Lee v. RDR Properties

Filed 7/26/07 Lee v. RDR Properties CA2/1

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

APPEAL from a judgment of the Superior Court of Los Angeles County, Lois A. Smaltz, Judge. Affirmed.

James M. Temple for Plaintiffs and Appellants.

Alberstone & Alberstone, Dale Alberstone and Ronald P. Kaplan for Defendants and Respondents.

______________________

INTRODUCTION

Plaintiffs Seung Lee and Ki Lee appeal from a judgment dismissing with prejudice their lawsuit against defendants RDR Properties, RDR Living Trust, and Robert Dale Resnick for breach of contract, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing arising out of their commercial lease transaction with defendants. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

As more specifically detailed in the complaint allegations set forth below, plaintiffs entered into a commercial lease for property owned by one of the defendants for the purpose of constructing and operating a restaurant. The lease was dated December 15, 2000 (lease) and was based on a September 18, 2000 written lease proposal signed by the parties (September 18 lease proposal). Although the September 18 lease proposal required plaintiffs to make a security deposit of $48,418.20 for six months rent and a $150,000 deposit for construction costs, paragraphs 72 and 72B of the addendum incorporated in the lease combined the rent security deposit and the construction deposit into one deposit to be held by defendants in the amount of $248,418.20. Plaintiffs admit they did not read the lease before executing it. The contractual relationship broke down when plaintiffs failed to make the total deposit required by the lease and failed to pay rent, and then defendants refused to release funds from the deposit account to pay construction costs incurred by plaintiffs. In June 2001, plaintiffs and defendants executed a modification to the lease. After defendants again refused to release funds from the deposit account for construction costs in August 2001, plaintiffs were unable to continue construction of the restaurant and eventually were evicted.

Prior Lawsuit (2002)

Plaintiffs filed a complaint for damages against defendants, CB Richard Ellis and Barry Blake (Blake), in Los Angeles Superior Court No. BC270051 on March 15, 2002, followed by their first amended complaint on March 19, 2002. Plaintiffs alleged breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, and other causes of action. As the factual basis for all the causes of action, plaintiffs made the following allegations:

Plaintiffs, doing business as Blue Crab House, offered to enter into a lease with defendants as landlords for commercial premises located at 100 H Fishermans Wharf, Redondo Beach, California. Plaintiffs planned to construct a seafood restaurant. On or about September 14, 2000, plaintiffs broker, Blake, a Senior Associate at CB Richard Ellis, wrote to plaintiffs that defendants, Robert D. Resnick (Resnick), an individual and as trustee of RDR Living Trust of 1996, RDR Living Trust of 1996, and RDR Properties (individually and collectively, RDR), was prepared to send a formal counter proposal to plaintiffs offer to lease, provided that plaintiffs would agree to a six months rent security deposit and to deposit $150,000 for construction costs into an escrow account requiring the signatures of both plaintiffs and RDR for release of monies to the contractor for constructing alterations to the premises. Plaintiffs agreed to the terms.

On September 18, 2000, plaintiffs and defendants agreed in writing to defendants written counter proposal with the major business and lease terms. A copy of the September 18, 2000 lease proposal was attached as Exhibit A. Specifically, the lease term was to be seven years. Plaintiffs were to deposit six months rent ($48,418.20) as a security deposit (the security deposit). After the restaurant was open for two years, a portion of the security deposit equal to two months rent would be returned to plaintiffs. Plaintiffs were to deposit $150,000 in a construction bank account (the construction account). Release of account funds was to require the signatures of both plaintiffs and defendants and was to occur when the construction contractors needed to be paid. A maximum of three months rent was to be abated during the application for the conditional use permit for the restaurant and rent was to be abated for the first two months after the restaurant was opened to the public. Defendants were to draft the lease agreement.

