Gietzen v. Covenant Re Mgmt., Inc.

Decision Date24 September 2019
Docket Number2d Civil No. B287339
Citation40 Cal.App.5th 331,253 Cal.Rptr.3d 97
CourtCalifornia Court of Appeals Court of Appeals
Parties Rod E. GIETZEN et al., Plaintiffs and Appellants, v. COVENANT RE MANAGEMENT, INC., Defendant and Respondent.

Lurie & Seltzer, Barak Lurie, Santa Monica, Michele A. Seltzer, Los Angeles and Brent A. Kramer, for Plaintiffs and Appellants.

Voss, Cook & Thel, Francis T. Donohue, Newport Beach; Sheppard, Mullin, Richter & Hampton, Aaron J. Malo, Costa Mesa and Karin Dougan Vogel, San Diego, for Defendant and Respondent.

OPINION FOLLOWING REHEARING

GILBERT, P. J.

The effect of an uncollected judgment may change through circumstances occurring after judgment. The judgment holder may suffer a loss or in this case gain a benefit.

Once again, we visit the judgment arising from Yolanda's Inc.'s (Yolanda's) action against its landlord. This time the issue is whether a third party beneficiary of a contract has more rights than the promissee. A shopping center lease contains a provision limiting the lessor's liability for breach of the lease to the lessor's interest in the shopping center. Yolanda's, the lessee, obtained a judgment against its lessor, a limited partnership. Yolanda's moved to amend the judgment to add the general partner of the limited partner lessor as a judgment debtor. The trial court denied the motion on the ground that the general partner is a third party beneficiary of the provision limiting liability.

We reverse. By virtue of a foreclosure, the lease was assigned to the foreclosing lender. The assignment terminated the lessor's rights under the lease. The termination of the lessor's rights also terminated the rights of the third party beneficiary general partner.

FACTS

We continue to chronicle Yolanda's odyssey to collect its judgment. Yolanda's owns and operates restaurants. It entered into a lease with K&G/Seabridge II, LLC (K&G) and Rocklin Covenant Group, LP (Rocklin) to operate a restaurant at the Seabridge Shopping Center in Oxnard. Yolanda's president Rod Gietzen personally guaranteed the lease.

During lease negotiations, K&G and Rocklin failed to inform Yolanda's that they were in negotiations to lease another space in the shopping center to a gym. The gym's customers monopolized the parking spaces in the shopping center's common parking lot, resulting in a loss of business for Yolanda's.

In March 2012, Yolanda's sued K&G, Rocklin, and their agent, Kahl and Goveia Commercial Real Estate (KGCRE), alleging, among other causes of action, fraud and breach of lease. Yolanda's obtained judgment for breach of the lease in the amount of almost $2 million plus attorney fees and costs. On the first appeal, we reversed the judgment against KGCRE because it was not a party to the lease. We otherwise affirmed. (Gietzen v. Goveia (March 30, 2016, B255925), 2016 WL 1254386 [nonpub. opn.].) On remand, the trial court awarded KGCRE almost $500,000 in attorney fees as the prevailing party.

Meanwhile, lessors lost their interest in the shopping center through foreclosure. Thereafter, in June 2017, Yolanda's brought the instant motion to amend the judgment to add KGCRE and Covenant Real Estate Management, Inc. (CREM) as judgment debtors. Yolanda's alleged that KGCRE is an alter ego of K&G and that CREM is an alter ego of Rocklin. Yolanda's also alleged that CREM is the general partner of a limited partnership of which Rocklin is a limited partner; thus, CREM is liable for Rocklin's obligations pursuant to Corporations Code section 15904.04, subdivision (a).

KGCRE and CREM denied they are alter egos and asserted they have no liability per article 39 of the lease. Article 39 provides: "The liability of Landlord under this Lease shall be limited to Landlord's interest in the Shopping Center. Tenant agrees to look solely to Landlord's interest in the Shopping Center for the satisfaction of any liability, duty or obligation of Landlord with respect to this Lease, or the relationship of Landlord and Tenant hereunder, and no other assets of Landlord shall be subject to any liability therefor. In no event shall Tenant seek, and Tenant does hereby waive, any recourse against shareholders and/or constituent partners of Landlord and the partners, directors, officers or shareholders thereof, or any of their respective personal assets for such satisfaction."

Yolanda's attached as an exhibit to its moving papers portions of an earlier action it brought in the Orange County Superior Court against K&G, Rocklin, KGCRE, CREM, and others. That action alleged the fraudulent transfer of personal property. The defendants moved for summary judgment because they believed that article 39 limited satisfaction of the judgment to the shopping center assets, and that they no longer had an interest in the shopping center due to their lender's foreclosure.

