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1 Daniel Fox, Esq. (SBN: 268757)
K&L Gates LLP 5/19/2021
2 4 Embarcadero Center, Suite 1200
San Francisco, CA 94111
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’ SECOND
HK DELUXE, LLC
19 AMENDED COMPLAINT
Defendant.
20
Dept.: 1
21 Date: June 2, 2021
Time: 9:00 a.m.
22 Judge: Hon. Tamara Mosbarger
[Unlimited Jurisdiction]
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OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED
COMPLAINT
1 TABLE OF CONTENTS
2 Page
3 I. INTRODUCTION ............................................................. Error! Bookmark not defined.
4 II. FACTUAL AND PROCEDURAL BACKGROUND....... Error! Bookmark not defined.
5 III. ARGUMENT .......................................................................................................................8
6 A. Legal Standard. ........................................................................................................8
7 B. Defendant has no Right to Prohibit Termination of the Sublease. ..........................8
8 1. Plaintiffs are not Obligated to Sublease the Premises. ................................9
9 2. Neither the Lease, the CND Agreement, nor the Sublease Prohibits
Plaintiffs from Terminating the Sublease. .................................................10
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3. Defendant is not a Third-Party Beneficiary to the Sublease. .....................11
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4. Defendant’s Argument has been Twice Rejected. .....................................13
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IV. CONCLUSION ..................................................................................................................15
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1 TABLE OF AUTHORITIES
2 Page(s)
3 Cases
4
Abers v. Rounsavell
5 (2010) 189 Cal. App. 4th 348 ..................................................................................................10
6 Gerawan Farming, Inc. v. Lyons
(2000) 24 Cal. 4th 468 ...............................................................................................................8
7
Goonewardene v. ADP, LLC
8 (2019) 6 Cal. 5th 817 .........................................................................................................12, 13
9 Real Prop. Servs. Corp. v. City of Pasadena
10 (1994) 25 Cal. App. 4th 375 ....................................................................................................12
11 Spinks v. Equity Residential Briarwood Apartments
(2009) 171 Cal. App. 4th 1004 ..........................................................................................11, 12
12
Stockton Dry Goods Co. v. Girsh
13 (1951) 36 Cal. 2d 677 ..............................................................................................................10
14 Vons Companies, Inc. v. United States Fire Ins. Co.
(2000) 78 Cal. App. 4th 52 ......................................................................................................10
15
16 Statutes
17 Civ. Code § 1559 ...........................................................................................................................12
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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 certain accelerated rent under the Sublease.
6 In turn, Plaintiffs have requested that Defendant consent to the termination of the Walgreens
7 Sublease. Defendant refused to consent to termination of the Walgreens Sublease, and stated that,
8 “[u]nder no circumstances will [Defendant] consent to the termination of the Sublease with
9 Walgreens.”
10 After the aforementioned unreasonable rejection of its request, Plaintiffs filed the instant
11 action seeking relief on three counts: declaratory judgment, breach of contract, and tortious
12 interference with contract. This Court subsequently dismissed Plaintiffs’ Original Complaint on the
13 grounds that the proposed termination was not a “material amendment” of the sublease and,
14 therefore, was not subject to the consent requirements of the parties’ consent and non-disturbance
15 agreement.
16 Following this Court’s determination that a proposed termination of the Walgreens Sublease
17 was not subject to consent requirements, Plaintiffs filed an Amended Complaint for declaratory
18 judgment, breach of contract, and tortious interference with contract. This Court dismissed the
19 Amended Complaint with leave to amend. But the Court also noted “that Plaintiffs do not need
20 Defendant’s consent to terminate the sublease” and that “this issue has already been addressed in the
21 Court’s prior ruling . . . .” Plaintiffs are now seeking a declaratory judgment consistent with the
22 Court’s prior ruling on Plaintiffs’ Original Complaint and this Court’s note in its order dismissing
23 the Amended Complaint: that Plaintiffs are “entitled to terminate the Sublease without Defendant’s
24 consent.”
25 Defendant continues to dispute the Court’s prior ruling. Without directing this Court or
26 Plaintiffs to any contractual provision that prohibits the termination of the Walgreens Sublease,
27 Defendant suggests that such termination is prohibited. Defendant, however, cannot have it both
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COMPLAINT
1 ways. Defendant cannot argue that Plaintiffs’ termination of the Sublease is not governed by the
2 parties’ contract, and therefore that Defendant’s withheld consent does not give rise to a breach of
3 contract, and subsequently argue that Defendant has the unilateral right to prohibit a termination of
4 the Walgreens Sublease because termination rights are governed by the parties’ contract—
5 particularly in the absence of any contractual provision prohibiting such termination. Indeed,
6 Defendant’s interpretation unilaterally empowers Defendant to unreasonably withhold consent to
7 terminate the Walgreens Sublease and to prohibit Plaintiffs from terminating the Walgreens
8 Sublease without Defendant’s consent, effectively depriving Plaintiffs of any remedy in response to
9 Defendant’s tortious conduct. Defendant cannot use the parties’ contract as both a shield and a
10 sword; as such, Defendant’s arguments, and its motion, must fail.
11 II. FACTUAL AND PROCEDURAL BACKGROUND
12 Plaintiffs CPI Chico Beneficiary LLC and TA Chico, LLC (jointly, “Plaintiffs”) are the
13 successors in interest under a certain ground lease dated March 10, 2009 (the “Lease”), pursuant to
14 which Plaintiffs lease certain commercial property in Chico, California from Defendant HK Deluxe,
15 LLC (“Defendant”). Second Amended Complaint, ¶ 8. A copy of the Lease is attached to Plaintiffs’
16 Second Amended Complaint as Exhibit A.
17 The Lease does not require Defendant to sublease the premises, nor does the Lease require
18 Defendant to use the premises for a Walgreen Drug store. Section 1.9 of the Lease states that the
19 premises shall be “developed as a Walgreen Drug store, but the Leased Premises may be used for
20 any lawful purpose.” Second Amended Complaint, Ex. A at 1 (emphasis added).
21 The Lease similarly does not contain any restrictions on subleasing. Rather, the Lease states,
22 at Section 8.3:
23 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
24 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
25 10.6, or another form if mutually agreeable to the parties.
26 Second Amended Complaint, Ex. A at 6.
27 Consistent with the terms of the Lease, on January 28, 2009, Plaintiffs’ predecessors-in-
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COMPLAINT
1 interest entered into a sublease agreement with Walgreens (the “Sublease”) for an initial term of 25
2 years. Second Amended Complaint, ¶¶ 10-11. A copy of the Sublease is attached to the Second
3 Amended Complaint as Exhibit B. As required by Sections 8.3 and 10.6 of the Lease, Defendant
4 consented to the Sublease pursuant to a Consent and Non-Disturbance Agreement dated July 30,
5 2009 (the “CND Agreement”), which was entered into between Defendant, Plaintiffs, and
6 Walgreens. Second Amended Complaint, ¶ 12. A copy of the CND Agreement is attached to the
7 Second Amended Complaint as Exhibit C.
8 The Sublease expressly provides that Walgreens may discontinue the operation of its
9 business at the premises at any time and from time to time. Second Amended Complaint, Ex. B at
10 20, Section 13(a). Critically, the Lease, Sublease, and the CND Agreement do not prohibit the
11 termination of the Sublease if Walgreens and Plaintiffs agree to the same, and nothing contained in
12 the Lease, Sublease, or CND Agreement allows Defendant to block or condition such termination.
