Case Name: PE Real Estate Management Co., LLC v. Top Gun Industrial Finishing, Inc., et al.
Case No.: 16-CV-304700

Defendants Top Gun Industrial Finishing, Inc. (“Top Gun”) and Michael B. Martinez (“Martinez”) (collectively, “Defendants”) demur to the first amended complaint (“FAC”) filed by plaintiff PE Real Estate Management Co., LLC (“Plaintiff”) and move to strike portions contained therein.

I. Factual and Procedural Background

This is an action for breach of contract arising out of a rental agreement. According to the allegations of the operative FAC, in June 2012, Plaintiff became the owner of an industrial office space located in Santa Clara (the “Property”). (FAC, ¶ 9.) At the time of Plaintiff’s purchase of the Property, Defendants were an existing tenant and continued to rent space from Plaintiff under an oral month-to-month agreement. (Id.) During the lease negotiations, Martinez represented that both he, personally, and his corporation, Top Gun, would be jointly and severally liable for all charges arising under and relating to the oral lease agreement. (Id., ¶ 10.)

In March 2013, Defendants breached the oral lease agreement by failing to pay rent and utilities owed. (FAC, ¶ 11.) The breach continued from April 2013 through October 30, 2013, when Defendants vacated the Property. (Id.) Thereafter, Plaintiff incurred damages and additional expenses as a result of Defendants’ tenancy, including the cost of various repairs.

From the time of Defendants’ breach in March 2013 until December 2016 when Plaintiff filed the instant action, Martinez repeatedly assured Plaintiff’s managing member, Esther Hutchinson, that the missing rent and utilities payments and reimbursement for the costs of returning the Property to its original condition would be forthcoming. (FAC, ¶ 13.) In fact, Martinez provided several checks to Hutchinson as payments toward Defendants’ arrearage. (Id.) In reality, however, Defendants did not intend to pay off the amounts owed, a fact which became known to Plaintiff in December 2016 when Martinez instructed Hutchinson to stop “bothering him” for payment. (Id.) Martinez also stated for the first time that only Top Gun was liable for the charges, not him personally. (Id.)

Based on the foregoing allegations, Plaintiff filed the original complaint (“Complaint”) on December 30, 2016 asserting the following causes of action: (1) breach of oral contract; (2) open book account; and (3) account stated. On February 5, 2018, the Court granted, with leave to amend, Defendants’ motion for judgment on the pleadings, reasoning that as pleaded in the complaint, Plaintiff’s claims were time-barred. Leave to amend was granted based on Plaintiff’s representation in its opposition to Defendants’ motion that it could amend its complaint to render its claims timely. On February 9, 2018, Plaintiffs filed the FAC asserting the following claims: (1) breach of oral contract; (2) negligence; and (3) fraud.

On February 15, 2018, Defendants filed the instant motion to strike the second and third causes of action of the FAC. (Code Civ. Proc., §§ 435 and 436.) On March 8, 2018, Defendants also filed the instant demurrer to the first cause of action on the ground of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) On March 22, 2018, Plaintiffs filed oppositions to the foregoing motions.

II. Motion to Strike

As set forth above, with the instant motion, Defendants move to strike the second and third causes of action in the FAC. Defendants maintain that these claims were improperly added by Plaintiff to its complaint because it did not request leave to amend to add them and they exceed the scope of permissible amendment delineated by the Court’s order granting Defendants’ prior motion for judgment on the pleadings.

As a preliminary matter, “a motion for judgment on the pleadings is the functional equivalent of a general demurrer.” (People v. $20,000 U.S. Currency (1991) 235 Cal.App.3d 682, 691.) Generally, where a court grants leave to amend after sustaining a demurrer, the scope of permissible amendment is limited to the cause(s) of action to which the demurrer has been sustained. (People v. Clausen (1967) 248 Cal.App.2d 770, 785-786 [“[S]uch granting of leave to amend must be construed as permission to the pleader to amend the cause of action which he pleaded in the pleading to which the demurrer has been sustained”; see also Harris v. Wachovia Mortg., FSB (2010) 185 Cal.App.4th 1018, 1023 [stating that a plaintiff may not amend the complaint to add a new cause of action without having obtained permission to do so].)
Defendants note that in the FAC, Plaintiff has abandoned its common count theories and added two completely new, fact-specific causes of action, which they insist is not permissible as Plaintiff was only granted leave to plead facts necessary to render its claims timely. In opposition, Plaintiff insists that its newly added second and third causes of action for negligence and fraud, respectively, were properly added because there is no language in the Court’s order on the motion for judgment on the pleadings which precluded it from amending the complaint in the way that it did, and further, the Court has discretion to allow other amendments.

