Case Name: Lawrence Commercial Center, LLC v. Wong, et al.
Case No.: 2014-1-CV-273829

Defendants/cross-complainants/cross-defendants Cheng & Neiman, LP and Ken Ping Cheng (“Cheng”) (collectively, Cheng & Neiman”) demur to the cross-complaint (“Cross-Complaint”) filed by defendants/cross-defendants/cross-complainants Altos Enterprises, Inc. dba Alpha Investments and Albert Wang (“Wang”) (collectively, “Alpha”).

I. Factual and Procedural Background

This an action for breach of contract, negligence, and indemnity arising out of a property dispute. According to the allegations of the underlying fourth amended complaint (“4AC”), plaintiff Lawrence Commercial Center, LLC (“Plaintiff”) is the owner of certain real property and improvements located at 510, 520 and 528 Lawrence Expressway in Sunnyvale (the “Property”). (4AC, ¶ 1 and Exhibit A.) The Property was previously owned by defendants Cheng & Neiman, a limited liability partnership in which defendant Cheng was the general partner. (Id., ¶ 2.) In January 2013, Cross-Complainants listed the Property for sale using SRS Real Estate Partners (“SRS”) and defendant Alpha Investments and Property Management Company (“Alpha”) as the listing brokers. (Id., ¶ 11.) As part of the sales process, SRS and Alpha prepared advertising materials which stated that there were 246 parking spaces on site and that there were an additional 41 spaces based on a cross-easement with the neighbor. (Id., ¶ 12 and Exhibit C.) Defendants sold the Property to Charles Tzeng (“Tzeng”), who subsequently assigned his interest to Plaintiff. (Id., ¶¶ 13-15.)

On August 19, 2013, SRS and Alpha forwarded disclosures, property information, and a “Property Information Sheet” to Tzeng. (4AC, ¶ 16 and Exhibits E, F and G.) In these materials, Defendants did not disclose that the owner of the Neighboring Property or its tenants used the parking spots and indicated that there were no unrecorded matters that would affect title. (Id.) Upon reviewing the Property, Tzeng noticed that there were less than 246 parking spaces on the Property as compared to what was represented in the sales materials. (Id., ¶ 17.) Tzeng questioned Alpha and SRS regarding this discrepancy on September 27, 2013 and was told that there were 59 additional spots for use on the Neighboring Property and that he had an exclusive easement for their use. (Id., ¶ 17 and Exhibit H.) Plaintiff alleges that the easement is not in fact exclusive because the neighboring owner and/or his tenants are improperly using the additional parking spaces. (Id., ¶ 24.)

On December 11, 2015, Plaintiff filed the 4AC (the “Underlying Action”) asserting the following causes of action: (1) quiet title (against Manton Wong); (2) breach of contract (against Defendants); (3) permanent injunction and damages (against Manton Wong); (4) negligence (against Alpha); (5) negligence (against Alpha, Albert Jun-Ren Wang, Robert Quigley and SRS); and (6) failure to disclose (against Defendants). In March 2016, Defendants/cross-defendants SRS Real Estate Partners-Northwest LP (“SRS”) and Robert Quigley’s (“Quigley”) (collectively, the “SRS Defendants”) demurrer to the sole cause of action asserted against them for negligence was sustained without leave to amend.

On December 8, 2017, Alpha filed the Cross-Complaint that is the subject of the instant motion, seeking indemnification from Cheng & Neiman pursuant to the written property management agreement (the “Management Agreement”) entered into between it and Cheng & Neiman. In the Management Agreement, Cheng & Neiman is identified as ‘Owner,” Cheng as the “General Partner for the Owner,” Alpha as the “Manager” and Wang as the “President for the Manager.” (Cross-Complaint, ¶ 10.) Alpha alleges that it is entitled to full defense and indemnity from Cheng & Neiman to those claims asserted against it in the underlying complaint because said claims arise from services rendered for the benefit of the Property, thereby coming within the scope of the indemnity provision contained in the Management Agreement. (Id.) Alpha further alleges that it is entitled to defense and indemnity from Cheng & Neiman pursuant to the Broker Agreement described above because the plaintiff’s claims also come within the scope of the indemnification provision contained in that agreement. (Cross-Complaint, ¶ 11.)

