Case Name: LouBar, LLC v. Barbaccia Properties Holdings, LLC, et al.
Case No.: 2011-1-CV-211815

(1) Vivian Martorana, as Trustee and Catherine Pecoraro’s Demurrer to Amendment to Cross-Complaint
(2) Cross-Defendant LouBar, LLC, and Louis Barbaccia, Sr.’s, Demurrer to Cross-Complainants GBR Magic Sands MHP, LLC’s Cross Complaint and Amendment to Cross-Complaint

Factual and Procedural Background

On March 28, 2017, cross-complainants GBR Magic Sands MHP, LLC and MHP Roll-Up, LLC (“Cross-Complainants”) filed and served their cross-complaint in this action. The cross-complaint alleges the original ownership of a 20 acre parcel of real property in Santa Clara County belonging 50% to the parents of Cyril G. Barbaccia and Louis P. Barbaccia (“Parents”) and 50% to Cyril G. Barbaccia (“Cy”) and Louis P. Barbaccia (“Lou”). (Cross-Complaint, ¶16.) In 1963, Parents leased their undivided 50% interest to Cy and Lou for a term of 98 years (“1963 Lease”) giving Cy and Lou full possession of the 20 acre parcel. (Id.) The 20 acre parcel became an integral part of a 56 acre mobile home park known as Magic Sands Mobile Home Park (“Magic Sands”) developed by Cy and Lou. (Cross-Complaint, ¶¶1 and 16.)

In 1967, Cy and Lou formed a company called Magic Sands Mobile Community (“MSMC”) to operate Magic Sands. (Cross-Complaint, ¶17.) As outright owners of a 50% undivided interest in the 20 acre parcel and as tenants under the 1963 Lease, Cy and Lou leased and subleased their interest in the 20 acre parcel to MSMC. MSMC obtained possession of the 20 acres. (Id.) Cy and Lou acted as partners in the operation of Magic Sands. (Cross-Complaint, ¶16 – 17.)

As a result of a condemnation action in or around 1971, certain property was removed from the original 20 acre parcel and two parcels (Parcel 3 and Parcel 8) were added. (Cross-Complaint, ¶16.) Following condemnation and the addition of parcels 3 and 8, the parties refer to the property as the “current 20 acre parcel.”

Following Parents’ death and a subsequent purchase by Cy, fee interest ownership in the 20 acre parcel was as follows:

Cy – 3/16
Lou – 1/8
Josephine Pecoraro (Lou’s sister) – 1/8
Catherine Pecoraro (Lou’s niece) – 1/16
Cy – 1/4
Lou – 1/4

(Cross-Complaint, ¶¶1 and 18.)

Following Parents’ death, the 1963 Lease was a valuable asset for MSMC because of the below-market rent. (Cross-Complaint, ¶19.)

In 2005, Lou and his spouse, Eva, sought to dissolve the Barbaccia Properties partnership and force a sale of Magic Sands. (Cross-Complaint, ¶20.) The parties to the partnership dissolution proceeding agreed the Magic Sands business would be auctioned, including the 1963 Lease. (Id.) Cy was the highest bidder at over $50 million. (Id.) Lou and Eva sold their interest in the Magic Sands partnership for approximately $18.5 million, an amount substantially enhanced by the value of the below market rent 1963 Lease. (Id.) In order to finance the purchase of Magic Sands, the lender required the new owners (predecessors to cross-complainant MHP Roll-Up, LLC) of the 50% undivided interest in the 20 acre parcel previously owned by Cy and Lou to provide two ground leases (“2007 Leases”) of the 50% undivided interest in the 20 acre parcel to the predecessors of cross-complainant GBR Magic Sands MHP, LLC (“GBR”). (Cross-Complaint, ¶¶21 – 22.) Financing and sale of Magic Sands closed in April 2007. (Cross-Complaint, ¶22.)