On December 15, 2000, plaintiffs entered into a lease agreement with defendant Resnick as trustee of the RDR Living Trust of 1996. A copy of the lease was attached as Exhibit B. Plaintiffs did not read the lease but rather relied upon Blakes representations that it had the same terms as the September 18, 2000 lease proposal. Plaintiffs were unaware that the lease terms varied from the proposal as to the security deposit and construction disbursements, primarily as to the dollar amount plaintiffs would be required to pay. It was plaintiffs understanding based on the proposal that the rent security deposit was $48,418.20, that is, six months rent, and the construction funds for payment of contractors and subcontractors was $200,000. Defendants drafted the lease to provide, however, that the entire $248,418.20 was the security deposit for rent before paying the contractors, and defendants refused to cosign any checks to pay the contractors plaintiffs had hired. As a result, plaintiffs were unable to complete construction of the restaurant. Plaintiffs were eventually evicted from the lease premises, and defendants took the entire security deposit of $248,418.20 to secure the rent.

In the sixth cause of action in the prior lawsuit, plaintiffs alleged breach of fiduciary duty against Blake and CB Richard Ellis, Inc. (Ellis defendants). The breach alleged was that plaintiffs understanding regarding the security account being six months rent and the approximately $150,000 for the construction account deposit was based on their reliance on the explanation the Ellis defendants gave them with respect to the negotiations on such matters and the signed September 18, 2000 lease proposal. Plaintiffs also alleged that they signed the lease in reliance on the Ellis defendants representation that the lease drafted by defendants had the same terms as the lease counter proposal. The relief sought was return of the $248,418.20 paid for the security deposit and payment for construction and permit expenses plaintiffs had incurred. As to monetary amounts and their sources, the same relief was sought as to all the causes of action. Other relief sought included rescission of the lease agreement in the second cause of action and punitive damages in the third, fifth and sixth causes of action.

Defendants filed a demurrer to the first amended complaint on March 19, 2002. The trial court sustained the demurrer without leave to amend as to the cause of action for breach of the implied covenant of good faith and fair dealing. As to the breach of contract cause of action and others, the trial court sustained the demurrer with leave to amend.

On June 25, 2002, plaintiffs filed a second amended complaint. It alleged causes of action for breach of contract and breach of fiduciary duty, but not for breach of the implied covenant of good faith and fair dealing. The factual basis was substantively the same as for the original and first amended complaints.

Defendants filed their answer to the second amended complaint on July 30, 2002. At the status/post mediation conference conducted on November 1, 2002, the trial court issued an order to show cause (OSC) why sanctions, including striking plaintiffs pleadings and second amended complaint, should not be issued for plaintiffs failure to appear at the November 1, 2002 status conference and failure to cooperate with scheduling mediation in the case. Plaintiffs did not appear for the OSC hearing on November 18, 2002. The trial court ordered plaintiffs second amended complaint stricken and dismissed the action with prejudice.

Present Lawsuit (2005)

In 2005, represented by new counsel, plaintiffs filed another lawsuit against defendants, Los Angeles Superior Court No. YC051091, and filed the first amended complaint, the operative complaint in this appeal, on October 27, 2005.

Plaintiffs alleged the proposal and the lease as in the prior lawsuit and then added allegations regarding the modification entitled First Amendment to Lease, dated June 19, 2001, which was attached as Exhibit H. The modification related primarily to reallocating dollar amounts such as those to be credited to or not refunded from the security deposit and amounts and conditions under which defendants would disburse from the construction account, and defendants conditionally agreeing to defer payment of $66,000 that they claimed plaintiffs owed them. It also included the plaintiffs acknowledgment that they were in default of the lease and were required to pay overdue rent, operating expenses, and associated late fees, and that all further payments under the lease be made when due by cashiers check.