13 Walgreens discontinued its business at the premises several years ago, and since that time, no
14 business has operated at the premises. Second Amended Complaint, ¶¶ 14-15. Walgreens has now
15 requested to terminate the Sublease, and has negotiated a deal in principle with Plaintiff, pursuant to
16 which the termination date of the Sublease will be accelerated, and Walgreens will pay nearly all
17 otherwise-owed rent in a one-time, lump sum payment. Second Amended Complaint, ¶ 16.
18 Originally believing that Plaintiffs’ and Walgreens’ agreement to alter the Sublease, such that
19 the termination date would be accelerated in exchange for an accelerated payment of substantially all
20 rent otherwise owed under the Sublease, constituted a “material amendment of the Sublease,” as that
21 term is found in Section 4 of the CND Agreement, on August 31, 2018, Plaintiffs requested
22 Defendant’s written consent to terminate the Sublease. Second Amended Complaint, ¶ 17. A copy
23 of Plaintiffs’ August 31, 2018 Request Letter is attached to the Second Amended Complaint as
24 Exhibit D.
25 On September 6, 2018, counsel for Defendant responded to Plaintiffs’ Request Letter and
26 advised that “[u]nder no circumstances will my client consent to the termination of the Sublease with
27 Walgreens. Any termination will be deemed a default subject to all rights and remedies available to
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1 my client including attorney’s fees as set forth in Section 19.19 of [the Lease].” Second Amended
2 Complaint, ¶ 18. A copy of this “Rejection Letter” is attached to the Second Amended Complaint as
3 Exhibit E.
4 Following the aforementioned unreasonable rejection of its Request Letter without
5 explanation, Plaintiffs filed the instant matter seeking relief on three counts: declaratory judgment;
6 breach of contract; and tortious interference with contract. Plaintiffs argued, among other things,
7 that Defendant’s refusal to reasonably consider, and ultimately consent to, what Plaintiffs believed to
8 be a “material amendment” to the Sublease amounted to a breach of Section 4 of the CND
9 Agreement.
10 In response, Defendant moved for a judgment on the pleadings, arguing that, among other
11 things, its refusal to consent to Plaintiffs’ proposed termination agreement did not give rise to a
12 breach of Section 4 of the CND Agreement because a termination of the Sublease was outside the
13 scope of Section 4 of the CND Agreement, which requires Plaintiffs to obtain Defendant’s consent
14 for “material amendments.”
15 This Court accepted Defendant’s interpretation of the CND Agreement, and, on January 22,
16 2020, granted Defendant’s Motion for Judgment on the Pleadings. The Court concluded that
17 termination of the Sublease was not governed by Section 4 of the CND Agreement, which is the only
18 potentially relevant contractual provision that requires Plaintiffs’ to obtain Defendant’s consent. The
19 Court further reasoned, “the parties did not intend ‘material amendment’ of the [S]ublease to include
20 termination thereof.” Thus, the Court granted Defendant’s motion for judgment on the pleadings
21 because Plaintiffs’ Original Complaint was based on Defendant’s unreasonable withholding of
22 consent. This Court granted Plaintiffs leave to file an amended complaint.
23 On February 21, 2020, Plaintiffs filed an Amended Complaint for declaratory judgment,
24 breach of contract, and tortious interference with contract. Thereafter, Plaintiffs and Defendant met
25 and conferred on Defendant’s planned demurrer and motion to strike the Amended Complaint.
26 Based on the meet and confer discussions, Plaintiffs agreed to further amend their Complaint in
27 order to address Defendant’s stated issues with the Amended Complaint or, at a minimum, narrow
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1 the issues. Plaintiffs proposed sending a draft amended complaint to Defendant before Defendant
2 filed any demurrer or motion to strike. Defendant, however, refused to permit Plaintiffs to further
3 amend and limit their Amended Complaint, and instead filed its demurer of and motion to strike the
4 Amended Complaint. As a result of that meeting, the lion’s share of Defendant’s demurrer and
5 motion to strike were rendered moot. On February 23, 2021, the Court ultimately dismissed the
6 Amended Complaint with leave to amend. In its order, and consistent with this Court’s prior ruling
7 in which it acknowledged that termination was beyond the scope of the consent requirements within
8 the CND Agreement, this Court additionally noted that, “[t]o the extent Plaintiffs seek an Order
9 declaring that Plaintiffs do not need Defendant’s consent to terminate the [S]ublease, this issue has
10 already been addressed in the Court’s prior ruling on Defendant’s motion for judgment on the
11 pleadings.”
12 As a result, on March 19, 2021, Plaintiffs filed their Second Amended Complaint, which
13 states one cause of action for declaratory relief declaring that Plaintiffs “are entitled to terminate the
14 Sublease without Defendant’s consent.” Second Amended Complaint, ¶ 24. As alleged in the
15 Second Amended Complaint, Defendant has threatened litigation if Plaintiff terminates the Sublease
16 without Defendant’s consent. Second Amended Complaint, ¶ 20.
17 The parties met and conferred with respect to Plaintiffs’ Second Amended Complaint on
18 April 16, 2021 regarding Defendant’s anticipated demurrer, but could not reach an agreement
19 because Defendant continues to believe that it can unilaterally prevent Plaintiffs from terminating
20 the Sublease even in the absence of any contractual provision creating such authority. As a result,
21 on May 3, 2021, Defendant generally demurred to Plaintiffs’ Second Amended Complaint, and
22 argued that no party is entitled to terminate the Sublease at this time despite any contractual
23 language prohibiting termination.
24 Contrary to Defendant’s argument, however, this Court has resolved this issue twice before.
25 Each time, this Court has made plain that the only instance in which Defendant’s consent is
26 contractually required is with respect to a “material amendment,” as that term is defined in the CND
27 Agreement, and that termination is outside the scope of such definition. In doing so, this Court
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1 correctly acknowledged that no provision in either the Lease, the CND Agreement, or the Sublease
2 prohibits Plaintiffs from terminating the Sublease. As a consequence, Plaintiffs respectfully request
3 that this Court deny Defendant’s demurrer to Plaintiffs’ Second Amended Complaint, consistent
4 with the Court’s prior rulings in this matter.
5 III. ARGUMENT
6 In pertinent part, Defendant argues that Plaintiffs’ Second Amended Complaint should be
7 dismissed in its entirety because Plaintiffs have no right to terminate the Sublease without
8 Defendant’s prior approval. Defendant is wrong. As this Court previously indicated, Defendant’s
9 refusal to consent to a termination of the Sublease cannot give rise to a breach of the CND
10 Agreement because a termination is outside the scope of the CND Agreement’s provisions relating
11 to consent. None of the agreements between the parties prohibit Plaintiffs or Walgreens from
12 terminating the Sublease or entitles Defendant to prevent the same. Indeed, nothing in the language
13 of the parties’ agreements prohibits the termination of the Sublease, and Plaintiffs merely request
14 that this Court declare what the parties’ agreements make plain.