After Lou received pay-out from the sale of Magic Sands, Lou and the Pecoraros initiated a partition action over the fee ownership of the 20 acre parcel. (Cross-Complaint, ¶24.) The partition action resulted in a supervised auction in November 2010. (Id.) Sale of the fee ownership was made expressly subject to the 1963 Lease and 2007 Leases. (Id.) Lou and Pecoraros were the highest bidders at $5,050,000 which reflected the fact that the 1963 Lease and 2007 Leases had remaining terms of approximately 50 years, significantly encumbering the fee interest in the 20 acre parcel. (Cross-Complaint, ¶¶24 – 25.) Following this sale, fee interest ownership in the 20 acre parcel was as follows:

LouBar – 11/16
Lou – 2/16
Josephine Pecoraro – 2/16
Catherine Pecoraro – 1/16

On the same day the partition action took place, the Pecoraros filed an action to cancel the 1963 Lease. (Cross-Complaint, ¶26.) The action went to trial resulting in a judgment cancelling the 1963 Lease, later affirmed on appeal (Cross-Complaint, ¶¶26 and 28.)

In 2011, LouBar filed the instant action to cancel the 2007 Leases. After sustaining a demurrer and granting a motion for judgment on the pleadings, the court in this action issued a judgment in favor of U.S. Bank finding LouBar cannot cancel the 2007 Leases. (Cross-Complaint, ¶27.) LouBar appealed but the judgment was affirmed. (Id.)

The cross-complaint asserts causes of action for:

(1) Quasi Contract/ Unjust Enrichment
(2) Money Had and Received
(3) Quantum Meruit/ Reasonable Value of Services, Goods and Improvements Provided
(4) Declaratory Relief Regarding Possession and Rents
(5) Declaratory Relief Regarding 2007 Leases
(6) Reformation

On April 26, 2017, cross-defendants LouBar, LLC and Louis Barbaccia, Sr.’s (collectively, “LouBar”) filed a special motion to strike the first through third causes of action of the cross-complaint. On April 27, 2017, cross-defendants Vivian Martorana and Catherine Pecoraro (collectively, “Pecoraros”) filed a special motion to strike the first through fourth causes of action of the cross-complaint.

On April 28, 2017, Cross-Complainants filed a request for dismissal of the first through third causes of action of the cross-complaint as to the Pecoraros.

On May 4, 2017, Cross-Complaints filed a first amended cross-complaint (“FAXC”).

On May 10, 2017, the parties appeared on the court’s ex-parte calendar where cross-defendants LouBar, joined by cross-defendant Pecoraros, made an application to dismiss the FAXC. The court scheduled hearing on the application to dismiss for June 8, 2017 to be heard concurrently with the cross-defendants’ special motions to strike.

On June 8, 2017, the court issued an order dismissing the FAXC without prejudice, granting the Pecoraros’ special motion to strike the fourth cause of action of the cross-complaint, and granting LouBar’s special motion to strike the first through third causes of action of the cross-complaint.

On June 28, 2017, Cross-Complainants filed a Notice of Appeal of the court’s June 8, 2017 order.

Pursuant to stipulation, the court issued an order on September 11, 2017, allowing Cross-Complainants to file an amendment to the cross-complaint.

On September 15, 2017, Cross-Complainants filed an amendment to their cross-complaint. The amendment adds the following two causes of action:

(7) Declaratory Relief Re Property Covered by 2007 Leases
(8) Quiet Title Re Property Covered by 2007 Leases

On October 20, 2017, cross-defendants Pecoraros filed one of two motions now before the court, a demurrer to the sixth cause of action of the cross-complaint and the seventh and eighth causes of action to the amendment to cross-complaint. On the same date, cross-defendants LouBar filed the second motion now before the court, a demurrer to the fifth and sixth causes of action of the cross-complaint and the seventh and eighth causes of action of the amendment to cross-complaint.

II. Requests for judicial notice.

In support of and in opposition to the various motions, Cross-Complainants and cross-defendants request judicial notice of various court records and recorded documents.

