MOSES CHO VS GERTRUDE SIEGEL

Case Number: BC495390    Hearing Date: July 25, 2014    Dept: 34

Moving Party: Defendant Gertrude Siegel, individually and as trustee of the Gertrude Siegel Living Trust (“Siegel” or “defendant”)

Resp. Party: Plaintiff Moses Cho (“plaintiff”)

Siegel’s demurrer to the second cause of action in plaintiff’s second amended complaint is OVERRULED.

PRELIMINARY COMMENTS:

In the demurrer, defendants repeatedly write “Paragraph 52©” when they apparently mean to write “Paragraph 52(c).” (See, e.g., demurrer, p. 4:17, p. 5:4.) The Court assumes that this is due to an auto-correct feature of defendants’ word processing program. Careful proof-reading on future pleadings would probably correct this problem.

BACKGROUND:

Plaintiff commenced this action on 11/9/12, against defendants for: (1) specific performance; (2) breach of written contract; (3) breach of implied covenant of good faith and fair dealing; (4) declaratory relief; and (5) injunctive relief. Plaintiff filed a first amended complaint (“FAC”) on 6/6/13. After the Court sustained defendant’s demurrer to the FAC in part, plaintiff filed a second amended complaint (“SAC”) on 4/28/14 alleging causes of action for: (1) specific performance; (2) breach of written contract; (3) fraud; (4) negligent misrepresentation; (5) interference with contract; (6) interference with prospective economic advantage; and (7) declaratory relief.

Plaintiff alleges that he entered into a lease for the subject premises in January 2006. (SAC ¶ 11.) The lease sets forth plaintiff’s right to purchase the property. (Id., ¶ 16.) Under the lease, plaintiff was given a right of first and second refusal. (Id., ¶¶ 16-17.) A Notice of Sale dated August 9, 2012, purported to set forth a single combined offer of $4,000,000.00 to purchase the subject property and another property. (Id., ¶ 23.) Plaintiff alleges that the Notice of Sale violated the terms of the lease agreement. (Ibid.) Plaintiff alleges Siegel improperly demanded that plaintiff expressly waive his rights to purchase by signing an “estoppel certificate,” which plaintiff refused to sign, resulting in Siegel serving a three-day notice to cure or quit. (Id., ¶¶ 24-25.) Siegel sold the property to the Buyers in December 2012. (Id., ¶ 32.)

ANALYSIS:

Siegel demurs to the second cause of action in the SAC on the ground that plaintiff fails to allege sufficient facts.

Siegel first argues that the second cause of action fails because the allegations show that Siegel complied with the requirements of the contract. The lease agreement provides a right of first refusal to purchase the property located at 39 East Colorado Blvd, Pasadena, and a right of second refusal to purchase the property at 43 East Colorado Blvd, Pasadena. (See SAC, Exh. A, ¶¶ 52.1, 52.2.) Plaintiff alleges that the agreement required defendants to honor plaintiff’s right of first refusal and right of second refusal. (Id., ¶ 41.) Siegel argues that she did honor these rights by providing notices to plaintiff of the offers made by the buyers. (See id., ¶¶ 22-23, Exh. B.)

Plaintiff alleges that these notices were made in bad faith because the defendants conspired to circumvent plaintiff’s separate rights of refusal by including a single combined offer for both properties. (SAC ¶ 23.) The terms of the lease include separate provisions for the right of first and second refusal for the properties. (See id., Exh. A, ¶¶ 52.1, 52.2.) The notice of sale pertaining to the offer from the buyers stated that both properties would be purchased together. (See id., Exh. B.) Plaintiff argues that the insistence on purchasing both properties simultaneously was inconsistent with the lease terms, and thus was made in bad faith. (See id., ¶¶ 23-25.) Plaintiff alleges facts which show that the offers were not in good faith because the buyers’ offers were not valid at the time. (See id., Exh. E, ¶ 12 [the offer is deemed to have been withdrawn if not accepted by 11/16/12]; cover letter [offer conveyed to plaintiff on 11/20/12].)

These facts are sufficient, at the pleadings stage, to allege that Siegel did not engage in a good faith effort to comply with the terms of the agreement.

Siegel also argues that this cause of action fails because the lease provides that plaintiff has waived all monetary damages for any breach by the lessor of the subject provisions. (See SAC Exh. A, ¶¶ 52.1, 52.2.) Plaintiff argues that this provision should be disregarded as unconscionable because it would result in denying plaintiff any relief for the breach. “[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2004) 24 Cal.4th 83, 102.) Procedural unconscionability focuses on oppression or surprise due to unequal bargaining power, while substantive unconscionability focuses on overly harsh and one-sided results. (Gentry v. Superior Court (2007) 42 Cal.4th 443, 468-469.) Procedural and substantive unconscionability need not be present to the same degree. “ ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ [Citations.] In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz, 24 Cal.4th at p. 114.)

Procedural unconscionability includes oppression arising from unequal bargaining power causing an absence of meaningful choice and real negotiating, and surprise due to hidden terms drafted by the party seeking to enforce the provisions. (Gatton v. T Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 581.) The SAC now alleges facts which establish procedural unconscionability. (See SAC ¶¶ 18-21.) The provisions are substantively unconscionable because they would leave plaintiff with no remedy against Siegel for her breach of the contract. (See SAC ¶ 21.)

For the reasons stated in the Court’s ruling on Siegel’s demurrer to the FAC, specific performance is no longer available against Siegel. (See Minute Order 2/24/14, pp. 7-8.) Therefore, if the waiver provisions are enforced, plaintiff will be left with no remedy for defendant’s alleged breach. Plaintiff’s allegations are sufficient to withstand a demurrer.

Siegel’s demurrer to the second cause of action is OVERRULED.

Siegel to answer within 10 days.

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