HIGH SIERRA PROPERTIES, INC. v. WHITTIER SURGICAL PARTNERS, LLC
CASE NO.: VC058345
HEARING: 04/03/14

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TENTATIVE ORDER

I. Defendant WHITTIER SURGICAL PARTNER’s motion for a protective
order is DENIED. C.C.P. § 2025.420.

Defendant seeks a protective order precluding the deposition of its custodian of records on the ground that all requested documents have been provided to plaintiff, so that the oral deposition is unnecessary. It claims that the deposition would be repetitive, and thus subject defendant to undue burden and expense.

In opposition to the request, plaintiff High Sierra notes that it has examined the documents produced, and that the production raised issues as to whether some responsive documents have been withheld. Specifically, it notes that there were over 1200 pages of emails produced, but very few from the key period of time (February 2010). Additionally, plaintiff contends that defendant has not produced documents responsive to other categories and seeks to explore what may have happened. The Court finds plaintiff has proffered a reasonable justification for the deposition, and thus the motion for a protective order is denied. If defendant contends it has produced all responsive documents, its custodian of records may make that statement during deposition. Plaintiff is entitled to make inquiry as to why certain categories of documents do not exist.

The parties are instructed to meet and confer to set a mutually-agreeable date for the subject deposition to occur no later than April 18, 2014.

II. Defendant LOUIS KANG, M.D.’s motion for summary judgment is
DENIED. C.C.P. § 437c.

In its Second Amended Complaint, plaintiff HIGH SIERRA PROPERTIES, INC. asserts a sole cause of action for fraud against defendant Kang. He seeks summary judgment on the grounds that the claim is barred by the release between the parties and is otherwise devoid of merit.

Defendant Dr. Kang, along with a number of other physicians, was a founding member of Whittier Intercommunity Medical Partnership (“WIMP”), which owned and operated the commercial medical/office building located on Painter Avenue in Whittier. Kang decl. It is undisputed that Kang was a managing member of WIMP during the relevant time periods. SSMF, no. 5.

Defendant WHITTIER SURGICAL PARTNERS (“WSP”) purchased the assets of a prior lessee (nonparty Dr. Mitchell’s corporation Whittier Outpatient Surgery Center, Inc. or “WOSC”) in 2008. Id. Prior to the sale, defendant WSP entered into a sublease of the space in July or August 2007. SSMF, no. 7.

Subsequently, WIMP and WSP entered into a written agreement (“Indemnity Agreement”) in November 2008. Kang decl., Exh. A. The agreement gave WSP the right to offset lease payments by any amount of damage suffered as a result of the inability to collect amount owed to WOSC (with the provision that should WSP recover damages, it would repay WIMP the amount of offsets). Exh. A, sec. 2(a).

Also on November 25, 2008, WIMP and WSP entered into a Lease Agreement for the surgical center space, which had a 7-year term with certain options to renew. Kang decl., Exh. B. The lease provided for annual rent to be paid in monthly installments, along with a term requiring WSP to pay its proportionate share of basic costs.

Sometime in 2008, WIMP placed the property for sale. In June 2009, it prepared an Estoppel Certificate signed by defendant Jeremy Hogue. Kang decl., Exh. D.
The lease is expressly referenced in the Estoppel Certificate, as is the 2008 indemnity agreement.

Ultimately, plaintiff HIGH SIERRA (“HSP”) purchased the property from WIMP in March 2010. Kang decl., Exh. E (purchase agreement). Defendant Kang signed the agreement on behalf of WIMP, Id. Plaintiff’s cause of action for fraud arises out of certain misrepresentations made in connection with the sale.

Waiver and Release as a defense
It is undisputed that the lease agreement contained a provision wherein plaintiff agreed to waive any and all objections to “each and every matter of concern or relevance to Buyer, relating to the property including without limitation the financial…condition and sufficiency of the property.” Exh. E, p. 5, sec. 15. The release also stated that the plaintiff buyer would release the seller and its agents “to the maximum extent permitted by law” from any and all claims, actions, causes of action, damages, etc. that it has or which may arise in the future in any way growing out of or connected with the property condition. Id. “Property condition” was defined as including the financial condition of the property. The waiver also expressly covered rights under Civil Code section 1542 (for unknown claims).

Defendant argues that the fraud cause of action is barred by paragraph 15 of the agreement. Plaintiff, on the other hand, argues that such waiver does not bar fraudulent misrepresentations or omissions as a matter of law. C.C. § 1668; Palmquist v. Mercer (1954) 43 Cal.2d 92; McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784.

