Square 1 Development, LLC vs. Kinwork, LLC

Further that Kinwork, LLC was, and is, a mere sham and organized and operated as the alter ego of the Individual Cross-Defendants. (TACC P.26.)

As to the fourth cause of action for fraud-concealment alleged against Cross-Defendants Brien, Thomason and Kinwork, LLC, Cross-Complainant alleges that "Cross-Defendants and each of them, requested Cross-Complainant pay $100,500 towards tenant improvements and promised to pay the remaining cost of improvements and rent the Property for 5 years and other obligations under the Lease." (TACC P.51.) Additionally, that: "Cross-Defendants, specifically Brien and Thomason and each of them, concealed a material fact from Cross-Complainant when they requested $100,500 for tenant improvements from Cross-Complainant and promised to use that towards tenant improvements, and other Lease obligations, pay the remaining cost for tenant improvements and rent the Property for 5 years - i.e., that the Cross-Defendants, and each of them, did not have the ability to pay for the improvements, the intent to use the amount paid by Cross-Complainant towards improvements or rent the Property for 5 years and pay the Lease obligation or, in the alternative Cross-Defendants, and each of them, concealed their desire and lack of intent to pay for the improvements or use the amount paid by Cross-Complainant towards improvements or rent the Property for 5 years and pay the Lease obligations.

The Cross-Defendants ability to pay their portion of the tenant improvement, among other things, were facts known only to the Cross Defendants, as Cross-Complainant was not privy to the Individual Cross-Defendants financial positions." (TACC P.52.) Cross-Complainant alleges that, due to the Lease and the "...fact that Cross Complainant gave them $100,500 in trust, the Cross-Defendants, and each of them had a duty to disclose material facts, like those concealed and alleged herein." (TACC P.54.)

Further, Cross-Complainant alleges that "[f]urther, upon reasonably inquiry into the Cross-Defendant's ability to fulfill their obligations, the Cross Defendant's made verbal assurances to the Cross-Complainant that the Individual contributions would fulfill their obligations. Thus, the Cross-Defendant's actively concealed the status of their financial positions, and in turn their ability to fulfill their obligations under the lease, by making such verbal assurances. These verbal assurances were voluntarily made by the Cross-Defendants and mislead the Cross-Complainant to his detriment due to the concealment of the aforementioned material facts." (TACC P.54.)

Cross-Complainant alleges reliance on the representations and was unaware of the concealed material facts and that Cross-Complainant has suffered damages thereon. (TACC P.P.55, 56.)

As to waste, alleged against all Cross-Defendants, Cross-Complainant alleges that, as tenants, Cross-Defendants were under a duty to preserve and protect the Property and that the Cross-Defendants "substantially or permanently diminished the market value of the Property through their unreasonable conduct in stripping the interior of the building on the Property including its flooring, sheet rock, and everything but the framing. The Cross Defendants demolished a majority of the Property without completing their obligations contemplated within the Lease agreement and failed to return the Property in its pre-existing condition before abandoning the Property." (TACC P.P.59, 60.)

Further "After stripping the interior of the building, Cross-Defendants abandoned the property, stopped paying rent, and stopped paying their contractor, thus causing a mechanic's lien to be filed against the Property, further diminishing the value of the Property" (TACC P.61.) Additionally, the operative amended cross-complaint alleges that "...the Property reverting back to the Cross Complainant is a shell of a building that it once was causing the Cross-Complainant to sustain damages as the Property's market value has been substantially depreciated due to the actions of the Cross-Defendants."

Cross-Defendants Brien and Thomason demurrer to the concealment cause of action for failure to meet the specificity requirements and failure to state a cause of action. Cross-Defendant Brien, Thomason and Bravinder demurrer to the waste cause of action, arguing that the damages are not permanent and can be remedied through monetary recovery. In opposition, Cross-Complainant argues that the essential facts are sufficiently pled as discussed below and that Cross-Defendants attempt to introduce extrinsic facts beyond the allegations of the operative amended cross-complaint.

Authority and Analysis The purpose of a demurrer is to test whether a complaint "states facts sufficient to constitute a cause of action upon which relief may be based." (Young v. Gannon (2002) 97 Cal.App.4 th 209, 220. To state a cause of action, a plaintiff must allege facts to support his or her claims, and it is improper and insufficient for a plaintiff to simply plead general conclusions. (Careau v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 11371, 1390.) The complaint must contain facts sufficient to establish every element of that cause of action, and thus a court should sustain the demurrer if "the defendants negate any essential element of a particular cause of action." (Cantu v.

Resolution Trust Corp. (1992) 4 Cal.App.4 th 857, 879-80) To determine whether the complaint states facts sufficient to constitute a cause of action, the trial court may consider all material facts pleaded in the complaint and those that arise by reasonable implication therefrom; it may not consider contentions, deductions, or conclusion of fact or law (Moore v. Conliffe (1994) 7 Cal.4 th 634, 638.) It is well-settled that all well-pled material facts in the complaint are assumed to be true for the purpose of the demurer. (C & H Foods v.

Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1062) But "doubt in the complaint may be resolved against plaintiff and facts not alleged are presumed not to exist. (Id.) A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) No other extrinsic evidence can be considered (i.e., no "speaking demurrers"). (Ion Equip.

Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.)

Fourth Cause of Action - Concealment " '[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage [citations omitted]' Thus, the elements of fraud and deceit based on concealment are the same as for intentional fraud, with the additional requirement that the plaintiff allege that the defendant concealed or suppressed a material fact in a situation in which the defendant was under a duty to disclose that material fact." (Tenet Healthsystem Desert, Inc. v.