15 A. Legal Standard.
16 The standard governing a general demurrer is the same as that governing a motion for a
17 judgment on the pleadings: a trial court must “accept[] as true factual allegations that the plaintiff
18 makes,” and afford a complaint a “liberal construction.” Gerawan Farming, Inc. v. Lyons (2000) 24
19 Cal. 4th 468, 504. As shown herein, when analyzed under this standard, Defendant’s motion fails
20 and must be denied.
21 B. Defendant has no Right to Prohibit Termination of the Sublease.
22 Defendant contends that it possesses the exclusive right to determine whether Plaintiffs may
23 terminate the Sublease for three reasons: (1) because the Lease and the CND Agreement, when read
24 together, impliedly require that Plaintiffs sublet the premises; (2) because the Sublease purportedly
25 prohibits Walgreens from unilaterally terminating the same; and (3) because Defendant is
26 purportedly a third-party beneficiary to the Sublease. Defendant is wrong on each front.
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1 1. Plaintiffs are not Obligated to Sublease the Premises.
2 Defendant has tried and failed for a second time to uncover any provision in either the Lease
3 or the CND Agreement that requires Plaintiffs to sublet the premises. For the second time,
4 Defendant asks this Court to imply into the parties’ contracts terms that do not exist. This, it cannot
5 do. Contrary to Defendant’s insistence, the Lease provisions are unambiguous that Plaintiffs need
6 not sublet the premises. For example, Section 1.9 of the Lease, provides that Plaintiffs shall develop
7 the Leased Premises as a Walgreens. Second Amended Complaint, Ex. A, p. 1. Defendant does not
8 dispute that Plaintiffs satisfied this provision. Section 1.9 of the Lease, however, additionally
9 provides that “the Leased Premises may be used for any lawful purpose.” Ibid. Defendant notably
10 does not contend that failing to sublease the Leased Premises is unlawful.
11 Other sections of the Lease similarly indicate that Plaintiffs are not required to sublet the
12 premises. For example, Section 8.3 of the Lease states that “Landlord understands and agrees that
13 Tenant shall sublet some or all of the Leased Premises to Walgreens, and perhaps to others, and in
14 the event of each such subletting of the Leased Premises, upon written request of Tenant, Landlord
15 shall execute without charge a non-disturbance and attornment agreement . . . .” Second Amended
16 Complaint, Ex. A, p. 6 (emphasis added). This language does not obligate Plaintiffs to sublet; rather,
17 it imposes an obligation on Defendant in the event that Plaintiffs do so. The same understanding
18 between the parties can be found at the beginning of Section 10.5, which states that “Landlord
19 understands and agrees that Tenant may sublet all of the Leased Premises to Walgreens, or to one or
20 more sub-tenants. In the event that Tenant so sublets any or all of the Leased Premises” then, in
21 such event, Defendant has certain obligations to give notices to such subtenants. Id. at p. 7.
22 (emphasis added). Again, this provision assumes the occurrence of a condition precedent—the
23 subletting of the Leased Premises—and necessarily contemplates that such subletting may never
24 occur with the language “[i]n the event that.” Ibid.
25 Critically, there is no provision in the Lease, or in any other agreement between Plaintiffs
26 and Defendant, which requires Plaintiffs to sublet the Leased Premises. And, despite Defendant’s
27 characterization that “Plaintiffs’ duty to sublet to [Walgreens] is well-defined in the lease
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COMPLAINT
1 agreements,” Defendant fails to quote a single sentence or clause of any agreement supporting that
2 specious proposition, nor could it, because no such obligation exists. In the absence of such a
3 provision, and in the face of clear contractual language indicating the intent of the parties not to
4 require subletting, Defendant attempts to cobble together an implied obligation to sublet. But this
5 Court’s task is to construe the Lease as it is, not as Defendant wishes it to be. See Abers v.
6 Rounsavell (2010) 189 Cal.App.4th 348, 361 (“Our task is to construe the ground leases as they are,
7 not as the trustees want them to be.”). This court does not “have the power to create for the parties a
8 contract that they did not make and cannot insert language that one party now wishes were there.”
9 Vons Companies, Inc. v. United States Fire Ins. Co. (2000) 78 Cal.App.4th 52, 59. Even in the event
10 that such an implied intent existed, which it does not, that implication would be insufficient to
11 impose upon Plaintiffs the undue restrictions that Defendant seeks to impose. See Stockton Dry
12 Goods Co. v. Girsh (1951) 36 Cal. 2d 677, 680-81 (“[An] implication however cannot rest solely
13 upon an inference to be drawn from the facts surrounding the execution of the lease. It must have a
14 basis in the contract itself. A condition cannot be read into a contract as to which the parties might
15 well be deemed to have remained intentionally silent.”). Because Defendant is incapable of
16 directing either this Court or Plaintiffs to any provision in either the Lease or the CND Agreement
17 that requires Plaintiffs to sublease the premises, Defendant’s argument necessarily fails.
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2. Neither the Lease, the CND Agreement, nor the Sublease Prohibits
19 Plaintiffs from Terminating the Sublease.
20 Not only do the express terms of the parties’ agreements make plain that the premises need
21 not be sublet, but the express language of the CND Agreement and the Sublease also make plain that
22 the parties unambiguously agreed that all potential subleases with respect to the premises may be
23 terminated. To be sure, there is no dispute that Defendant consented to the terms of the Sublease
24 when it signed the CND Agreement. And, the Sublease contemplates that Plaintiffs may terminate
25 the sublease. For example, Section 17(a) provides that Plaintiffs may terminate the Sublease and re-
26 enter the Leased Premises in the event of default. Second Amended Complaint, Ex. B, p. 22.
27 Section 13(c) similarly permits Plaintiffs to terminate the Sublease after receiving notice from a
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COMPLAINT
1 tenant of the tenant’s intention to sublease or assign all or a portion of the premises. Id. at p. 20.
2 Defendant’s argument that Plaintiffs must never terminate its Sublease with Walgreens is
3 accordingly directly contradicted by the express terms of the Sublease.
4 Defendant attempts to attack the explicit language memorializing the parties’ intent to
5 empower Plaintiffs to terminate the Sublease by arguing that Walgreens cannot terminate the
6 sublease absent certain circumstances not present here. See Defendant’s Demurrer, p. 17:8-9 (“The
7 only way the Tenant (sublessee) [Walgreens] may terminate the Sublease is by giving notice of the
8 termination under section 3(d) at the specified times.”). In doing so, Defendant tellingly fails to
9 similarly direct either this Court or Plaintiffs to any explicit provision of the Sublease, or the Lease
10 or the CND Agreement, that prohibits Plaintiffs from terminating the Sublease by agreement with
11 Walgreens. That is because no such provision exists. Seemingly acknowledging its inability to
12 unearth such a provision, Defendant notably argues only that “[t]here is no provision authorizing
13 [P]laintiffs (ground lessee/sublessors) to terminate the [s]ublease.” The absence of any provision
14 authorizing Plaintiffs to terminate the Sublease, however, provides no indication that Plaintiffs
15 cannot terminate the Sublease, particularly in light of the fact that neither the Sublease, nor any other
16 agreement, includes such a prohibition. Indeed, a contractual term cannot be conjured up simply
17 because the contract lacks a negative inferential term, and Defendants fail to provide any caselaw
18 supporting this novel theory of contract interpretation. For the second time, Defendant has been
19 challenged to direct this Court to an explicit provision of any agreement that prohibits Plaintiffs from
20 terminating the Sublease, and for the second time, Defendant had been unable to do so.
