Thrifty Payless, Inc. v. Americana at Brand

Opinion

Plaintiff Thrifty Payless, Inc. (Thrifty), doing business as Rite Aid, is a tenant of defendant The Americana at Brand, LLC (Americana),

DISCUSSION

“The function of a demurrer is to test the sufficiency of [a pleading] as a matter of law,” and “we apply [the] de novo standard of review [in an] appeal” following the sustaining of a demurrer without leave to amend. (Holiday Matinee, Inc. v. Rambus, Inc. (2004) 118 Cal.App.4th 1413 , 1420 [ 13 Cal.Rptr.3d 766 ].) A complaint “is sufficient if it alleges ultimate rather than evidentiary facts,” but the plaintiff must “ 1 “ ‘set forth the essential facts of his [or her] case with reasonable precision and with particularity sufficient to acquaint [the] defendant with the nature, source, and extent’ ” ’ ” of the plaintiffs claim. Legal conclusions are insufficient. (Doe v. City of Los Angeles (2007) 42 Cal.4th 531 , 550 & 551, fn. 5 [ 67 Cal.Rptr.3d 330 , 169 P.3d 559 ].) “We assume the truth of the allegations in the complaint, but do not assume the truth of contentions, deductions, or conclusions of law.” “[T]he trial court [errs in] sustaining] a demurrer if the plaintiff has stated a cause of action under any possible legal theory, and it is an abuse of discretion for the court to sustain a demurrer without leave to amend if the plaintiff has shown there is a reasonable possibility a defect can be cured by amendment.” (California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242 , 247 [ 73 Cal.Rptr.3d 825 ].)

Thrifty argues that the trial court erroneously concluded that estimates are never actionable; on the contrary, estimates can support a claim for fraud, and Thrifty could reasonably rely on Americana’s estimates due to Americana’s superior knowledge of the shopping center. Further, the complaint adequately alleged innocent misrepresentation and mutual mistake because it alleged Americana was mistaken when it understated the common area expenses. Finally, Thrifty contends Americana’s discretion to allocate costs must be exercised reasonably and its failure to do so would support Thrifty’s claims

A. Fraud Exception to Parol Evidence Rule: Thrifty’s Claims for Fraud and Negligent Misrepresentation (First and Second Causes of Action)

“ ‘The 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.’ ” (Lazar v. Superior Court (1996) 12 Cal.4th 631 , 638 [ 49 Cal.Rptr.2d 377 , 909 P.2d 981 ].) “In contrast, ... [a claim for] negligent misrepresentation does not require knowledge of falsity”; rather, the plaintiff must show “(1) the misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” (Apollo Capital Fund LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226 , 243 [ 70 Cal.Rptr.3d 199 ].) Every element of the fraud cause of action must be pleaded specifically, and the policy of liberal construction of the pleadings will not sustain a defective pleading. (Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324 , 1332 [ 231 Cal.Rptr. 355 ].) Thus, the plaintiff must plead the “ ‘ “how, when, where, to whom, and by what means the representations were [made].” ’ ” (Lazar, at p. 645.)

“ ‘Except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff’s reliance is reasonable is a question of fact.’ ” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226 , 1239 [ 44 Cal.Rptr.2d 352 , 900 P.2d 601 ].) On the other hand, “ ‘[i]f the conduct of the plaintiff in the light of his own intelligence and information was manifestly unreasonable, however, he will be denied a recovery.’ ” (Id. at p. 1240; see Seeger v. Odell (1941) 18 Cal.2d 409 , 415 [ 115 P.2d 977 ].) The plaintiff must also plead the injury or damage suffered and its causal connection to the plaintiff’s reliance on the defendant’s misrepresentations. (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807 , 1818 [ 52 Cal.Rptr.2d 650 ].) A defrauded

The parol evidence provides that an integrated written agreement may not be varied by extrinsic evidence to alter or add to the terms of the writing. (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336 , 343 [ 9 Cal.Rptr.3d 97 , 83 P.3d 497 ].) The parol evidence rule protects the integrity of written contracts by making their terms the exclusive evidence of the parties’ agreement. Yet an established exception to the rule allows a party to present extrinsic evidence to show that the agreement was procured by fraud. (Code Civ. Proc., § 1856, subd. (g); Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169 , 1174-1175 [ 151 Cal.Rptr.3d 93 , 291 P.3d 316 ] (Riverisland}.)

