Court Opinion

ID: 6104649
Source: CourtListenerOpinion
Date Created: 2022-01-19 19:02:08.296286+00
Date Added: 2024-06-11T08:53:45.258518
License: Public Domain

Filed 1/19/22 Prime Care v. Nguyen Phat Real Estate Investment CA2/5
      NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not
certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not
been certified for publication or ordered published for purposes of rule 8.1115.

   IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                            SECOND APPELLATE DISTRICT

                                           DIVISION FIVE

 PRIME CARE, INC.,                                              B304910

           Plaintiff and Appellant,                             (Los Angeles County Super.
                                                                Ct. No. 19STCV12513)
           v.

 NGUYEN PHAT REAL ESTATE
 INVESTMENT, LLC ET AL.,

           Defendants and Respondents.

     APPEAL from an order of the Superior Court of Los Angeles
County, Dennis J. Landin, Judge. Affirmed.

     Martin E. Jacobs and Martin E. Jacobs, Inc. for Plaintiff and
Appellant.

     Michael J. Shilub and Law Office of Michael J. Shilub for
Defendants and Respondents.

                                   ________________________
                          INTRODUCTION
       Plaintiff Prime Care, Inc. brought suit, alleging that defendants
Nguyen Phat Real Estate Investment, LLC (Nguyen Phat), and Sam
Ho misrepresented that the commercial property they leased to
plaintiff was suitable for the operation of a cannabis business.
Plaintiff appeals from a judgment of dismissal in favor of defendants
after the trial court sustained their demurrers. Plaintiff argues the
court erred in concluding the terms of the lease agreement absolved
defendants of liability for their alleged negligence, fraud, negligent
misrepresentation, rescission, and damages. Plaintiff also contends it
should have been granted leave to amend. We affirm.
           FACTS AND PROCEDURAL BACKGROUND
1.     Lease Agreement
       On January 29, 2019, defendant Nguyen Phat agreed to rent
plaintiff an industrial building located in Montebello, California.
Defendant Sam Ho managed the Nguyen Phat company at the time.
       The commercial lease stated that the agreed use of the premises
was “Commercial Cannabis distribution, manufacturing, cultivation
and retail delivery in accordance with all state and local licenses and
laws.” When plaintiff and Nguyen Phat entered into the lease,
plaintiff had not obtained the City of Montebello’s approval for the
agreed use.
       The lease contained the following provisions:
             Paragraph 2.3: “NOTE: Lessee is responsible for
determining whether or not Applicable Requirements, and especially
the zoning are appropriate for Lessee’s intended use, and

                                 2
acknowledges that past uses of the Premise may no longer be
allowed.” (Bold in the original.)1
             Paragraph 2.4: “Lessee acknowledges that . . . (b) it has
been advised by Lessor and/or Brokers to satisfy itself with respect to
the size and condition of the Premises (including but not limited to . . .
compliance with Applicable Requirements . . .) and their suitability
for Lessee’s intended use. (c) Lessee has made such investigation as
it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to its occupancy of the
Premises . . . .”
       An addendum to the lease: “51E) Licenses and permits – Prior
to Lease execution, Lessee must satisfy itself of all permits and
licenses needed with the City of Montebello and State of California in
order to operate their business at the subject property. Lessee shall
be responsible for all associated permits and licensing costs and shall
provide Lessor copies of all permits.”
             Paragraph 22: “No Prior or Other Agreements; Broker
Disclaimer. This lease contains all agreements between the Parties
with respect to any matter mentioned herein, and no other prior or
contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to
the nature, quality, character and financial responsibility of the
other Party to this Lease and as to the use, nature, quality and
character of the Premises.”
       After signing the lease, plaintiff paid a $150,000 deposit,
advance rent, and other charges. Before plaintiff commenced

1     The lease defines “Applicable Requirements” as the
building codes, applicable laws, covenants or restrictions of
record, regulations, and ordinances.

