Smyth v. Berman, 011019 CAAPP2, B286609

Docket Nº:B286609
Opinion Judge:HOFFSTADT, J.
Party Name:JAMES SMYTH et al., Plaintiffs and Appellants, v. DARYL ANN BERMAN et al., Defendants and Respondents.
Attorney: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 Def...
Judge Panel:We concur: LUI, P. J. CHAVEZ, J.
Case Date:January 10, 2019
Court:California Court of Appeals
 
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JAMES SMYTH et al., Plaintiffs and Appellants,

v.

DARYL ANN BERMAN et al., Defendants and Respondents.

B286609

California Court of Appeals, Second District, Second Division

January 10, 2019

APPEAL from an order of the Superior Court of Los Angeles County No. BC628896. 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.

HOFFSTADT, J.

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 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, 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 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. 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 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...

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