Smyth v. Berman ( 2019 )

Filed 1/10/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
JAMES SMYTH et al., B286609
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC628896)
v.
DARYL ANN BERMAN et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of Los
Angeles County. Michael P. Linfield and Richard E. Rico,
Judges. Affirmed.
Alston & Byrd LLP, David S. MacCuish and Coral Del Mar
Lopez, for Plaintiffs and Appellants.
Barak Lurie, Michele A. Reikes and Brent A. Kramer for
Defendants and Respondents Carmen Santa Maria and Pamela
Ann Masters.
Yourist Law Corporation, APC, Bradley J. Yourist and
Daniel J. Yourist, for Defendant and Respondent Daryl Ann
Berman.
******
A tenant rented a building for his audio recording business
under several written leases, the most recent of which contained
an undefined “right of first refusal to purchase.” After the
landlord signed a contract to sell the building to a third party, the
tenant submitted an offer to purchase it, but the landlord
rejected the offer because the third party’s offer was for
“considerably more money.” The tenant sued the landlord, the
landlord’s real estate agent and the third party. After sustaining
demurrers with leave to amend to two complaints, the trial court
sustained a demurrer without leave to amend. The tenant now
appeals, and in so doing, raises a question of first impression:
Does a right of first refusal contained in a written lease expire
when that leasehold ends and the tenant becomes a “holdover”
tenant, and when the lease specifies “the continuing [holdover]
tenancy will be from month to month”? We conclude that a right
of first refusal is not an essential term that carries forward into a
holdover tenancy unless the parties so indicate. Because there is
no such indication in this case and because the tenant’s
alternative theories for enforcing the right of first refusal lack
merit, we affirm the dismissal of this case.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. Commercial leases
Plaintiff James Smyth (Smyth) owns and operates plaintiff
Awesome Audio (Awesome), an audio recording company
(collectively, plaintiffs). Since the mid-1990’s, Smyth has leased
5725 Cahuenga Boulevard in North Hollywood (the Property) as
Awesome’s place of business. In 1999, Smyth bought the
property next door as his residence. Also, in 1999, defendant
2
Daryl Ann Berman (Berman) bought the Property and has since
been plaintiffs’ landlord.
Plaintiffs and Berman signed their most recent written
lease on December 2, 2011 (the 2011 Lease). By its terms, the
2011 Lease was set to expire on December 15, 2012, but
contained an option to renew the lease for an additional three
years. The lease also granted plaintiffs the right to make
“alterations and improvements” to the Property and to sublet the
Property as long as they obtained Berman’s consent. The 2011
Lease further provided: “If the Tenant remains in possession
after this lease ends, the continuing tenancy will be from month
to month.”
In each of the two written leases that are part of the record
in this case, Smyth inserted a handwritten term granting him an
option to purchase the Property: In a 1999 lease, he wrote in
“first option to purchase”; in the 2011 Lease, he wrote in “Right of
1st refusal to purchase.” Both Berman and Smyth initialed the
addition to the 2011 Lease.
B. Smyth’s July 2016 offer to purchase the Property
On June 29, 2016, defendant Carmen Santa Maria (Santa
Maria) submitted a written offer to buy the Property from
Berman. In that offer, Santa Maria offered to pay $60,000 in
cash and to have Berman loan him $440,000 that would be repaid
over 10 years with four percent interest. If the loan were repaid
over the full 10 year period, Santa Maria would ultimately pay
Berman $676,000, but Santa Maria would not be penalized if it
elected to repay the loan early (even though it would mean
Berman would receive less interest).
Between July 12, 2016 and July 14, 2016, Smyth’s attorney
and Berman exchanged several emails. In an email to Berman,
3
plaintiffs’ attorney purportedly summarized an oral conversation
in which Berman said that Santa Maria’s offer had been
cancelled and agreed “to give [Smyth] the right of first refusal to
purchase the property.” Berman responded that she had
“spoke[n] with [her real estate agent] and requested that he
respond with the contracts and other requests and we hope that
this can be worked out quickly.” Plaintiffs’ attorney expressed
her satisfaction that the parties were “moving forward with this
transaction.” Berman responded: “I have retained council [sic].”
On August 4, 2016, plaintiffs submitted an offer to buy the
Property for $505,000, comprised of $101,000 in cash and the
balance from a $404,000 loan from a third-party lender.1 In
emails sent on August 10, 2016 and August 12, 2016, Berman
rejected plaintiffs’ offer, explaining that Santa Maria’s offer was
“higher” and for “considerably more money.”
Berman moved forward with selling the property to Santa
Maria and his business partner, defendant Pamela Ann Masters,
and they recorded a grant deed and deed of trust on August 19,
2016.