While it is true that the Court has the discretion to permit any sort of amendment, this discretion is usually predicated on a properly noticed motion for leave to amend having been filed by the plaintiff. (See Dye v. Caterpillar, Inc. (2011) 195 Cal.App.4th 1366, 1380.) Here, no such motion has been filed. As for the scope of permissible amendment based on the Court’s prior order, the Court made it clear in said order that leave to amend was being granted solely to provide Plaintiff with an opportunity to “address and correct the timeliness issue ….” (Court’s Order, Feb. 5, 2018.) The addition of claims for negligence and fraud do not, by themselves, address and correct this issue. Plaintiff also added new facts to his general allegations which precede these causes of action and themselves relate to the issue of the timeliness of Plaintiff’s claims. Thus, the Court agrees with Defendants that the addition of claims for fraud and negligence by Plaintiff in the FAC exceed the scope of amendment permitted by the Court’s order on the motion for judgment on the pleadings. Consequently, Defendants’ motion to strike these claims is GRANTED.

III. Demurrer

As a preliminary matter, in support of their demurrer to the FAC, Defendants request that the Court take judicial notice of numerous court documents. As such documents, these items are proper subjects of judicial notice pursuant to Evidence Code section 452, subdivision (d). However, judicial notice, “since it is a substitute for proof, is always confined to those matters which are relevant to the issue at hand.” (Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [emphasis added].) Most of these materials are irrelevant to the disposition of the instant motion. Accordingly, Defendants’ request for judicial notice is only GRANTED IN PART. The request is GRANTED as to Exhibits F (Order on Motion for Judgment on the Pleadings) and H (FAC) and otherwise DENIED.

In support of their opposition, Plaintiff also makes a request that the Court take judicial notice of the Court’s ruling on Defendants’ prior motion for judgment on the pleadings. This request, as it is with Defendants, is GRANTED.

Turning to the substance of the motion at bar, the basis for Defendants’ demurrer to the first, and now sole remaining, cause of action in the FAC for breach of contract is the same as it was in their motion for judgment on the pleadings as to the original complaint: the claim is time-barred. In granting the prior motion, the Court noted that as a general matter, the applicable statute of limitations for a cause of action for breach of an agreement not founded upon a written instrument, such as the oral lease agreement at issue here, is two years. (Code Civ. Proc., § 339(1).) The limitations period for a cause of action “ordinarily commences when the obligation or liability arises ….” (Utility Audit Co. v. City of Los Angeles (2003) 112 Cal.App.4th 950, 962.) As applied in the Complaint, for the purpose of determining timeliness, this was deemed to be when Defendants allegedly breached the rental agreement between themselves and Plaintiff for the final time, i.e., on October 30, 2013. Because no tolling or delayed discovery was pleaded, the Court reasoned that with a two-year limitations period, the last permissible date for Plaintiff to file claims based on Defendants’ alleged failure to pay rent was October 30, 2015. Because Plaintiff did not file the Complaint until December 30, 2016, the claims as alleged were time-barred.

With the FAC, Plaintiff maintains that it has sufficiently pleaded around the statute of limitations by alleging facts to support delayed discovery, equitable estoppel and equitable tolling. With regard to the first doctine, the rule of delayed discovery is an exception to the general rule that an action accrues when appreciable harm occurs; the accrual of certain claims is postponed “until the plaintiff discovers, or has reason to discover, the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807.) In order to rely on this rule, “[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. [Citation.] In assessing the sufficiency of the allegations of delayed discovery, the court places the burden on the plaintiff to ‘show diligence’; conclusory allegations will not withstand demurrer.” (Id. at 808.)

Plaintiff asserts that it has properly pleaded facts implicating delayed discovery; however, the Court disagrees. As pleaded in the FAC, delayed discovery is not applicable to Plaintiff’s breach of contract claim because Plaintiff does not allege that it was unaware that Defendants had breached the lease agreement by failing to pay the rent when it was due. It was at this point, i.e., when the rent due was not paid, that the breach of contract claim began to accrue and not, as Plaintiff insists, when Hutchinson discovered that Defendants had no intention of performing their obligations under the lease agreement. Thus, delayed discovery does not render Plaintiff’s breach of contract claim timely.

