Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-03802/USCOURTS-cand-3_14-cv-03802-6/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

WRI WEST GATE SOUTH, L.P.,

Plaintiff,

v.

RELIANCE MEDIAWORKS (USA) INC., 

et al.,

Defendants.

Case No. 14-cv-03802-JD (JSC) 

REPORT AND RECOMMENDATION 

RE: PLAINTIFF’S MOTION TO 

DISMISS COUNTER-COMPLAINT

Re: Dkt. No. 55

Plaintiff WRI West Gate South L.P. (“WRI”) filed this action against Defendant Reliance

Mediaworks, Ltd., d.b.a. Big Cinemas (“Big Cinemas”) alleging breach of contract and breach of 

guaranty claims related to a lease. Big Cinemas filed a cross-complaint alleging wrongful 

eviction, breach of contract, breach of warranty, breach of the covenant of quiet enjoyment, breach 

of the covenant of good faith and fair dealing, and conversion. (Dkt. No. 52.) Plaintiff’s motion

to dismiss the counter-complaint for failure to state a claim pursuant to Federal Rule of Civil 

Procedure 12(b)(6) (Dkt. No. 55) was referred to the undersigned judge for a report and 

recommendation. After reviewing the pleadings, including Big Cinemas’ supplemental brief (Dkt. 

No. 86), the Court concludes that oral argument is unnecessary. See Civ. L. R. 7-1(b). 

The Court recommends that the motion to dismiss be GRANTED IN PART and DENIED 

IN PART. Big Cinemas’ claims for wrongful eviction, breach of contract and breach of the 

covenant of quiet enjoyment are barred by claim and issue preclusion arising from the unlawful 

detainer judgment. The breach of the implied covenant claim is redundant to the breach of 

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contract claim and thus must also be dismissed. And Big Cinemas concedes that its warranty 

claims fail as a matter of law. Finally, the conversion claim survives because it appears that Big 

Cinemas disputes that it received proper notice of the disposition of its personal property.

BACKGROUND

In December 2009, WRI entered into a lease agreement with Big Cinemas for a movie 

theater in Fremont, California. (Complaint at ¶ 6.) Reliance Mediaworks, Big Cinemas’ parent 

company, guaranteed the full performance of Big Cinemas under the lease agreement. (Id. at ¶¶ 

14-16.) Over the course of the lease Big Cinemas was habitually late with its rent and other 

payments and ceased all rent payments in February 2014. (Id. at ¶ 18.) In April 2014, WRI 

served Big Cinemas with a Ten-Day Notice to Pay Rent or Surrender Possession, but did not 

receive a response. (Id. ¶¶ 19-20.) WRI thereafter filed an unlawful detainer action against Big 

Cinemas in the Alameda County Superior Court seeking to reclaim possession of the property, and 

obtained a judgment in its favor in June 2014. (Id. at ¶ 22.)

In August 2014, WRI filed this action against Reliance as the guarantor and Big Cinemas 

as the tenant seeking to recover damages for breach of contract and breach of guaranty. (Dkt. No. 

1.) Defendant Big Cinemas initially failed to respond to the summons and complaint and default 

was entered. (Dkt. No. 16.) Over a month later, Big Cinemas moved to set aside the default 

contending that there was good cause for the delay in responding to the complaint as Big Cinemas 

was attempting to obtain local counsel. (Dkt. No. 19.) WRI filed a statement of non-opposition to 

the motion to set aside default, and the Court granted the motion. (Dkt. No. 26.) Prior to filing a 

responsive pleading, Big Cinemas filed a motion to dismiss or change venue, which the Court 

denied. (Dkt. Nos. 27 &44.) 

Big Cinemas thereafter filed its answer and a counter-complaint alleging seven counts (1) 

constructive wrongful eviction, (2) breach of implied warranty of habitability, (3) tortious breach 

of the warranty of habitability, (4) breach of the covenant of quiet enjoyment, (5) breach of 

contract, (6) breach of the covenant of good faith and fair dealing, and (7) conversion. (Dkt. No. 

52.) Big Cinemas alleges that WRI changed the locks on the property in May 2014 without first 

providing notice and as a result Big Cinemas had no way to access the property. (Dkt. No. 52, 

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Counter-Complaint at ¶ 7.) Big Cinemas further alleges that WRI converted its personal property 

located inside the premise without notice. (Id. at ¶ 8.) Further, WRI allegedly violated its 

obligation under the lease to provide Big Cinemas with the right to quiet enjoyment of the 

premises and to repair and maintain the premises. (Id. at ¶¶ 12-13.) Finally, WRI failed to 

mitigate damages and look for a new tenant for the property. (Id. at ¶¶ 9-11.)