Based on the foregoing allegations, Alpha asserts the following causes of action: (1) equitable indemnity; (2) total indemnity; (3) contribution; (4) express indemnity; (5) breach of contract (count one); (6) breach of contract (count two); (7) declaratory relief (count one) re; duty to indemnity; (8) declaratory relief (count one) re: duty to defend; (9) declaratory relief (count two) re: duty to indemnify; and (10) declaratory relief (count two) re: duty to defend. On February 14, 2018, Cheng & Neiman filed the instant demurrer to each of the 10 causes of action asserted in the Cross-Complaint on the ground of failure to state facts sufficient to constitute a cause of action and to the fifth and sixth causes of action on the additional ground of uncertainty. (Code Civ. Proc., § 430.10, subds. (e) and (f).) Alpha opposes the motion.

II. Demurrer

As a threshold matter, Cheng & Neiman’s demurrer on the ground of uncertainty is easily disposed of, as a demurrer on this ground is generally disfavored and lies only where the pleadings are so unintelligible that the defendant cannot reasonably respond to the allegations contained therein. (Se Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616 [“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures”].) Nothing in the Cross-Complaint can properly be characterized as “unintelligible,” with the nature of Alpha’s claims against Cheng & Neiman relatively straightforward. Accordingly, Cheng & Neiman’s demurrer to the fifth and sixth causes of action on the ground of uncertainty is OVERRULED.

Cheng & Neiman first assert that Alpha’s fourth (express indemnity) and fifth (breach of contract) causes of action fail to state facts sufficient to constitute a cause of action because: (1) Alpha fails to specifically state when and how the subject contract was breached, and (2) per its terms, the indemnification provision contained in the Management Agreement only covers Alpha’s duties as a property manager and not as a listing sales agent, the latter of which gave rise to the claims asserted against Alpha in the underlying action for which it seeks indemnification from Cheng & Neiman.

With regard to the first argument, in order to state a claim for breach of contract, a plaintiff must plead the following elements: (1) the existence of a contract; (2) the plaintiff’s performance or excuse for nonperformance; (3) the defendant’s breach; and (4) damages to the plaintiff as a result of the breach. (CDF Firefighters v. Maldonado (2008) 158 Cal.App.4th 1226, 1239.) Alpha adequately pleads these elements in the Cross-Complaint by alleging the following: (1) the existence of an agreement between itself and Cheng & Neiman, specifically the Management Agreement (Cross-Complaint, ¶¶ 9, 30); (2) Alpha’s full performance under that agreement (Cross-Complaint, ¶ 32); (3) Cheng & Neiman’s failure to fully perform under the agreement, i.e., indemnify and defend Alpha in the underlying action, thereby breaching it (Cross-Complaint, ¶¶ 9, 34); and (4) Alpha has suffered damages as a result of Cheng & Neiman’s breach of the Management Agreement (Cross-Complaint, ¶¶ 35, 36). Cheng & Neiman nevertheless insists that Alpha has not sufficiently pleaded a claim for breach of contract, arguing that the Management Agreement is not valid or relevant in substance to the claims in the underlying action and has been superseded by the Broker Agreement. In making this argument, Cheng & Neiman direct the Court’s attention to a copy of the Management Agreement attached as “Exhibit A” to the meet and confer declaration of its counsel filed in support of the demurrer.

Cheng & Neiman’s attachment of and reliance on the Management Agreement at this stage of the proceedings is wholly problematic. As Alpha notes in its opposition, a demurrer is limited to defects that appear on the face of the pleading under attack or from matters outside the pleadings that are judicially noticeable; no other extrinsic evidence can be considered. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) The Management Agreement is not submitted as part of a request for judicial notice, but even if it was, it is not a proper subject of judicial notice under Evidence Code sections 451 and 452. Thus, to the extent that Cheng & Neiman’s argument rests on consideration of the Management Agreement and its contents, and a determination of whether the indemnification provision has been triggered, it is without merit at this juncture.