Evidence Code section 452, subdivision (d) states that the court may take judicial notice of “[r]ecords of any court of this state.” This section of the statute has been interpreted to mean that the trial court may take judicial notice of the existence of the court’s own records. Evidence Code section 452 and 453 permit the trial court to “take judicial notice of the existence of judicial opinions and court documents, along with the truth of the results reached—in the documents such as orders, statements of decision, and judgments—but [the court] cannot take judicial notice of the truth of hearsay statements in decisions or court files, including pleadings, affidavits, testimony, or statements of fact.” (People v. Woodell (1998) 17 Cal.4th 448, 455.) Accordingly, all requests for judicial notice of court records is GRANTED. The court takes judicial notice of the existence of the documents, not necessarily the truth of any matters asserted therein.

The request for judicial notice of the recorded documents is GRANTED. The court may take judicial notice of the existence and recordation of real property records, however the court does not take judicial notice of the truth of any matters asserted therein. (See Evid. Code § 452, subd. (h); Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264.)

III. Cross-defendants Pecoraros’ demurrer to the sixth cause of action [reformation] of the cross-complaint, the seventh cause of action [declaratory relief] of the amendment to cross-complaint, and the eighth cause of action [quiet title] of the amendment to cross-complaint is OVERRULED.

In the sixth cause of action, Cross-Complainants seek to reform the 2007 Leases. According to Cross-Complainants, the 2007 Leases erroneously omits Parcel 3 and Parcel 8 from the legal description of the 20 acre parcel, due to inadvertence and mutual mistake.

“Where the parties come to an agreement, but by mistake (or fraud) the written instrument does not express their agreement correctly, it may be reformed or revised on the application of the party aggrieved, provided that this can be done without prejudice to rights acquired by third persons in good faith and for value.” (1 Witkin, Summary of California Law (10th ed. 2005) Contracts, §276, p. 306 citing Civil Code §§3399, 3401.) Essentially, there are three bases for seeking reformation. “When, through [1] fraud or [2] a mutual mistake of the parties, or [3] a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised, on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.” (Civil Code §3399.)

The seventh cause of action seeks a judicial declaration that the legal description of the Premises under the 2007 Leases includes Parcel 3 and Parcel 8.

The eighth cause of action seeks to quiet title to cross-complainant GBR’s leasehold interest under the 2007 Leases to include Parcel 3 and Parcel 8.

Initially, the Pecoraros demur to the sixth through eighth causes of action by arguing that it is barred by the law of the case doctrine. “Under the law of the case doctrine, when an appellate court ‘states in its opinion a principle or rule of law necessary to the decision, that principle or rule becomes the law of the case and must be adhered to throughout [the case’s] subsequent progress, both in the lower court and upon subsequent appeal. . . .’ [Citation.] Absent an applicable exception, the doctrine ‘requir[es] both trial and appellate courts to follow the rules laid down upon a former appeal whether such rules are right or wrong.’ [Citation.] As its name suggests, the doctrine applies only to an appellate court’s decision on a question of law; it does not apply to questions of fact. [Citation.] …an appellate court’s determination ‘that the evidence is insufficient to justify a finding or a judgment is necessarily a decision upon a question of law.’ [Citation.] Such a determination ‘establishe[s] as the law of the case that all the evidence adduced at the previous trial was insufficient as a matter of law to establish’ the finding or judgment. [Citations.]” (People v. Barragan (2004) 32 Cal.4th 236, 246.)

As alleged in paragraph 27 of the Cross-Complaint, the court in the instant action sustained a demurrer and granted a motion for judgment on the pleadings as to co-defendant U.S. Bank, a ruling which was affirmed on appeal. “LouBar has conceded that the Court of Appeal’s decision in this action is law of the case as to the remaining issues, and LouBar has dismissed its cancellation-based causes of action with prejudice.” (Cross-Complaint, ¶27.)

Cross-defendants Pecoraros now rely on the following language found in the appellate court ruling to argue that this reformation action is barred:

Although LouBar’s predecessors did not identify the 2007 leases in their 2008 complaint (as section 872.230 required them to do), defendant MHP Roll-Up’s answer put those leases and the Bank’s leasehold liens at issue by praying that any partition of the property be made subject to the existing encumbrances of record, including the 2007 leases and the Bank’s deed of trust. … If LouBar’s predecessors had challenges to the 2007 leases and the Bank’s lien, they should have named the Bank as a defendant in the 2008 partition action and raised those challenges then.