Civil Code section 1668 expressly provides that contracts which purport to exempt anyone from responsibility for his own fraud are against public policy, and thus unlawful. As the Court understands the argument, plaintiff is not contending that it signed the release as a result of fraud so that it is entitled to rescission of the agreement but that the release itself does not and cannot protect defendant against a cause of action arising out of its own fraud as a matter of law. Cf San Diego Hospice v. County of San Diego (1995) 31 Cal.App.4th 1048. Defendant has not met its burden of persuasion on the issue of relief and waiver, and his motion for summary judgment on that ground is denied.

Merits of the fraud claim
Defendant seeks summary judgment on the ground that plaintiff cannot substantiate each of the elements of the fraud cause of action. See Conrad v. Bank of America (1996) 45 Cal.App.4th 133.

Defendant argues that the Estoppel Certificate, presented prior to the sale, did not contain a material misrepresentation, as it accurately set forth the rent being paid and had attached the lease which showed that the parties expressly agreed to a rent reduction (tenant allowance) for the first 7 months of the lease period.

Plaintiff contends that defendant misrepresented the existence and validity of the actual leases and the collection of rent on the surgical center. It proffers evidence that defendants were not actually paid under the prior lease until WSP took over in 2007. See Opp., Exh. 7, 8 (indicating the lease under Dr. Mitchell had not been performed during his 5-year leasehold).

Plaintiff also notes that the 2007 sublease called for defendant WSP to make payments to Dr. Mitchell, rather than defendant Kang or WIMP. It contends that there was no basis for defendants to allow Dr. Mitchell, a defaulted tenant, to collect rent. Based on that, evidence that WSP made a $26,000 payment to WOSC in December 2006 and the rent credits received by WSP, plaintiff argues that the sublease to WSP was a fraud designed to mislead a prospective buyer.

Plaintiff argues that the amounts actually received under the first few months of the WSP lease (Motion, Exh. C) do not match the amounts required under the agreement (Motion, Exh. B). Further, WSP received credits which were not mentioned in the lease. Opp., Exh. 20. The amount of the credit evidence by that check equals 4 months of CAM payments under the lease, which shows that the lease, despite being dated in November 2008, did not exist until March 2009. The Court cannot consider the new evidence submitted with the reply on that issue.

Based on the above evidence, and the inferences which can be drawn from the parties’ course of conduct, plaintiff contends that the Estoppel Certificate (and documents attached thereto) failed to disclose the true arrangement between defendant Kang and WSP. Plaintiff contends that the $90,000 payment was never disclosed at all.

Defendant contends that a settlement of the 2008 indemnity agreement provided that WIMP make a one-time payment of $90,000 to WSP. On the other hand, plaintiff proffers a financial statement obtained from WSP which characterizes the $90,000 payment as a $15,000 monthly support. Opp., Exh. 1. Plaintiff notes that WSP remained as a tenant for 6 months after the close of escrow and then vacated without notice. It concludes that defendant paid WSP to stay for 6 months after the sale of the property to plaintiff. Plaintiff also notes that the $90,000 “settlement” appeared unlikely in light of the fact that defendant’s underlying liability appeared to be just over $9,000, for the IRS tax garnishments. Opp. Exh. 16.

Defendant Kang argues he cannot be held liable because the Estoppel Certificate was prepared by tenant WSP, had been approved 9 months prior to the sale and was executed by defendant Jeremy Hogue. As set forth in his declaration, he denies any dealings with WSP on behalf of WIMP. However, the chain of events show that defendant Kang was involved in the relevant lease negotiations and in the sale of the property. It is undisputed that he was defendant WIMP’s managing agent at all relevant times. He is thus charged with the duty to disclose certain facts to plaintiff seller related to the leases and rental income. See e.g. Alfaro v. Community Housing Improvement System & Planning Ass’n, Inc. (2009) 171 Cal.App.4th 1356; Sullivan v. Helbing (1924) 66 Cal.App. 478.

In his reply, defendant argues that plaintiff’s reliance on “smoke and mirrors” is not enough to defeat summary judgment. The Court finds that plaintiff has presented a plausible claim for fraud based upon the terms of the leases and the parties’ performance thereof. That defendant has a counter-explanation for certain events does not entitle it to summary judgment. Resolution of the issues presented is a task properly left to the trier of fact. Accordingly, the motion for summary judgment is denied.