WRI’s now pending motion to dismiss the counter-complaint followed. (Dkt. No 55.)

LEGAL STANDARD

A Rule 12(b)(6) motion challenges the sufficiency of a complaint as failing to allege 

“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 

550 U.S. 544, 570 (2007). A facial plausibility standard is not a “probability requirement” but 

mandates “more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 

556 U.S. 662, 678 (2009) (internal quotation marks and citations omitted). For purposes of ruling 

on a Rule 12(b)(6) motion, the court “accept[s] factual allegations in the complaint as true and 

construe[s] the pleadings in the light most favorable to the non-moving party.” Manzarek v. St. 

Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir.2008). “[D]ismissal may be based on 

either a lack of a cognizable legal theory or the absence of sufficient facts alleged under a 

cognizable legal theory.” Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 

2008) (internal quotation marks and citations omitted); see also Neitzke v. Williams, 490 U.S. 319, 

326 (1989) (“Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue 

of law.”). A claim may be dismissed under the doctrine of res judicata on a motion to dismiss 

under Rule 12(b)(6) when the Court is able to discern the relevant facts by way of judicial notice 

of the earlier court proceedings. See Scott v. Kuhlmann, 746 F.2d 1377, 1378 (9th Cir.1984) 

(affirming dismissal pursuant to Rule 12(b)(6) on grounds of res judicata because the district court 

did not consider any disputed facts).

Even under the liberal pleading standard of Federal Rule of Civil Procedure 8(a)(2), under 

which a party is only required to make “a short and plain statement of the claim showing that the 

pleader is entitled to relief,” a “pleading that offers ‘labels and conclusions' or ‘a formulaic 

recitation of the elements of a cause of action will not do.’” Iqbal, 556 U.S. at 678 (quoting 

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Twombly, 550 U.S. at 555.) “[C]onclusory allegations of law and unwarranted inferences are 

insufficient to defeat a motion to dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir.2004); 

see also Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.2011) (“[A]llegations in a complaint or 

counterclaim may not simply recite the elements of a cause of action, but must contain sufficient 

allegations of underlying facts to give fair notice and to enable the opposing party to defend itself 

effectively”). The court must be able to “draw the reasonable inference that the defendant is liable 

for the misconduct alleged.” Iqbal, 556 U.S. at 663. “Determining whether a complaint states a 

plausible claim for relief ... [is] a context-specific task that requires the reviewing court to draw on 

its judicial experience and common sense.” Id. at 663–64.

If a Rule 12(b)(6) motion is granted, the “court should grant leave to amend even if no 

request to amend the pleading was made, unless it determines that the pleading could not possibly 

be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir.2000) (en 

banc) (internal quotation marks and citations omitted).

DISCUSSION

A. Breach of Warranty of Habitability (Counts Two and Three)

Big Cinemas concedes that the breach of warranty of habitability claims (counts two and 

three) fail as a matter of law. (Dkt. No. 62 at 6:21-26). Accordingly, claims two and three should 

be dismissed without leave to amend. 

B. Preclusion (Counts One, Four and Five)

WRI contends that the Alameda County Superior Court’s entry of default judgment against 

Big Cinemas in the unlawful detainer action bars Big Cinemas’ counter-claims for constructive 

wrongful eviction (count one), breach of the covenant of quiet enjoyment (count four), and breach 

of contract (count five). “[E]mbodied in the doctrines of collateral estoppel and res judicata, is 

that a right, question or fact distinctly put in issue and directly determined by a court of competent 

jurisdiction ... cannot be disputed in a subsequent suit between the same parties or their privies ...” 

Montana v. U.S., 440 U.S. 147, 153 (1978) (internal quotation marks omitted). Whereas res 

judicata (also known as “claim preclusion”) bars relitigation of the same cause of action in a 

second suit, collateral estoppel (also known as “issue preclusion”) precludes relitigation of the 

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same issues in a second suit.1See Mycogen Corp. v. Monsanto Co., 28 Cal.4th 888, 896 (2002). 