(Loubar, LLC v. U.S. Bank, N.A. (Cal. Ct. App., Sept. 16, 2016, No. H040422) 2016 WL 4939566, at *8.)

In this court’s review of the appellate court ruling, the law of the case doctrine does not apply to preclude Cross-Complainants from now seeking reformation. The appellate court ruling begins by summarizing, “Plaintiff LouBar, LLC filed suit against defendant U.S. Bank [footnote] and six non-bank defendants to challenge the validity of allegedly “sham” ground leases [2007 Leases] and related leasehold liens encumbering property that LouBar acquired after a court-supervised sale in 2010.” The appellate court ruling adjudicated the validity of the 2007 Leases, not whether the 2007 Leases correctly identify the subject property.

Cross-defendants Pecoraros argue next that the claim for reformation is barred by the three year statute of limitations for “[a]n action for relief on the ground of … mistake. The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the … mistake.” According to cross-defendants Pecoraros, Cross-Complainants knew of the mistake (i.e., that the 2007 Leases did not include Parcels 3 and 8) no later than March 23, 2007 when Cross-Complainants recorded a “Memorandum of Lease and Purchase Option” which correctly reflected the 20 acre-parcel included Parcels 3 and 8.

“The running of the statute must appear ‘clearly and affirmatively’ from the dates alleged. It is not enough that the complaint might be barred.” (Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316, 324 – 325.) Here, cross-defendants Pecoraros apparently make the assertion that Cross-Complainants discovered or should have discovered the mistake no later than March 23, 2007. However, there is nothing on the face of the cross-complaint or amendment to cross-complaint or any judicially-noticed fact which would support such an assertion.

Cross-defendants Pecoraros argue further that a claim for reformation is barred because Cross-Complainants are estopped from arguing that the 2007 Leases include Parcels 3 and 8 because the recitals in the 2007 Leases themselves limit them to Parcel 1 (Lots 25 and 26). Cross-defendants Pecoraros rely on Evidence Code section 622 which states, “The facts recited in a written instrument are conclusively presumed to be true as between the parties thereto, or their successors in interest; but this rule does not apply to the recital of a consideration.” “This section is based upon the doctrine of estoppel by contract; i.e., a party to a contract is generally estopped to deny essential facts recited therein.” (Citizens Business Bank v. Gevorgian (2013) 218 Cal.App.4th 602, 625 (Gevorgian).)

Here, however, Cross-Complainants do not challenge the truth of the recitals. Instead, Cross-Complainants contend the recitals do not reflect the actual agreement. For example, the recitals state, “Landlord owns an undivided ¼ interest in the real property and improvements on the real property legally described in Exhibit B attached hereto (‘Lots 25 and 26’).” Cross-Complainants do not deny that the Landlord owns Lots 25 and 26. Instead, Cross-Complainants seek to affirm the truth of this statement, i.e., that the Landlord owns Lots 25 and 26, and more to correct a mutual mistake. The court in Gevorgian recognized Evidence Code section 622 does not apply without exception. “Evidence Code section 622 does not bar an assertion of fraud or other grounds for rescission of a contract or to recitals in an adhesion contract.” (Gevorgian, supra, 218 Cal.App.4th at p. 625.) This court finds reformation based on mistake to be another exception to a blanket application of Evidence Code section 622.

Cross-defendants Pecoraros next argue that Cross-Complainants are effectively seeking to modify the 2007 Leases despite a provision in the 2007 Leases themselves which preclude any modification, “except by a written instrument by the parties hereto.” Cross-complainants’ sixth cause of action is one for reformation, not modification. “[T]he remedy of reformation is equitable in nature.” (Jones v. First American Title Ins. Co. (2003) 107 Cal.App.4th 381, 388.) Cross-complainants are not seeking to enforce the terms of the 2007 Leases. Instead, they seek the equitable relief afforded by reformation. The fact that the 2007 Lease contractually precludes modification absent mutual written agreement is not a basis for sustaining a demurrer.

Finally, cross-defendants Pecoraros contend they are not proper parties because they are not necessary parties. “A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party.” (Code Civ. Proc., § 389, subd. (a).)