21 3. Defendant is not a Third-Party Beneficiary to the Sublease.
22 Next, as a tacit acknowledgment that neither the Lease, the CND Agreement, nor the
23 Sublease explicitly prohibits Plaintiffs from terminating the Sublease, Defendant argues that Plaintiff
24 cannot terminate the Sublease because Defendant is a third-party beneficiary to the Sublease. This
25 argument likewise fails.
26 California law permits third-party beneficiaries to enforce the terms of a contract that was
27 expressly made for their benefit. Spinks v. Equity Residential Briarwood Apartments (2009) 171
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COMPLAINT
1 Cal. App. 4th 1004, 1021; Civ. Code section 1559 (“A contract, made expressly for the benefit of a
2 third person, may be enforced by him at any time before the parties thereto rescind it.”) (emphasis
3 added). Where, however, a benefit to a third party was not the “motivating purpose” of the contract,
4 and the contracting parties instead “simply [had] knowledge that a benefit to the third party” would
5 “follow from the contract,” the third party does not qualify as a third-party beneficiary to the
6 contract. Goonewardene v. ADP, LLC (2019) 6 Cal. 5th 817, 830. Accordingly, the party
7 attempting to invoke third-party beneficiary status must demonstrate, as a matter of law and as a
8 matter of fact, that there exists a directly-motivating “intent to benefit [the] third person” from the
9 explicit “terms of the contract,” and that “the terms of the contract necessarily require the promisor
10 to confer a benefit on [the] third person.” Spinks, 171 Cal. App. 4th at 1021. For this reason, it is
11 generally a “question of fact [as to] whether a particular third person is an intended beneficiary of a
12 contract,” which renders the question unsuitable at the demurrer stage. Id.
13 As a threshold matter, the Sublease is devoid of any express language naming Defendant as a
14 third-party beneficiary to the Sublease. See generally Second Amended Complaint, Ex. B.
15 Defendant seemingly concedes this point by, again, failing to direct either this Court or Plaintiffs to
16 any explicit provision of the Sublease conferring such status upon Defendant. See generally
17 Defendant’s Demurrer.
18 Moreover, while California courts have routinely held that a sublessee may be a third-party
19 beneficiary to the implied covenant of quiet enjoyment contained in a master or ground lease, no
20 California court has held that a prime lessor is a third-party beneficiary to a sublease. See, e.g., Real
21 Prop. Servs. Corp. v. City of Pasadena, (1994) 25 Cal. App. 4th 375, 383 (“It is settled law that if a
22 lessor has expressly agreed to a sublease, the sublessee is a third party beneficiary to the implied
23 covenant of quiet enjoyment in the original lease and has the right to go directly against the lessor
24 for its breach.”) (emphasis added). Defendant fails to provide any support for its novel legal theory
25 that it is a beneficiary as prime lessor. Indeed, it is axiomatic that the motivating intent to enter into
26 a sublease is to confer a direct benefit upon the lessee-sublandlord, who is relieved of its obligation
27 to pay rent to the lessor, and upon the subtenant, who obtains the right to use and occupy the
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COMPLAINT
1 premises. The fact that a lessee-sublandlord and a sublessee “simply [have] knowledge” that a
2 benefit to the prime landlord will “follow from” the sublease—through continued rent payments—
3 without more, is insufficient to confer upon the prime landlord third-party beneficiary status. See
4 Goonewardene, 6 Cal. 5th at 830.
5 That is precisely what happened here. Plaintiffs and Walgreens entered into the Sublease for
6 the direct benefit of Plaintiffs and Walgreens—Plaintiffs received income to pay rent to Defendant,
7 and Walgreens obtained property to use and occupy. Defendant attempts to circumvent this reality
8 by insisting that that the Lease “was created precisely for the demolition of [P]laintiffs’ building and
9 construction of a Walgreens store and for the [S]ublease to [Walgreens].” Defendant’s Demurrer, p.
10 18:14-15. However, the Lease says no such thing. Rather, the Lease states that “[t]he parties
11 acknowledge and agree that Tenant may demolish the existing improvements on the Leased
12 Premises in its sole discretion, and construct certain improvements on the Leased Premises
13 (collectively, the ‘Improvements’).” Thus, the demolition of Defendant’s improvements was in
14 Plaintiffs’ sole discretion, and was not for the benefit of Defendant.
15 Moreover, Defendant cannot rely upon purported language in the Lease to create a right that
16 does not exist in the Sublease—the contract to which it strives to now become a third-party
17 beneficiary—particularly in light of the fact that, as described above, Plaintiffs were not required to
18 Sublease the premises to Walgreens. Defendant’s continued reliance upon language outside the
19 Sublease to demonstrate the purported intent of the parties to the Sublease accentuates the fact that
20 nothing in the Sublease indicates that Plaintiffs or Walgreens intended Defendant to qualify as a
21 third-party beneficiary thereto. At minimum, Defendant’s argument with respect to the parties’
22 intent concerning third-party beneficiaries raises a question of fact that cannot be adjudicated at this
23 stage of litigation.
24 4. Defendant’s Argument has been Twice Rejected.
25 Finally, Defendant spills much ink arguing that this Court has previously rejected Plaintiffs’
26 request for relief, however, it is Defendant’s argument that has been previously rejected by this
27 Court. Indeed, in seeking to dismiss Plaintiffs’ Original Complaint on the pleadings, Defendant
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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. In its recent decision dismissing Plaintiffs’ Amended Complaint,
9 this Court acknowledged its earlier holding that Defendant is not required to provide consent to any
10 termination of the Sublease because neither the Lease, the CND Agreement, nor the Sublease
11 prohibits Plaintiffs from terminating the Sublease: “To the extent Plaintiffs seek an Order declaring
12 that Plaintiffs do not need Defendant’s consent to terminate the [S]ublease, this issue has already
13 been addressed in the Court’s prior ruling on Defendant’s motion for judgment on the pleading.”
14 Defendant cannot utilize the lack of a governing termination provision as both a shield and a
15 sword: Defendant cannot argue that a request to terminate the Sublease is outside the scope of the
16 CND Agreement’s consent requirement to escape a claim for breach of contract, and subsequently
17 argue that the CND Agreement squarely prohibits Plaintiff from terminating the Sublease without
18 Defendant’s approval. Indeed, an alternative ruling would empower Defendant to collect rent from
19 Plaintiffs under the Lease, but impair Plaintiffs’ ability to satisfy such an obligation to Defendant by
20 prohibiting it from successfully executing a new sublease on a premises that has been rendered
21 vacant for approximately three years as a result of Defendant’s I-win-you-lose interpretation of the
22 CND Agreement.
23 Accordingly, because the Lease does not require that the Leased Premises be sublet, because
24 no agreement between Plaintiffs and Defendant prohibits Plaintiffs’ ability to terminate the Sublease
25 (and, in fact, expressly contemplates termination), and because Defendant is not a third-party
26 beneficiary to the Sublease, Plaintiffs respectfully request that this Court declare what the CND