If the former judgment is a state court judgment, a federal court applies the preclusion rules of the 

state. See Migra v. Warren City School Dist. Bd. of Ed., 465 U.S. 75, 81 (1984). 

WRI initially moved to dismiss based on issue preclusion, but its reply brief also suggests 

that Big Cinemas’ claims are barred by claim preclusion. The Court thus granted Big Cinemas the 

opportunity to respond to WRI’s arguments regarding claim preclusion, and Big Cinemas filed a 

supplemental brief arguing that claim preclusion does not apply. (Dkt. No. 86.) The Court has 

analyzed the preclusive effect of the unlawful detainer judgment under both doctrines and 

concludes that Big Cinemas’ claims are barred under both.

1. Claim Preclusion 

Claim preclusion bars the relitigation of “the same cause of action in a second suit between 

the same parties or parties in privity with them.” DKN Holdings LLC v. Faerber, 61 Cal. 4th 813, 

824 (2015), reh’g denied (Aug. 12, 2015). The elements necessary to establish claim preclusion

are: “(1) the same cause of action (2) between the same parties (3) after a final judgment on the 

merits in the first suit.” Id. (internal citation and quotation marks omitted).

a) Final Judgment on the Merits

Under California law, “a judgment of default in a civil proceeding is res judicata as to all 

issues aptly pleaded in the complaint and defendant is estopped from denying in a subsequent 

action any allegations contained in the former complaint.” Murray v. Alaska Airlines, Inc., 50 

Cal.4th 860, 871 (2010) (internal citation and quotation marks omitted); Carey v. United States, 

No. 08–2504, 2010 WL 1904841, at *6 (E.D. Cal. May 7, 2010) ( “[t]he doctrine of res judicata 

applies even against a default judgment.”). Thus, where a state court enters judgment against a 

borrower in an unlawful detainer action and issues a writ of possession, this constitutes a final 

judgment on the merits, even if the judgment was entered in default. See, e.g., Albano v. Nw. Fin. 

Haw., Inc., 244 F.3d 1061, 1064 (9th Cir. 2001) (holding a default judgment in a foreclosure 

 

1

The remainder of this Order will refer to the doctrines as claim preclusion and issue preclusion as 

the United States Supreme Court and Ninth Circuit “have indicated a preference for the use of 

the[se] modern terms.” Pedrina v. Chun, 906 F.Supp. 1377, 1399 n.8 (D. Haw. 1995) (citations 

omitted).

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action was res judicata to borrowers’ later-filed TILA claim); Thomas, 2013 WL 3992999 at *4 

(“a judgment entered against a borrower in an unlawful detainer action along with the issuance of 

writ of possession constitute a final judgment on the merits”); Castle, 2011 WL 3626560 at *4 

(same).

Here, the Superior Court entered default judgment against Big Cinemas on June 3, 2014, 

and issued a writ of possession on June 5, 2014. (Dkt. No. 57-1 & 56-5.)2 The entry of default 

judgment acts a final judgment on the merits. Big Cinemas does not argue otherwise.

b) Same Cause of Action

Two proceedings are based on the same cause of action if they are “based on the same 

‘primary right’” or injury. Fed’n of Hillside & Canyon Ass’ns v. City of Los Angeles, 126 

Cal.App. 4th 1180, 1202 (2004). “If an action involves the same injury to the plaintiff and the 

same wrong by the defendant then the same primary right is at stake even if in the second suit, the 

plaintiff pleads different theories of recovery, seeks different forms of relief and/or adds new facts 

supporting recovery.” Eichman v. Fotomat Corp., 147 Cal.App.3d 1170, 1174, 197 Cal.Rptr. 612 

(1983) (internal citations omitted).

Under the primary rights theory, a cause of action consists of “1) a primary right 

possessed by the plaintiff, 2) a corresponding primary duty devolving upon the defendant, and 3) a 

delict or wrong done by the defendant which consists in a breach of such primary right and duty.”

Gamble v. General Foods Corp., 229 Cal.App.3d 893, 898 (1991). Thus, “all claims based on the 

same cause of action must be decided in a single suit; if not brought initially, they may not be 

raised at a later date.” Mycogen Corp. v. Monsanto Co., 28 Cal.4th 888, 897 (2002).

