Case Name: John Park v. Peter V. Lunardi, III, et al.
Case No.: 17CV315411

I. Background

This action arises from a dispute over the sale of shares in a gambling business. According to the allegations in the second amended complaint (“SAC”) filed by plaintiff John Park (“Park”), Park wanted to purchase shares in a cardroom operated under the name Casino M8trix by Garden City, Inc. (“Garden City”). (SAC, ¶ 1.) Park negotiated with defendant Eric Swallow (“Swallow”)—who owned 50 percent of the business—to purchase his shares in Garden City for $55 million. (SAC, ¶¶ 1–2 & Ex. A [Stock Purchase Agreement].) The remaining 50 percent of the shares were held in trust by defendants Peter v. Lunardi, III and Jeanine Lunardi (collectively, the “Lunardis”) on behalf of the Lunardi Family Living Trust. (SAC, ¶ 1.) The Lunardis tried to stop the sale to Park by exercising their right of first refusal. (SAC, ¶¶ 3–4.) Swallow and the Lunardis arbitrated their dispute over the right of first refusal and contemplated sale to Park. (SAC, ¶¶ 6–9.) Park was excluded from the arbitration, which ultimately resulted in the sale of Swallow’s shares to the Lunardis. (SAC, ¶ 9.) And so, Park commenced this action and asserts causes of action against Swallow for (1) breach of contract and (2) promissory estoppel and against the Lunardis for (3) intentional interference with contractual relations.

The Lunardis filed a cross-complaint, which they subsequently amended. In the first-amended cross-complaint (“FACC”), the Lunardis assert causes of action against Park for: (1) declaratory relief; (2) intentional interference with contractual relations; and (3) “tort of another.” (FACC at p. 1.) They allege Park improperly tried to prevent them from exercising their right of first refusal and interfered with their agreement with Swallow. They also allege Park tried to impermissibly participate in the dispute resolution process and should be bound by the outcome of both arbitrations they had with Swallow in light of his intermeddling.

Currently before the Court is Park’s demurrer to each cause of action in the FACC on the ground of failure to state facts sufficient to constitute a cause of action. He also filed a motion, in the alternative, to strike substantive allegations in the FACC based on the very same arguments advanced in support of his demurrer.

II. Demurrer

A. First Cause of Action

The Lunardis seek a declaration that “they are not strangers to the Amended Park Agreement and therefore cannot be liable for interference with that contract; that Mr. Park is bound by the 2016 Award and judgment thereon; and that Mr. Park is bound by the 2017 Award and judgment thereon.” (FACC, ¶ 30.)
A party may seek declaratory relief “in cases of actual controversy relating to the legal rights and duties of the respective parties….” (Code Civ. Proc., § 1060.) To state a claim for declaratory relief, a plaintiff must simply allege facts showing there is an actual controversy; he or she need not allege facts showing entitlement to a favorable declaration. (Centex Homes v. St. Paul Fire and Marine Insurance Co. (2015) 237 Cal.App.4th 23, 29.) For this reason, and as Park acknowledges, a demurrer is generally “not the appropriate weapon with which to attack the merits of a claim for declaratory relief.” (Siciliano v. Fireman’s Fund Insurance Co. (1976) 62 Cal.App.3d 745, 755.) Park, nevertheless, argues the Court should exercise discretion to dismiss the first cause of action as duplicative and should also affirmatively “make a declaration of rights in [his] favor on the merits of each issue.” (Mem. of Pts. & Auth. at p. 12:1–2.)

First, the Court will not adjudicate the merits of the claim in Park’s favor at this juncture. Park cites no authority actually establishing the propriety of his request. Instead, he appears to inaptly rely on the statement that “‘[a] trial court may properly sustain a general demurrer to a declaratory relief action without leave to amend when the controversy presented can be determined as a matter of law.’” (California State Employees’ Assn. v. Flournoy (1973) 32 Cal.App.3d 219, 240–41 [court properly sustained demurrer to claim based on interpretation of constitutional authority], quoting Silver v. City of Los Angeles (1963) 217 Cal.App.2d 134, 138 [demurrer properly sustained because ordinance did not exceed scope of constitutional authority].) When read and understood in its proper context, this statement is more appropriately characterized as a rule of appellate review. (See Taxpayers for Improving Public Safety v. Schwarzenegger (2009) 172 Cal.App.4th 749, 769.) Under this rule, “‘where the issue is purely one of law, if the reviewing court agreed with the trial court’s resolution of the issue it would be an idle act to reverse the judgment of dismissal for a trial on the merits.’ [Citation.]” (Ibid.) “In such cases the merits of the legal controversy may be considered on an appeal from a judgment of dismissal following an order sustaining a demurrer without leave to amend and the opinion of the reviewing court will constitute the declaration of the legal rights and duties of the parties concerning the matter in controversy.’ [Citation.]” (Ibid.) This rule does not support the proposition that trial courts may ordinarily issue an affirmative declaration on the merits in the defendant’s favor—as compared to a decision that the plaintiff stated no claim as a matter of law—in the context of a demurrer. And, even if it did, the claim pleaded here is not capable of resolution as a matter of law.