Riverisland revisited and reaffirmed the vitality of this exception and overruled Bank of America etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258 [ 48 P.2d 659 ] (Pendergrass). Criticized but followed by California courts, Pendergrass required that evidence offered to prove fraud “must tend to establish some independent fact or representation, some fraud in the procurement of the instrument or some breach of confidence concerning its use, and not a promise directly at variance with the promise of the writing.” (Pendergrass, at p. 263; see Riverisland, supra, 55 Cal.4th at p. 1172.) Quoting Ferguson v. Koch (1928) 204 Cal. 342 , 347 [ 268 P. 342 ], Riverisland reaffirmed that “ ‘[i]t was never intended that the parol evidence rule should be used as a shield to prevent the proof of fraud.’ ” (Riverisland, at p. 1182.) Thus, characterizing Pendergrass as “an aberration,” that “finds no support in the language of the statute codifying the parol evidence rule and the exception for evidence of fraud,” the Supreme Court overruled Pendergrass. (Riverisland, at pp. 1182, 1172.)

Applying the fraud exception rule is McClain, supra, 159 Cal.App.4th 784 , where the prospective tenant, McClain, investigated leasing space at the defendant’s shopping center. She was informed the premises consisted of 2,624 square feet at a rent of $1.45 per month, plus 23 percent of the shopping center’s common expenses based on this square footage. (Id. at p. 793.) Before entering into the lease, she attempted to measure the square footage of the space but was rebuffed by the landlord, who was “offended” by her request. (Ibid.) “[T]he lease describe[d] the size of the unit leased by McClain as ‘approximately 2,624 square feet,’ and attached to the lease ... a diagram of the shopping center that represented] the size of the unit as 2,624 square feet.” (Id. at p. 790.) The lease further provided, “ ‘. . . 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

McClain, supra, 159 Cal.App.4th 784 held the landlord’s statements were actionable fraud even though the lease stated she had verified the square footages. McClain applied the rule that a party to a contract who committed fraud in the inducement cannot absolve himself or herself from fraud by any stipulation in the contract, either that no representations were made or that any right that might be grounded upon them was waived. “ ‘Such a stipulation or waiver will be ignored, and parol evidence of misrepresentations will be admitted, for the reason that fraud renders the whole agreement voidable, including the waiver provision.’ [Citation.]” (Id. at p. 794, italics omitted.)

Similarly, in Furla v. Jon Douglas Co., supra, 65 Cal.App.4th 1069 , a broker listed a home in the multiple listing service as having 5,500 square feet and included the statement, “ ‘Information Deemed Reliable But Not Guaranteed.’ ” (Id. at p. 1072.) The broker told the plaintiff that the plans used to construct the house showed it was 5,500 square feet. (Id. at pp. 1072-1073.) The plaintiff, an investor, based his real estate investment strategy on the square footage of distressed properties that he bought. (Id. at p. 1073.) The written offer stated that the buyer was aware that the broker made no representations with respect to the square footage. (Id. at pp. 1073-1074.) An appraisal obtained during escrow established the square footage at 4,311, but the plaintiff did not receive the appraisal during escrow. (Id. at p. 1076.) Furia rejected the broker’s defense based upon exculpatory language in the contract, finding that it was a fact question that could not be resolved on summary judgment whether the plaintiff reasonably relied on the defendant’s approximations of square footage. “A statement couched as an opinion, by one having special knowledge of the subject, may be treated as an actionable misstatement of fact.” (Id. at p. 1080.)