 

2

Pursuant to Federal Rule of Evidence 201, the Court “may judicially notice a fact that is not 

subject to reasonable dispute because it: (i) is generally known within the trial court’s territorial 

jurisdiction; or (ii) can be accurately and readily determined from sources whose accuracy cannot 

reasonably be questioned.” Judicial notice is appropriate for “materials incorporated into the 

complaint or matters of public record.” Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th 

Cir.2010). WRI requests judicial notice of several documents filed in the Alameda County 

Superior Court unlawful detainer action including the summons and complaint, request for entry 

of default, request for entry of default judgment, entry of default, entry of default judgment, and 

the docket, see Exhibits A-F (Dkt. Nos. 56-1, 56-2, 56-3, 56-4, 56-5, 57-1). The Court grants the 

request for judicial notice of these documents because they “can be accurately and readily 

determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evd. 201; 

(Dkt. No. 56.) WRI’s request for judicial notice of Exhibit G will be addressed separately infra.

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WRI contends that Big Cinemas’ claims for constructive eviction, breach of the covenant 

of quiet enjoyment, and breach of contract all could have been brought in defense of the unlawful 

detainer action and thus are barred. Big Cinemas counters that the unlawful detainer action is only 

preclusive as to the actual unlawful detainer and not as to other issues that were not raised in the 

action by virtue of Big Cinemas’ default. 

Big Cinemas is correct that “an unlawful detainer action is given limited res judicata effect 

because it is a summary proceeding limited to resolution to the question of possession.” Thomas

v. Bank of Am., N.A., No. 12-2475, 2013 WL 3992999, at *5 (S.D. Cal. Aug. 5, 2013) (citing 

Malkoskie v. Option One Mort. Corp., 188 Cal.App.4th 968, 973 (2010)). However, Big 

Cinemas’ counter-claim allegations all relate to the right of possession and arise from the same set 

of facts as the unlawful detainer action. 

Big Cinemas contends that WRI “failed and neglected to perform its duties and obligations 

under the Lease and is in default.” (Dkt. No. 52, Counter-Complaint at ¶ 34.) Likewise, the breach 

of the covenant of quiet enjoyment claim alleges that “WRI breached Big Cinemas [sic] quiet 

enjoyment of their property interest, by amongst other acts changing the locks on the premises to 

deny Big Cinemas access.” (Id. at ¶ 30.) Finally, the constructive wrongful eviction claim alleges 

that WRI violated the lease and “WRI kept substandard premises and interfered with Big 

Cinemas’ right of possession, including changing the locks.” (Id. at ¶ 16.) These claims all relate 

to Big Cinemas’ alleged right to possession of the property, but Big Cinemas elected not to dispute 

WRI’s right to possess the property when it chose not to defend the unlawful detainer action. 

Judgment was entered against Big Cinemas and it has not moved to set it aside nor has it alleged 

any new facts in support of its failure to defend that action.3 Instead, in response to WRI’s breach 

of contract claim here, Big Cinemas has asserted claims which could have been raised in the 

 

3 Big Cinemas’ statement in its supplemental brief that the unlawful detainer proceeding was 

decided through summary judgment (Dkt. No. 86 at 3:23-24) is flatly incorrect—it was resolved 

by default judgment. A default judgment “conclusively establishes, between the parties so far as 

subsequent proceedings on a different cause of action are concerned, the truth of all material 

allegations contained in the complaint in the first action, and every fact necessary to uphold the 

default judgment.” Gottlieb v. Kest, 141 Cal. App. 4th 110, 149, 46 Cal. Rptr. 3d 7, 34 (2006) 

(internal citation and quotation marks omitted). 

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unlawful detainer action. See Castle v. Mortgage Elec. Registration Sys., Inc., No. 11-00538, 

2011 WL 3626560, at *8 (C.D. Cal. Aug. 16, 2011) (holding that an unlawful detainer action 

obtained by default judgment barred a complaint alleging wrongful foreclosure, wrongful eviction,

quiet title, and unfair business practices as they were predicated on the same factual allegations).

4

 

Big Cinemas’ suggestion that it could not have raised these claims because counter-claims 

are barred in an unlawful detainer action is unavailing as they could have been raised in defense of 

the unlawful detainer. See Green v. Superior Court, 10 Cal. 3d 616, 633 (1974) (noting that in 

defense of an unlawful detainer action a tenant can raise “a defense which [] directly relate[s] to 

the issue of possession and which, if established, would result in the tenant’s retention of the 

premises.”); Slater v. Conti, 171 Cal. App. 2d 582, 585-86 (1959) (holding that both an actual 

eviction and “where the tenant is deprived of the beneficial enjoyment of a substantial part of the 

leased premises” may be treated “as a constructive eviction” and “rely upon the eviction as a 

defense in unlawful detainer.”). Big Cinemas’ citation to cases involving unlawful detainer 

actions resolved via stipulated judgment is likewise unpersuasive. Landeros v. Pankey, 39 Cal. 

