McClain v. Octagon Plaza, LLC

• Decision Date: 31 January 2008
• Docket Number: No. B194037.,B194037.
• Citation: 159 Cal.App.4th 784,71 Cal.Rptr.3d 885
• Parties: Kelly McCLAIN, Plaintiff and Appellant, v. OCTAGON PLAZA, LLC, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

71 Cal.Rptr.3d 885

159 Cal.App.4th 784

Kelly McCLAIN, Plaintiff and Appellant, v. OCTAGON PLAZA, LLC, Defendant and Respondent.

No. B194037.

Court of Appeal, Second District, Division 4.

January 31, 2008.

Law Office of Joseph R. Brown and Joseph R. Brown, Sherman Oaks, for Plaintiff and Appellant.

Law Offices of J. Steven Kennedy and J. Steven Kennedy, Pasadena, for Defendant and Respondent.

MANELLA, J.

In appellant Kelly McClain's action against respondent Octagon Plaza, LLC, (Octagon), the trial court sustained a demurrer without leave to amend to her claims for misrepresentation, breach of the covenant of good faith and fair dealing, and declaratory relief. Following a trial, the court concluded that she had failed to establish her remaining claims for violation of the Consumer Credit Reporting Agencies Act (Civ.Code, § 1785.1 et seq.) (CCRAA) and an accounting. We affirm the rulings regarding the claims for breach of the covenant of good faith and fair dealing and violation of the CCRAA, and otherwise reverse.

RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

McClain operates a business known as "A+ Teaching Supplies." Ted and Wanda Charanian, who, are married, are the principals of Octagon, which owns and manages a shopping center in Valencia. On February 28, 2003, McClain agreed to lease commercial space within the shopping center for a term of five years and two months, with an option to extend the lease for two additional five-year terms. The lease executed by the parties is a standard form agreement prepared by the American Industrial Real Estate Association, and is entitled, "Standard Industrial/Commercial Multi-Tenant Lease—Net." The tenant on the lease is identified as "Kelly McClain dba A+ Teaching Supplies."

Paragraph 1.2(a) of the lease describes the size of the unit leased by McClain as "approximately 2,624 square feet," and attached to the lease is a diagram of the shopping center that represents the size of the unit as 2,624 square feet. Paragraph 2.1 states: "... Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less." Paragraph 2.4 further provides: "Lessee acknowledges that: (a) it has been advised by Lessor ... to satisfy itself with respect to the condition of the Premises ..., and their suitability for Lessee's intended use, [and] (b) Lessee had made such investigation as its deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises...."

With qualifications not relevant here, Paragraph 1.5 of the lease obliges McClain to pay $3,804 per month as "Base Rent." In addition, Paragraphs 1.6 and 4.1 require McClain to pay as additional rent 23 percent of the "Common Area Operating Expenses" (common expenses), which are defined in Paragraph 4.2 as costs incurred by Octagon for enumerated purposes "relating to the ownership and operation" of the shopping center. Paragraph 4.2 provides that McClain's share of the common expenses is due no later than 10 days after Octagon provides her with "a reasonably detailed statement of actual expenses." Paragraph 4.2 also permits Octagon, at its option, to estimate the common expenses for the upcoming calendar year and to require McClain to pay a prorated share of the estimate with her monthly base rent during the year. Under this option, Octagon is obliged to provide McClain with a "reasonably detailed statement" showing her share of the actual annual common expenses within 60 days after the end of the calendar year. If McClain underpays her share of the common expenses, she must pay the balance owing no later than 10 days after receiving the statement; if McClain overpays her share, she is to receive a credit against her share of the common expenses for the forthcoming year.

After a dispute arose concerning McClain's share of the common expenses, she filed an action in small claims court, which was eventually transferred to superior court. The action was resolved by a settlement in November 2004.

On June 17, 2005, McClain initiated the underlying action against Octagon. After the trial court sustained a demurrer with leave to amend to the claims for misrepresentation and declaratory relief asserted in her complaint, McClain filed a first amended complaint (FAC), which contained claims for negligent or intentional misrepresentation, breach of the covenant of good faith and fair dealing, declaratory relief, violation of the CCRAA, and an accounting. Regarding the first three claims, the FAC alleged that the Charanians induced her to agree to pay excessive rent by intentionally or negligently misstating the size of her unit prior to the execution of the lease. The FAC further alleged that Octagon violated the CCRAA by improperly obtaining her credit report in March 2005. Finally, it sought an accounting and declaratory relief with respect to the statement that she received in February 2005 regarding her share of the common expenses for the 2004 calendar year.

