Williams v. La Perla N. Am., Inc.

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GREGG WILLIAMS, Plaintiff, v. LA PERLA NORTH AMERICA, INC., Defendant.

No. 23-cv-01633-JSC

United States District Court, N.D. California

July 20, 2023

GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND Re Dkt. No. 16

JACQUELINE SCOTT CORLEY UNITED STATES DISTRICT JUDGE

Gregg Williams (“Williams”) alleges La Perla North America, Inc. (“La Perla”) breached a lease (the “Lease”) by failing to pay rent since May 2021 and abandoning the leased commercial property located at 170 Geary Street, San Francisco, California (the “Property”) around April 2021. (Dkt. No 1.)^[1] Williams brings this action solely in his capacity as state court-appointed receiver. (Id. ¶ 3.) In response, La Perla filed an answer and counterclaim alleging causes of action for restitution, breach of contract, and breach of the implied covenant of good faith and fair dealing arising out of Williams' failure to mitigate damages as the Lease requires. (Dkt. No. 10.)

Williams' motion to dismiss La Perla's counterclaim causes of action is now pending before the Court. (Dkt. No. 16.) After carefully considering the parties' submissions, and having had the benefit of oral argument on July 13, 2023, the Court GRANTS Williams' motion to dismiss with 20 days' leave to amend. La Perla has not plausibly alleged a failure to mitigate because absent termination, an affirmative duty to mitigate is contrary to Landlord's rights under Lease Section 16.2(a) and California Civil Code Section 1951.4. See (Dkt. No. 1-2 at 32-33); Cal Civ. Code § 1951.4.

BACKGROUND

A. The Lease

La Perla, a Delaware corporation with its principal place of business in New York, entered a contract to lease the Property from 166 Geary Street Retail Owner LLC (“Landlord”). (Dkt. No. 1 ¶ 4, 8.) Williams (the plaintiff and counterclaim defendant here) was appointed by the Superior Court of the State of California, County of San Francisco, as successor-in-interest to 166 Geary Street Retail Owner LLC. (Id. ¶ 3.)

Williams and La Perla agree the Lease was a valid contract. (Dkt. No. 19 at 10.) Under the 10-year Lease, La Perla agreed to pay $565,000 per year, paid monthly. (Dkt. Nos. 1 ¶ 9; 1-2 at 5.) The rent was to increase by 3% per year. (Dkt. No. 1 ¶ 9.) La Perla also agreed to pay specified additional rent monthly as set out in the Lease. (Id. ¶ 10.)

In 2021 La Perla vacated the Property. (Dkt. No. 10 at 10 ¶ 10.) Under the Lease, if La Perla failed to pay rent or abandoned the Property, and did not cure the failure within a specified amount of time, La Perla would be in default. (Dkt. 1-2 at 31.)

B. Landlord's Options Upon Default

Under the Lease terms, upon default Landlord may: (a) continue the Lease and recover rent, (b) terminate the Lease and recover damages, and/or (c) re-lease the Property on behalf of La Perla. (Id. at 32-33.)

Option (a) is written in the Lease as follows:

Landlord may continue this Lease in full force and effect, and this Lease shall continue in full force and effect as long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to collect rent when due as set forth in California Civil Code Section 1951.4. During the period Tenant is in Default, Landlord may enter the Premises in accordance with applicable law and relet them, or any part of them, to third parties for Tenant's account, provided that any Rent in excess of the monthly Rent due hereunder shall be payable to Landlord as provided for below. No act by Landlord allowed by this paragraph shall terminate this Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate this Lease.

(Id. at 32.)

Option (b), terminating the lease, is available to Landlord “at any time by giving written notice to that effect ....” (Id. (emphasis added).)

Option (c), re-letting the Property, is available to Landlord if La Perla abandons the Property or if Landlord elects to take possession of the Property. (Id. at 33.) Option (c) clarifies “until Landlord elects to terminate this Lease, Landlord may, from time to time, without terminating this Lease, recover all Rent as it becomes due pursuant to [option] (a) ....” (Id.) Option (c) also states: “[w]ith respect to any remedy exercised by Landlord, and to the extent not contrary to Landlord's rights, elections and options herein, Landlord shall have an affirmative obligation to mitigate its damages.” (Id. (emphasis added).)

The Lease also allows Landlord to “use, apply, or retain all or any portion of the [s]ecurity [d]eposit for the payment of [r]ent or other sums in default . . . or to compensate Landlord for any loss or damage that Landlord may suffer because of the Tenant's actions.” (Dkt. 1-2 at 36.)