                                  3
operations, the City of Montebello determined the property was not
suitable for cannabis distribution because of its proximity to a
residential area.
2.     Lawsuit
       On April 9, 2019 plaintiff sued Nguyen Phat, its manager, Sam
Ho, and the brokers on both sides of the transaction. Claims against
the brokers are not at issue in this appeal, and we do not discuss
them.2
       The original complaint alleged five causes of action:
(1) negligence against Nguyen Phat and Ho; (2) fraud against Nguyen
Phat; (3) negligent misrepresentation against Nguyen Phat;
(4) rescission based upon fraud against Nguyen Phat; and
(5) rescission based upon unilateral mistake against Nguyen Phat. A
copy of the lease was attached as Exhibit 1 to the complaint. As to
damages, plaintiff alleged that it had suffered “$8,000 in professional
fees,” and has or will expend another “$20,000 [ ] to obtain an
extension of time to find another site as well as other expenditures
inherent in the extension.” In the rescission cause of action, plaintiff
sought return of its $150,000 deposit with ten percent interest per
annum.
3.     First Demurrer
       Defendants demurred to the complaint.3 They argued “the
Lease establishes that Prime Care had sole responsibility for

2    Subsequent use of “defendants” refers to Nguyen Phat and
Ho only.

3     The only claim against Ho was the first cause of action for
negligence. Defendants shared counsel and filed joint briefs, so
unless otherwise indicated, we discuss defendants together.

                                 4
determining whether the premises are suitable for the Agreed Use.
Prime Care also represented that it was not relying on any purported
representation by Nguyen Phat not set forth in the Lease,” citing
paragraph 22. Defendants asserted plaintiff could not prove
negligence because defendant did not have a duty to determine
whether the property was suitable for plaintiff’s intended use.
Defendants’ argument as to Ho was twofold: (1) the complaint lacked
any factual allegation that Ho had acted negligently, and (2) Ho
could not be liable as Nguyen Phat’s agent because there was no
physical injury, citing Michaelis v. Benavides (1998) 61 Cal.App.4th
681, 686-87 (liability imposed upon agents for active participation in
tortious acts of the principal restricted to cases involving physical
injury, not pecuniary harm, to third persons).
      For the fraud and negligent misrepresentation claims,
defendants asserted there was no justifiable reliance because “Prime
Care represented and warranted in the Lease that it made and was
relying solely on its own investigation as to the suitability of the
premises for the Agreed Use.” (Defendants also asserted the fraud
claim was not pleaded with specificity.) Defendants contended the
rescission and restitution claims failed for the same reason— because
plaintiff agreed it was responsible for investigating the suitability of
the premises for marijuana distribution, plaintiff could not prove
fraudulent conduct or mistake.
      The trial court sustained the demurrer to the first cause of
action for negligence against defendants without leave to amend, and
sustained the demurrers to the four remaining causes of action
against Nguyen Phat with leave. The court’s order stated the lease
“clearly shows that the defendants had no duty to determine
suitability for the ‘Agreed Use’ ” and “allocates the entire risk of a
future contingency to Prime Care.”

                                 5
        The court continued: “As to the negligence causes of action
concerning Defendant Ho, there is no factual allegation that he did
anything that would amount to tortious conduct. Moreover, Ho, as a
corporate officer cannot incur liability where the injury is economic,
as opposed to personal or property damage.” The court concluded
that the complaint failed “to properly allege the fraud claims with the
specificity required by law.”
        Lastly, the court held that the fourth and fifth causes of action
for rescission failed in light of the lease’s language placing the onus
on plaintiff to assess whether it was entitled to use the property for
cannabis distribution.
4.      First Amended Complaint
        Plaintiff filed a first amended complaint, amending only its
causes of action for negligence (as to which leave had not been
granted), fraud and negligent misrepresentation. Plaintiff did not
amend either of the two causes of action for rescission, but simply
repeated its original allegations in its amended complaint.
        Even though it had been denied leave to amend the negligence
claim, plaintiff’s amended complaint included its original claim for
negligence with allegations that read in part: “defendants so
negligently listed, advertised, leased, brokered, advised, researched
. . . investigated, represented and/or carried out their duties and
activities with respect to the said property and lease as to cause and
permit the plaintiff to enter into Exhibit ‘1,’ which plaintiff would not
have done if plaintiff had been aware that the property was not
suitable for the intended cannabis business of the plaintiff.” Plaintiff
asserted that rent under the lease was higher than it would have
been for non-cannabis uses. In the second cause of action for fraud,
plaintiff ‘s allegations now included that “The defendants
misrepresented and concealed from the plaintiff and the plaintiff’s