On November 11, 2005, the trial court sustained Octagon's demurrer to the first three claims, concluding that the lease, by its plain language, barred McClain from asserting the claims. Following a bench trial, the trial court determined that the Charanians had not violated the CCRAA in obtaining McClain's credit report, and that McClain had no right to an accounting under the lease. Judgment in Octagon's favor was entered on August 15, 2006.

DISCUSSION

McClain contends that the trial court erred in sustaining the demurrer without leave to amend and in denying her remaining claims after trial.

A. Demurrer

1. Standard of Review

"Because a demurrer both tests the legal sufficiency of the complaint and involves the trial court's discretion, an appellate court employs two separate standards of review on appeal. [Citation.] ... Appellate courts first review the complaint de novo to determine whether or not the ... complaint alleges facts sufficient to state a cause of action under any legal theory, [citation], or in other words, to determine whether or not the trial court erroneously sustained the demurrer as a matter of law. [Citation.]" (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879, 6 Cal. Rptr.2d 151, fn. omitted.)

"Second, if a trial court sustains a demurrer without leave to amend, appellate courts determine whether or not the plaintiff could amend' the complaint to state a cause of action. [Citation.]" (Cantu v. Resolution Trust Corp., supra, 4 Cal. App.4th at p. 879, fn. 9, 6 Cal.Rptr.2d 151.)

Under the first standard of review, "we examine the complaint's factual allegations to determine whether they state a cause of action on any available legal theory. [Citation.] We treat the demurrer as admitting all material facts which were properly pleaded. [Citation.] However, we will not assume the truth of contentions, deductions, or conclusions of fact or law [citation], and we may disregard any allegations that are contrary to the law or to a fact of which judicial notice may be taken. [Citation.]" (Ellenberger v. Espinosa (1994) 30 Cal.App.4th 943, 947, 36 Cal. Rptr.2d 360.) If a proper ground for sustaining the demurrer exists, "this court will ... affirm the demurrers even if the trial court relied on an improper ground, whether or not the defendants asserted the proper ground in the trial court. [Citation.]" (Cantu v. Resolution Trust Corp., supra, 4 Cal.App.4th at p. 880, fn. 10, 6 Cal.Rptr.2d 151.)

Under the second standard of review, the burden falls upon the plaintiff to show what facts he or she could plead to cure the existing defects in the complaint. (Cantu v. Resolution Trust Corp., supra, 4 Cal.App.4th at p. 890, 6 Cal.Rptr.2d 151.) "To meet this burden, a plaintiff must submit a proposed amended complaint or, on appeal, enumerate the facts and demonstrate how those facts establish a cause of action." (Ibid.)

2. Misrepresentation

McClain contends that the FAC adequately alleges a claim for fraud in the inducement, that is, misrepresentation involving a contract in which "the promisor knows what he or she is signing but consent is induced by fraud." (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 297, p. 324, italics omitted.) We agree. ` Generally, "'"[t]he elements of fraud, which give [ ] rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or `scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage."' [Citation.]" (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173, 132 Cal.Rptr.2d 490, 65 P.3d 1255.) Claims for negligent misrepresentation deviate from this set of elements. "The tort of negligent misrepresentation does not require scienter or intent to defraud. [Citation.] It encompasses `[t]he assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true' [citation], and `[t]he positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true' [citations]." (Id. at pp. 173-174, 132 Cal. Rptr.2d 490, 65 P.3d 1255.)¹

Regarding the fraud claim, the FAC alleges the following facts: In January 2003, when McClain investigated leasing space in the shopping center, Octagon informed her that the unit in which she was interested comprised exactly 2,624 square feet. Because the base rent in the shopping center was $1.45 per square foot per month, McClain's total base rent would be $3,804 per month. Moreover, because the unit occupied 23 percent of the shopping center, McClain would be responsible for this share of the common expenses.

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