Case Number: VC063661    Hearing Date: July 24, 2014    Dept: SEC

KANG v. FAN
CASE NO.: VC063661
HEARING: 07/24/14

#5
TENTATIVE ORDER

Defendant CHI MING FAN’s demurrer to the Second Amended Complaint is
SUSTAINED WITHOUT LEAVE TO AMEND as to the 2nd cause of action; otherwise OVERRULED. C.C.P. § 430.10(e), (f).

The motion to strike the claim for punitive damages is DENIED. C.C.P. §§ 435, 436.

Defendant has 20 days to serve and file a responsive pleading.

Plaintiff DUK HEE KANG has twice amended her complaint after this Court’s rulings on demurrer. Defendants again demur to each of the causes of action and seek to have stricken the claim for punitive damages (and allegations in support thereof) on essentially the same grounds.

As alleged, in 2007, defendant entered into a lease agreement with (non-party) Horizon Grocers, LLC. SAC, ¶6, Exh. A. In February 2009, Horizon assigned its interest in the lease to plaintiff. ¶7. In late March or early April 2013, plaintiff entered into an agreement with a prospective buyer for the sale of the grocery market occupying the leased space. ¶14. The sale was contingent upon defendant landlord’s approval of the lease assignment. Defendant refused to accept the assignment, and instead issued a Ten Day Notice to Cure or Quit, based on allegedly false facts. ¶20. Plaintiff alleges that defendant’s refusal to accept the assignment constitutes a breach of contract, and caused her to lose the prospective buyer.

Plaintiff seeks damages in both contract and tort, with causes of action for (1) breach of contract, (2) breach of implied covenant of good faith and fair dealing, (3),(4) intentional and negligent interference with prospective economic advantage, (5) IIED and (6) NIED.

The issue raised by the demurrer is plaintiff’s performance. Defendant argues that plaintiff cannot sue for breach, based on defendant’s refusal to accept the assignment, because she did not have the lawful ability to sell the grocery store and that she was in default on the lease.

Section 1 of the lease provides that the only appropriate use for the lease is a grocery store. SAC, Exh. A. Section 23.1, subsection (c) provides that the tenant’s insolvency or bankruptcy constitutes a material default of the lease, as would a transfer to defraud creditors. Id. Section 22 of the lease allows the tenant to assign her interests in the lease, subject to certain conditions, as enumerated in section 22.2, which includes a provision that the proposed assignment would not violate a term, covenant, condition or restriction of the lease. Id.

An involuntary bankruptcy petition was initiated against Woori The Winners, Inc. on February 23, 2013. RJN, Exh. 1. Defendant argues that Woori, which was operating a grocery store on the premises during the relevant time period, was insolvent at the time of plaintiff’s request for an assignment and that because plaintiff was in material default of the lease, she cannot state a claim for breach of the lease based on defendant’s rejection of the transfer. Moreover, as argued by defendant, such transfer would have been unlawful (voidable) because of the pending bankruptcy action. 11 U.S.C. §548.

Plaintiff argues that the Court cannot take judicial notice of the bankruptcy documents and that third party Woori’s bankruptcy is irrelevant to plaintiff’s claims. “The taking of judicial notice of the official acts of a government entity does not in and of itself require acceptance of truth of the factual matter which might be deduced therefrom, since in many instances what is being noticed, and thereby established, is no more than the existence of such acts and not, without supporting evidence, what might factually be associated with or flow therefrom.” Aquila, Inc. v. Superior Court (2007) 148 Cal.App.4th 556, 569 (citation omitted).

As argued by plaintiff, the prospective buyer was in negotiations with Woori’s creditors and had the sale gone through, the creditors would have dismissed the bankruptcy against Woori and could have done so within the 60 day time-period set forth in paragraph 23.1 of the lease.

Plaintiff also alleges that the lease agreement was not part of the bankruptcy proceedings. SAC, ¶11. While defendant argues that such allegation contradicts the judicially-noticeable bankruptcy documents (Exh. 8), plaintiff notes that the subject order granting the sale referred to “any claim of interest in the commercial lease agreement.” That does not support a conclusive finding that the lease was in fact owned by Woori. Plaintiff’s participation in the bankruptcy proceeding occurred after defendant’s alleged breach. See ¶22. Defendant’s assumption that plaintiff, by virtue of her ownership of Woori, was part of the bankruptcy and thus in default is not conclusive on the issue.

Plaintiff alleges that the lease belonged to her (and that Woori was not in existence at the time of its signing). SAC, ¶10. She further alleges that the proposed sale was of the location and the lease, and not the “Woori” name or assets of the market. ¶12. The actual scope of the proposed sale is subject to dispute.

The Court finds that it accepts plaintiff’s allegations as true and interprets her claims liberally, the demurrer based on her lack of performance must fail. While defendant may have a defense to her breach claims based upon the arguments presented in the moving papers, such determination requires consideration of issues that go beyond the four corners of the pleading. For that reason, the demurrer to the breach of contract cause of action is overruled.

The cause of action for breach of the implied covenant of good faith and fair dealing is based on defendant’s failure to grant the assignment. A cause of action for breach of the covenant must relate to matters separate from the terms of the agreement. See Careau & Co. v. Security Pac. Business Credit, Inc. (1990) 222 Cal.App.3d 1371. It is not an “alternative theory” to breach of contract as argued by plaintiff. The demurrer is sustained without leave to amend.

In support of her intentional and negligent interference causes of action (3rd and 4th), plaintiff alleges that defendant refused to grant the assignment to plaintiff’s prospective buyer. Defendant argues that she failed to allege conduct that was independently wrongful, apart from the breach itself. See Della Penna v. Toyota Motor Sales, USA, Inc. (1995) 11 Cal.4th 376. Plaintiff contends that after the prospective buyer refused to enter into a new lease, defendant issued a Ten Day Notice to plaintiff, falsely asserting that a mechanic’s lien had been recorded and that plaintiff had failed to comply with municipal, state and federal authorities. SAC, ¶17. That allegation describes an intentional falsehood, which constitutes an independently wrongful act. The demurrer is overruled as to the 3rd and 4th causes of action.

Plaintiff’s IIED and NIED causes of action are sufficiently pled. Defendant correctly notes that emotional distress damages are not recoverable in contract actions. See, e.g. Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503. Here, however, plaintiff alleged that defendant intentionally falsified a Notice with the intent of terminating her lease so that he could secure a more profitable agreement. She also contends that, in doing so, he misused his position of power knowing of plaintiff’s lack of sophistication and of her financial hardship. Those allegations, taken as true, support plaintiff’s tort claims. The demurrer is overruled.

For the same reasons, the motion to strike the claim for punitive damages is denied. A liberal construction of the pleading supports plaintiff’s request. Whether or not plaintiff will be able to meet her burden of proffering clear and convincing evidence of oppression, fraud or malice cannot be determined at the pleading stage.