II. Procedural Background
A. Original complaint and First Amended
Complaint
1. Complaints
On August 16, 2016, and thus three days before Santa
Maria and his partner recorded their grant deed and deed of
1 Plaintiffs made a prior offer on June 6, 2016, but the terms
of this offer are not part of the record.
4
trust, plaintiffs sued Berman2 for (1) specific performance of the
right of first refusal, (2) breach of contract for not honoring the
right of first refusal, and (3) intentional misrepresentation and
fraud on the ground that Berman never had any “intention of
fulfilling the right of first refusal.”
On October 11, 2016, plaintiffs filed their First Amended
Complaint (FAC). Plaintiffs added four new defendants—
Berman’s real estate agent, the agent’s agency, Santa Maria and
Santa Maria’s business partner. Plaintiffs modified the
intentional misrepresentation and fraud claim to add an
additional allegation—namely, that Berman had lied to Smyth
about the cancellation of Santa Maria offer. Plaintiffs also added
six new claims: (1) tortious interference with the contractual
relations between plaintiffs and Berman (against Berman’s real
estate agent, the agency, Santa Maria and Berman); (2)
negligence (against the real estate agent and agency)3; (3)
cancellation of instruments due to fraud (against the real estate
agent, Santa Maria and Santa Maria’s business partner); (4) civil
conspiracy (against Berman, the real estate agent, the agency,
and Santa Maria); (5) declaratory relief (against Berman, Santa
Maria and Santa Maria’s business partner); and (6) quiet title
(against Berman, Santa Maria and Santa Maria’s business
partner).
2 Plaintiff also sued Berman’s husband, even though he had
died in 2001.
3 This claim is not part of this appeal, as the real estate
agent and agency did not demur to plaintiffs’ Third Amended
Complaint.
5
2. Demurrers to FAC
Santa Maria, his business partner and Berman each
separately demurred to the FAC. At the hearing on the
demurrer, plaintiffs’ attorney referred to plaintiffs’ tenancy in
2016 as a “holdover tenancy.”
The trial court sustained the demurrer to the FAC with
leave to amend. The court observed that all of plaintiffs’ claims
“appear to be based upon” the valid exercise of a right of first
refusal. The court went on to find that plaintiffs possessed no
right to first refusal at the time of their August 2016 offer
because (1) plaintiffs were “holdover” tenants by August 2016
because the 2011 Lease—even if extended by three years—had
expired on December 16, 2015; and (2) the right of first refusal
contained in the 2011 Lease did not carry forward as a term of
the “holdover” tenancy under Spaulding v. Yovino-Young (1947)
30 Cal. 2d 138 (Spaulding).
B. Second Amended Complaint
1. The complaint
The Second Amended Complaint (SAC) named the same
defendants and alleged the same nine claims, but for the first
time alleged plaintiffs and Berman had entered into an “oral
agreement” in November 2015 “to extend the lease for one year to
December 201[6] under the same terms and conditions,”
including the term granting plaintiffs a right of first refusal.
2. Demurrers to SAC
Santa Maria and Berman (collectively, defendants)
separately demurred to the SAC.
The trial court sustained both demurrers with leave to
amend. In ruling on Santa Maria’s demurrer, the court
concluded that plaintiffs’ allegation in the SAC that the 2011
6
Lease had been renewed through December 2016 was factually at
odds with plaintiffs’ allegation in the FAC that the 2011 Lease
had expired in December 2015; “this latest allegation,” the court
found, “falls squarely under the ‘sham-pleading’ doctrine” that
must be rejected in the absence of any explanation for the factual
discrepancy. The court went on to conclude that, even if it were
not to reject plaintiffs’ allegation of an oral lease extension, the
oral extension was nonetheless invalid because (1) it was barred
by the statue of frauds, and (2) Berman was not estopped from
asserting the statute of frauds because plaintiffs had not made
any “serious change in position”—a requirement for the
application of estoppel—as a result of the oral extension. The
court subsequently sustained Berman’s Demurrer for
substantially the same reasons.
C. Third Amended Complaint
1. The complaint
The Third Amended Complaint (TAC) named the same
defendants and alleged the same nine claims but elaborated on
the oral lease extension theory and added a new theory for why
the right of first refusal was still valid in August 2016.
