Case Name: Yo, LLC v. Ruth Elly Krucker, et al.
Case No.: 2017-CV-306261

Motion for Summary Adjudication to the Second Amended Complaint by Defendant PA Restaurant Holdings, LLC

Factual and Procedural Background

This action initiated by Yo, LLC (“Plaintiff”) against defendants Ruth Elly Krucker (“Krucker”), PA Venture Holdings, LLC, PA Restaurant Holdings, LLC (“Restaurant”), PA Hotel Holdings, LLC (“Hotel”), and Lawrence Investments, LLC (“Lawrence Investments”) (collectively, “Defendants”) arises out of a real estate transaction.

According to the allegations of the Second Amended Complaint (“SAC”), Krucker owned real estate located on 620 Emerson Street in Palo Alto, California (“Subject Property”). (SAC, ¶ 14.) On February 26, 2013, Plaintiff and Krucker executed a contract, pursuant to which Plaintiff would purchase the Subject Property (the “Contract”). (Id. at ¶ 15.) According to the terms of the Contract, Plaintiff deposited $50,000 with First American Title Company, which included a $100 nonrefundable deposit for the escrow to remain open pending sale. (Id. at ¶ 16.)

While escrow was pending, questions arose regarding whether Krucker had sole legal title to the Subject Property. (SAC, ¶ 22.) This is because Krucker’s husband, Adolph Konigsreiter (“Konigsreiter”), made claims of ownership and a deed recorded out of the chain of title created a cloud on the Subject Property. (Ibid.) To resolve those questions, the parties entered into the fifth addendum to the Contract in November 2013 (“Addendum 5”), requiring Krucker at her own cost to clear her title of any competing claims. (Id. at ¶¶ 25, 27.) Escrow was rescheduled to close no later than thirty days after Plaintiff’s receipt of written notification from First American Title Company that Krucker had complied with all of the requirements of Paragraph B of Addendum 5, including Krucker’s receipt of a final court order quieting title. (Id. at ¶ 27.)

On June 19, 2014, Krucker filed a quiet tile action against Konigsreiter in Santa Clara County Superior Court (“Quiet Title Action”). (SAC, ¶ 28.) In addition, Krucker filed and recorded a Notice of Pendency of Action in Santa Clara County on January 12, 2015 as Document No. 22825495 (“2015 Lis Pendens”), in connection with the Quiet Title Action. (Ibid.)

A court trial occurred in the Quiet Title Action in June 2016. (SAC, ¶ 29.) Following trial, the court entered judgment confirming the Krucker Trust as the sole owner of the Subject Property. (Ibid.) The judgment became final as to all parties except Konigsreiter who filed an appeal which remains pending before the Court of the Appeal for the Sixth District. (Ibid.)
During the months of July, August, and September 2015, the Hotel negotiated and purchased the ground lease for the Epiphany Hotel from Casa Olga, located immediately adjacent to the Subject Property. (SAC, ¶ 30.) At the same time, Lawrence Investments, through its representative, Paul Marinelli, began attempting to secure a lease for the Subject Property in conjunction with its anticipated operation of the Epiphany Hotel and so it could open a restaurant. (Ibid.)

On November 20, 2016, Krucker and Restaurant entered into a purchase agreement for the purchase and sale of the Subject Property for a price of $4.25 million. (SAC, ¶ 37.) The sale under the purchase agreement between Krucker and Restaurant closed on January 26, 2017, by deed recorded in Santa Clara County as Document No. 23568560. (Id. at ¶ 38.) The next day, counsel on behalf of the Restaurant wrote to Plaintiff and informed Plaintiff’s manager that it was his belief that the Contract between Plaintiff and Krucker was not enforceable. (Id. at ¶ 39.) Up until that day, Plaintiff was not aware that Krucker was in negotiations to sell the Subject Property to any person or entity or that Krucker had executed a purchase agreement in favor of the Restaurant. (Id. at ¶ 41.)

However, at the time the Restaurant received title, there existed of record against the Subject Property the 2015 Lis Pendens, which made specific reference of the existence of the Contract between Krucker and Plaintiff. (SAC, ¶ 42.) The 2015 Lis Pendens has not been withdrawn and still constitutes a lien against the Subject Property, and references the Krucker Quiet Title Complaint in which Krucker acknowledges her Contract with Plaintiff. (Ibid.)

On November 17, 2017, Plaintiff filed the operative SAC setting forth the following causes of action: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) fraudulent concealment; (4) intentional misrepresentation; (5) negligent misrepresentation; (6) inducing breach of contract; (7) intentional interference with contractual relations; and (8) declaratory relief.

On April 9, 2018, Defendants filed their Answer to the SAC alleging various affirmative defenses.

Motion for Summary Adjudication

Currently before the Court is defendant Restaurant’s motion for summary adjudication to the seventh cause of action. (Code Civ. Proc., § 437c, subd. (f).) Plaintiff filed written opposition, a request for judicial notice, and objections to evidence. Restaurant filed reply papers along with a request for judicial notice. No trial date has been set.