App. 4th 1167, 1174 (1995), involved issue preclusion (collateral estoppel) not claim preclusion; 

moreover, the court held that because the unlawful detainer was limited to two months unpaid 

rent, the tenant could not have raised the defense of breach of the warranty of habitability for the 

full three-year tenancy. Pelletier v. Alameda Yacht Harbor, 188 Cal. App. 3d 1551, 1557 (Ct. 

App. 1986), similarly discusses issue preclusion and whether the stipulation stated that certain 

issues were resolved. A stipulated judgment which allows the parties to specify the claims being 

 

4 Courts consistently have held that such claims may not be litigated following the entry of 

judgment in an unlawful detainer action. See Ann v. Tindle, 321 Fed. Appx. 619, 619–20 (9th Cir.

2009) (holding that the plaintiff’s breach of contract and civil rights claims were barred by res 

judicata (claim preclusion) arising from an unlawful detainer default judgment because the claims 

“concern[ed] the same primary right as the unlawful detainer action ...: [the plaintiff’s] rights to 

the apartment.”); Dancy v. Aurora Loan Servs., No. CV 10–2602 SBA, 2011 WL 835787, at *4–6 

(N.D. Cal. Mar. 4, 2011) (holding an unlawful detainer judgment barred the plaintiff's action to 

quiet title); Carter v. U.S. Bank N.A., No. CV 10-2365 DMS (POR), 2011 WL 1004830, at *3 

(S.D. Cal. Mar.18, 2011) (same as to the plaintiff’s claims to set aside the trustee’s sale and cancel 

the trustee’s deed); Lai v. Quality Loan Serv. Corp., No. CV 10-2308, 2010 WL 3419179, at *3–6

(C.D. Cal. Aug. 26, 2010) (same as to the plaintiff’s claims to void or set aside the deed of trust 

and foreclosure sale); Velasquez v. U.S. Bank Nat’l Ass’n, No. CV 09–1104 PSG (AJWx), 2009 

WL 1941807, at *2–3 (C.D. Cal. July 1, 2009) (same as to the plaintiff’s action to quiet title); 

Malkoskie,188 Cal.App.4th at 972–74 (same as to claims to quiet title, among others). 

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released is wholly different from a default judgment which is afforded preclusive effect as to both 

those issues that were litigated and those that could have been litigated. See Castle v. Mortgage 

Elec. Registration Sys., Inc., No. 11-00538, 2011 WL 3626560, at *8 (C.D. Cal. Aug. 16, 2011).

Big Cinemas’ claims for constructive wrongful eviction, breach of the covenant of quiet 

enjoyment, and breach of contract “involve[] pleading a different theory of recovery, but addresses 

the same injury” as that at issue in the unlawful detainer action. Ann, 321 Fed. Appx. at 620 

(citing Zimmerman v. Stotter, 160 Cal.App.3d 1067, 207 Cal.Rptr. 108 (1984)). Accordingly, the 

unlawful detainer action and these claims seek to vindicate the same primary right.

c) Privity Between the Parties

Privity is established where “the party against whom the defense is asserted was a party or

was in privity with a party to the prior adjudication.” Consumer Advocacy Grp., Inc. v. 

ExxonMobil Corp., 168 Cal. App. 4th 675, 689 (2008) (internal citation and quotation marks 

omitted). The parties in the Alameda County Superior Court unlawful detainer action are 

identical to the parties in the present action. Thus, the privity element is met.

Accordingly, all the elements for claim preclusion have been met.