With regard to the oral lease extension, plaintiffs in the
TAC alleged that (1) the oral lease extension satisfied the statute
of frauds because the extension was confirmed in a letter by
Smyth in December 2015 as well as in other “numerous writings
[and] confirmations by Berman,” which were sufficient because
the parties had an “established practice, custom and conduct to
have one person memorialize their discussions in writing,” (2)
Berman was estopped from alleging the statute of frauds because
plaintiffs had suffered detriment as a result of the oral lease
extension because they stayed on as tenants, because they had
7
made improvements to the Property, and because Smyth had
purchased the property next door, and (3) plaintiffs had a valid
explanation for alleging the oral lease extension rather than a
holdover tenancy in the SAC—namely, that Smyth had at some
point after filing the FAC “located documentary evidence” of the
oral lease extension. Plaintiffs attached a December 2015 letter
from Smyth as an exhibit.
For the first time, plaintiffs alleged that Smyth and
Berman had, by virtue of the July 2016 email exchange between
Smyth’s lawyer and Berman, entered into a “separately
enforceable” contract to grant plaintiffs a right of first refusal on
the Property. Plaintiffs alleged that the consideration for this
new contract was Smyth’s expenditure of “time, energy and
money to develop and submit” his August 2016 offer as well as
Berman’s receipt of Smyth’s better offer.
2. Demurrers to the TAC
Santa Maria and Berman separately demurred to the TAC.
The trial court sustained both demurrers without leave to
amend. The court ruled that a right of first refusal did not exist
in August 2016 by virtue of an oral extension of the 2011 Lease
because (1) such an oral extension was still invalid under the
statute of frauds because the December 2015 letter signed by
Smyth did not satisfy the statute of frauds’s requirement of a
writing “signed by Berman or her agent” and because the other,
unspecific writings did not reference any right of first refusal,
and (2) Berman was not estopped from asserting the statute of
frauds as a defense because none of the actions plaintiffs alleged
as detrimental reliance—paying rent, making improvements or
buying the property next door—happened “after or because of the
alleged December 2015 [oral] extension.” The court also ruled
8
that a right of first refusal did not exist in August 2016 by virtue
of any July 2016 contract. Specifically, the court concluded that
plaintiffs had not detrimentally relied upon any such promise by
Berman because (1) plaintiffs had started their efforts to make a
counter-offer long before the alleged July 2016 promise, and (2)
they had not changed their position by foregoing any legal
remedies (as evidenced by the currently pending lawsuit).
Because this was plaintiffs’ “fourth attempt to plead a valid
complaint” and because they had not articulated how a fifth
attempt might succeed, the court denied leave to amend.
D. Judgment and appeal
After the trial court entered a judgment of dismissal,
plaintiffs filed a timely notice of appeal.
DISCUSSION
Plaintiffs challenge the dismissal of the TAC on demurrer.
“In reviewing a trial court’s order sustaining a demurrer without
leave to amend, we must ask (1) whether the demurrer was
properly sustained, and (2) whether leave to amend was properly
denied.” (Schep v. Capital One, N.A. (2017) 12 Cal.App.5th 1331,
1335 (Schep).) The first question requires us to independently
examine “‘whether [the complaint] alleges facts sufficient to state
a cause of action.”’ (Lee v. Hanley (2015) 61 Cal. 4th 1225, 1230;
Centinela Freeman Emergency Medical Associates v. Health Net
of California, Inc. (2016) 1 Cal.5th 994, 1010.) In so doing, we
accept as true “all material facts properly pled” in the operative
complaint. (Winn v. Pioneer Medical Group, Inc. (2016) 63
Cal. 4th 148, 152.) We also accept as true all materials properly
“subject to judicial notice,” and disregard any allegations in the
operative complaint inconsistent with the judicially noticed facts.
(Schep, at p. 1335; Evans v. City of Berkeley (2006) 38 Cal. 4th 1,
9
20.) “The second question ‘requires us to decide whether “‘“there
is a reasonable possibility that defect [in the operative complaint]
can be cured by amendment.”’”” (Schep, at p. 1335.)
The TAC alleges nine causes of action, and the eight of
them at issue in this appeal ultimately turn on whether plaintiffs
possessed an operative right of first refusal in August of 2016.4
The breach of contract, specific performance and tortious
interference with a contractual relation causes of action each
allege that Berman did not honor the right of first refusal, which
necessarily presupposes its validity at that time. (Oasis West
Realty, LLC v. Goldman (2011) 51 Cal. 4th 811, 821 [breach of
contract claim requires a valid contract and breach thereof];
Darbun Enterprises, Inc. v. San Fernando Community Hospital
(2015) 239 Cal. App. 4th 399, 409 [“specific performance” requires,
among other things, proof of “the elements of a standard breach
of contract”]; Pacific Gas & Electric Co. v. Bear Sterns & Co.
