside the scope of the CND Agreement’s consent requirement to escape a claim for 11 breach of contract, and subsequently argue that the CND Agreement squarely prohibits Plaintiff 12 from terminating the Sublease without Defendant’s approval. Indeed, an alternative ruling would 13 empower Defendant to collect rent from Plaintiffs under the Lease, but impair Plaintiffs’ ability to 14 satisfy such an obligation to Defendant by prohibiting it from successfully executing a new sublease 15 on a premises that has been rendered vacant for approximately three years as a result of Defendant’s 16 I-win-you-lose interpretation of the CND Agreement. 17 Accordingly, because the Lease does not require that the Leased Premises be sublet, and 18 because no agreement between Plaintiffs and Defendant prohibits Plaintiffs’ ability to terminate the 19 Sublease (and, in fact, expressly contemplates termination), Plaintiffs respectfully request that this 20 Court declare what the CND Agreement, the Lease, and the Sublease make plain: Plaintiffs are 21 entitled to terminate the Sublease. 22 IV. CONCLUSION 23 For the foregoing reasons, Defendant’s Demurrer should be denied with respect to the Fourth 24 Cause of Action in Plaintiffs’ Amended Complaint. K&L Gates LLP 25 26 Dated: By: Daniel W. Fox 27 Attorneys for Plaintiffs CPI CHICO 28 BENEFICIARY LLC and TA CHICO LLC 8 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT 1 PROOF OF SERVICE 2 3 I am employed in the county of San Francisco, State of California. I am over the age of 18 4 and not a party to the within action; my business address is K&L GATES LLP, Four Embarcadero 5 Center, Suite 1200, San Francisco, California 94111. 6 On January 28, 2021, I served the documents described as: 7 PLAINTIFFS CPI CHICO BENEFICIARY LLC AND TA CHICO, LLC’S 8 OPPOSITION TO DEFENDANT’S DEMURRER 9 together with an unsigned copy of this declaration on the interested parties in this action by 10 delivering a true copy thereof enclosed in sealed envelope(s) addressed as follows: 11 Dennis M. Wilson dwilson@wilsonlawfirmca.com 12 Wilson Law Firm, A Professional Corporation Telephone: (916) 608-8891 13 Facsimile: (916) 608-8892 50 Iron Point Circle, Suite 115 14 Folsom, California 95630 15 16 BY ELECTRONIC SERVICE: by transmitting a true copy of the foregoing document(s) to the e-mail addresses set forth as stated on the attached mailing list. 17 18 I declare under penalty of perjury under the laws of the State of California that the above is 19 true and correct. 20 Executed on January 28, 2021, at San Francisco, California. 21 22 MICHELLE CRAWFORD 23 24 25 26 27 28 9 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ AMENDED COMPLAINT