2. Issue Preclusion (Collateral Estoppel)

“While claim preclusion bars litigation in a subsequent action of any issue that could have 

been raised in the prior action, issue preclusion, by contrast, bars relitigation of issues that were 

actually litigated and necessarily decided in a prior action.” Castle, 2011 WL 3626560 at *10 

(internal citations omitted). “Issue preclusion prohibits the relitigation of issues argued and 

decided in a previous case, even if the second suit raises different causes of action.” DKN 

Holdings LLC, 61 Cal. 4th at 824. Issue preclusion applies “(1) after final adjudication (2) of an 

identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against 

one who was a party in the first suit or one in privity with that party.” Id. at 825. “The ‘identical 

issue’ requirement addresses whether ‘identical factual allegations’ are at stake in the two 

proceedings, not whether the ultimate issues or dispositions are the same.” Lucido v. Super. Ct., 

51 Cal.3d 335, 342 (1990).

a) Final Judgment on the Merits

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Where a judgment is entered by default, as here, it serves to preclude relitigation of all of 

the material allegations of the complaint and every fact necessary to uphold the default judgment. 

Murray v. Alaska Airlines, Inc., 50 Cal.4th 860, 871 (2010) (“a judgment of default in a civil 

proceeding is res judicata as to all issues aptly pleaded in the complaint and defendant is estopped 

from denying in a subsequent action any allegations contained in the former complaint.”).

b) Identity of Issues

“[A] default judgment conclusively establishes, between the parties so far as subsequent 

proceedings on a different cause of action are concerned, the truth of all material allegations 

contained in the complaint in the first action, and every fact necessary to uphold the default 

judgment.” Mitchell v. Jones, 172 Cal.App.2d 580, 586–87 (1959).

The basic elements of unlawful detainer for nonpayment of rent are set forth in California 

Code of Civil Procedure section 1161, subdivision (2): (1) the tenant is in possession of the 

premises; (2) that possession is without permission; (3) the tenant is in default for non-payment of 

rent; (4) the tenant has been properly served with a written three-day notice; and (5) the default 

continues after the three-day notice period has elapsed. Kruger v. Reyes, 232 Cal. App. 4th Supp. 

10, 16 (Cal. App. Dep’t Super. Ct. 2014). In this action, Big Cinemas requests that the Court 

declare that WRI’s actions interfered with Big Cinemas’ right to possession, right to quiet 

enjoyment, and right to access and use of the property based on Big Cinemas’ insistence that it

duly performed all its obligations under the lease; however, the issue of Big Cinemas’ breach of 

the lease’s payment terms and WRI’s right to possession of the property are material facts 

necessary to uphold the judgment in the unlawful detainer action. Issue preclusion thus bars Big 

Cinemas from relitigating these issues.

c) Identity of Parties

As discussed above, there is no dispute that privity exists between the parties here.

* * *

Both claim and issue preclusion bar Big Cinemas’ claims for wrongful eviction, breach of 

the covenant of quiet enjoyment, and breach of contract. The First, Fourth, and Fifth Causes of 

action should be dismissed with prejudice.

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B. Big Cinemas’ Remaining Claims

1. Conversion (Count Seven)

Conversion is “the wrongful exercise of dominion over the property of another.” Mindys 

Cosmetics, Inc. v. Dakar, 611 F.3d 590, 601 (9th Cir. 2010) (internal citation omitted). Big 

Cinemas alleges that WRI unlawfully converted Big Cinemas’ personal property when it took over 

possession of the theater. The elements of conversion under California law are (1) ownership of, 

or a right to possess, the property at the time of the conversion; (2) the defendant’s conversion by 

a wrongful act or disposition of the plaintiff’s property rights; and (3) damages. Farmers Ins. 

Exch. v. Zerin, 53 Cal .App. 4th 445, 451 (1997). 

WRI contends that Big Cinemas’ claim fails as a matter of law because it complied with 

California Civil Code § 1993 et seq., which set forth procedures for the disposition of personal 

property remaining on the premises of commercial real property following the termination of a 

tenancy. In support of this contention, WRI requests that the Court take judicial notice of the 

notice it sent to Big Cinemas regarding the at-issue personal property. (Dkt. No. 56.) 

When ruling on a motion to dismiss under Rule 12(b)(6), a district court may ordinarily not 

consider evidence outside the pleadings without converting the motion into a Rule 56 motion for 

summary judgment. U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Although pursuant to 

Federal Rule of Evidence 201 the court may take judicial notice of matters of public record, it may 

not take judicial notice of facts that may be subject to reasonable dispute, or “on the basis of 

evidence outside of the Complaint, take judicial notice of facts favorable to Defendants that could 

reasonably be disputed.” United States v. Corinthian Colleges, 655 F.3d 984, 999 (9th Cir. 2011) 

(internal quotation marks and citation omitted). Because Plaintiff’s request for judicial notice here 

seeks admission of facts disputed in the cross-complaint, the request for judicial notice of Exhibit 

G must be denied. 