(1990) 50 Cal. 3d 1118, 1126 [tortious interference tort requires,
among other things, proof of a “valid contract between plaintiff
and a third party”].) Contrary to what plaintiffs allege, the
intentional misrepresentation / fraud cause of action alleges that
Berman never had the “intention of fulfilling the right of first
refusal” and, relatedly, that Berman falsely reported that she had
canceled Santa Maria’s offer to spend time exercising that right,
which necessarily presupposes the validity of that right (Lazar v.
Superior Court (1996) 12 Cal. 4th 631, 638 [intentional
misrepresentation requires proof of a “false representation,
4 As noted above, plaintiffs’ negligence claim names only the
real estate agent and agency, neither of whom demurred to that
claim.
10
concealment, or nondisclosure”]), and the cancellation of
instruments cause of action similarly alleges that Santa Maria’s
grant deed and deed of trust are void or voidable due to such
intentional misrepresentation and fraud, and thus similarly
turns on the validity of the right of first refusal (U.S. Bank
National Assn. v. Naifeh (2015) 1 Cal.App.5th 767, 778
[cancellation of instrument requires, among other things, proof
that “the instrument is void or voidable due to, for example,
fraud”]). The quiet title cause of action alleges that Berman’s
sale of the Property to Santa Maria and his business partner is
invalid because Berman did not honor the right of first refusal
(Code Civ. Proc., § 760.020 [quiet title claim requires proof of an
“adverse claim[] to real . . . property]; accord, South Shore Land
Co. v. Petersen (1964) 226 Cal. App. 2d 725, 740-741 [same]). And
the conspiracy and declaratory relief causes of action are
necessarily derivative of one or more of the above described
causes of action (Applied Equipment Corp. v. Litton Saudi
Arabia, Ltd. (1994) 7 Cal. 4th 503, 510-11 [civil conspiracy is “not
a cause of action” unto itself, and instead “imposes liability” for
“shar[ing]” a “common plan or design” in perpetrating another
tort]; Ball v. FleetBoston Financial Corp. (2008) 164 Cal. App. 4th
794, 800 [declaratory relief claim fails when it is “‘wholly
derivative’” of other failed claims]), and hence also hinge on the
validity of the right of first refusal.
In the FAC, SAC and operative TAC, plaintiffs have alleged
three theories under which they had a valid right of first refusal
in August 2016: (1) as holdover tenants after the 2011 Lease
expired; (2) pursuant to an oral extension of the 2011 Lease; and
(3) pursuant to a separate, July 2016 contract that granted them
a right of first refusal. We will examine each.
11
I. Right of First Refusal Under A Holdover Tenancy
When a lease expires but the tenant remains in possession,
the “relationship” of the landlord and tenant “changes.” (Schmitt
v. Felix (1958) 157 Cal. App. 2d 642, 647 (Schmitt).) The “lessor-
lessee relationship” based on “‘privity of contract’” ends, and a
new “landlord”-“tenant” relationship based on “‘privity of estate’”
springs into being by the operation of law. (Ibid.; Civ. Code,
§ 1945.) This new “hold-over” tenancy is “presumed” to continue
“[under] the same terms” contained in the now-expired lease
“except [as those terms] may have been . . . modified” by the
landlord and tenant. (Civ. Code, § 1945; Miller v. Stults (1956)
143 Cal. App. 2d 592, 598.) This case tees up the question: If the
expired lease contained a right of first refusal, is that right one of
the “terms” that presumptively carries forward into the holdover
tenancy?
We conclude that the answer is “no,” and do so for two
reasons.
First, the only terms from the expired lease that are
presumed to carry forward into a holdover tenancy are the
“essential” terms of that lease (Spaulding, supra, 30 Cal.2d at p.
141)—that is, the “term[s] or condition[s] of the demise” such as
the “‘amount and time of payment of rent’” (ibid.; Shenson v.
Shenson (1954) 124 Cal. App. 2d 747, 753). In Spaulding, supra,
30 Cal.2d at p. 141, our Supreme Court held that an option to
purchase property set forth in a lease was a “separate and
distinct right[] and power[]” that was not an “essential covenant”
of that lease, and thus presumptively did not carry forward into a
holdover tenancy. Spaulding’s logic applies with equal force to a
right of first refusal. That is because a right of first refusal is a
species of option to purchase: It is a conditional option that
12
entitles the holder, if the seller decides to sell property and has
obtained an acceptable, bona fide offer from a third party buyer,
to make an offer that meets or beats the third party’s offer. (Bill
Signs Trucking, LLC v. Signs Family Limited Partnership (2007)
157 Cal. App. 4th 1515, 1523; Campbell v. Alger (1999) 71
Cal. App. 4th 200, 206-207.) Of course, the parties to a lease
certainly have the power to rebut the general presumption that a
right of first refusal does not carry forward into a holdover
tenancy by expressing a contrary intent. (Waller v. Trunk Ins.
