Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_07-cv-01772/USCOURTS-casd-3_07-cv-01772-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition For Removal--Other Contract

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

OLD GROVE SERVICE, INC.,

Plaintiff,

CASE NO. 07cv1772 JM(BLM)

ORDER DENYING MOTION TO

vs. DISMISS

MCDONALD’S CORPORATION,

Defendant.

Defendant McDonald’s Corporation (“McDonald’s”) moves to dismiss the

complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil

Procedure. Plaintiff Old Grove Service, Inc. (“Old Grove”) opposes the motion.

Pursuant to L.R. 7.1(d)(1), this matter is appropriate for decision without oral argument.

For the reasons set forth below, the motion to dismiss is denied.

BACKGROUND

On September 10, 2007 Defendant removed this action from state court based

upon diversity jurisdiction. Old Grove alleges that on or about October 22, 2002 it

entered into a Ground Lease and Operating Agreement (“Agreement") with

McDonald’s for the purpose of jointly developing property whereby McDonald’s would

develop a McDonald’s restaurant and Old Grove would develop and operate a gas

station. (Compl. Exh. A). By written letter dated April 8, 2004, Old Grove sought

McDonald’s consent “for the encumbrance necessary to finance the construction” of the

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service station. (Compl. ¶13, Exh. B). On May 14, 2004 McDonald’s denied the

request. Plaintiff alleges that McDonald’s failed to timely respond to its letter as

required by Section 15(1) of the Sublease and that McDonald’s unreasonably withheld

its consent to encumber the property. (Compl. ¶143). 

After McDonald’s initial written denial of the request, Plaintiff contacted the

regional director at McDonald’s, Mr. Greg Semos, who “promised to talk to Plaintiff’s

lender, Wells Fargo, to discuss the financing and work out any issues that might arise.”

(Compl. ¶14). On September 29, 2005, Plaintiff’s counsel wrote Mr. Semos, (Compl.,

Exh. D), but did not receive a response to the letter. Even though the Agreement

provided that McDonald’s failure to timely respond to a request to encumber would be

considered the equivalent of McDonald’s consent, “the practical working of the lending

industry still required Defendants’ actual approval for plaintiff to obtain such financing.

(Compl. ¶16). On March 7, 2006 Plaintiff’s counsel again sought McDonald’s consent

to encumber the property. (Compl., Exh. E). 

On June 21, 2006 Plaintiff spoke with a member of McDonald’s legal

department, Ms. Consuelo Boyd, who asked for financial documentation concerning the

financing of the gas station. Shortly thereafter Plaintiff provided the requested financial

information and, on July 7, 2006 Ms. Boyd replied that “she understood the urgency of

the matter and would respond as soon as possible.” (Compl. ¶17). Having not heard

from Defendant, on September 26, 2006 Plaintiff again wrote to Ms. Boyd. On October

20, 2006, Plaintiff’s counsel spoke with Ms. Boyd who informed Plaintiff that the

matter was “out of her hands and that Plaintiff’s counsel should contact Mr. Semos.”

(Compl. ¶19). Even though Ms. Boyd informed Plaintiff that “she did not believe that

Plaintiff needed defendant’s consent, [] that ignored the reality that the lender required

Defendant’s consent.” Id. When Plaintiff’s counsel contacted Mr. Semos, he was

informed that Ms. Boyd “had to give consent to the financing.” (Compl. ¶20). On May

29, 2007 Plaintiff sent McDonald’s a demand letter. In the June 4, 2007 response letter,

Ms. Boyd “stated that Plaintiff’s request was denied unless and until the region had

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completed its review of the financial documents and notified her of the region’s

approval.” (Compl. ¶23). 

On August 10, 2007 Plaintiff commenced this action in the San Diego Superior

Court alleging that McDonald’s breached the contract when it failed to provide its

consent in such a manner that Plaintiff could timely obtain financing for its portion of

the project. Plaintiff also seeks a judicial declaration of the parties’ rights and duties

under the Agreement. McDonald’s seeks to dismiss the complaint for failure to state

a claim. Plaintiff opposes the motion.

DISCUSSION

Legal Standards

Federal Rule of Civil Procedure 12(b)(6) dismissal is proper only in

"extraordinary" cases. United States v. Redwood City, 640 F.2d 963, 966 (9th Cir.

1981). Courts should grant 12(b)(6) relief only where a plaintiff's complaint lacks a

"cognizable legal theory" or sufficient facts to support a cognizable legal theory.

Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). Courts should

dismiss a complaint for failure to state a claim when the factual allegations are

insufficient “to raise a right to relief above the speculative level.” Bell Atlantic Corp

v. Twombly, __550 U.S. __, 127 S.Ct. 1955 (2007). The defect must appear on the face

of the complaint itself. Thus, courts may not consider extraneous material in testing its

legal adequacy. Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1482 (9th Cir. 1991).

The courts may, however, consider material properly submitted as part of the complaint.

Hal Roach Studios, Inc. v. Richard Feiner and Co., 896 F.2d 1542, 1555 n.19 (9th Cir.

1989). 

Finally, courts must construe the complaint in the light most favorable to the

plaintiff. Concha v. London, 62 F.3d 1493, 1500 (9th Cir. 1995), cert. dismissed, 116

S. Ct. 1710 (1996). Accordingly, courts must accept as true all material allegations in

the complaint, as well as reasonable inferences to be drawn from them. Holden v.