                                  6
broker that the property was not suitable for cannabis operations due
to its proximity to the residential areas. Defendant Phat Real Estate
Investment, LLC, by and through its manager Sam Ho, represented
to plaintiff Prime Care Inc., by and through Phat’s broker . . . in or
about February 2019 when negotiations started that the building to
be leased was in the proper location and zoning for cannabis use.
Indeed, Phat and Sam Ho advised plaintiff’s broker through Phat’s
broker that the lease rent would be greater for cannabis use than
non-cannabis use. The same representation as to the proper location
and zoning was repeated to [plaintiff’s representative] at the
Automobile Club of Southern California location in Anaheim,
California while going through the signing process on or about
March 1, 2019. Phat and Sam Ho also represented to the City of
Montebello that Sam Ho had read the City of Montebello Municipal
Code and Zoning Code provisions regarding commercial cannabis
business at the real property in question and that they consented to
plaintiff proceeding with the proposed commercial cannabis business
at the location. . . . Further, on or about February 6, 2019 the
defendants furnished to the plaintiff by email a zoning map, . . . on
which it was indicated in handwriting and emphasized that the
properly was located a 1,000 feet [sic] from a residential area which
was a sufficient distance to permit the cannabis operations. A
minimum of 600 feet from the residential area was needed for
                                                                       4
cannabis operations and the actual distance was less than 600 feet.”

4     The amended complaint alleged that defendants had
emailed a zoning map to plaintiff with the notation that the
premises were 1,000 feet from a residential area. At the hearing
on the demurrer, plaintiff’s counsel agreed that neither Nguyen
Phat nor Ho provided the map to plaintiff.

                                7
       In the third cause of action for negligent misrepresentation,
plaintiff re-alleged previous paragraphs and asserted that
“Defendants made the misrepresentations and concealed the
unsuitability of the leased premises for cannabis negligently and
without any reasonable basis for doing so.”
5.     Second Demurrer
       Nguyen Phat demurred to the second and third causes of action
for fraud and negligent misrepresentation (the other causes of action
                   5
were not amended). Nguyen Phat argued that both causes of action
fail because plaintiff cannot demonstrate justifiable reliance on any
alleged statements regarding the appropriateness of the building for
cannabis distribution because plaintiff agreed in writing that
defendants had no duty to determine the suitability for the agreed
use and that it was plaintiff who was to assess the suitability of the
location.
       The trial court sustained the demurrers without leave to
amend. The court again found that the lease precluded plaintiff from
showing the justifiable reliance necessary for fraud or negligent
misrepresentation. The court explained that plaintiff’s “added
allegations regarding oral statements or annotated zoning map do not
have any effect, as the language of the Lease Agreement specifically

5      Ho did not demurrer to the first amended complaint,
apparently because the single cause of action against him was
fully disposed of by the ruling on his demurrer to the initial
complaint. Although the trial court could have struck the
amended first cause of action as a sham pleading, it did not.
(Ricard v. Grobstein, Goldman, Stevenson, Siegel, LeVine &
Mangel (1992) 6 Cal.App.4th 157, 162.) The trial court did not
further address the cause of action against Ho, and, as to Ho,
plaintiff appeals only the sustaining of the demurrer to the
original complaint.

                                8
precludes any prior or contemporaneous agreement or understanding
other than the Lease itself to be effective.” The court stated “the
consent form signed by Phat only contains a representation regarding
Phat’s acknowledgement and consent to Plaintiff’s cannabis business
on the premises but not regarding its compliance with the City of
Montebello’s zoning provisions.”
       The trial court observed that it had granted plaintiff leave to
amend its fourth and fifth rescission causes of action, but plaintiff did
not amend. The court sustained the demurrer without leave to
amend as to the second through fifth causes of action.
       On January 3, 2020, the trial court entered judgment of
dismissal in favor of Nguyen Phat and Ho. Plaintiff appealed.
                            DISCUSSION
       Plaintiff argues that the court erred in sustaining demurrers to
the first three causes of action, and in refusing leave to amend the
first and fourth causes of action. It does not appeal the court’s ruling
sustaining the demurrer to the fifth cause of action. “On appeal from
a judgment dismissing an action after sustaining a demurrer without
leave to amend, the standard of review is well settled. We give the
complaint a reasonable interpretation, reading it as a whole and its
parts in their context. Further, we treat the demurrer as admitting
all material facts properly pleaded, but do not assume the truth of
contentions, deductions or conclusions of law. When a demurrer is
sustained, we determine whether the complaint states facts sufficient
to constitute a cause of action. And when it is sustained without
leave to amend, we decide whether there is a reasonable possibility
that the defect can be cured by amendment: if it can be, the trial
court has abused its discretion and we reverse.” (City of Dinuba v.
County of Tulare (2007) 41 Cal.4th 859, 865 (internal citations
omitted).)