Exchange, Inc. (1995) 11 Cal. 4th 1, 18 [“‘mutual intention’” of the
parties controls]; Civ. Code, §1636; see, e.g., Central Building,
LLC v. Cooper (2005) 127 Cal. App. 4th 1053, 1062-1063 [lease
guaranty carries forward because lease specified that guaranty
was applicable notwithstanding extensions of the lease].) But
Berman and plaintiffs did not do so in the 2011 Lease, which
merely provided that any “continuing [holdover] tenancy will be
from month to month.” This holdover provision does not
incorporate, or even mention, the right of first refusal or, for that
matter, any other term of the 2011 Lease. (Cf., e.g., Last v.
Puehler (Wis. Ct. App. 1961) 19 Wis. 2d 291, 296 (Last) [lease
incorporated “the terms of the original lease” into any holdover
tenancy]; accord, Staudigl v. Harper (1946) 76 Cal. App. 2d 439,
441-442 [option to purchase does not carry forward when prior
lease specified that option was to be exercised “on or before the
expiration” of the lease].)
Second, a rule presuming that rights of first refusal do not
carry forward into holdover tenancies furthers the public policy
favoring the stability of commercial tenancies. Holdover
tenancies exist to ensure stability because they are a mechanism
by which tenants may remain in possession without disruption,
13
albeit typically only on a month to month basis. (Civ. Code,
§ 1945.) If a right of first refusal presumptively carried forward
into a holdover tenancy, a landlord wishing to nullify that right
could easily do so by evicting the holdover tenant and selling the
property one day later, both of which would be within its rights
as the landlord of a holdover tenant. This “creates an incentive
for landlords to evict holdover tenants as soon as possible”
(Bateman v. 317 Rehoboth Ave., LLC (Del. Ch. Ct. 2005) 878 A.2d
1176, 1184 (Bateman)), a result at odds with the stability of
commercial tenancies. The contrary rule that carries such
purchase options forward only if the parties so specify avoids this
result, thereby making holdover tenancies more stable.
Plaintiffs make what boil down to three categories of
arguments in favor of their position that rights of first refusal
should automatically carry forward into holdover tenancies.
First, plaintiffs urge us to follow the precedent of several
states holding that rights of first refusal (or other purchase
options) presumptively carry forward into holdover tenancies. To
be sure, the state courts are split on this issue. The majority rule
is the rule we adopt today. (Nevala v. McKay (Mont. 1978) 178
Mont. 327, 332 (Nevala) [right of first refusal presumptively does
not carry forward]; Brittany Sobery Family Ltd. Partnership v.
Coinmach Corp. (Mo. Ct. App. 2013) 392 S.W.3d 46, 49-50 [same];
Bateman, supra, 878 A.2d at p. 1184 [same]; Wanous v. Balaco
(Ill. 1952) 412 Ill. 545, 548-549 [option to purchase presumptively
does not carry forward]; Glocksine v. Malleck (Mich. 1963) 372
Mich. 115, 119, 125 [same]; Carroll v. Daigle (N.H. 1983) 123
N.H. 495, 499-500 [same]; Wright v. Barclay (Neb. 1949) 36
N.W.2d 645, 647-648 (Wright) [same]; Vernon v. Kennedy (N.C.
Ct. App. 1981) 273 S.E.2d 31, 32 [same]; Andreula v. Slovak
14
Gymnastic Union Sokol Assembly No. 223 (N.J. Ct. App. 1947)
140 N.J. Eq. 171, 174 (Andreula) [same].) The minority rule
presumes that a right of first refusal or other option to purchase
carries forward into a holdover tenancy unless a contrary intent
appears. (Kutkowski v. Princeville Golf Course, LLC (Haw. 2013)
129 Haw. 350, 360 [applying this rule to a right of first refusal];
Last, supra, 19 Wis. 2d at pp. 296-297 [same]; Tubbs v.
Hendrickson (N.Y. Sup. Ct. 1976) 390 N.Y.S.2d 791, 792-793
[same]; Gressitt v. Anderson (Md. Ct. App. 1947) 187 Md. 586,
589 (Gressitt) [applying this rule to a purchase option].) Both the
majority and minority rule defer to the parties’ expressed intent
(White Castle System, Inc. v. Blohm (2d Cir. 1986) 807 F.2d 313,
315) and presume that the parties intend only for the terms
“essential” or “integral” to the expired lease to carry forward into
the holdover tenancy (Wright, at p. 647; Last, at p. 296). The
rules differ only insofar as the majority rule presumes that a
right of first refusal or option to purchase is not essential, while
the minority rule presumes that it is. (Compare Wright, at p. 647
[not “essential”]; Andreual, at p. 174 [“collateral”] with Last, at p.