Plaintiff’s Request for Judicial Notice

In opposition, Plaintiff requests judicial notice of various recorded documents (Exhibits 2 and 6) and court records in this action and related actions (Exhibits 1, 3, 4, 5, 7, and 8). With respect to Exhibits 2 and 6, the Court may take judicial notice of these recorded documents under Evidence Code section 452, subdivision (h). (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265 [disapproved on other grounds in Yvanova v. New Century Morg. Corp. (2016) 62 Cal.4th 919].) The Court may also take judicial notice of Exhibits 1, 3, 4, 5, 7, and 8 under Evidence Code section 452, subdivision (d) as they constitute records of the superior court and Court of Appeal. (See Stepan v. Garcia (1974) 43 Cal.App.3d 497, 500 [the court may take judicial notice of its own file].) Furthermore, the request appears relevant to issues raised in the motion for summary adjudication. (See Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [judicial notice is confined to those matters which are relevant to the issue at hand].)

Accordingly, the request for judicial notice is GRANTED.

Restaurant’s Request for Judicial Notice

In reply, defendant Restaurant seeks judicial notice of a Grant Deed to establish that Ursula Flueckiger (“Flueckiger”) has an ownership interest in the Subject Property. However, whether Flueckiger has an ownership interest in the property remains a disputed factual issue for reasons stated below. Therefore, judicial notice of the Grant Deed under such circumstances would be improper. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366 [trial court could not take judicial notice of disputed facts in recorded documents].)

Accordingly, the request for judicial notice is DENIED.

Plaintiff’s Evidentiary Objections

In opposition, Plaintiff objects to paragraphs 4 and 12 in Krucker’s Declaration submitted in support of the motion for summary adjudication. The Court finds the objections lack merit and thus OVERRULES the objections.

Legal Standard

“A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Code Civ. Proc., § 437c, subd. (f)(1).) The moving party “bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if [the moving party] carries [its] burden of production, [it] causes a shift, and the opposing party is then subjected to a burden of production of [its] own to make a prima facie showing of the existence of a triable issue of material fact…. A prima facie showing is one that is sufficient to support the position of the party in question.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851, fn. omitted.)

Seventh Cause of Action: Intentional Interference with Contractual Relations

The seventh cause of action is a claim for intentional interference with contractual relations. “[T]he elements of a cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Savage v. Pacific Gas & Electric Co. (1993) 21 Cal.App.4th 434, 448.)
In determining the issues that a motion for summary judgment (or summary adjudication) must address, courts look to the pleadings. The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues and to frame the outer measure of materiality in a summary judgment proceeding. (FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 381.)
The seventh cause of action alleges Plaintiff and Krucker entered into a valid and enforceable Contract for the purchase and sale of the Subject Property. (SAC, ¶ 93.) Plaintiff alleges the Restaurant and other defendants had knowledge of the Contract and intended to disrupt Krucker’s performance of the Contract. (Id. at ¶¶ 94-95.) Plaintiff claims that, within the past two years, the Restaurant and other defendants prevented Krucker from performing under the Contract, or alternatively made such performance more expensive or difficult. (Id. at ¶ 96.) As a result of defendants’ conduct, Plaintiff has been damaged in an amount in excess of $25,000. (Id. at ¶ 97.)

The sole issue raised on the motion for summary adjudication is there is no valid and enforceable agreement to support a claim for intentional interference with contractual relations.
The tort of interference with contractual relations protects an existing, formally cemented economic relationship. (PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579, 601 [disapproved on another ground in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1159, fn. 11].) Thus, a cause of action for intentional interference with contract requires an underlying enforceable contract. (Ibid.) Where there is no existing, enforceable contract, there is only a claim for interference with prospective economic advantage. (Ibid.)

The Restaurant directs its motion for summary adjudication to the Contract between Plaintiff and Krucker for purchase and sale of the Subject Property. Section 9.1 of the Contract provides in relevant part:

“The Closing of this transaction is contingent upon the satisfaction or waiver of the following contingencies. IF BUYER FAILS TO NOTIFY ESCROW HOLDER, IN WRITING, OF THE DISAPPROVAL OF ANY OF SAID CONTINGENCIES WITHIN THE TIME SPECIFIED THEREIN, IT SHALL BE CONCLUSIVELY PRESUMED THAT BUYER HAS DISAPPROVED SUCH ITEM, MATTER OR DOCUMENT.”

(See Declaration of Charles M. Schaible at Exhibit C.)

According to the undisputed evidence, under Section 9.1 of the Contract, the last date for Plaintiff to approve or disapprove its contingencies was April 17, 2013. (See Restaurant’s Separate Statement of Undisputed Facts at No. 16.) The Restaurant argues that Plaintiff never notified the escrow holder, in writing, of its disapproval of any of the contingencies set out in Section 9.1 of the Contract. (Id. at No. 17.) Instead, the Restaurant claims Plaintiff did not approve the contingencies set out in Section 9.1 (a) – (k) of the Contract until October 17, 2013. (Id. at No. 18.) Because Plaintiff failed to timely clear its contingencies, the Restaurant asserts the Contract terminated and thus no cause of action for interference can be established.