Blue Cross of California (2016) 245 Cal.App.4th 821, 844.) "In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] 'Thus "'the policy of liberal construction of the pleadings ... will not ordinarily be invoked to sustain a pleading defective in any material respect.'" [Citation.] [P.] This particularity requirement necessitates pleading facts which "show how, when, where, to whom, and by what means the representations were tendered."'" [citation omitted]" (Id. at 837-838.) "The specificity requirement serves two purposes.

The first is notice to the defendant, to 'furnish the defendant with certain definite charges which can be intelligently met.' [Citations.] The pleading of fraud, however, is also the last remaining habitat of the common law notion that a complaint should be sufficiently specific that the court can weed out nonmeritorious actions on the basis of the pleadings. Thus the pleading should be sufficient '"to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud."'" [citation omitted]" (Id. at 838.)

Here, Cross-Complainant's operative amended cross-complaint alleges that the material fact concealed was Brien and Thomason's inability to pay for the improvements, lack of intent to use the $100,500 towards improvements, lack of intent to rent the Property for 5 years. (TACC P.52.) Further, Cross-Complainant alleges that by virtue of the Lease and providing the $100,500, Cross-Defendants Brien and Thomason owed a duty to Cross-Complainant. (TACC P.53.) "In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure of material facts may arise in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff." (Warner Construction Corp. v.

City of Los Angeles (1970) 2 Cal.3d 285, 294.) Additionally, it is alleged that "...the Cross Defendant's made verbal assurances to the Cross-Complainant that the Individual contributions would fulfill their obligations. Thus, the Cross-Defendant's actively concealed the status of their financial positions, and in turn their ability to fulfill their obligations under the lease, by making such verbal assurances. These verbal assurances were voluntarily made by the Cross-Defendants and mislead the Cross-Complainant to his detriment due to the concealment of the aforementioned material facts." (TACC P.54.)

The Court finds these facts sufficient regarding concealment as to Cross-Defendant Brien and Thomason, under the elements noted above as to their inability to pay for the improvements, lack of intent to use the funds and lack of intent to maintain the five year lease. Further, that these facts were only known to Cross-Defendants Brien and Thomason and were not known or reasonably discoverable Cross-Complainant given the nature of the alleged material facts. Further, that the concealment, and other active representations, were made verbally between May 2023 through the date of the execution of the lease. (TAC P.P.20, 21.) Therefore, the Court overrules the demurrer to the fourth cause of action in the third amended cross-complaint.

Fifth Cause of Action - Waste A cause of action for waste requires a plaintiff allege the defendant is under a duty to preserve and protect the property involved, that damage to the property was sufficiently substantial and permanent to cause injury to its interest in the property. (Schellinger Brothers v. Cotter (2016) 2 Cal.App.5th 984, 1000; Avalon Pacific-Santa Ana, L.P. v. HD Supply Repair & Remodel, LLC (2011) 192 Cal.App.4th 1183, 1213.) Further, the requirement of substantial and permanent damage requires a "...substantial depreciation in the market value..." of the property. (Smith v.

Cap Concrete, Inc. (1982) 133 Cal.App.3d 769, 776.) Cross-Complainant cites Avalon, supra, 2 192 Cal. App. 4 th regarding a waste claim. There, the operative complaint alleged waste on the grounds of ""demolishing a portion of the Premises, without either completing the demolition job or concluding the refurbishment of the Premises," failing to "return the Premises to their pre-existing condition or finishing the improvements contemplated when the demolition commenced," abandoning the renovation and construction work on the Premises, failing to maintain the Premises in good condition of repair, allowing the Premises to become damaged from theft and vandalism, and failing to repair damage from theft and vandalism.

The first amended complaint alleged Defendants committed waste by "failing to properly secure the premises and abandoning the work of improvement midway through the job, ... le[aving] the [P]remises available for intruders and others." (Id. at 1195.) Further that "Avalon's waste cause of action was not based solely on the demolition of the office space. Avalon also alleged Defendants committed waste by "failing to properly secure the premises and abandoning the work of improvement midway through the job, le[aving] the [P]remises available for intruders and others."

The evidence established the Premises had been stripped of copper wiring, fixtures had been stolen, windows were boarded up, and the landscaping became overgrown. (Id. at 1213.) Further, the Avalon court noted the definition of "permanent" in the context of waste as follows: ""Permanent" does not inflexibly mean eternal; instead, "permanent" means a degree of irremediableness sufficient to cause injury to a reversion interest that will not become a possessory interest until the end of the lease term." (Id. at 1215.)

Specifically, "...damage from waste likely would have to be both substantial and permanent, particularly when there is a long period remaining on the lease term; in other words, waste occurs when damage is sufficiently substantial and permanent to cause an injury to the reversion interest." (Id.)

Here, the Court finds sufficient allegations under Avalon to support waste, noting that this is a five year lease which commenced May 20, 2024, was abandoned after August 8, 2024, with over four years remaining thereon. Further, that in addition to the demolition, the Cross-Defendants abandoned the property, stopped paying rent, and stopped paying their contractor, thus causing a mechanic's lien to be filed against the Property and that this has caused a depreciation in the value of the Property. Therefore, the Court overrules the demurrer to the fifth cause of action for waste.

Having overruled the demurrer, the Court orders the Individual Cross-Defendants to answer the third amended cross-complaint no later than ten (10) days from the date of this hearing. If no one requests oral argument, under Code of Civil Procedure section 1019.5(a) and California Rules of Court, rule 3.1312(a), no further written order is necessary. The minute order adopting this tentative ruling will become the order of the court and service by the clerk will constitute notice of the order. Court reporters are usually not available for law and motion matters in the civil division. The parties and counsel must provide their own reporter if they want a transcript of the proceedings. Re: Sauceda, Manuel Gabriel Jr. vs. Ratp Dev Usa, Inc. et al