                                  9
1.     Plaintiff Failed to Allege Duty in the First Cause of
       Action for Negligence
       The trial court sustained the demurrer to the first cause of
action for negligence in the original complaint without leave to
amend. Nevertheless, plaintiff repeated its negligence claim in its
first amended complaint. Plaintiff argues on appeal only that the
court erred in sustaining the demurrer to the first cause of action in
the original complaint.6
       “An essential element of an action for negligence is the
existence of a duty of care to the plaintiff. [Citation.] The existence
and scope of a defendant’s duty is an issue of law to be decided by the
court.” (Eriksson v. Nunnink (2011) 191 Cal.App.4th 826, 838.)
Here, the trial court found that plaintiff failed to allege duty because
the attached lease “clearly show[ed] that defendants had no duty to
determine the suitability for the ‘agreed use.’ ”
       On appeal, plaintiff does not squarely take on this argument.
It does not suggest, for example, an alternative interpretation of the
lease. Instead, plaintiff takes a different tack – asserting that,
despite the lease language, defendants owed a “general” duty of care.
Plaintiff argues defendants breached this duty in their listing,
advertising, leasing, and representations about the property that
caused plaintiff to enter into the lease, which plaintiff would not have
done if it had been aware that the property was unsuitable for its
intended cannabis business. Plaintiff cites cases that hold a duty of
care may be pleaded “generally.” (See Wiley v. Cole (1921)
52 Cal.App. 617, 618 (“negligence may be charged in general terms”).)

6 Because plaintiff frames his argument in terms of the original
complaint we address it in that manner. We have observed that
in the amended complaint, plaintiff merely repeated the critical
allegations from his original complaint.

                                10
       That a duty of care can be pleaded generally is not really the
point. Plaintiff’s argument assumes a duty exists even in
contravention of the allocation of duty in the written agreement
between the parties. This is not a pleading issue, but one of
substantive law, for which plaintiff cites no legal authority. (See
Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The
Rutter Group 2021) ¶ 9:21 [“appellate court can treat as waived or
meritless any issue that, although raised in the briefs, is not
supported by pertinent or cognizable legal argument or proper
citation of authority”].) Plaintiff must allege a duty that exists within
the framework of its pleaded facts. (Jones v. Daly (1981)
122 Cal.App.3d 500, 508.) The only duty actually alleged is that
contained in the parties’ agreement attached to the complaint. The
agreement states plainly that defendants had no such duty.
       Lease paragraph 2.3 states in bold that “Lessee is responsible
for determining whether or not the Applicable Requirements, and
especially the zoning are appropriate for Lessee’s intended use . . . .”
As we have recounted in our “Facts And Procedural Background”
section, in paragraph 2.4, plaintiff similarly warranted that it
investigated to the extent it deemed necessary whether the premises
were suitable for its intended use and assumed all responsibility for
such an investigation. In paragraph 22, plaintiff represented and
warranted that “it has made, and is relying solely upon, its own
investigation . . . as to the use” of the premises. In an addendum to
the lease, plaintiff agreed to “satisfy itself of all permits and licenses
needed with the City of Montebello and State of California in order to
operate their business at the subject property.” Lastly, the lease
stated that it contained “all agreements between the parties . . . and
no other prior or contemporaneous agreement or understanding shall
be effective.”