27 Agreement, the Lease, and the Sublease make plain: Plaintiffs are entitled to terminate the Sublease.
28
12
OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED
COMPLAINT
1 IV. CONCLUSION
2 For the foregoing reasons, Defendant’s Demurrer should be denied with
Preview
1 Daniel Fox, Esq. (SBN: 268757) K&L Gates LLP 5/19/2021 2 4 Embarcadero Center, Suite 1200 San Francisco, CA 94111 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’ SECOND HK DELUXE, LLC 19 AMENDED COMPLAINT Defendant. 20 Dept.: 1 21 Date: June 2, 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’ SECOND AMENDED COMPLAINT 1 TABLE OF CONTENTS 2 Page 3 I. INTRODUCTION ............................................................. Error! Bookmark not defined. 4 II. FACTUAL AND PROCEDURAL BACKGROUND....... Error! Bookmark not defined. 5 III. ARGUMENT .......................................................................................................................8 6 A. Legal Standard. ........................................................................................................8 7 B. Defendant has no Right to Prohibit Termination of the Sublease. ..........................8 8 1. Plaintiffs are not Obligated to Sublease the Premises. ................................9 9 2. Neither the Lease, the CND Agreement, nor the Sublease Prohibits Plaintiffs from Terminating the Sublease. .................................................10 10 3. Defendant is not a Third-Party Beneficiary to the Sublease. .....................11 11 4. Defendant’s Argument has been Twice Rejected. .....................................13 12 IV. CONCLUSION ..................................................................................................................15 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 TABLE OF AUTHORITIES 2 Page(s) 3 Cases 4 Abers v. Rounsavell 5 (2010) 189 Cal. App. 4th 348 ..................................................................................................10 6 Gerawan Farming, Inc. v. Lyons (2000) 24 Cal. 4th 468 ...............................................................................................................8 7 Goonewardene v. ADP, LLC 8 (2019) 6 Cal. 5th 817 .........................................................................................................12, 13 9 Real Prop. Servs. Corp. v. City of Pasadena 10 (1994) 25 Cal. App. 4th 375 ....................................................................................................12 11 Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal. App. 4th 1004 ..........................................................................................11, 12 12 Stockton Dry Goods Co. v. Girsh 13 (1951) 36 Cal. 2d 677 ..............................................................................................................10 14 Vons Companies, Inc. v. United States Fire Ins. Co. (2000) 78 Cal. App. 4th 52 ......................................................................................................10 15 16 Statutes 17 Civ. Code § 1559 ...........................................................................................................................12 18 19 20 21 22 23 24 25 26 27 28 ii OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND 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 certain accelerated rent under the Sublease. 6 In turn, Plaintiffs have requested that Defendant consent to the termination of the Walgreens 7 Sublease. Defendant refused to consent to termination of the Walgreens Sublease, and stated that, 8 “[u]nder no circumstances will [Defendant] consent to the termination of the Sublease with 9 Walgreens.” 10 After the aforementioned unreasonable rejection of its request, Plaintiffs filed the instant 11 action seeking relief on three counts: declaratory judgment, breach of contract, and tortious 12 interference with contract. This Court subsequently dismissed Plaintiffs’ Original Complaint on the 13 grounds that the proposed termination was not a “material amendment” of the sublease and, 14 therefore, was not subject to the consent requirements of the parties’ consent and non-disturbance 15 agreement. 16 Following this Court’s determination that a proposed termination of the Walgreens Sublease 17 was not subject to consent requirements, Plaintiffs filed an Amended Complaint for declaratory 18 judgment, breach of contract, and tortious interference with contract. This Court dismissed the 19 Amended Complaint with leave to amend. But the Court also noted “that Plaintiffs do not need 20 Defendant’s consent to terminate the sublease” and that “this issue has already been addressed in the 21 Court’s prior ruling . . . .” Plaintiffs are now seeking a declaratory judgment consistent with the 22 Court’s prior ruling on Plaintiffs’ Original Complaint and this Court’s note in its order dismissing 23 the Amended Complaint: that Plaintiffs are “entitled to terminate the Sublease without Defendant’s 24 consent.” 25 Defendant continues to dispute the Court’s prior ruling. Without directing this Court or 26 Plaintiffs to any contractual provision that prohibits the termination of the Walgreens Sublease, 27 Defendant suggests that such termination is prohibited. Defendant, however, cannot have it both 28 1 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 ways. Defendant cannot argue that Plaintiffs’ termination of the Sublease is not governed by the 2 parties’ contract, and therefore that Defendant’s withheld consent does not give rise to a breach of 3 contract, and subsequently argue that Defendant has the unilateral right to prohibit a termination of 4 the Walgreens Sublease because termination rights are governed by the parties’ contract— 5 particularly in the absence of any contractual provision prohibiting such termination. Indeed, 6 Defendant’s interpretation unilaterally empowers Defendant to unreasonably withhold consent to 7 terminate the Walgreens Sublease and to prohibit Plaintiffs from terminating the Walgreens 8 Sublease without Defendant’s consent, effectively depriving Plaintiffs of any remedy in response to 9 Defendant’s tortious conduct. Defendant cannot use the parties’ contract as both a shield and a 10 sword; as such, Defendant’s arguments, and its motion, must fail. 11 II. FACTUAL AND PROCEDURAL BACKGROUND 12 Plaintiffs CPI Chico Beneficiary LLC and TA Chico, LLC (jointly, “Plaintiffs”) are the 13 successors in interest under a certain ground lease dated March 10, 2009 (the “Lease”), pursuant to 14 which Plaintiffs lease certain commercial property in Chico, California from Defendant HK Deluxe, 15 LLC (“Defendant”). Second Amended Complaint, ¶ 8. A copy of the Lease is attached to Plaintiffs’ 16 Second Amended Complaint as Exhibit A. 17 The Lease does not require Defendant to sublease the premises, nor does the Lease require 18 Defendant to use the premises for a Walgreen Drug store. Section 1.9 of the Lease states that the 19 premises shall be “developed as a Walgreen Drug store, but the Leased Premises may be used for 20 any lawful purpose.” Second Amended Complaint, Ex. A at 1 (emphasis added). 21 The Lease similarly does not contain any restrictions on subleasing. Rather, the Lease states, 22 at Section 8.3: 23 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 24 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 25 10.6, or another form if mutually agreeable to the parties. 26 Second Amended Complaint, Ex. A at 6. 27 Consistent with the terms of the Lease, on January 28, 2009, Plaintiffs’ predecessors-in- 28 2 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 interest entered into a sublease agreement with Walgreens (the “Sublease”) for an initial term of 25 2 years. Second Amended Complaint, ¶¶ 10-11. A copy of the Sublease is attached to the Second 3 Amended Complaint as Exhibit B. As required by Sections 8.3 and 10.6 of the Lease, Defendant 4 consented to the Sublease pursuant to a Consent and Non-Disturbance Agreement dated July 30, 5 2009 (the “CND Agreement”), which was entered into between Defendant, Plaintiffs, and 6 Walgreens. Second Amended Complaint, ¶ 12. A copy of the CND Agreement is attached to the 7 Second Amended Complaint as Exhibit C. 8 The Sublease expressly provides that Walgreens may discontinue the operation of its 9 business at the premises at any time and from time to time. Second Amended Complaint, Ex. B at 10 20, Section 13(a). Critically, the Lease, Sublease, and the CND Agreement do not prohibit the 11 termination of the Sublease if Walgreens and Plaintiffs agree to the same, and nothing contained in 12 the Lease, Sublease, or CND Agreement allows Defendant to block or condition such termination. 