Garland Connect, LLC v. Wells Fargo Bank

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GARLAND CONNECT, LLC, Plaintiff and Appellant, v. WELLS FARGO BANK et al., Defendants and Respondents

B316135

California Court of Appeals, Second District, Seventh Division

August 28, 2023

NOT TO BE PUBLISHED

APPEAL from a judgment of dismissal of the Superior Court of Los Angeles County No. 19STCV16050. Jon R. Takasugi, Judge.

Greene Broillet & Wheeler, Scott H. Carr and Christian T.F Nickerson; Esner, Chang Boyer & Murphy, Stuart B. Esner and Kathleen J. Becket for Plaintiff and Appellant.

Musick, Peeler & Garett, Dan Woods and Cheryl A. Orr for Defendants and Respondents.

ESCALANTE, J. ^[*]

INTRODUCTION

Plaintiff Garland Connect, LLC (Garland Connect) appeals from a judgment of dismissal in favor of defendants Wells Fargo Bank, National Association (Wells Fargo Bank), Barbara ReeveBailey, and Mark A. Ingram (collectively, Wells Fargo). The action arises out of an operating agreement that Garland Connect entered into with third-party Charter Garland MMR LLC (Charter Sub) as of March 7, 2011. Charter Sub held a sublease to a portion of the Garland Center office building used for telecommunications services. Pursuant to the operating agreement, Charter Sub granted Garland Connect the right to manage and operate a "meet-me room" (MMR) at the Garland Center and to provide other telecommunications-related services. An MMR is a physical space in a building that provides for the interconnection of tenants, telecommunication carriers, and other network service providers. In return, Garland Connect agreed to pay an operator fee and to share the revenue from the operations.

The initial term of the operating agreement expired on February 28, 2019. The agreement granted Garland Connect options to extend the term for two additional five-year periods, subject to and conditioned on the extension of upstream subleases and leases. The agreement expressly provided that Charter Sub and the upstream lessors and lessees had no obligation to extend the subleases and leases.

The building was sold to HRRP Garland, LLC (HRRP), a subsidiary of defendant Rising Realty Partners, LP. Charter Sub assigned its rights and obligations under the operating agreement to HRRP. The upstream leases and subleases were extinguished as part of the sale. HRRP declined to extend the term of operating agreement beyond the February 28, 2019 termination date. In a related action, Garland Connect sued HRRP for breach of contract based on HRRP's alleged failure to honor the options and sought a declaration that the options were still valid. The trial court entered judgment in favor of HRRP, concluding HRRP was not required to extend the term. In an unpublished decision, we affirmed the judgment. (Garland Connect, LLC v. HRRP Garland, LLC (Apr. 27, 2021, B296192 [nonpub. opn.].)

In this action, Garland Connect sued Wells Fargo and others for intentional and negligent interference with contractual relations and intentional and negligent interference with prospective economic advantage. Garland Connect alleged Wells Fargo intentionally structured the acquisition transaction in a way that resulted in the termination of Garland Connect's extension options and intentionally induced HRRP to breach the operations agreement. The trial court sustained Wells Fargo's demurrer to the first amended complaint without leave to amend and entered a judgment of dismissal. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. Leases and Subleases for the Garland Center Building and Land

At the time Garland Connect entered into the operating agreement, Wells Fargo Bank owned the land on which the Garland Center was built. Wells Fargo Bank had leased the land to Trumbull Associates Limited Partnership (Trumbull), which owned the Garland Center building. Trumbull leased the land and the building to RML Leasing Corporation (RML) pursuant to a master lease agreement. RML subleased the land and building to First Interstate Bank of California (First Interstate). Wells Fargo Bank succeeded by merger to all rights, title, and interest of First Interstate in the RML lease. Wells Fargo Bank assigned its rights as tenant under the lease to its affiliate, Charter Holdings, Inc. (Charter Parent).

Charter Parent leased the portions of the building to be used for the MMR and other telecommunications services to Charter Sub for an initial term expiring February 28, 2019.