296 [“integral”]; Gressitt, at p. 589 [part of “indivisible contract”].)
Spaulding’s holding that a purchase option is “not an essential
covenant” places California firmly in the camp following the
majority rule.
Second, plaintiffs contend that a right of first refusal is
different from a purchase option, so Spaulding’s presumptive rule
against carrying forward the latter into a holdover tenancy
should not extend to the former. A presumption against carrying
forward options to purchase makes sense, as Spaulding itself
noted, because such options obligate a landowner to accept an
offer at a fixed price, and it is reasonable to presume that the
15
parties did not intend such an offer to continue “indefinite[ly]”
under a holdover tenancy. (Spaulding, supra, 30 Cal.2d at pp.
143-144.) Rights of first refusal, by contrast, obligate a
landowner to accept an offer only after it has decided to sell and
only if the right holder’s offer meets or exceeds a competing offer;
thus, plaintiffs reason, rights of first refusal—unlike options to
purchase—do not “tie” the landowner into accepting an offer at “a
fixed price which may have become inadequate by lapse of time”
during the holdover tenancy. (Accord, Tubbs, supra, 390
N.Y.S.2d at p. 793.) A presumption against carrying forward a
right of first refusal into a holdover tenancy, plaintiffs conclude,
is accordingly less compelling. This argument is not without
persuasive force, but it does warrant creating a special rule for
rights of first refusal because a right of first refusal is still, at
bottom, a type of purchase option, (Campbell, supra, 71
Cal.App.4th at pp. 206-207) and because the chief rationale
underlying Spaulding’s presumption—ensuring stability in
commercial tenancies—applies with equal force to both rights of
first refusal and purchase options. Put differently, the absence of
a further reason not to carry forward rights of first refusal does
not undermine the other reasons for not doing so.
Third, plaintiffs argue that Spaulding’s presumption may
be rebutted by proof of the parties’ contrary intent, and that
intent is typically a question of fact that should not be resolved
on a demurrer. Although intent is often a factual issue that can
render summary judgment inappropriate (Alexander v.
Codemasters Group Limited (2002) 104 Cal. App. 4th 129, 147,
disapproved on another ground in Reid v. Google, Inc., (2010) 50
Cal. 4th 512, 524), here we are assessing the sufficiency of the
allegations in the operative complaint as well as the documents
16
attached thereto, and those sources point to one conclusion:
Plaintiffs and Berman did not intend to make the right of first
refusal a term of any holdover tenancy. (Accord, Hoffman v. 162
North Wolfe, LLC (2014) 228 Cal. App. 4th 1178, 1194 (Hoffman)
[noting that factual issue of reliance “‘may be decided as a matter
of law if reasonable minds can only come to only one conclusion
based on the facts.’ [Citation.]”].)
II. Right of First Refusal Under Oral Extension of the
2011 Lease
When a plaintiff files an amended complaint, it may not
“omit harmful allegations . . . from previous complaints.” (Deveny
v. Entropin, Inc. (2006) 139 Cal. App. 4th 408, 425-426; Womack v.
Lovell (2015) 237 Cal. App. 4th 772, 787); Hendy v. Losse (1991) 54
Cal. 3d 723, 742-743 (Hendy); Aryeh v. Canon Business Solutions,
Inc. (2013) 55 Cal. 4th 1185, 1189 fn. 1 (Aryeh).) Unless the
plaintiff provides a “plausible” explanation for dropping the
harmful allegations (such as the need to correct a mistaken
allegation or to clarify ambiguous facts), the trial court will take
judicial notice of the harmful allegations and disregard the new
and contrary allegations. (Owens v. Kings Supermarket (1988)
198 Cal. App. 3d 379, 383-384.) This is known as the “sham
pleading” doctrine and prevents the abuse of process that would
arise if parties could circumvent prior adverse rulings by
pleading the underlying facts in the alternative. (Womack, at p.
787; Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719,
733 fn. 3.)
Plaintiffs’ allegations in the SAC and TAC that the 2011
Lease (and, specifically, its right of first refusal) was still in effect
in 2016 by virtue of an oral extension of that lease in December
2015 is invalid under the “sham pleading” doctrine. That
allegation is factually inconsistent with plaintiffs’ prior
17
allegation, in the original complaint and FAC, that their lease
with Berman ended in 2015 upon expiration of the three-year
extension contained in the 2011 Lease. Because plaintiffs
alternatively alleged no extension and then an extension, they
changed the facts. (Accord, Schmit, supra, 157 Cal.App.2d at p.