13 Walgreens discontinued its business at the premises several years ago, and since that time, no 14 business has operated at the premises. Second Amended Complaint, ¶¶ 14-15. Walgreens has now 15 requested to terminate the Sublease, and has negotiated a deal in principle with Plaintiff, pursuant to 16 which the termination date of the Sublease will be accelerated, and Walgreens will pay nearly all 17 otherwise-owed rent in a one-time, lump sum payment. Second Amended Complaint, ¶ 16. 18 Originally believing that Plaintiffs’ and Walgreens’ agreement to alter the Sublease, such that 19 the termination date would be accelerated in exchange for an accelerated payment of substantially all 20 rent otherwise owed under the Sublease, constituted a “material amendment of the Sublease,” as that 21 term is found in Section 4 of the CND Agreement, on August 31, 2018, Plaintiffs requested 22 Defendant’s written consent to terminate the Sublease. Second Amended Complaint, ¶ 17. A copy 23 of Plaintiffs’ August 31, 2018 Request Letter is attached to the Second Amended Complaint as 24 Exhibit D. 25 On September 6, 2018, counsel for Defendant responded to Plaintiffs’ Request Letter and 26 advised that “[u]nder no circumstances will my client consent to the termination of the Sublease with 27 Walgreens. Any termination will be deemed a default subject to all rights and remedies available to 28 3 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 my client including attorney’s fees as set forth in Section 19.19 of [the Lease].” Second Amended 2 Complaint, ¶ 18. A copy of this “Rejection Letter” is attached to the Second Amended Complaint as 3 Exhibit E. 4 Following the aforementioned unreasonable rejection of its Request Letter without 5 explanation, Plaintiffs filed the instant matter seeking relief on three counts: declaratory judgment; 6 breach of contract; and tortious interference with contract. Plaintiffs argued, among other things, 7 that Defendant’s refusal to reasonably consider, and ultimately consent to, what Plaintiffs believed to 8 be a “material amendment” to the Sublease amounted to a breach of Section 4 of the CND 9 Agreement. 10 In response, Defendant moved for a judgment on the pleadings, arguing that, among other 11 things, its refusal to consent to Plaintiffs’ proposed termination agreement did not give rise to a 12 breach of Section 4 of the CND Agreement because a termination of the Sublease was outside the 13 scope of Section 4 of the CND Agreement, which requires Plaintiffs to obtain Defendant’s consent 14 for “material amendments.” 15 This Court accepted Defendant’s interpretation of the CND Agreement, and, on January 22, 16 2020, granted Defendant’s Motion for Judgment on the Pleadings. The Court concluded that 17 termination of the Sublease was not governed by Section 4 of the CND Agreement, which is the only 18 potentially relevant contractual provision that requires Plaintiffs’ to obtain Defendant’s consent. The 19 Court further reasoned, “the parties did not intend ‘material amendment’ of the [S]ublease to include 20 termination thereof.” Thus, the Court granted Defendant’s motion for judgment on the pleadings 21 because Plaintiffs’ Original Complaint was based on Defendant’s unreasonable withholding of 22 consent. This Court granted Plaintiffs leave to file an amended complaint. 23 On February 21, 2020, Plaintiffs filed an Amended Complaint for declaratory judgment, 24 breach of contract, and tortious interference with contract. Thereafter, Plaintiffs and Defendant met 25 and conferred on Defendant’s planned demurrer and motion to strike the Amended Complaint. 26 Based on the meet and confer discussions, Plaintiffs agreed to further amend their Complaint in 27 order to address Defendant’s stated issues with the Amended Complaint or, at a minimum, narrow 28 4 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 the issues. Plaintiffs proposed sending a draft amended complaint to Defendant before Defendant 2 filed any demurrer or motion to strike. Defendant, however, refused to permit Plaintiffs to further 3 amend and limit their Amended Complaint, and instead filed its demurer of and motion to strike the 4 Amended Complaint. As a result of that meeting, the lion’s share of Defendant’s demurrer and 5 motion to strike were rendered moot. On February 23, 2021, the Court ultimately dismissed the 6 Amended Complaint with leave to amend. In its order, and consistent with this Court’s prior ruling 7 in which it acknowledged that termination was beyond the scope of the consent requirements within 8 the CND Agreement, this Court additionally noted that, “[t]o the extent Plaintiffs seek an Order 9 declaring that Plaintiffs do not need Defendant’s consent to terminate the [S]ublease, this issue has 10 already been addressed in the Court’s prior ruling on Defendant’s motion for judgment on the 11 pleadings.” 12 As a result, on March 19, 2021, Plaintiffs filed their Second Amended Complaint, which 13 states one cause of action for declaratory relief declaring that Plaintiffs “are entitled to terminate the 14 Sublease without Defendant’s consent.” Second Amended Complaint, ¶ 24. As alleged in the 15 Second Amended Complaint, Defendant has threatened litigation if Plaintiff terminates the Sublease 16 without Defendant’s consent. Second Amended Complaint, ¶ 20. 17 The parties met and conferred with respect to Plaintiffs’ Second Amended Complaint on 18 April 16, 2021 regarding Defendant’s anticipated demurrer, but could not reach an agreement 19 because Defendant continues to believe that it can unilaterally prevent Plaintiffs from terminating 20 the Sublease even in the absence of any contractual provision creating such authority. As a result, 21 on May 3, 2021, Defendant generally demurred to Plaintiffs’ Second Amended Complaint, and 22 argued that no party is entitled to terminate the Sublease at this time despite any contractual 23 language prohibiting termination. 24 Contrary to Defendant’s argument, however, this Court has resolved this issue twice before. 25 Each time, this Court has made plain that the only instance in which Defendant’s consent is 26 contractually required is with respect to a “material amendment,” as that term is defined in the CND 27 Agreement, and that termination is outside the scope of such definition. In doing so, this Court 28 5 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 correctly acknowledged that no provision in either the Lease, the CND Agreement, or the Sublease 2 prohibits Plaintiffs from terminating the Sublease. As a consequence, Plaintiffs respectfully request 3 that this Court deny Defendant’s demurrer to Plaintiffs’ Second Amended Complaint, consistent 4 with the Court’s prior rulings in this matter. 5 III. ARGUMENT 6 In pertinent part, Defendant argues that Plaintiffs’ Second Amended Complaint should be 7 dismissed in its entirety because Plaintiffs have no right to terminate the Sublease without 8 Defendant’s prior approval. Defendant is wrong. As this Court previously indicated, Defendant’s 9 refusal to consent to a termination of the Sublease cannot give rise to a breach of the CND 10 Agreement because a termination is outside the scope of the CND Agreement’s provisions relating 11 to consent. None of the agreements between the parties prohibit Plaintiffs or Walgreens from 12 terminating the Sublease or entitles Defendant to prevent the same. Indeed, nothing in the language 13 of the parties’ agreements prohibits the termination of the Sublease, and Plaintiffs merely request 14 that this Court declare what the parties’ agreements make plain. 