However, the same cannot necessarily be said for equitable estoppel, the second doctrine utilized by Plaintiff in an effort to plead around the statute of limitations. With this doctrine, the focus is “on the actions of the defendant” and it “looks to the defendant’s representations or other conduct that prevents the plaintiff from suing before the statute of limitations has run. When the [trial court] is satisfied that this has occurred, the defendant will be estopped from pleading a statute of limitations defense.” (Sagehorn v. Engle (2006) 141 Cal.App.4th 452, 460-461.) To establish a basis for equitable estoppel, a plaintiff must plead each of the following elements: (1) the party to be estopped must know the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had the right to believe that it was so intended; (3) the party asserting the estoppel must be ignorant of the true facts; and (4) he must rely upon the conduct to his injury. (Spray, Gould & Bowers v. Associated Internat. Ins. Co. (1999) 71 Cal.App.4th 1260, 1268.) An intent to deceive on the part of the person sought to be estopped is not required, it is “enough of the party has been induced to refrain from using such means or taking such action as lay in his power, by which he might have retrieved his position and saved himself from loss.” (Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 384.) The aforementioned elements must be specially pleaded “with sufficient accuracy to disclose [the] facts relied upon.” (Sofranek v. Merced County (2007) 146 Cal.App.4th 1238, 1250.)

Here, Plaintiff pleads that it was repeatedly advised by Martinez that the arrearage comprised of past rent due would be paid off and that he in fact provided checks as payment towards the amounts due, when in actuality it was never Defendants’ intention to completely pay all of the unpaid rental amounts owed. (FAC, ¶ 13.) Missing from the foregoing are allegations that Defendants intended for their conduct to be relied upon and that that Plaintiff did so rely to its detriment. Based on what has been pleaded, however, the Court believes that Plaintiff can properly plead equitable estoppel, and thus will grant them a final opportunity to do so. Defendants take issue in their reply with whether or not Plaintiff’s reliance on Martinez’s representations was reasonable, but this is a factual question that cannot be resolved on demurrer. (See, e.g., Doheny Park Terrace Homeowners Ass’n, Inc. v. Truck Ins. Exchange (2005) 132 Cal.App.4th 1076, 1098.)

Plaintiff lastly argues that the facts alleged in the FAC support the equitable tolling of the statute of limitations. Equitable tolling applies “occasionally and in special situations” “to soften the harsh impact of technical rules which might otherwise prevent a good faith litigant from having a day in court.” (Addison v. State of California (1978) 21 Cal.3d 313, 319; see also McDonald v. Antelope Valley Community College Dist. (2008) 45 Cal.4th 88, 99.) Equitable tolling “halts the running of the limitations period so long as the plaintiff uses reasonable care and diligence in attempting to learn the facts that would disclose the defendant’s fraud or other misconduct.” The doctrine “focuses primarily on the plaintiff’s excusable ignorance of the limitations period. [It] is not available to avoid the consequences of one’s own negligence.” (Sagehorn v. Engle (2006) 141 Cal.App.4th 452, 460 – 461 [internal citations omitted].)

It requires “a showing of three elements: ‘timely notice, and lack of prejudice, to the defendant, and reasonable and good faith conduct on the part of the plaintiff.’ [Citations.]” (McDonald, supra, 45 Cal.4th at p. 102.) “When a plaintiff relies on a theory of fraudulent concealment, delayed accrual, equitable tolling, or estoppel to save a cause of action that otherwise appears on its face to be time-barred, he or she must specifically plead facts which, if proved, would support the theory.” (Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 641.) Unlike equitable estoppel, where the focus is on the actions of the defendant, equitable tolling is concerned with the plaintiff’s excusable ignorance. (Sagehorn v. Engle, supra, 141 Cal.App.4th at 461, fn. 6.)

Here, there are no allegations concerning timely notice, lack of prejudice, or excusable ignorance on the part of Plaintiff. Moreover, Defendants’ did not conceal their breach of the lease agreement to Plaintiff by failing to timely pay the rent due; they merely said that such payment would be forthcoming. Thus, Plaintiff has not pleaded facts which provide for equitable tolling of the statute of limitations on its breach of contract claim. However, as stated above, the Court will provide Plaintiff with a final opportunity to amend its complaint to render it claims timely based on the doctrine of equitable estoppel. Accordingly, Defendants’ demurrer to the first cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.