The causes of action alleged were breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. The breach of fiduciary duty cause of action differed from the cause of action with the same title in the prior lawsuit. In the present lawsuit, plaintiffs allege that defendants had a fiduciary duty to oversee plaintiffs construction deposit in an escrow account and breached that duty by placing it in their own bank account for their own use. Defendants also had a fiduciary duty to use the security deposit against rent and the $150,000 construction deposit for construction costs but appropriated some of the construction money for rent. As in the prior lawsuit, the relief plaintiffs sought included, for each cause of action, the amounts plaintiffs had paid out, represented to be $251,538.93.

Defendants filed a demurrer to the first amended complaint. The trial court sustained the demurrer without leave to amend on January 31, 2006. In its minute order, the trial court stated that [a]n entire claim arising either upon a contract or from a wrong cannot be divided and made the subject of several suits. Then the court found that as to breach of contract, the judgment in the prior lawsuit was determinative, in that the modification is part of the same contract which was the subject of the prior lawsuit and the alleged breaches all occurred prior to plaintiffs filing of the prior lawsuit. Similarly, the cause of action for breach of the implied covenant of good faith and fair dealing had been dismissed with prejudice in the prior lawsuit and could not be brought again in the present lawsuit. As to the cause of action for breach of fiduciary duty, the trial court found that defendants had no fiduciary duty to plaintiffs, either as a landlord or an escrow holder. The written order was issued February 10, 2006. The present lawsuit was dismissed with prejudice on March 7, 2006.

DISCUSSION

Plaintiffs contend that the causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing are not barred by res judicata and that each alleges facts sufficient to state a cause of action. Plaintiffs further contend that the trial court erred in ruling that defendants had no fiduciary duty to them as a landlord or escrow holder and therefore, the complaint did not allege facts sufficient to state a cause of action for breach of fiduciary duty. We disagree with plaintiffs contentions and affirm the judgment.

Standard of Review

On appeal from a judgment of dismissal with prejudice based upon the trial courts sustaining a demurrer without leave to amend, we first review the complaint de novo in order to determine whether it alleges facts sufficient to state a cause of action under any legal theory. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879.) If we conclude that the complaint does not state a cause of action, then the trial court properly sustained the demurrer. (Ibid.) We then review whether the trial court abused its discretion by not granting plaintiffs leave to amend the complaint. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In both steps of our review, we must assume the truth of the complaints properly pleaded or implied factual allegations and give the complaint a reasonable interpretation, reading it as a whole and its provisions in context. (Ibid.)

Res Judicata

A cause of action may be barred from litigation in an action by res judicata. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896-897 (Mycogen).) Res judicata, or claim preclusion, prevents a party from relitigating in a second lawsuit the same cause of action on which a final judgment on the merits was rendered in a prior lawsuit between the same parties or parties in privity with them. (Id. at p. 896.) The doctrine applies to a matter which the party has litigated or had an opportunity to litigate in a prior lawsuit, and should not be permitted to litigate [] again to the harassment and vexation of [the partys] opponent. [Citation.] (Pollock v. University of Southern California (2003) 112 Cal.App.4th 1416, 1427.) A judgment rendered after sustaining a general demurrer such as for failure of the facts alleged to state a cause of action may be deemed a judgment on the merits and conclusive in a subsequent lawsuit where the same facts are pleaded in the second action. (Goddard v. Security Title Ins. & Guar. Co. (1939) 14 Cal.2d 47, 52.) A judgment of dismissal with prejudice imposed as a sanction has been held to be a judgment on the merits. (See Kahn v. Kahn (1977) 68 Cal.App.3d 372, 382-383 [dismissal with prejudice as bar to a second action where dismissal was sanction for a recalcitrant plaintiff who refused to comply with a discovery order].)^[1]

Several factors in the present lawsuit are consistent with elements required to determine that res judicata bars the causes of actions alleged for breach of contract and breach of the implied covenant of good faith and fair dealing (bad faith breach). First, the parties are the same in the present lawsuit as in the prior lawsuit. (Mycogen, supra, 28 Cal.4th at p. 896.) The breach of contract and the bad faith breach causes of action were based on the same facts alleged in the original and amended complaints in the prior lawsuit as well as in the first amended complaint in the present lawsuit. (Ibid.)