B. Operating Agreement

Charter Sub "desire[d] for an independent contractor to operate and manage" the MMR and related facilities, and Garland Connect "desire[d] to be the exclusive manager and operator of" those facilities. Charter Sub granted Garland Connect the sole and exclusive right to manage and operate the MMR during the term of the agreement, and Garland Connect agreed to so operate and manage the facilities. Garland Connect was granted a license to occupy the property to provide these services. Under the agreement, Garland Connect would charge tenants and other customers for the services and would pay Charter Sub operator fees plus a specified share of the revenues.

The agreement set forth the respective rights and duties of the parties in detail. Among other things, the agreement spelled out which party was responsible for operating costs and for the construction of improvements and upgrades. The agreement also contained detailed provisions regarding the rates Garland Connect could charge Garland Center tenants and other customers for MMR services.

The agreement provided the initial term would expire on February 28, 2019, which was also the date the upstream leases and subleases were set to expire. The operating agreement provided: "[Garland Connect] acknowledge[d] that the term of this [operating agreement] and all rights of [Garland Connect] hereunder shall automatically terminate upon termination of a Superior Lease, and [Garland Connect] acknowledge[d] that it must vacate and surrender the MMR in the condition required under the terms of this [operating agreement] by no later than the Expiration Date" of February 28, 2019 (subject to the extension options). The agreement further stated that Charter Parent had covenanted to Charter Sub that Charter Parent would not take any actions to terminate the RML lease before February 28, 2019. Charter Sub agreed it would take any actions required to ensure the RML lease would remain in effect through the initial termination date of February 28, 2019.

Charter Sub granted Garland Connect options to extend the term for two five-year periods. Each of the extension options was "expressly subject to, and conditioned upon (a) RML, in its sole and absolute discretion, exercising its option to extend the term of the Master Lease for the Land and the Building through the applicable Option Term, and (b) Charter Parent, in its sole and absolute discretion, exercising its option to extend the RML Lease such that the RML Lease shall extend through the applicable Option Term." The agreement further provided: "No Obligation to Extend. It is expressly understood and agreed that Charter Sub shall have no obligation to take any action or make any effort with respect to any extension or renewal of the RML Lease or to otherwise attempt to secure any right to lease or occupy all or any portion of the Building after February 28, 2019."

The agreement further provided: "For the purposes of this Operating Agreement: (a) 'Charter Sub' means [Charter Sub] or any successor in interest, but only for the time that any such person is the sublessee to Charter Parent of the Premises in accordance with and subject to the provisions of Section 23.4." Section 23.4 provides in part: "Transfers of Charter Sub's Interest. The covenants and agreements of Charter Sub under this Operating Agreement following any transfer shall not be binding on any person at any time holding the interest of Charter Sub (including the original named Charter Sub) subsequent to the transfer of that person's interest in the Building. In the event of such a transfer, the covenants and agreements of Charter Sub thereafter shall be binding upon the transferee of Charter Sub's interest."

C. Sale of the Building to HRRP

On June 3, 2016, Charter Parent sent Garland Connect a letter notifying Garland Connect that Charter Parent, Wells Fargo Bank, RML Leasing, and Trumbull had sold the property to HRRP. Charter Sub's rights and obligations under the operating agreement were assigned to HRRP as part of the deal. The letter stated: "As of the date hereof, Sellers' interest in your license has been assigned to Purchaser, and Purchaser has assumed the obligations as landlord under your license. [¶] . . . [¶] . . . Purchaser advises Licensee that Purchaser has acquired all fee and leasehold interests in the Property, including the interests in the RML Lease and Master Lease . . . and that, upon the Closing, all such leasehold interests merged into the fee interest in the Property and all such agreements granting the leasehold interests, including the RML Lease and Master Lease, terminated in their entirety.... All rights contingent upon the existence and renewal of the Master Lease and RML Lease, including any extension rights, are hereby extinguished in connection with and as a result of the termination of such agreements as a result of the acquisition of the property." Garland Connect responded with a letter disputing HRRP's interpretation of the agreement.

D. HRRP's Initiation of Arbitration Regarding Garland

Connect's Alleged Breaches of Operating Agreement Soon after HRRP acquired the property, a dispute arose between HRRP and Garland Connect. HRRP claimed Garland Connect had materially breached provisions of the operating agreement requiring Garland Connect to charge market rates and to provide market research on...