15 A. Legal Standard. 16 The standard governing a general demurrer is the same as that governing a motion for a 17 judgment on the pleadings: a trial court must “accept[] as true factual allegations that the plaintiff 18 makes,” and afford a complaint a “liberal construction.” Gerawan Farming, Inc. v. Lyons (2000) 24 19 Cal. 4th 468, 504. As shown herein, when analyzed under this standard, Defendant’s motion fails 20 and must be denied. 21 B. Defendant has no Right to Prohibit Termination of the Sublease. 22 Defendant contends that it possesses the exclusive right to determine whether Plaintiffs may 23 terminate the Sublease for three reasons: (1) because the Lease and the CND Agreement, when read 24 together, impliedly require that Plaintiffs sublet the premises; (2) because the Sublease purportedly 25 prohibits Walgreens from unilaterally terminating the same; and (3) because Defendant is 26 purportedly a third-party beneficiary to the Sublease. Defendant is wrong on each front. 27 28 6 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 1. Plaintiffs are not Obligated to Sublease the Premises. 2 Defendant has tried and failed for a second time to uncover any provision in either the Lease 3 or the CND Agreement that requires Plaintiffs to sublet the premises. For the second time, 4 Defendant asks this Court to imply into the parties’ contracts terms that do not exist. This, it cannot 5 do. Contrary to Defendant’s insistence, the Lease provisions are unambiguous that Plaintiffs need 6 not sublet the premises. For example, Section 1.9 of the Lease, provides that Plaintiffs shall develop 7 the Leased Premises as a Walgreens. Second Amended Complaint, Ex. A, p. 1. Defendant does not 8 dispute that Plaintiffs satisfied this provision. Section 1.9 of the Lease, however, additionally 9 provides that “the Leased Premises may be used for any lawful purpose.” Ibid. Defendant notably 10 does not contend that failing to sublease the Leased Premises is unlawful. 11 Other sections of the Lease similarly indicate that Plaintiffs are not required to sublet the 12 premises. For example, Section 8.3 of the Lease states that “Landlord understands and agrees that 13 Tenant shall sublet some or all of the Leased Premises to Walgreens, and perhaps to others, and in 14 the event of each such subletting of the Leased Premises, upon written request of Tenant, Landlord 15 shall execute without charge a non-disturbance and attornment agreement . . . .” Second Amended 16 Complaint, Ex. A, p. 6 (emphasis added). This language does not obligate Plaintiffs to sublet; rather, 17 it imposes an obligation on Defendant in the event that Plaintiffs do so. The same understanding 18 between the parties can be found at the beginning of Section 10.5, which states that “Landlord 19 understands and agrees that Tenant may sublet all of the Leased Premises to Walgreens, or to one or 20 more sub-tenants. In the event that Tenant so sublets any or all of the Leased Premises” then, in 21 such event, Defendant has certain obligations to give notices to such subtenants. Id. at p. 7. 22 (emphasis added). Again, this provision assumes the occurrence of a condition precedent—the 23 subletting of the Leased Premises—and necessarily contemplates that such subletting may never 24 occur with the language “[i]n the event that.” Ibid. 25 Critically, there is no provision in the Lease, or in any other agreement between Plaintiffs 26 and Defendant, which requires Plaintiffs to sublet the Leased Premises. And, despite Defendant’s 27 characterization that “Plaintiffs’ duty to sublet to [Walgreens] is well-defined in the lease 28 7 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 agreements,” Defendant fails to quote a single sentence or clause of any agreement supporting that 2 specious proposition, nor could it, because no such obligation exists. In the absence of such a 3 provision, and in the face of clear contractual language indicating the intent of the parties not to 4 require subletting, Defendant attempts to cobble together an implied obligation to sublet. But this 5 Court’s task is to construe the Lease as it is, not as Defendant wishes it to be. See Abers v. 6 Rounsavell (2010) 189 Cal.App.4th 348, 361 (“Our task is to construe the ground leases as they are, 7 not as the trustees want them to be.”). This court does not “have the power to create for the parties a 8 contract that they did not make and cannot insert language that one party now wishes were there.” 9 Vons Companies, Inc. v. United States Fire Ins. Co. (2000) 78 Cal.App.4th 52, 59. Even in the event 10 that such an implied intent existed, which it does not, that implication would be insufficient to 11 impose upon Plaintiffs the undue restrictions that Defendant seeks to impose. See Stockton Dry 12 Goods Co. v. Girsh (1951) 36 Cal. 2d 677, 680-81 (“[An] implication however cannot rest solely 13 upon an inference to be drawn from the facts surrounding the execution of the lease. It must have a 14 basis in the contract itself. A condition cannot be read into a contract as to which the parties might 15 well be deemed to have remained intentionally silent.”). Because Defendant is incapable of 16 directing either this Court or Plaintiffs to any provision in either the Lease or the CND Agreement 17 that requires Plaintiffs to sublease the premises, Defendant’s argument necessarily fails. 18 2. Neither the Lease, the CND Agreement, nor the Sublease Prohibits 19 Plaintiffs from Terminating the Sublease. 20 Not only do the express terms of the parties’ agreements make plain that the premises need 21 not be sublet, but the express language of the CND Agreement and the Sublease also make plain that 22 the parties unambiguously agreed that all potential subleases with respect to the premises may be 23 terminated. To be sure, there is no dispute that Defendant consented to the terms of the Sublease 24 when it signed the CND Agreement. And, the Sublease contemplates that Plaintiffs may terminate 25 the sublease. For example, Section 17(a) provides that Plaintiffs may terminate the Sublease and re- 26 enter the Leased Premises in the event of default. Second Amended Complaint, Ex. B, p. 22. 27 Section 13(c) similarly permits Plaintiffs to terminate the Sublease after receiving notice from a 28 8 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 tenant of the tenant’s intention to sublease or assign all or a portion of the premises. Id. at p. 20. 2 Defendant’s argument that Plaintiffs must never terminate its Sublease with Walgreens is 3 accordingly directly contradicted by the express terms of the Sublease. 4 Defendant attempts to attack the explicit language memorializing the parties’ intent to 5 empower Plaintiffs to terminate the Sublease by arguing that Walgreens cannot terminate the 6 sublease absent certain circumstances not present here. See Defendant’s Demurrer, p. 17:8-9 (“The 7 only way the Tenant (sublessee) [Walgreens] may terminate the Sublease is by giving notice of the 8 termination under section 3(d) at the specified times.”). In doing so, Defendant tellingly fails to 9 similarly direct either this Court or Plaintiffs to any explicit provision of the Sublease, or the Lease 10 or the CND Agreement, that prohibits Plaintiffs from terminating the Sublease by agreement with 11 Walgreens. That is because no such provision exists. Seemingly acknowledging its inability to 12 unearth such a provision, Defendant notably argues only that “[t]here is no provision authorizing 13 [P]laintiffs (ground lessee/sublessors) to terminate the [s]ublease.” The absence of any provision 14 authorizing Plaintiffs to terminate the Sublease, however, provides no indication that Plaintiffs 15 cannot terminate the Sublease, particularly in light of the fact that neither the Sublease, nor any other 16 agreement, includes such a prohibition. Indeed, a contractual term cannot be conjured up simply 17 because the contract lacks a negative inferential term, and Defendants fail to provide any caselaw 18 supporting this novel theory of contract interpretation. For the second time, Defendant has been 19 challenged to direct this Court to an explicit provision of any agreement that prohibits Plaintiffs from 20 terminating the Sublease, and for the second time, Defendant had been unable to do so. 21 3. Defendant is not a Third-Party Beneficiary to the Sublease. 