Here, under Riverisland, supra, 55 Cal.4th 1169 , extrinsic evidence is admissible to establish fraud or negligent misrepresentation in the face of the lease’s integration clause. Thus, Thrifty can allege both intentional and

B. Innocent Misrepresentation, Mutual Mistake (Third and Fourth Causes of Action)

Where, through mistake, the contract does not reflect the mutual intention of the parties, “such intention is to be regarded, and the erroneous parts of the writing disregarded.” (Civ. Code, § 1640.) In the case of mutual mistake, the contract may be reformed to conform to the intent of the parties. (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516 , 524 [ 117 Cal.Rptr.2d 220 , 41 P.3d 46 ].) “In determining whether [there has been] a mutual mistake . . . , [the] court may consider parol evidence,” and such evidence may be introduced in the face of an integration clause. (Id. at p. 525.) “Extrinsic evidence is necessary because the court must divine the true intentions of the contracting parties and determine whether the written agreement accurately represents those intentions.” (Ibid.) Ordinary negligence does not bar a claim for mutual mistake because “ ‘[t]here is an element of carelessness in nearly every case of mistake ....’” (Id. at p. 529.) “Only gross negligence or ‘preposterous or irrational’ conduct will [bar] mutual mistake.” (Ibid.) Mistake must be pleaded with some particularity so that there is “a clear recitation of facts showing how, when and why the mistake occurred.” (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112 , 1132 [ 135 Cal.Rptr.3d 480 ].) Generally, there is no tort of innocent misrepresentation. (See Diediker v. Peelle Financial Corp. (1997) 60 Cal.App.4th 288 , 297 [ 70 Cal.Rptr.2d 442 ] [if representation “ ‘is both honest and reasonable, . . . there is no tort liability’ ”].)

Here, Thrifty’s third cause of action for innocent misrepresentation asserts in detail the following: the names of the agents of Americana who made the representations, the statements were made before the lease was executed, and Thrifty’s actual percentage of taxes, insurance and CAM was 5.67 percent, as opposed to the represented 2.2 percent in the final LOI. Further, Thrifty alleged that although Americana believed in the truth of the representations, they were false when made and that Thrifty reasonably relied on the representations because of Americana’s superior knowledge of the size and scope of the shopping center, the level of common area services to be provided, the tax basis of the shopping center, and the insurance policies to be used. Thrifty’s fourth cause of action for mutual mistake solely asserts that neither party was aware that Americana’s figures were understated.

Although there is no tort of “innocent misrepresentation,” taken together, Thrifty’s third and fourth causes of action set forth sufficient particular facts

C. Breach of Contract and Breach of the Implied Covenant (Fifth and Sixth Causes of Action)

“[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811 , 821 [ 124 Cal.Rptr.3d 256 , 250 P.3d 1115 ].) “ ‘The [implied] covenant of good faith and fair dealing . . . [is] implied by law in every contract .. ...’ ” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350 , 1369 [ 108 Cal.Rptr.3d 682 ].) The covenant is read into contracts and functions “ ‘as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.’ ” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026 , 1031-1032 [ 14 Cal.Rptr.2d 335 ].) The covenant also requires each party to do everything the contract presupposes the party will do to accomplish the agreement’s purposes. (Harm v. Frasher (1960) 181 Cal.App.2d 405 , 417 [ 5 Cal.Rptr. 367 ].) A breach of the implied covenant of good faith is a breach of the contract (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371 , 1393 [ 272 Cal.Rptr. 387 ]), and “breach of a specific provision of the contract is not . . . necessary” to a claim for breach of the implied covenant of good faith and fair dealing (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342 , 373 & fn. 12 [ 6 Cal.Rptr.2d 467 , 826 P.2d 710 ]).

Here, the terms of the contract simply provide for Thrifty to pay its pro rata share of common expenses (taxes, insurance, and CAM) and no precise “pro rata share” in terms of a percentage or a square foot basis is set forth. Merely charging higher rates for these items than estimated during negotiations does not ostensibly breach the express language of the lease. However, Thrifty has alleged Americana has breached paragraph 1.1 by improperly, exercising its discretion in allocating costs between retail and nonretail space; this conduct as alleged can constitute both a breach of contract and breach of the implied covenant. Thus, the trial court erred in sustaining the demurrer to Thrifty’s fifth and sixth causes of action.

The judgment is reversed. Appellant is to recover its costs on appeal.

Mallano, P. J., and Chaney, J., concurred.

Respondent’s petition for review by the Supreme Court was denied October 23, 2013, S212974. Werdegar, J., did not participate therein.