647 [holding that a holdover tenancy is fundamentally different
from a tenancy based on a lease].) What is more, plaintiffs’
explanation for why they changed the facts is not plausible.
Plaintiffs allege that they did not initially allege the oral lease
extension because they did not “locate[] documentary evidence” of
that extension until after the FAC was filed. But this is not
plausible: Smyth alleges that he was a party to the oral lease
extension, which means he was present when it was created; he
would accordingly know about the extension whether or not he
later found a document memorializing it.
Plaintiffs offer three reasons why their oral lease allegation
is not a sham pleading.
First, they argue that the trial court did not rely on the
sham pleading doctrine in sustaining the demurrer to the TAC.
This is true, but beside the point because the issue was raised
below (and again on appeal), and we may affirm on any ground
supported by the record. (Stowe v. Fritzie Hotels, Inc. (1955) 44
Cal. 2d 416, 424-425.)
Second, plaintiffs assert that the FAC did not use the
phrase “holdover tenancy,” so there is no inconsistency between
the FAC and later complaints. Plaintiffs’ subsequent use of the
phrase “holdover tenancy” to describe the FAC’s allegation at the
hearing on the demurrer to the FAC, they continue, does not
retroactively insert that phrase into the FAC. Even if we looked
solely to what is alleged in the FAC, the FAC alleges a tenancy
18
that ends in December 2015; this by definition renders plaintiffs’
tenancy in 2016 a “holdover tenancy.” Thus, plaintiffs’ argument
at the demurrer hearing did not add a new allegation to the FAC;
it just accurately summarized the allegations that were already
there.
Third, plaintiffs contend that any contrary allegations in
the TAC cannot fall under the “sham pleading” doctrine because
the trial court granted them leave to amend the SAC. We reject
this argument. The grant of a leave to amend does not include
within it the leave to amend to plead inconsistent allegations; if it
did, the “sham pleading” doctrine would cease to exist. That is
not the law. (Hendy, supra, 54 Cal.3d at pp. 742-743; Aryeh,
supra, 55 Cal.4th at p. 1189 fn. 1.)
Because we conclude that plaintiffs’ oral extension theory is
barred by the “sham pleading” doctrine, we have no occasion to
examine the trial court’s alternative grounds for dismissing this
theory.
III. Right of First Refusal in a Separate, July 2016
Contract
The statute of frauds provides that any agreement for “the
sale of real property, or of an interest therein” is invalid unless it
is “in writing and subscribed to by the party to be charged.” (Civ.
Code, § 1624, subd. (a)(3).) Because they are a species of an
option to purchase, rights of first refusal to purchase real
property must satisfy the statute of frauds. (Pacific Southwest
Development Corp. v. Western Pac. R. Co. (1956) 47 Cal. 2d 62, 66;
Woods v. Bradford (1967) 254 Cal. App. 2d 501, 505.) To satisfy
the “writing” requirement of the statute of frauds, the writing
may be cobbled together from various documents (Derrick v.
C.W.R. Ford Co. (1915) 27 Cal. App. 456, 458; Brewer v. Horst-
Lachmund Co. (1900) 127 Cal. 643, 646-647), but must still
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“‘identif[y] the subject of the parties’ agreement, show[] that they
made a contract, and state[] the essential contract terms with
reasonable certainty’” (Sterling v. Taylor (2007) 40 Cal. 4th 757,
766 (Sterling), quoting Rest.2d Contracts, § 131).
The allegations set forth in the TAC do not satisfy these
requirements. The TAC alleges that the July 2016 contract is
documented in the exchange of four emails between Smyth’s
attorney and Berman. Although Smyth’s attorney in her first
email states that Berman has agreed to give Smyth a “right of
first refusal,” Berman responded by saying she “requested that
[her real estate agent] respond with the contracts and other
requests,” and responded to further emails by saying she had
“retained council [sic].” Berman’s equivocal and non-
confirmatory responses do not “show[]” that plaintiffs’ counsel
and Berman “made a contract” or set forth the “essential contract
terms with reasonable certainty.” (Sterling, supra, 40 Cal.4th at
p. 766.)
Plaintiffs respond with three arguments.