Cheng & Neiman additionally argue that the fifth cause of action for breach of contract is deficient because Alpha has not set forth the specific amount of monetary damages that it is seeking as provided by Code of Civil Procedure section 425.10, subdivision (a)(2), which states that: “A complaint or cross-complaint shall contain … [a] demand for judgment for the relief to which the pleader claims to be entitled. If the recovery of money or damages is demanded, the amount demanded shall be stated.” While it is true that Alpha’s prayer does not contain the foregoing information, a defective prayer is not identified by statute as a ground for demurrer. (See Code Civ. Proc., § 430.10.) In fact, case law has held that a demurrer will not lie for a defective prayer. (Greenup v. Rodman (1986) 42 Cal.3d 822, 826; see also Carney v. Simmonds (1957) 49 Cal.2d 84, 96 [“the prayer does not destroy an otherwise sufficiently stated cause of action”]; Berg v, Investors Real Estate Loan Co. (1962) 207 Cal.App.2d 808, 815 [“it is elementary that the prayer is no part of the statement of the cause of action”].) Thus, Cheng & Neiman’s assertion that the breach of contract claim is deficient because a specific amount of damages has not been identified is without merit.

Next, Cheng & Neiman assert that Alpha’s sixth (breach of contract) and fourth (express indemnity) causes of action fail because there is no allegation that a duty to indemnify has been triggered. These claims are predicated on the Management Agreement and the Broker Agreement (fourth cause of action) and the Broker Agreement (sixth cause of action). In the fourth cause of action, Alpha pleads that the claims asserted by plaintiff against it in the underlying action are “alleged to arise out the ownership, management, occupancy, and use of the Property, and are alleged to arise out of misrepresentations and failure to disclose by [Cheng & Neiman],” and that pursuant to the terms of the Management and the Broker Agreement, Cheng & Neiman therefore has a duty to indemnify and defend it in this action. (Cross-Complaint, ¶¶ 23-25.)

Cheng & Neiman maintain that per the terms of the indemnification clause contained in the Broker Agreement, their duty to defend and indemnify Alpha is triggered only if they had misrepresented or failed to disclose facts relating to the Property, and there are no allegations that it committed such acts. However, as per the language quoted above, Alpha specifically pleads as much, alleging that the claims asserted against it arise out of “misrepresentations and failure to disclose by [Cheng & Neiman]” relating to the Property. (Cross-Complaint, ¶¶ 23-25.) Thus, Cheng & Neiman’s assertion clearly lacks merit. Further, because this claim is predicated on two separate agreements, and a demurrer does not lie to only part of a cause of action (see PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682), even if Cheng & Neiman’s argument was meritorious, it would not address the portion of this cause of action predicated on the indemnification provision in the Management Agreement and thus would not constitute a basis upon which to sustain the demurrer. The indemnification provision contained in the Management Agreement is alleged to be triggered where claims asserted against Alpha arise from services rendered by it for the benefit of the Property (Cross-Complaint, ¶ 12); by pleading that the claims asserted against it by plaintiff “arise out of the ownership, management, occupancy, and use of the Property (Cross-Complaint, ¶ 23), Alpha has alleged that the indemnification provision contained in the Management Agreement has been triggered. Consequently, the claim for express indemnity has been sufficiently pleaded.