                                 11
       In sum, the lease agreement provided that it was plaintiff that
had expressly covenanted it was not relying on defendants to ascertain
the suitability of the property. Instead, the duty was firmly placed on
plaintiff to assess whether it could operate the cannabis distribution
business at the location.
       Plaintiff argues that the lease provisions which we have quoted
and paraphrased, constitute unenforceable “exculpatory” language
that purports to insulate defendants from their own negligence.
Plaintiff cites Viotti v. Giomi (1964) 230 Cal.App.2d 730, 739 (Viotti),
which states that “[a]n agreement insulating one from liability for his
own negligence must specifically so provide and is strictly construed
against the party asserting the exemption, especially where he is the
author of the agreement.” In Viotti, the Court of Appeal found that a
title company could not avoid liability for an erroneous title report
simply because the top of the report stated: “Preliminary report only.
No liability hereunder.” (Ibid.)
       Viotti is inapt. The lease provisions here do not exempt
defendants from liability. On the contrary, the lease expressly
provides that plaintiff has the contractual obligation to investigate
whether the premises are appropriate for its business and to obtain
government approval for its cannabis operation. The lease does not
exempt defendants from anything; it establishes that plaintiff had no
duty to ensure that the property was suitable for plaintiff’s business.
       Plaintiff also relies on Civil Code section 1668 (section 1668)
for the proposition that defendants cannot contract away their
liability.7 Section 1668 likewise is unhelpful. “[T]he statute

7      Section 1668 provides: “All contracts which have for their
object, directly or indirectly, to exempt anyone from responsibility
for his own fraud, or willful injury to the person or property of

                                12
prohibits contractual releases of future liability for ordinary
negligence when ‘the “public interest” is involved or . . . a statute
expressly forbids it.’ ” (Frittelli, Inc. v. 350 North Canon Drive, LP
(2011) 202 Cal.App.4th 35, 43.) Plaintiff makes no cogent argument
that the commercial lease transaction is either in the “public
interest” or that “a statute expressly forbids” placing the obligation
on plaintiff rather than defendants. Nor does the lease purport to
excuse defendants from future liability. The claimed wrongs all
occurred, if at all, before the lease was executed.
2.     Plaintiff Failed to Allege Reasonable Reliance as to
       Fraud and Negligent Misrepresentation (Second and
       Third Causes of Action)
       Among the elements necessary to establish fraud and negligent
misrepresentation is the plaintiff’s reasonable reliance on defendant’s
false statement. (Apollo Capital Fund LLC v. Roth Capital Partners,
LLC (2007) 158 Cal.App.4th 226, 243–244.) We concur with the trial
court that plaintiff did not allege the element of reasonable reliance to
support the fraud and negligent misrepresentation claims. As we
have explained, plaintiff agreed in the lease that it would not rely on
any representations by Nguyen Phat regarding the zoning and that
plaintiff was responsible for obtaining permits from the city to run its
business at the property. On appeal, plaintiff does not even address
reliance, focusing instead on plaintiff’s purported misrepresentations.
Plaintiff’s failure to assert an argument directed to the basis of trial
court’s ruling forfeits the point on appeal. (Kinsella v. Kinsella (2020)
45 Cal.App.5th 442, 464 [“Where an appellant fails to present

another, or violation of law, whether willful or negligent, are
against the policy of the law.”

                                 13
argument or legal authority, he or she forfeits appellate consideration
of the issue.”].)
3.     Plaintiff Does Not Appeal the Court’s Ruling Sustaining the
       Demurrers to the Fourth and Fifth Causes of Action for
       Rescission
       Plaintiff does not argue the trial court erred in sustaining
demurrers to the fourth and fifth causes of action for recission. We
therefore presume these rulings correct. (Keyes v. Bowen (2010)
189 Cal.App.4th 647, 655.)
4.     Plaintiff Failed to Show that Amendments Would Cure
       the Defective Pleadings
       Plaintiff argues that the court erred in denying leave to amend
causes of action one through four. Plaintiff provides no explanation
as to how it would amend its allegations to sufficiently allege each
element of each cause of action. “Because a demurrer tests the legal
sufficiency of a complaint, the plaintiff must show the complaint
alleges facts sufficient to establish every element of each cause of
action.” (Rakestraw v. California Physicians’ Service (2000)
81 Cal.App.4th 39, 43.). “The plaintiff has the burden of proving that
an amendment would cure the defect.” (Campbell v. Regents of
University of California (2005) 35 Cal.4th 311, 320.) Plaintiff has not
carried its burden. Accordingly, the trial court did not abuse its
discretion in sustaining the demurrers without leave to amend.

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                           DISPOSITION
       The judgment is affirmed. Defendants and respondents
Nguyen Phat Real Estate Investment, LLC and Sam Ho shall recover
their costs on appeal.

                                      RUBIN, P. J.
WE CONCUR:

                BAKER, J.

                KIM, J.

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