The principle of review set forth above applies when a plaintiff challenges the constitutionality of a statute or seeks declaratory relief based on an erroneous interpretation of the law. (See, e.g., Silver, supra, 217 Cal.App.2d at pp. 137–38.) A matter is not capable of resolution “as a matter of law” simply because the law must be interpreted and applied to reach a resolution; rather, the phrase connotes that the claim rests on and can be determined solely by reference to statutes, provisions of the constitution, and precedent. (See ibid.) Here, while the claim for declaratory relief necessarily rests on and must be resolved in light of applicable legal principles, it also rests on factual allegations. And so, the claim is not capable of resolution “as a matter of law” as that phrase has been used in this context. For these reasons, Park’s request for an adjudication of the claim on its merits is improper.

The second issue is whether the Court should decline to entertain the claim based on Code of Civil Procedure section 1061. “Section 1061 of the Code of Civil Procedure provides: ‘The court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.’” (Silver, supra, 217 Cal.App.2d at p. 141.) When a claim for declaratory relief is asserted to obtain a determination of an issue that is raised and necessarily must be resolved in an existing action, the claim is unnecessary and need not be entertained. (Schessler v. Keck (1954) 125 Cal.App.2d 827, 836.) A court may sustain a demurrer to a claim for declaratory relief that merely raises a defense to or seeks a determination as to liability for an existing cause of action. (C.J.L. Construction, Inc. v. Universal Plumbing (1993) 18 Cal.App.4th 376, 390–91 [compiling cases].)

Park asserts the Lunardis seek a determination of the validity of matters that should be and are pleaded as defenses in their answer. There is some merit to this argument. As Park argues, the Lunardis seek, in part, a declaration that his interference claim lacks merit because they are not strangers to the agreement upon which his claim is based. Declaratory relief is unnecessary as to this issue. To be sure, the Lunardis do not provide any cogent argument to support a contrary conclusion. They assert there is “a critical difference” between a defense that precludes their liability and a finding of Park’s liability. (Opp. at p. 8:23–24.) This assertion is specious because they do not seek a declaration that Park is liable, they explicitly request a finding that they are not liable for his claim. Indeed, their supporting allegations consist of legal arguments, complete with citations to authority, that they previously advanced in support of their demurrer to the SAC. (FACC, ¶¶ 27–28.) Thus, to the extent their claim for declaratory relief concerns the validity of Park’s claim, it is unnecessary and improper.

With that said, the Lunardis also seek a declaration about the enforceability of the arbitration awards and corresponding judgments relative to Park. Although Park states this aspect of their claim is duplicative of the defense of collateral estoppel, he does not provide a reasoned and legally-substantiated explanation for this conclusion. While there may be some overlap between the facts that justify the defense of collateral estoppel and facts that support the claim for declaratory relief, these theories are not necessarily coextensive. And so, the Court is not persuaded by Park’s argument with respect to the remainder of the Lunardis’ claim.

As Park acknowledges, a demurrer does not lie to a portion of a cause of action. (See PHII, Inc. v. Super. Ct. (1995) 33 Cal.App.4th 1680, 1682.) Thus, despite the Court’s conclusion above regarding one aspect of the claim for declaratory relief, the demurrer to the first cause of action is OVERRULED. The Court will strike the problematic allegations as discussed in more detail below.

B. Second Cause of Action

Park argues the Lunardis fail to state a claim for intentional interference with contractual relations because their claim is based on privileged conduct that is not alleged to have caused their damages.

Park’s first argument that the claim is based on matters protected by the mediation and litigation privileges is not well-taken. First, as the authorities cited by Park reflect, the applicability of the mediation privilege is not ordinarily a matter resolved at the pleading stage. (See, e.g., Provost v. Regents of the University of California (2011) 201 Cal.App.4th 1289, 1301–02.) Second, although Park seemingly takes the position that the claim rests entirely on privileged conduct, he does not provide sufficient analysis to support that conclusion. As an example, he does not establish the Lunardis’ claim is based solely on communications or communicative conduct. Indeed, their claim is based on the fact of his attendance. Additionally, contrary to what Park seems to represent, the Lunardis’ claim does not solely relate to the mediation. They allege his conduct at the time of the transaction, namely his improper preparation of nonconforming sale notices, precipitated the underlying dispute with Swallow. (FACC, ¶¶ 13, 32.) In other words, they also allege he attempted to force the sale notwithstanding the agreed-upon procedures for such a transaction. Consequently, Park’s first argument does not justify sustaining the demurrer.