Also sufficiently pleaded is Alpha’s claim for breach of the Broker Agreement, based on allegations that: (1) the parties entered into the Broker Agreement for the management of the Property (Cross-Complaint, ¶¶ 11, 38); (2) Alpha fully performed under the agreement (Cross-Complaint, ¶ 40); (3) Cheng & Neiman breached the Broker Agreement by failing to defend and indemnify Alpha against the allegations set forth in the underlying complaint by the plaintiff (Cross-Complaint, ¶ 42); and (4) Alpha suffered damages as a result of Cheng & Neiman’s breach of the Broker Agreement (Cross-Complaint, ¶ 43). Accordingly, Cheng & Neiman’s assertions to the contrary are without merit.
Based on the foregoing analysis, Cheng & Neiman’s demurrer to the fourth, fifth and sixth causes of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

Cheng & Neiman next maintain that Alpha’s first (equitable indemnity) and second (total indemnity) causes of action fail to state facts sufficient to constitute a cause of action because Alpha has alleged the existence of express indemnification provisions in agreements entered into between the parties and thus cannot plead claims for indemnification based on equity.

As Cheng & Neiman espouse in its supporting memorandum, under California law, the obligation of indemnity arises from either of two general sources: “[f]irst, it may arise by virtue of express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances. Second, it may find its source in equitable considerations brought into play either by contractual language not specifically dealing with indemnification or by the equities of the particular case.” (E.L. White, Inc. v. The City of Huntington Beach (1978) 21 Cal.3d 497, 506.) “Within the limitations of the language used, however, an express indemnity clause is accorded a certain preemptive effect, displacing any implied rights which might otherwise arise within the scope of its operation.” (Id. [emphasis added].) Thus, when parties have utilized an express contractual provision to establish a duty in one party to indemnify the other, “the extent of that duty must be determined from the contract and not from the independent doctrine of equitable indemnity.” (Id., at 508 [emphasis added].)

Given the fact that express indemnity clauses between the parties are alleged to exist, the Court agrees with Cheng & Neiman that such clauses have the effect of precluding Alpha from relying on the independent doctrine of equitable indemnity. (E.L. White, Inc., supra, 21 Cal.3d at 506-508.) Alpha insists that if neither of the indemnity provisions at issue here are found to have been triggered by plaintiff’s claims in the underlying action, then it would still be able to seek equitable indemnity against Cheng & Neiman. This assertion, however, ignores the applicable case law, which holds that where parties have elected to use an express contractual provision to establish the duty in one to indemnify the other, “the extent of that duty must be determined from the contract and not from the independent doctrine of equitable indemnity.” (Id., at 508 [emphasis added].) Consequently, Cheng & Neiman’s demurrer to the first and second causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

Cheng & Neiman’s demurrer to the third cause of action (contribution) on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED. While Cheng & Neiman demur to this cause of action, they offer no argument or explanation in support of their contention that the claim is deficient.

Lastly, Cheng & Neiman assert that Alpha’s remaining claims (seventh, eighth, ninth and tenth) for declaratory relief all fail to state facts sufficient to constitute a cause of action for several reasons. First, it argues that these claims have not been stated because Alpha’s underlying claims for indemnification and breach of contract are themselves insufficiently pleaded. For the reasons articulated above, this contention is unavailing.

Second, Cheng & Neiman argue that because the issues raised by the declaratory relief claims will be resolved by the preceding causes of action, these claims must be dismissed. The Court finds this argument to be persuasive because the other claims in this action, particularly the breach of contract claims predicated on the Management Agreement and the Broker Agreement, squarely address the issue of whether Cheng & Neiman’s duties to defend and indemnify have been triggered by the claims asserted against Alpha in the underlying complaint by the plaintiff, which is precisely what the declaratory relief claims seek to determine. “The declaratory relief statute should not be used for the purpose of anticipating and determining an issue which can be determined in the main action. The object of the [declaratory relief] statute is to afford a new form of relief where needed and not furnish a litigant with a second cause of action for the determination of identical issues.” (California Ins. Guarantee Assn. v. Superior Court (1991) 231 Cal.App.3d 1617, 1623-1624 [internal quotations and citations omitted]; see also Pacific E. R. Co. v. Dewey (1949) 95 Cal.App.2d 69, 71 [stating that declaratory relief is “usually unnecessary where an adequate remedy exists under some other form of action”].) Consequently, Cheng & Neiman’s demurrer to the seventh, eighth, ninth and tenth causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.