34-2013-00147483

UHC 00082 Los Angeles vs. CRA/LA

Nature of Proceeding: Hearing on Demurrer

Filed By: McIntosh, Dawn A.

Defendant CRA/LA, A Designated Local Authority’s demurrer to Plaintiff UHC 00082
Los Angeles, L.P.’s (“UHC”) complaint is overruled.

Defendant’s request for judicial notice is granted. The court, however, does not accept
the truth of any facts within the judicially noticed documents except to the extent such
facts are beyond reasonable dispute. (See Poseidon Devel., Inc. v. Woodland Lane
Estates, LLC (2007) 152 Cal.App.4th 1106152 Cal.App.4th at 1117-18.)

In this action, Plaintiff alleges causes of action for breach of contract, promissory
estoppel and declaratory relief arising out allegations that Defendant agreed to loan
UHC money to acquire certain property to develop into an affordable family housing
project. UHC alleges that in reliance upon Defendant’s promises, it expended funds to
acquire and develop the property. It alleges that in March 2011, UHC executed the
Loan Agreement which Defendant presented to it. It further alleges that the L.A. City Council approved the loan and Defendant executed the Loan. Finally, it alleges that
Defendant thereafter refused to honor the Loan and informed UHC that they did not
consider it to be an enforceable obligation.

First Cause of Action (Breach of Contract)

Defendant’s demurrer is overruled. UHC has alleged all the required elements of a
breach of contract cause of action, specifically, (1) the existence of a contract; (2)
UHC’s performance or excuse for nonperformance; (3) Defendant’s breach; and (4)
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damage. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4 811, 821.)

Defendant argues that UHC has not alleged the existence of a valid contract because
it “materially misrepresent[ed] the actions taken by defendant” as the documents of
which it requested judicial notice, contradict the allegations in the complaint. First, it
argues that the judicially noticeable documents establish that the City Council merely
authorized Defendant’s CEO to negotiate/execute a loan, not that the City Council
approved the loan and UHC does not allege that its CEO executed the loan. Here,
UHC alleged that “Defendants executed the loan agreement.” (Comp. ¶ 16.) That
allegation must be taken as true for purposes of the demurrer. (Blank v. Kirwan (1985)
39 Cal.3d 311, 318.) Whether Defendant actually executed the loan, a dispute central
to this lawsuit, is a factual question that cannot be resolved on demurrer. ( Cruz v.
County of Los Angeles (1985) 173 Cal.App.3d 1131, 1134 [while judicial notice could
be taken of government practice of mailing notice of rejection, inappropriate to resolve
on demurrer the disputed fact as to whether the practice had been followed in the
specific instance].) Thus, while the Court can judicially notice the documents from the
City Council indicating that Defendant’s CEO was authorized to negotiate/execute a
loan, it cannot take the further step and resolve the factual question as to whether
such execution occurred, given that UHC alleged it had. In any event, the documents
do not contradict the allegations in the complaint as they indicate that approval was
given to proceed with negotiation/execution of the subject loan and in no way
“definitively establish that [Defendant] and City Council did not approve the Loan
Agreement” as argued by Defendant. Finally, to the extent Defendant tries to support
this argument by asserting that UHC alleged Defendant executed the Loan Agreement
“solely through this legislative approval”, in an apparent reference to the City Council
documents authorizing negotiation and execution, UHC made no such allegation.
Again, it alleged that Defendant “executed the loan agreement.” (Comp. ¶ 16.) Thus,
the demurrer on the basis that UHC failed to allege a contract between the parties is
overruled.

Defendant also argues that contracts not executed in the manner required by
statute/charter are not enforceable against government agencies whose contracting
power is governed by statute. Defendant argues that the Loan Agreement was subject
to California Health & Safety Code § 33760 as modified by the Los Angeles
Administrative Code which required that its CEO negotiate and execute the Loan
Agreement. It asserts that it is “undisputed” that its CEO never took such action
establishing that no contract exists between the parties. Again, UHC alleged that
Defendant “executed the loan agreement.” (Comp. ¶ 16.) It is not “undisputed”
therefore that Defendant’s CEO never executed the agreement. Defendant’s claimed
defense regarding the enforceability of the Loan Agreement raises a defect that does
not appear on the face of the pleading and is not appropriately resolved by way of
demurrer. Thus, the argument that UHC failed to adequately allege a contract on the
basis that Defendant’s CEO did not execute the agreement as required by statute is
overruled.