In response, Yolanda's argued that article 39 is merged into the judgment; that a determination of an Orange County Superior Court on the applicability of article 39 is res judicata; and that the benefit of article 39 was assigned with the lease to Rocklin's lender in foreclosure.

The trial court in the Orange County action denied the motion for summary judgment. The court ruled that the article 39 defense was not available because it had been merged into the original judgment.

The Ventura Trial Court's Ruling on Yolanda's Motion to Amend the Judgment

The trial court ruled that KGCRE is the alter ego of K&G. The court declined, however, to add KGCRE as a judgment debtor. Instead, in the exercise of the court's equitable powers, it struck the award of almost $500,000 in attorney fees awarded to KGCRE against Yolanda's. Not surprisingly, Yolanda's does not contest this portion of the trial court's ruling.

The trial court also ruled that CREM was not the alter ego of Rocklin; that article 39 was not merged into the judgment; that the court was not bound by the Orange County Superior Court's decision; and that CREM is a third party beneficiary of article 39; thus, Corporations Code section 15904.04 does not apply. Accordingly, the court denied Yolanda's motion as to CREM.

DISCUSSION
I.

On appeal, Yolanda's accepts the trial court's finding that CREM is not the alter ego of Rocklin. Instead, Yolanda's argues that CREM is liable as the general partner of a limited partnership of which Rocklin is a limited partner. Yolanda's relies on Corporations Code section 15904.04, subdivision (a). That subdivision provides in part, "[A]ll general partners are liable jointly and severally for all obligations of the limited partnership unless otherwise agreed by the claimant or provided by law."

CREM counters that article 39 of the lease constitutes an agreement by the claimant not to hold it liable. But Yolanda's contends that article 39 does not apply because it was merged into the judgment; the determination of the Orange County Superior Court is res judicata; and the assignment of the lease terminated CREM's rights in the lease. We agree only that the assignment terminated CREM's rights in the lease.

We did not decide the applicability of article 39 in the appeal of the original underlying judgment. Instead, we expressly reserved the matter for postjudgment proceedings.

II.

Yolanda's argues that the entire lease was merged into the judgment. Thus, Yolanda's asserts article 39 does not limit enforcement of the judgment to the lessor's interest in the shopping center.

Merger is an aspect of the doctrine of res judicata. ( Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1510, 236 Cal.Rptr. 59.) "A valid final judgment in favor of the plaintiff merges the claim in the judgment. The cause of action is extinguished and the only remaining right of action is on the judgment." ( 7 Witkin Cal. Procedure (5th ed. 2008) Judgment § 401, p. 1034.)

Yolanda's relies on cases that state the contract is merged into the judgment. (See Chelios v. Kaye (1990) 219 Cal.App.3d 75, 80, 268 Cal.Rptr. 38 ["The contract, having merged into the judgment, has no remaining vitality"].) But the rule would be better stated that the particular cause or causes of action on the contract are merged into the judgment, not the contract itself. Thus, a judgment favorable to plaintiff does not bar a different cause of action brought by plaintiff on the same contract. (See Title Guarantee & Trust Co. v. Monson (1938) 11 Cal.2d 621, 631, 81 P.2d 944 [judgment for possession under trust deed not a bar to subsequent action for rents under same trust deed].)

Here, Yolanda's obtained judgment on causes of action for breach of contract and breach of the covenant of good faith and fair dealing relating to the landlord's duty to provide adequate parking. Questions concerning whether article 39 limits the enforceability of the judgment were not before the trial court or this court. We expressly stated in our opinion affirming the judgment that questions relating to article 39 are reserved for postjudgment proceedings. ( Gietzen v. Goveia , supra , B255925, 2016 WL 1254386.)

III.

Yolanda's contends the trial court erred in refusing to follow the Orange County court's order denying summary judgment.

Yolanda's claims the order is res judicata and that CREM is collaterally estopped from relitigating the issues decided therein. "The doctrine of collateral estoppel precludes relitigation of an issue previously adjudicated if: (1) the issue necessarily decided in the previous suit is identical to the issue sought to be relitigated; (2) there was a final judgment on the merits of the previous suit; and (3) the party against whom the plea is asserted was a party, or in privity with a party, to the previous suit." ( Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 910, 226 Cal.Rptr. 558, 718 P.2d 920.) But an order denying summary judgment is not a final judgment. (See Salehi v. Surfside III Condominium Owners' Assn. (2011) 200 Cal.App.4th 1146, 1158, 132 Cal.Rptr.3d 886.) It is a finding that there is a...

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