On December 1, 2022, Williams gave La Perla a notice of default resulting from the abandonment and failure to pay rent. (Dkt. No. 1 ¶ 16.) Williams alleges La Perla failed to cure the alleged breach within the time stipulated in the notice of default. (Id. ¶ 17.) Eventually, Williams sued La Perla and asserts Landlord elected the remedies for default under Option (a). Williams seeks $541,121.37 for “all amounts due and owing under the Lease.” (Dkt. No. 1 ¶¶ 22, 29.)

C. La Perla's Counterclaim

La Perla brings a counterclaim against Williams in response. According to La Perla, “[i]n or around April 2021, [La Perla] became unable to maintain operations on the [Property] in part due to the extreme rise in crime, homelessness, and waste outside of the [Property] and in the surrounding neighborhood(s).” (Dkt. No. 10 at 10 ¶ 10.) “On or around April 27, 2021, because it could no longer maintain operations on the [Property], [La Perla] vacated the [Property].” (Id. ¶ 11.) “On or around April 30, 2021 [La Perla] notified [Landlord] in writing that it was vacating the premises.” (Id. ¶ 12.) “Included in that written correspondence, [La Perla] sent [Landlord] all of its keys to the premises.” (Id.)

La Perla alleges Landlord “had an affirmative obligation pursuant to Section 16.2 of the Lease to mitigate its damages” and in violation of that obligation Williams did not make good faith attempts to re-let the Property. (Dkt. Nos. 10 at 10 ¶ 14; 1-2 at 33.) Additionally, La Perla alleges “rather than making good faith efforts to re-let the [Property], [Landlord] instead chose to apply [La Perla's] $1,290,598.36 Security Deposit to all rental payments owed pursuant to the Lease.” (Dkt. No. 10 at 11 ¶ 16.) As a result, La Perla brings causes of action for restitution, breach of contract, and breach of the implied warranty of good faith and fair dealing. (Dkt. No. 10 at 11-14.) La Perla seeks to be awarded restitution of $1,290,598.36 in addition to costs and attorneys' fees. (Id. at 13.)

LEGAL STANDARD

A complaint should be dismissed under Rule 12(b)(6) if it lacks sufficient facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is facially plausible when it “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. In considering a motion to dismiss, the Court accepts factual allegations in the complaint as true and construes the pleadings in the light most favorable to the nonmoving party. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). “In determining the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the complaint to a plaintiff's moving papers, such as a memorandum in opposition to a motion to dismiss.” Parker v. Nishiyama, 438 Fed.Appx. 642, 643 (9th Cir. 2011) (cleaned up).

DISCUSSION

Williams moves to dismiss La Perla's counterclaim for four reasons. First, Williams argues La Perla failed to obtain permission from the Superior Court to bring claims against Williams as a state-appointed receiver. Second, Williams contends the Lease authorizes the conduct La Perla complains of, and does not require Williams to mitigate damages resulting in no breach of contract. Third, Williams asserts La Perla fails to state a cause of action for restitution as La Perla does not allege the Lease is void or rescinded. Fourth, Williams alleges La Perla's breach of the implied covenant of good faith and fair dealing is duplicative of its breach of contract claim and thus should be dismissed.

I. Claims Against a Court-Appointed Receiver

Williams first argues the counterclaim must be dismissed because a state court has not given La Perla permission to assert the causes of action against him.

“Generally, the capacity of receivers to sue or be sued in a federal district court is governed by the law of the state in which the court is held.” Ramirez v. Pasternak, 2009 WL 10680732 at *5 (C.D. Cal. Apr. 30, 2009). In California “[a] receiver may not be sued without leave of court.” McCarthy v. Poulsen, 173 Cal.App.3d 1212, 1219 (1985). “[T]he failure to obtain court permission . . . must be raised by defendant at the earliest opportunity or it is waived.” Vitug v. Griffin, 214 Cal.App.3d 488, 493 (1989). In Grant v. Buckner, the United States Supreme Court held a counterclaim may be brought against a receiver appointed by a federal court without leave of the court who appointed the receiver. 172 U.S. 232, 238 (1898). However, no court appears to have addressed whether court permission must be obtained to assert a counterclaim, including a compulsory counterclaim, against a receiver appointed by a California state court.

This Court must anticipate how the California Supreme Court would resolve this question. See T-Mobile USA Inc. v. Selective Ins. Co. of Am., 908 F.3d 581, 586 (9th Cir. 2018) (“When the highest court of a state has not directly spoken on a matter of state law, a federal court sitting in diversity must...