22 Next, as a tacit acknowledgment that neither the Lease, the CND Agreement, nor the 23 Sublease explicitly prohibits Plaintiffs from terminating the Sublease, Defendant argues that Plaintiff 24 cannot terminate the Sublease because Defendant is a third-party beneficiary to the Sublease. This 25 argument likewise fails. 26 California law permits third-party beneficiaries to enforce the terms of a contract that was 27 expressly made for their benefit. Spinks v. Equity Residential Briarwood Apartments (2009) 171 28 9 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 Cal. App. 4th 1004, 1021; Civ. Code section 1559 (“A contract, made expressly for the benefit of a 2 third person, may be enforced by him at any time before the parties thereto rescind it.”) (emphasis 3 added). Where, however, a benefit to a third party was not the “motivating purpose” of the contract, 4 and the contracting parties instead “simply [had] knowledge that a benefit to the third party” would 5 “follow from the contract,” the third party does not qualify as a third-party beneficiary to the 6 contract. Goonewardene v. ADP, LLC (2019) 6 Cal. 5th 817, 830. Accordingly, the party 7 attempting to invoke third-party beneficiary status must demonstrate, as a matter of law and as a 8 matter of fact, that there exists a directly-motivating “intent to benefit [the] third person” from the 9 explicit “terms of the contract,” and that “the terms of the contract necessarily require the promisor 10 to confer a benefit on [the] third person.” Spinks, 171 Cal. App. 4th at 1021. For this reason, it is 11 generally a “question of fact [as to] whether a particular third person is an intended beneficiary of a 12 contract,” which renders the question unsuitable at the demurrer stage. Id. 13 As a threshold matter, the Sublease is devoid of any express language naming Defendant as a 14 third-party beneficiary to the Sublease. See generally Second Amended Complaint, Ex. B. 15 Defendant seemingly concedes this point by, again, failing to direct either this Court or Plaintiffs to 16 any explicit provision of the Sublease conferring such status upon Defendant. See generally 17 Defendant’s Demurrer. 18 Moreover, while California courts have routinely held that a sublessee may be a third-party 19 beneficiary to the implied covenant of quiet enjoyment contained in a master or ground lease, no 20 California court has held that a prime lessor is a third-party beneficiary to a sublease. See, e.g., Real 21 Prop. Servs. Corp. v. City of Pasadena, (1994) 25 Cal. App. 4th 375, 383 (“It is settled law that if a 22 lessor has expressly agreed to a sublease, the sublessee is a third party beneficiary to the implied 23 covenant of quiet enjoyment in the original lease and has the right to go directly against the lessor 24 for its breach.”) (emphasis added). Defendant fails to provide any support for its novel legal theory 25 that it is a beneficiary as prime lessor. Indeed, it is axiomatic that the motivating intent to enter into 26 a sublease is to confer a direct benefit upon the lessee-sublandlord, who is relieved of its obligation 27 to pay rent to the lessor, and upon the subtenant, who obtains the right to use and occupy the 28 10 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 premises. The fact that a lessee-sublandlord and a sublessee “simply [have] knowledge” that a 2 benefit to the prime landlord will “follow from” the sublease—through continued rent payments— 3 without more, is insufficient to confer upon the prime landlord third-party beneficiary status. See 4 Goonewardene, 6 Cal. 5th at 830. 5 That is precisely what happened here. Plaintiffs and Walgreens entered into the Sublease for 6 the direct benefit of Plaintiffs and Walgreens—Plaintiffs received income to pay rent to Defendant, 7 and Walgreens obtained property to use and occupy. Defendant attempts to circumvent this reality 8 by insisting that that the Lease “was created precisely for the demolition of [P]laintiffs’ building and 9 construction of a Walgreens store and for the [S]ublease to [Walgreens].” Defendant’s Demurrer, p. 10 18:14-15. However, the Lease says no such thing. Rather, the Lease states that “[t]he parties 11 acknowledge and agree that Tenant may demolish the existing improvements on the Leased 12 Premises in its sole discretion, and construct certain improvements on the Leased Premises 13 (collectively, the ‘Improvements’).” Thus, the demolition of Defendant’s improvements was in 14 Plaintiffs’ sole discretion, and was not for the benefit of Defendant. 15 Moreover, Defendant cannot rely upon purported language in the Lease to create a right that 16 does not exist in the Sublease—the contract to which it strives to now become a third-party 17 beneficiary—particularly in light of the fact that, as described above, Plaintiffs were not required to 18 Sublease the premises to Walgreens. Defendant’s continued reliance upon language outside the 19 Sublease to demonstrate the purported intent of the parties to the Sublease accentuates the fact that 20 nothing in the Sublease indicates that Plaintiffs or Walgreens intended Defendant to qualify as a 21 third-party beneficiary thereto. At minimum, Defendant’s argument with respect to the parties’ 22 intent concerning third-party beneficiaries raises a question of fact that cannot be adjudicated at this 23 stage of litigation. 24 4. Defendant’s Argument has been Twice Rejected. 25 Finally, Defendant spills much ink arguing that this Court has previously rejected Plaintiffs’ 26 request for relief, however, it is Defendant’s argument that has been previously rejected by this 27 Court. Indeed, in seeking to dismiss Plaintiffs’ Original Complaint on the pleadings, Defendant 28 11 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND 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. In its recent decision dismissing Plaintiffs’ Amended Complaint, 9 this Court acknowledged its earlier holding that Defendant is not required to provide consent to any 10 termination of the Sublease because neither the Lease, the CND Agreement, nor the Sublease 11 prohibits Plaintiffs from terminating the Sublease: “To the extent Plaintiffs seek an Order declaring 12 that Plaintiffs do not need Defendant’s consent to terminate the [S]ublease, this issue has already 13 been addressed in the Court’s prior ruling on Defendant’s motion for judgment on the pleading.” 14 Defendant cannot utilize the lack of a governing termination provision as both a shield and a 15 sword: Defendant cannot argue that a request to terminate the Sublease is outside the scope of the 16 CND Agreement’s consent requirement to escape a claim for breach of contract, and subsequently 17 argue that the CND Agreement squarely prohibits Plaintiff from terminating the Sublease without 18 Defendant’s approval. Indeed, an alternative ruling would empower Defendant to collect rent from 19 Plaintiffs under the Lease, but impair Plaintiffs’ ability to satisfy such an obligation to Defendant by 20 prohibiting it from successfully executing a new sublease on a premises that has been rendered 21 vacant for approximately three years as a result of Defendant’s I-win-you-lose interpretation of the 22 CND Agreement. 23 Accordingly, because the Lease does not require that the Leased Premises be sublet, because 24 no agreement between Plaintiffs and Defendant prohibits Plaintiffs’ ability to terminate the Sublease 25 (and, in fact, expressly contemplates termination), and because Defendant is not a third-party 26 beneficiary to the Sublease, Plaintiffs respectfully request that this Court declare what the CND 27 Agreement, the Lease, and the Sublease make plain: Plaintiffs are entitled to terminate the Sublease. 28 12 OPPOSITION TO DEFENDANT’S DEMURRER TO PLAINTIFFS’ SECOND AMENDED COMPLAINT 1 IV. CONCLUSION 2 For the foregoing reasons, Defendant’s Demurrer should be denied with