Cross-defendants Pecoraros assert reformation could be granted without their involvement and they do not hold any interest in the 2007 Leases as they are not parties to the 2007 Leases. In assessing this argument, the court falls back on the fundamental rule that a demurrer can only be used to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Weil & Brown, et al., CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2017) ¶7:8, p. 7(I)-7 citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318, et al.) The court finds nothing on the face of the pleading or from judicially noticed matter from which to support cross-defendants Pecoraros’ assertion that they are not necessary parties.

Accordingly, cross-defendants Pecoraros’ demurrer to the sixth cause of action of the cross-complaint, seventh cause of action of the amendment to cross-complaint, and eighth cause of action of the amendment to cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for reformation, declaratory relief, and quiet title, respectively, is OVERRULED.

IV. Cross-defendants LouBar’s demurrer.

A. Cross-defendants LouBar’s demurrer to the fifth [declaratory relief] cause of action of the cross-complaint is OVERRULED.

In the fifth cause of action of the cross-complaint, Cross-Complainants allege there is an actual and present controversy in that LouBar assert the 2007 Leases should be cancelled whereas cross-complainant GBR asserts the 2007 Leases are fully enforceable. Cross-complainant GBR seeks a judicial declaration “that the 2007 Leases are fully enforceable in accord with their terms and conditions.” (Cross-Complaint, ¶53.)

Cross-defendants LouBar demur to this fifth cause of action by conceding that, following the appellate court’s ruling in Loubar, LLC v. U.S. Bank, N.A. (Cal. Ct. App., Sept. 16, 2016, No. H040422) 2016 WL 4939566, cross-defendants LouBar are not challenging the 2007 Leases and, in fact, have dismissed with prejudice the claims in the operative second amended complaint which seek cancellation of the 2007 Leases. Absent an actual and present controversy, cross-defendants LouBar contend a claim for declaratory relief cannot be maintained.

In opposition, cross-complainant GBR contends LouBar’s concession does not render the cause of action deficient. Cross-complainant GBR contends the cause of action and a declaratory judgment against cross-defendants LouBar will ensure enforceability against cross-defendants LouBar.

“To qualify for declaratory relief, [a plaintiff] would have to demonstrate its action presented two essential elements: “(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to [plaintiff’s] rights or obligations.” (Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1582.)

As before, the court falls back on long settled rules regarding demurrers. Since cross-defendants’ concession does not appear on the face of the pleading and is not a judicially noticed fact, cross-defendant LouBar’s demurrer to the fifth cause of action of the cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for declaratory relief is OVERRULED.

B. Cross-defendants LouBar’s demurrer to the sixth cause of action [reformation] of the cross-complaint is OVERRULED.

As cross-defendants Pecoraros, cross-defendants LouBar also demur to the sixth cause of action on the ground that the claim is barred by the statute of limitations and on the ground that it is barred by the law of the case doctrine.

For the same reasons discussed above, cross-defendant LouBar’s demurrer to the sixth cause of action of the cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for reformation is OVERRULED.

C. Cross-defendants LouBar’s demurrer to the seventh [declaratory relief] cause of action of the amendment to cross-complaint is OVERRULED.

Cross-defendants LouBar argue the seventh cause of action, although entitled “declaratory relief,” is actually an action based on reformation. As such, cross-defendants LouBar repeat their argument above that the claim is barred by the statute of limitations and on the ground that it is barred by the law of the case doctrine.

For the same reasons discussed above, cross-defendant LouBar’s demurrer to the seventh cause of action of the amendment to cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for declaratory relief is OVERRULED.

D. Cross-defendants LouBar’s demurrer to the eighth [quiet title] cause of action of the amendment to cross-complaint is OVERRULED.

Cross-defendants LouBar contend the eighth cause of action for quiet title is, like the reformation claim, subject to demurrer for the same reasons discussed above, i.e., the claim is barred by the statute of limitations and barred by the law of the case doctrine.

For the same reasons discussed above, cross-defendant LouBar’s demurrer to the eighth cause of action of the amendment to cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for quiet title is OVERRULED.