LAKES TREATMENT CENTER, INC., et al v RESORT AT LAKE TULLOCH, LLC, et al

In March 2015, Resort entered into a commercial lease agreement with Lakes Treatment to rent the Leased Property. (TAC ¶ 25.) The Lease was set for a 20-year term, to expire in March 2035 with a monthly rent of $20,000.00. (Ibid., Ex. B.) According to the lease, the landlord was responsible for maintenance of significant portions of the property. (Ibid.) However, thereafter, Giambi, Cattaneo, Diamond and Lakes agreed that Lakes would be responsible for maintenance. (Id. ¶ 27.) In exchange, Plaintiffs received a right of first refusal to purchase Resort’s real estate assets which included the Chalet and a third property on Lake Tulloch at 88 Sanguinetti Court, Copperopolis, California 95228 (“88 Sanguinetti”) (Id. ¶ 27.) Plaintiffs allege that in reliance on that, they expended significant monies on the Leased Property.

In July 2019, John Giambi died and around that time Jason Giambi became the majority owner and managing member of Diamond and sometime later Kristian Giambi became a co-owner and co-managing member of Diamond. (TAC ¶ 28.) Later in October 2019, Plaintiffs expended monies providing litigation defense related to a federal lawsuit.

At some point in 2019, Resort (through its attorney Van) and Cattaneo began negotiating Cattaneo’s right to acquire all ownership interests in Resort and its properties, but the deal was never finalized in writing. (TAC ¶ 31.) Thereafter, Plaintiffs allege that there was a concerted effort to push her out of the business and keep them from obtaining the Properties. At some point, however, Plaintiff purchased the 88 Sanguinetti property, which she believed was part of the process of eventually owning all the assets. (Id. ¶ 33.)

However, in 2020, Resort sold the Properties to Safdari but Cattaneo was not involved and did not receive her share of the proceeds. (TAC ¶ 35, 36.) Plaintiffs allege that Van was involved in the sales and in excluding them from the process and proceeds. On or around May 1, 2020, Safdari agreed to purchase all of the outstanding membership interest in The Resort from Jason Giambi for $3,000,000, and a Membership Interest Purchase Agreement was executed by the parties. (Id. ¶ 39.) Thus, Cattaneo’s 10% interest was sold out from under here without her consent or knowledge. (Id. ¶ 40.) Plaintiffs allege that even after the sale to Safdari, the various Defendants continued to deceive them and eventually began working a way to evict Plaintiffs.

Eventually, Cattaneo purchased the Properties from Safdari but at a purchase price far in excess of what would have been paid if the right of first refusal had been honored. (TAC ¶ 65.)

II. Legal Standard and Discussion

“A demurrer tests the sufficiency of a complaint and admits all facts properly pleaded.” (Setliff v. E.I.Du Pont de Nemours & Co. (1995) 32 Cal. App. 4th 1525, 1533.) The court assumes the truth of the allegations asserted but does not assume the truth of “contentions, deductions, or conclusions of law.” (California Logistics, Inc. v. State of California (2008) 161 Cal. App. 4th 242, 247.) The court can further look at those facts that “reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken.” (Fremont Indemnity Co., 148 Cal. App. 4th 100, 111.) In considering the demurrer, the court must accept the allegations set forth in the complaint as true. (Serrano v. Priest (1971) 5 Cal.3d 584, 591.)

A statute-of-limitations defense may be raised by demurrer only where the bar clearly and affirmatively appears on the face of the pleading and matters properly subject to judicial notice. It is insufficient that the action merely might be barred. (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.). While Defendants argue that the claims in the TAC are barred by the statute of limitations, this is not clearly and affirmatively on the face of the pleadings and is therefore not a basis for demurrer at this point.

A. Breach of Contract

To prevail on a cause of action for breach of contract, plaintiff must prove the contract, plaintiff's performance or excuse for nonperformance, defendant's breach, and resulting damage to the plaintiff. (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)

Plaintiffs allege that there was a contract (the Operating Agreement.) They allege that Diamond breached the contract by attempting to sell all the outstanding membership interests in Resort to Safdari which violated Cattaneo’s rights as a 10% owner. Plaintiffs further allege that Diamond eventually attempted to circumvent the terms of the contract by selling the Properties to Safdari instead of going through with the sale of the membership interests. As a result, Plaintiffs alleged they were damaged.

Defendants demur to this cause of action on the grounds that the sale of the membership interests never took place, thus there could be no breach. They also assert that because no sale took place, Cattaneo retained her 10% interest, and therefore was not damaged by the non-sale.

The TAC does not sufficiently allege details of a breach of contract. Accordingly, the demurrer is sustained, with leave to amend.

B. Implied Covenant

The elements for breach of the implied covenant of good faith and fair dealing are: (1) existence of a contract between plaintiff and defendant; (2) plaintiff performed his contractual obligations or was excused from performing them; (3) the conditions

requiring defendant’s performance had occurred; (4) the defendant unfairly interfered with the plaintiff’s right to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant’s conduct. (Merced Irr. Dist. v. County of Mariposa (E.D. Cal. 2013) 941 F.Supp.2d 1237, 1280 [discussing California law].) To allege a breach of the implied covenant, however, the claim must be for something “beyond breach of the contractual duty itself.” (Careau & Co. v. Security Pacific Business Credit, Inc,. (1990) 222 Cal. App. 3d 1371, 1394.) A prerequisite to any claim for breach of an implied covenant is the existence of a contract. (Smith v. City and County of San Francisco (1990) 225 Cal.App.3d 38, 48-49.)

Defendants assert that this cause of action simply reiterates the cause of action for breach of contract. However, in this cause of action, Plaintiffs allege that the Defendants’ behavior in trying to circumvent the Operating Agreement and to sell all the Resort’s assets out from under Plaintiffs unfairly interfered with Plaintiffs’ right to receive the benefits of the contract.

At this stage of the pleadings, the Court finds Plaintiffs adequately pled a cause of action for breach of the implied covenant of good faith and fair dealing. The demurrer is overruled.

The demurrer is SUSTAINED with 20 (twenty) days leave to amend on the breach of contract claim and OVERRULED as to the cause of action for breach of the implied covenant of good faith and fair dealing.

The clerk shall provide notice of this ruling to the parties forthwith. Plaintiffs to submit a formal Order and Judgment complying with Rule 3.1312 in conformity with this Ruling.