Next, “[t]o prevail on a cause of action for intentional interference with contractual relations, a plaintiff must plead and prove (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1148.) Park focuses on this last element, particularly whether the Lunardis’ damages resulted from his conduct. He states “it is not plausible in any sense that the April 2015 notices were a cause-in-fact of either arbitration.” (Mem. of Pts. & Auth. at p. 19:18–19.) On this basis, Park concludes he was not the cause of any damages the Lunardis attribute to the arbitrations. This argument is misguided because a demurrer tests the legal sufficiency of the pleading, and not the allegations’ plausibility or capability of proof. (Nguyen v. Western Digital Corp. (2014) 229 Cal.App.4th 1522, 1536–37.) The Lunardis allege Park’s intermeddling at the start of the transaction and throughout the resolution of the underlying dispute caused delays and additional expenses. (FACC, ¶ 32.) This is sufficient for pleading purposes, particularly given Park does not cite any analogous authority to support his position.

Park’s arguments do not justify sustaining the demurrer. Accordingly, the demurrer to the second cause of action is OVERRULED.

C. Third Cause of Action

The third cause of action is identified as a claim for “tort of another.” (FACC at p. 10:25.) The tort of another doctrine is a legal doctrine pertaining to damages, especially the damages that may be recovered when an insurer denies coverage in bad faith. (Brandt v. Super. Ct. (1985) 37 Cal.3d 813, 817–18.) As explained by the California Supreme Court, in that scenario, “attorney’s fees are an economic loss—damages—proximately caused by the tort.” (Id. at p. 817.) “These fees must be distinguished from recovery of attorney’s fees qua attorney’s fees, such as those attributable to the bringing of the bad faith action itself.” (Ibid., original italics.)

Park argues the Court should sustain the demurrer to this cause of action because the Lunardis fail to state a claim for interference. But the Court overruled the demurrer to the second cause of action, and so Park’s argument is not well-taken. Nevertheless, in advancing this argument, he raises an important point. While not articulated by Park, his argument is implicitly premised on the proposition that the tort of another doctrine establishes when a party may recover attorney’s fees as damages; it is not an independent theory of tort liability. Indeed, despite separately denominating the third cause of action, it appears the Lunardis seek to recover attorney’s fees as damages in connection with the second cause of action. Because tort of another damages are a remedy and not a separate cause of action, the demurrer to the third cause of action is sustainable. (See, e.g., Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 65–66 [court may sustain demurrer to separately denominated claim for remedy that is not an independent claim].) While the Lunardis may not amend this particular claim in the form in which it is pleaded, they may otherwise allege facts elsewhere in the pleading, such as the second cause of action, to seek attorney’s fees as damages. In other words, the Court will give the Lunardis an opportunity, not to restate a separate cause of action, but to incorporate their allegations elsewhere in the pleading. The demurrer to the third cause of action is therefore SUSTAINED with 10 days’ leave to amend after service of this order consistent with the limitation above.

III. Motion to Strike

Under Code of Civil Procedure section 436, subdivision (a), a court may “[s]trike out irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc., § 436, subd. (a).) An irrelevant matter is defined as an immaterial allegation within the meaning of Code of Civil Procedure section 431.10, which is an allegation that is: (1) “not essential to the statement of a claim or defense”; or (2) “neither pertinent to nor supported by an otherwise sufficient claim or defense.” Park relies on the very same arguments advanced in support of his demurrer to argue substantive allegations should be stricken. Of these arguments, the Court was only persuaded by one. As discussed above, the Lunardis’ claim for declaratory relief is improper to the extent they merely seek a declaration that Park’s interference claim lacks merit because they are not strangers to the agreement upon which it is based. Thus, for the reasons previously articulated, the Lunardis’ allegations about the validity of Park’s interference claim will be stricken as irrelevant and improper matters. Park’s motion to strike is, therefore, GRANTED IN PART and DENIED IN PART. The Court solely strikes the following portions of the FACC: (1) p. 9:2–5, from “As such…” through the end of paragraph 27; (2) p. 9:9–16, from “the intertwined…” through the end of paragraph 28; (3) p. 10:4–6, from “that they are not…” through “contract;”; and (4) p. 11:11–12 (prayer, ¶ 1).

The Court will prepare the order.