First, plaintiffs assert that the email exchange, despite its
sparsity, constitutes a writing sufficient to satisfy the statute of
frauds because the emails reflect what was “understood by the
parties” in the broader context of their interactions. With this
assertion, plaintiffs are inviting us to look to extrinsic evidence to
prove the existence of the parties’ contract and to supply its
essential terms. This we may not do. (Sterling, supra, 40 Cal.4th
at p. 767 [“the [writing] itself must include the essential
contractual terms, [so] it is clear that extrinsic evidence cannot
supply those required terms.”]; Jacobs v. Locatelli (2017) 8
Cal.App.5th 317, 325 [same].) Plaintiffs make the related
argument that Berman’s email telling plaintiffs’ attorney that
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she retained counsel does not negate the valid contract formed by
her first email, but this argument lacks merit because it assumes
that Berman’s first email created a contract enforceable by the
statute of frauds. As noted above, it did no such thing.
Second, plaintiffs contend that Berman should be estopped
from asserting the statute of frauds as a defense. A party may be
estopped from asserting the statute of frauds as a defense to a
contract in order to “prevent fraud that would result from refusal
to enforce [an] oral contract[].” (Monarco v. Lo Greco (1950) 35
Cal. 2d 621, 623-624 (Monarco); Notten v. Mensing (1935) 3 Cal. 2d
469, 474.) Before estoppel applies, the party so pleading must
allege that refusal to enforce the oral contract will result in (1)
“unconscionable injury” because the party pleading estoppel
“seriously . . . change[d] its position in reliance on the [oral]
contract,” or (2) the “unjust enrichment” of the party pleading the
statute of frauds as a defense because that party “receiv[ed] the
benefits of the other’s performance.” (Monarco, at pp. 623-624;
Tenzer v. Superscope (1985) 39 Cal. 3d 18, 27; Allied Grape
Growers v. Bronco Wine Co. (1988) 203 Cal. App. 3d 432, 444.)
The allegations contained in the TAC do not satisfy either
prong of this estoppel doctrine. Plaintiffs allege that they
“seriously changed their position” because they spent time
working up the offer they made in August 2016; performed their
part of the agreement by making the August 2016 offer; for many
years paid rent, modified and improved the Property, and bought
the property next door; and ultimately lost the opportunity to
make an offer on the Property. None of these allegations
constitutes a “serious change in position.” The time and money
plaintiffs spent working up the offer in August 2016 does not
qualify because “‘the payment of money is not ‘‘sufficient part
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performance to take an oral agreement out of the statute of
frauds”” (Oren Realty & Development Co. v. Superior Court (1979)
91 Cal. App. 3d 229, 235, quoting Anderson v. Stansbury (1952) 38
Cal. 2d 707, 716). Because the payment of money is not sufficient
to constitute part performance, neither is plaintiffs’ offer to pay
money to purchase the Property.5 Plaintiffs’ payment of rent,
physical changes to the Property, and purchase of the property
next door all happened before the July 2016 promise and thus
could not have been made “in reliance on [that] contract.”
(Monarco, supra, 35 Cal.2d at pp. 623-624.) And “the alleged loss
of opportunities to purchase other land does not amount to a
change of position” sufficient to excuse noncompliance with the
statute of frauds. (Carlson v. Richardson (1968) 267 Cal. App. 2d
204, 208; Oren, at p. 235.) Plaintiffs generically allege that
Berman was unjustly enriched, but this allegation is impossible
to square with their allegation that their offer to buy the
Property was the better offer, which means Berman was harmed
by her failure to honor the alleged July 2016 contract that would
have obligated her to consider the allegedly better offer.
Finally, plaintiffs make the final argument that questions
of reliance are factual in nature and thus should not be decided
as a matter of law on a demurrer. This argument overlooks that
even factual issues may be resolved short of a trial where, as
here, they fail as a matter of law. (Hoffman, supra, 228
Cal.App.4th at p. 1194.)
5 Plaintiffs also point to Berman’s cancellation of Santa
Maria’s offer as evidence that Berman performed the July 2016
contract, but this assertion is flatly inconsistent with plaintiffs’
allegations, in the FAC, that Berman “blatantly lied that Santa
Maria’s offer was cancelled.”
22
In light of our conclusion that the alleged July 2016
contract is invalid for noncompliance with the statute of frauds,
we have no occasion to consider defendants’ further arguments
that this contract fails for lack of consideration (or plaintiffs’
responsive argument that promissory estoppel supplies the
requisite consideration) or to consider defendants’ argument that
the contract was never breached.
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DISPOSITION
The judgment of dismissal is affirmed. Defendants are
entitled to their costs on appeal.
CERTIFIED FOR PUBLICATION.
______________________, J.
HOFFSTADT
We concur:
_________________________, P. J.
LUI
_________________________, J.
CHAVEZ
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