In the counter-complaint, Big Cinemas alleges that “[o]n or around May 2014, WRI 

converted Big Cinemas’ personal property located inside the premises, including various 

commercial grade equipment for the operation of a movie theater. The location of the personal 

property was never disclosed nor returned to Big Cinemas.” (Dkt. No. 52, Counter-Complaint at ¶

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8.) Although Big Cinemas does not dispute notice in opposing the motion to dismiss and only 

argues that WRI wrongfully took possession of Big Cinemas’ property because Big Cinemas had a 

lawful right to the property at the time it was locked out of the theater and until the time default 

was entered, the language of the counter-complaint suggests a dispute regarding notice. 

Accordingly, because Big Cinemas’ counter-complaint alleges that it did not have notice of 

the disposition of its property, and at the pleading stage the Court must construe allegations in the 

light most favorable to the non-moving party, dismissal is not appropriate on this record. The 

Court cannot find as a matter of law that Big Cinemas had notice. WRI’s motion to dismiss Count 

Seven should therefore be denied.

2. Breach of the Implied Covenant of Good Faith and Fair Dealing (Count Six)

California law requires that a claim for breach of the implied covenant of good faith and 

fair dealing “involve something more than breach of the contractual duty itself.” Celador Int’l 

Ltd. v. Walt Disney Co., 347 F. Supp. 2d 846, 852 (C.D. Cal. 2004). “It involves unfair dealing, 

whether or not it also constitutes breach of a consensual contract term, prompted by a conscious 

and a deliberate act that ‘unfairly frustrates the agreed common purposes and disappoints the 

reasonable expectations of the other party.’” Id. (quoting Careau & Co. v. Sec. Pac., 222 

Cal.App.3d 1371, 1395, 272 Cal.Rptr. 387 (1990)). Accordingly, “if the allegations do not go 

beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek 

the same damages or other relief already claimed in a companion contract clause of action, they 

may be disregarded as superfluous as no additional claim is actually stated.” Id. (internal 

quotation marks and citation omitted).

Big Cinemas alleges that “WRI has failed and refused, and continue [sic] to fail and refuse, 

to deal in good faith with Big Cinemas, and has therefore breached the covenant of good faith and 

fair dealing.” (Dkt. No. 52, Counter-Complaint at ¶ 40.) In opposing the motion to dismiss, Big 

Cinemas clarifies that the claim is predicated on WRI’s breach of its contractual responsibilities by 

failing to provide the required repairs agreed upon in the lease. 

“A breach of the contract may also constitute a breach of the implied covenant of good 

faith and fair dealing. But insofar as the [alleged] acts are directly actionable as a breach of an 

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implied-in-fact contract term, a claim that merely realleges that breach as a violation of the 

covenant is superfluous.” Guz v. Bechtel Nat. Inc., 24 Cal. 4th 317, 352 (2000). Here, the breach 

of the implied covenant of good faith and fair dealing claim is predicated on WRI’s alleged failure 

to make repairs as called for under the lease; as such, it is redundant to the contract claim and must 

be dismissed. While the Court is doubtful that Big Cinemas could amend the claim such that it is 

not barred by claim or issue preclusion and not redundant to the contract claim, the Court cannot 

conclude as a matter of law that it cannot do so. Consequently Count Six should be dismissed 

with leave to amend if Big Cinemas has a good faith basis to do so.

CONCLUSION

For the reasons set forth above, the Court recommends that WRI’s motion to dismiss Big 

Cinemas’ counter-complaint be GRANTED as to the First, Second, Third, Fourth, Fifth, and 

Eighth Causes of Action without leave to amend, GRANTED as to Count Six with leave to 

amend, and DENIED as to Count Seven. 

Any party may file objections to this report and recommendation with the district court 

judge within 14 days after being served with a copy. See 28 U.S.C. § 636(b)(1)(B); Fed. R. Civ. 

P. 72(b); N.D. Cal. Civ. L.R. 72-3. Failure to file objections within the specified time may waive 

the right to appeal the district court’s ultimate Order.

IT IS SO ORDERED.

Dated: October 1, 2015

________________________

JACQUELINE SCOTT CORLEY

United States Magistrate Judge

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