Defendant Restaurant does not identify any specific portion of the agreement which requires termination of the Contract in the event that Plaintiff fails to approve or disapprove any contingencies. Instead, Restaurant argues the Contract terminated as Plaintiff failed to satisfy a condition precedent within the time provided in the agreement. In support, Restaurant relies on Beverly Way Associates v. Barham (1990) 226 Cal.App.3d 49 (Beverly Way) where the appellate court held that the buyer’s communicated rejection of the condition precedent to its obligation to purchase terminated the contract. In doing so, the court stated:

“This case presents a single principal issue for resolution. It is whether, in a contract for the sale of real estate, the buyer’s communicated rejection of a ‘satisfaction’ condition precedent to its obligation to purchase terminates the contract so that the buyer cannot later waive the condition and enforce the agreement. We conclude that it does.”
(Id. at p. 51.)

Based on Beverly Way, Restaurant argues that Plaintiff’s untimely approval of contingencies on October 17, 2013 effectively terminated the agreement and thus there is no legal basis to maintain a claim for interference. However, the appellate court’s decision to terminate the agreement in Beverly Way appears to be based, at least in part, on the fact that there was no contrary agreement to consider. On this point, the appellate court states “[a]bsent a contrary agreement, the legal effect of that act was to terminate the contract. The verified pleading contains no suggestion of a contrary agreement, and none is presented to us in the argument of the parties.” (Beverly Way, supra, 226 Cal.App.3d at p. 57.)

Conversely, the Contract in this action includes separate agreements in the form of Addendums 3, 4, and 5. (See Plaintiff’s Additional Facts at Nos. 5, 6, 7, 8.) Addendum 3 provides that “the contingency periods to approve or disapprove all contingencies under section 9.1 (a) through (k) shall be extended until a Title Commitment letter is received by Buyer from First American Title Company.” (Id. at No. 5.) Addendum 4 states “[b]uyer and seller herein agree that the close of escrow shall be extended until probate independent administration can be finalized by title.” (Id. at No. 6.) Finally, Addendum 5 extended the close of escrow until such time as seller can deliver clear title to the Subject Property. (Id. at No. 8.)

In support of Addendums 3, 4, and 5, Plaintiff alleges the following:

“To the extent that any contingency in the Emerson Purchase Agreement was not timely removed, Krucker acted inconsistently with a claim that the agreement terminated but instead demonstrated an unequivocal desire to proceed with the transaction, executing addenda confirming the continuation and extension thereof. Therefore any objection that such contractual contingency was not timely removed was waived, and Krucker is estopped from denying the existence and validity of the agreement with Plaintiff. Sabo v. Fasano (1984) 154 Cal.App.3d 502.”
(SAC, ¶ 47.)

Here, at a minimum, any alleged deficiency by Plaintiff to waive or satisfy its contingencies was removed when Plaintiff and Krucker executed Addendums 3, 4, and 5. By doing so, it appears the parties intended to continue the contingency period so as to provide a contractual means by which Krucker could provide clear title in Plaintiff’s favor. It is worth noting that defendant Restaurant fails to even address Addendums 4 and 5 in its moving papers. With respect to Addendum 3, defendant Restaurant argues that it was untimely as it was executed by Plaintiff on April 20, 2013 which is after the Contract expired on April 17, 2013. (See Memo of P’s & A’s at p. 17:8-19.) This argument is not persuasive as execution of Addendum 3 evidences an intent to waive the existing time period in favor of extending time for Plaintiff to approve or disapprove contingencies set forth in the Contract.

In the alternative, defendant Restaurant contends Addendum 3 is not effective as it was only signed by Krucker, not Flueckiger. Both Krucker and Flueckiger are identified as Seller and Landlord for purposes of Addendum 3. Plaintiff however presents evidence showing that Flueckiger did not have any ownership interest in the Subject Property. For example, Plaintiff submits Flueckiger’s own deposition testimony where she testified that she believed Krucker was the owner of the Subject Property. (See Declaration of Nicolas A. Flegel at Exhibit H [Flueckiger Depo at pp. 6:8-7:5].) In addition, Plaintiff’s real estate broker, Samir Arsan (“Arsan”), provides a declaration under penalty of perjury stating that Krucker, as “managing partner,” was authorized to sign all agreements on behalf of Sellers of the Subject Property, and that Flueckiger’s signature was not required on the Addendum. (See Arsan Declaration at ¶ 5, Exhibit B.) Given Plaintiff’s evidence, a trier of fact may conclude that Addendum 3 is enforceable as only Krucker was authorized to sign on behalf of the Sellers. In any case, whether Flueckiger did in fact have an ownership interest in the Subject Property is an issue that cannot be resolved on summary adjudication.

Finally, Plaintiff has produced evidence showing, as late as March 4, 2015, that Plaintiff and Krucker had a valid and enforceable agreement. (See Declaration of Nicolas A. Flegel at Exhibit E.) Defendant Restaurant did not provide objections to any of the evidence submitted by Plaintiff in opposition. The Court therefore finds that Plaintiff’s evidence raises a triable issue of fact on whether there is a valid and enforceable agreement to support the seventh cause of action.

Disposition

The motion for summary adjudication is DENIED.

The Court will prepare the Order.