Plaintiffs principal contention is res judicata does not apply, in that the prior lawsuit and its causes of action were based on the disparity between the September 18 lease proposal and the lease agreement caused by defendants, but the present lawsuit and its causes of action at issue on appeal were based on defendants breach of the modification to the lease agreement. They contend that, as a result, their primary right on which the present lawsuit is based is different from the primary right underlying the prior lawsuit and therefore, the causes of action are not subject to res judicata. As supporting authority, they cite Federation of Hillside Canyon Assns. v. City of Los Angeles (2004) 126 Cal.App.4th 1180 at page 1203, and its discussion of the holding of the California Supreme Court in Mycogen, supra, 28 Cal.4th at pages 907-908, that a contract plaintiffs primary right is the right to be free from all injuries arising from a particular breach of contract. We disagree with plaintiffs contentions.

Contrary to plaintiffs contentions, the primary right theory supports sustaining defendants demurrer without leave to amend as to all three causes of action on the basis of res judicata. The primary right is the plaintiffs right to be free from the particular injury suffered, and one injury gives rise to only one claim for relief, even where there are multiple legal theories upon which recovery may be obtained. (Crowley v. Katleman (1994) 8 Cal.4th 666, 681-682.) The primary right theory is a theory of code pleading that has long been followed in California. It provides that a cause of action is comprised of a primary right of the plaintiff, a corresponding primary duty of the defendant, and a wrongful act by the defendant constituting a breach of that duty. [Citation.] The most salient characteristic of a primary right is that it is indivisible: the violation of a single primary right gives rise to but a single cause of action. (Id. at p. 681.) The rationale for the rule against splitting a cause of action is that the defendant should be protected against vexatious litigation; and [] that it is against public policy to permit litigants to consume the time of the courts by relitigating matters already judicially determined or by asserting claims which properly should have been settled in some prior action. . . . It is not the policy of the law to allow a new and different suit between the same parties, concerning the same subject-matter, that has already been litigated; neither will the law allow the parties to trifle with the courts by piecemeal litigation. (Wulfjen v. Dolton (1944) 24 Cal.2d 891, 894-895.)

As plaintiffs assert in their opening brief, in the first amended complaint, the modification was to an existing contract between the parties, namely, the lease which was based in part on the September 18 lease proposal agreement. Thus, by plaintiffs own admission, the modification was a part of the lease agreement, not a new agreement between the parties. The letter setting forth the modification was incorporated in plaintiffs first amended complaint as an exhibit. Its plain language supports an interpretation that the modification was not a separate contract. It was entitled First Amendment to Lease Agreement. The substance of the modification indicates that it is intended to amend the December 15, 2000 lease agreement, not take its place. It states that this First Amendment to Lease . . . shall confirm our agreement to modify and amend your lease dated December 15, 2000 . . . and for payment of your past due charges . . . under your lease.

At the hearing on the demurrer, the trial court stated that the modification occurred prior to the time of [the] previous action and the alleged breaches occurred prior to the time of [the] previous action. And when [plaintiffs] alleged the breach of the contract, it was not a subsequent contract. That modification was part of the overall contract. There were three documents that formed [their] contract. And that was the state of the affairs as [plaintiffs] alleged it as of the date [they] filed the prior lawsuit. [] So if [they] elected not to pursue a claim for breach on some part of that contract, that was [their] choice for whatever reason. [They] cant split it, sue on some breaches and not on others. And thats what the result would be here. We agree with the trial court that the distinction asserted by plaintiffs has the earmarks of an impermissible attempt to split each cause of action in order to use the same primary right as the basis for two separate lawsuits. (Crowley v. Katleman, supra, 8 Cal.4th at pp. 681-682.)