Finally, Defendant argues that a “review of the Loan Agreement itself establishes that
there was no valid contract by the express terms of the document itself.” (Dem. 8:5-6.)
To this end, Defendant reasons that the Loan Agreement provides that it is only
effective on the “Effective Date” defined as the “date, after the Agreement is executed
by Borrower and approved by the CRA/LA Board and the City Council, that the
agreement is executed by the CRA/LA Board Chief Executive Officer or
designee…” (Loan Agreement p. 035.) Again, however, the factual question of
whether the City Council approved the Loan Agreement and/or whether Defendant’s
CEO executed the Loan Agreement cannot be resolved on this demurrer. UHC
alleged that Defendant “executed the loan agreement” and that allegation must be
accepted as true on this demurrer.

Defendant’s demurrer to the first cause of action is overruled.

Second Cause of Action (Promissory Estoppel)

Defendant’s demurrer is overruled. UHC was required to allege a clear and
unambiguous promise; reasonable and foreseeable reliance; and that it was injured by
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the reliance. (U.S. Ecology, Inc. v. State of California (2005) 129 Cal.App.4 887,
901.)

Once again, Defendant’s arguments are factual. Indeed, it argues that UHC did not
allege a clear and unambiguous promise, again because it asserts that while UHC
alleged that Defendant promised to provide UHC a loan, the judicially noticeable
documents show that a final contract was never executed. This factual argument fails,
not only for the reasons already discussed above, but also because a final contract is
not necessary for an allegation that Defendant made a promise to provide UHC a loan.
The allegation that Defendant clearly and unambiguously promised to “provide a loan
to UHC in the amount of $3,750,000 for the acquisition and development of the
Undeveloped Site” is sufficient. (Comp. ¶ 26.)

In addition, the Court rejects the argument that UHC failed to allege reasonable and
foreseeable reliance. Indeed, UHC alleged that its reliance was reasonable and
foreseeable “in light of the course of performance between the parties, including the
completed development of the property commonly known as 818, 828, and 838 East
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29 Street, and the ongoing development of property commonly known as 848-854
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East 29 Street and 2901 S. Griffith Street.” (Comp. ¶ 28.) Defendant’s argument that
UHC’s reliance could not be reasonable because it must have known that a
redevelopment agency could not simply promise to make a loan but was required to go
through statutory procedures to get a loan approved is a purely factual question. The
allegations in the complaint are sufficient.

Contrary to Defendant’s argument, UHC adequately alleged injury as it alleged that as
a result of relying on Defendant’s promise of a loan, it expended funds in connection
with acquiring the subject property and was damaged in an amount of approximately
$600,000. (Comp. ¶¶ 11, 24, 29.) The argument that UHC incurred the funds at the
subject property prior to any promise of a loan is not revealed from the complaint and
is factual in nature. Further, the case law cited by Defendant to support its argument
that “it is settled law that UHC cannot assert an estoppel claim based on the fact that it
expended funds in the course of its dealings with [Defendant]” does not help as that line of authority applies when it has been established that a contract was made that
was not in compliance with a statute or charter and as extensively discussed above,
such issue cannot be resolved on this demurrer. (First Street Plaza Partners v. City of
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Los Angeles (1998) 65 Cal.App.4 650, 67-668.)

Finally, the argument that allowing UHC to seek promissory estoppel would not further
public policy or prevent injustice, mainly because the requirements for a contract with a
government agency is rejected. Yet again, this is a factual question inappropriate for
demurrer.

The demurrer to the second cause of action is overruled.

Third Cause of Action (Declaratory Relief)

Defendant’s demurrer is overruled. UHC seeks a declaration that the Loan Agreement
is an enforceable obligation such that Defendant is obligated to perform. Defendant
argues that it would only be required to perform if its predecessor redevelopment
agency identified the Loan Agreement on a recognized obligation payment schedule
(“ROPS”) and approved by the Department of Finance. (Health & Safety Code §§
34179(h), 34177(a).) It reasons that UHC’s failure to allege that the Loan Agreement
was listed on its predecessor’s ROPS and approved by the DOF is fatal to its claim.
This argument, which ultimately goes to the merits of the claim, fails. Given that UHC
alleged an actual controversy between the parties, UHC “is entitled to a declaration of
rights even if it is adverse to [UHC’s] interest.” (Qualified Patients Ass’n v. City of
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Anaheim (2010) 187 Cal.App.4 734, 751.) Finally, Defendant argues that the cause
of action also fails to the extent that UHC “may intend to seek a judicial determination
that the obligation should be enforceable against [Defendant] and should be added to
the ROPS” because such action could only be taken by DOF, which is not a defendant
in the lawsuit. However, the complaint does not seek such relief. The demurrer is
overruled.

The demurrer is overruled in its entirety. Defendant shall file and serve its answer no
later than December 2, 2013.

The minute order is effective immediately. No formal order pursuant to CRC Rule
3.1312 or further notice is required.