Hagopian, 978 F.2d 1115, 1118 (9th Cir. 1992). However, conclusory allegations of

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law and unwarranted inferences are insufficient to defeat a Rule 12(b)(6) motion. In

Re Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996).

The Motion

McDonald’s contends that it was under no contractual duty to approve the

financing as requested by Old Grove and therefore the complaint fails to state a claim

for relief. The court denies the motion to dismiss as the reasonableness or

unreasonableness of the parties’ conduct at issue raises contested issues not properly

resolved on a Rule 12(b)(6) motion to dismiss.

In order to state a breach of contract claim, Old Grove must show (1) the

existence of a contract, (2) its performance under the contract, (3) McDonald’s material

breach of the contract, and (4) damages arising from the breach. See McKell v.

Washington Mutual, 142 Cal.App.4th 1457, 1489 (2006); Smith v. Royal Mfg. Co., 185

Cal.App.2d 315, 328 (1960). Here, Plaintiff alleges that McDonald’s was under a duty

to not unreasonably withhold its consent to encumber the property and that it breached

that duty. (Compl. ¶¶11, 12; Exh. A ¶¶4, 14(I)).

In the Agreement, Old Grove agreed to the following, in pertinent part:

Tenant covenants and agrees:

 * * *

C. LIENS AND ENCUMBRANCES; Not to cause the estate of Landlord

in the Property, Tenant’s leasehold interest, or the Common building at any time during the term of this Lease to become subject to any lien, charge or encumbrance whatsoever, without Landlord’s prior written consent. . . . It is expressly agreed that Tenant shall have no authority, expressed or implied, to create any lien, charge or encumbrance upon the estate of Landlord in the Property.

(Compl. Exh. A, ¶4). The Agreement further provides that “[e]xcept where noted

otherwise, where Landlord’s or Tenant’s approval or consent is required, such consent

shall not be unreasonably withheld or delayed” and that ‘[i]f Landlord or Tenant fails

to respond to a request for consent within 30 days after written demand and such

consent request notes the automatic approval provision of this Lease, such request shall

be deemed granted.” Id., ¶15(I). Even though the Agreement provided for McDonald’s

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 One difficulty with this argument is that McDonald’s fails to establish, as a matter of law,

that such loan documents are a prerequisite to obtaining McDonald’s consent. 

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deemed consent under ¶15(I), Old Grove alleges that “the practical workings of the

lending industry still required defendants’ actual approval for Plaintiff to obtain such

financing.” (Compl. ¶16). In light of the notice pleading requirements of the Federal

rules, the court concludes that Plaintiff adequately alleges that McDonald’s was under

the duty to not unreasonably withhold its consent to permit Old Grove to encumber a

portion of the property.

With respect to the element of breach, Plaintiff alleges that it has attempted, over

a three year period of time, to obtain McDonald’s consent and that McDonald’s

unreasonably withheld its consent. (Compl. ¶¶29-31). Ordinarily, stand-alone

allegations such as these adequately establishes breach of contract at the pleading stage.

Here, however, Plaintiff has attached several letters to the complaint concerning the

consent issue. (Compl. Exhs. B-J). The thrust of McDonald’s argument is that it had

no contractual duty to give its consent to the encumbrance based upon the materials

supplied by Old Grove. For example, the paper trail in this case begins with Plaintiff’s

letter of April 2004, (Compl. Exh. B), wherein it requested McDonald’s consent to

encumber the property. In conclusory fashion McDonald’s states that the letter was not

accompanied by “the underlying loan documents.1

” (Motion at p.5:22-23). In May

2004 McDonald’s denied the request noting that it would reconsider the denial should

Old Grove “submit audited financial statements and such other financial information

as may be requested by the Regional Controller.” (Compl. Exh. C). Eighteen months

later, on September 29, 2005, Plaintiff again wrote McDonald’s. (Compl. Exh. D).

That letter indicated that Old Grove and its mortgage lender, Wells Fargo Bank, had

unsuccessfully attempted on over 20 occasions to reach counsel at McDonald’s to

discuss financing for the project, secured by Old Grove’s assets at the premises. Id.

Additional letters attached to the complaint indicate that McDonald’s did consider the

financial information provided by Old Grove. (Compl. Exhs. G, H). 

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2

 While McDonald’s argument that the declaratory relief claim is duplicative of the breach of

contract claim appears to have some merit, at this early pleading stage in the litigation process, the

court declines to dismiss this claim. Under California law, a declaratory relief claim is generally

appropriate to determine the legal rights and duties of parties to a contract. See Ludgate Ins. Co. v.

Lockheed martin Corp., 82 Cal.App. 4th 592 (2000).

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The court concludes that Old Grove states a claim for breach of contract and that

the letters attached to the complaint fail to establish as a matter of law that (1) the

information provided by Old Grove was insufficient for McDonald’s to make a

reasonably informed decision on the issue of consent and (2) McDonald’s reasonably

withheld its consent. The court notes that the context necessary to adjudicate these

issues is better left to an evidentiary motion or the time of trial. Accordingly, the

motion to dismiss the breach of contract claim is denied.2

In sum, the motion to dismiss is denied in its entirety.

IT IS SO ORDERED.

DATED: December 3, 2007

 Hon. Jeffrey T. Miller

 United States District Judge

cc: All parties

Magistrate Judge Major

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