The facts regarding all three causes of action related to the same claimed wrongs. One alleged breach was that, based on the lease provisions, defendants required plaintiffs to pay amounts for operating expenses and late rental payment charges in addition to the security deposit of $48,418.20 and the construction deposit of $150,000 expressly required by the September 18 lease proposal and paid by plaintiffs. The other alleged breach was that defendants wrongfully included lease agreement provisions pursuant to which the security deposit operated to pay defendants for unpaid rent first before allowing release of any funds for construction costs and based upon the provisions, defendants refused to release funds to pay plaintiffs contractors.

The relief sought on the three causes of action was substantially the same, excluding any requests for punitive damages or interest. Plaintiffs requested payment for the amounts plaintiffs paid to defendants as the security deposit and construction deposit as well as amounts expended by plaintiffs on construction and permits. The exact dollar amounts requested differed slightly between the complaints in the prior lawsuit and the first amended complaint in the present lawsuit, due to the modification provisions reallocating certain amounts plaintiffs were required to pay promptly and those for which payment was conditionally deferred.

By plaintiffs admissions, the modification and the breaches plaintiffs alleged in the present cause of action all occurred prior to the time plaintiffs filed the prior lawsuit. They thus could have been raised in the prior lawsuit. [T]he rule is that the prior judgment is res judicata on matters which were or could have been raised in the prior lawsuit. (Tensor Group v. City of Glendale (1993) 14 Cal.App.4th 154, 160.) Accordingly, the causes of action in the present lawsuit are barred by res judicata. (Wulfjen v. Dolton, supra, 24 Cal.2d at pp. 894-895; Federation of Hillside & Canyon Assns. v. City of Los Angeles, supra, 126 Cal.App.4th at p. 1202; Tensor Group, supra, at p. 160.) The demurrer therefore was properly sustained without leave to amend. (Cantu v. Resolution Trust Corp., supra, 4 Cal.App.4th at p. 879.)

Breach of Fiduciary Duty

As to the breach of fiduciary cause of action, as the trial court found, defendants had no fiduciary duty to plaintiffs either as a landlord or an escrow holder. Plaintiffs cite no authority for their assertion that a landlord has any fiduciary duty to a tenant with respect to enforcement of the lease. An escrow holder is a fiduciary to the parties involved in the escrow. (Peterson Development Co. v. Torrey Pines Bank (1991) 233 Cal.App.3d 103, 117.) There is no evidence, however, that defendants could qualify as, or acted as, an escrow holder for plaintiffs. There was no escrow account. An escrow holder must be a third party, and not one of the parties to the transaction. (Civ. Code,  1057; Peterson Development Co., supra, at p. 118.)

Existence of a fiduciary duty is an essential element in a cause of action for breach of a fiduciary duty. (Mosier v. Southern Cal. Physicians Ins. Exchange (1998) 63 Cal.App.4th 1022, 1044.) As discussed above, defendants had no fiduciary duty to plaintiffs on the bases alleged by plaintiffs in the cause of action. Thus, the allegations could not be amended to state a cause of action for breach of fiduciary duty, and therefore, the trial court did not abuse its discretion in sustaining the demurrer without leave to amend. (Denham v. Superior Court (1970) 2 Cal.3d 557, 566.)

For the reasons discussed above, we conclude that the demurrer was properly sustained and that the trial court did not abuse its discretion in denying leave to amend. Inasmuch as the demurrer resolved all the issues presented by the litigation, the judgment of dismissal with prejudice was proper.

The judgment is affirmed.

NOT TO BE PUBLISHED

JACKSON, J.^*

We concur:

MALLANO, Acting P. J.

ROTHSCHILD, J.

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^[1] Inasmuch as plaintiffs do not contend that the dismissal of the prior lawsuit was not a judgment on the merits, we deem any such contention waived. (Uhrich v. State Farm Fire & Casualty Co. (2003) 109 Cal.App.4th 598, 612-613.)

^* Judge of the Los Angeles Superior Court assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.