Cornu v. Norton Community Apartments

Filed 7/9/09 Cornu v. Norton Community Apartments 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from a judgment of the Superior Court of Los Angeles County, Mary H. Strobel, Judge. Reversed with directions.

Law Offices of Yevgeniya G. Lisitsa and Yevgeniya G. Lisitsa for Plaintiff and Appellant.

Peter L. Weinberger & Associates and Peter L. Weinberger for Defendants and Respondents.

_______________________________

Plaintiff and appellant Paul Cornu appeals from a judgment of dismissal following an order granting a motion for judgment on the pleadings in favor of defendants and respondents Norton Community Apartments, L.P., its general partner Social Services & Affordable Housing Corporation (SSAHC), and Paul Saben in this action arising out of an apartment lease agreement. Cornu contends: (1) the complaint adequately alleges a cause of action for promissory fraud or fraud in the inducement; (2) apartment leases are goods under the Consumer Legal Remedies Act (CLRA)(Civ. Code, 1750 et seq.); and (3) the trial court abused its discretion by denying his request to amend his complaint to allege oral misrepresentations. We conclude the complaint did not allege a misrepresentation. However, on appeal, Cornu has shown that he could amend the complaint to allege oral misrepresentations with specificity. Therefore, we reverse with directions.^[1]

FACTS

The City Council of Los Angeles enacted a Rent Stabilization Ordinance (Los Angeles Mun. Code, 151.00 et seq.)^[2]which provides that a landlord cannot demand more than the maximum adjusted rent permitted for rental units pursuant to the regulation. ( 151.04.) The maximum adjusted rent may be increased without permission only by set amounts. ( 151.06.)

However, the definition of rental unit in the ordinance expressly excludes 12 types of housing, including housing accommodations that are operated by a nonprofit organization or a limited partnership in which the general partner is a nonprofit organization exempt from business taxes by the City of Los Angeles, as long as these accommodations are available to low income households as evidenced by a government imposed regulatory agreement . . . which is recorded against the property, which imposes conditions consistent with those contained in the Rent Stabilization Ordinance and is in full force and effect. ( 151.02.) SSAHC is a tax-exempt nonprofit organization.

The rent ordinance governs other aspects of the landlord-tenant relationship as well, including the interest that landlords pay on security deposits, the installation of smoke detectors by landlords, and evictions by landlords to recover possession of a rental unit. ( 151.06.02, 151.06.1, 151.09.) The rent ordinance defines a landlord as an entity who receives rent for the use of a rental unit. ( 151.02.)

In January 1990, Nortons predecessor in interest entered into a regulatory agreement with the California Tax Credit Allocation Committee (CTCAC) to receive tax credits in exchange for maintaining certain apartment units as low-income housing. The regulatory agreement issued by the CTCAC and recorded against the property binds all successors in interest to its terms and conditions.

In November 2001, Cornu executed a lease agreement with AWFMEX, Inc. to rent one of the apartment units. Paragraph 3 provided for a monthly rent of $424 and stated in pertinent part: The Tenant understands that this monthly rent is less than the FAIR MARKET (unsubsidized) RENT prevailing in the area surrounding the apartments. This lower rent is available expressly to persons of low and very-low income, as defined by California Health and Safety Code Section 50093 [providing income limitations].

Paragraph 4 of the lease agreement stated: Regulations: This lease and your occupancy of the premises are governed by the regulations of the Los Angeles Housing Department (LAHD) and the California Tax Credit Allocation Committee (CTCAC). If any terms of this lease are inconsistent or in conflict with the Regulations, then the Regulations shall control. A copy of the regulations is available for inspection by you during normal business hours at our office.

For several years, the increases in Cornus rent were within the limits provided in the rent ordinance. In 2005, Norton applied to the LAHD for a nonprofit exemption from the rent ordinance. The LAHD determined that the property met the criteria for a nonprofit exemption from the rent ordinance. In 2005 and 2006, Norton increased Cornus rent substantially. In May 2007, Norton sold the property.

PROCEDURAL BACKGROUND

In July 2006, Norton tenant Alejandra Moran filed a class action on behalf of Nortons tenants for breach of contract based on allegations that Norton had raised rents in excess of the amount allowed by the lease, the rent ordinance, and the regulatory agreement. Superior Court Judge David Minning agreed with Norton that the case was unlikely to be suited to class treatment. In December 2006, Moran filed an amended complaint that eliminated the class allegations. Fifteen Norton tenants, including Cornu, filed individual actions based on the same lease provision and conduct. Cornu alleged breach of contract, breach of implied warranty of habitability, breach of the covenant of quiet enjoyment, breach of the covenant of good faith and fair dealing, negligence per se, constructive eviction, and violation of the unfair competition law (UCL) (Bus. & Prof. Code, 17200) (Los Angeles Superior Court case No. BC364079). The tenants cases were found to be related and ordered transferred to Judge Minning in Department 61. Norton moved to strike allegations that the rent increases violated the rent ordinance. In July 2007, Judge Minning granted the motion and struck allegations that Norton violated the rent ordinance, as well as the prayer for relief seeking damage for breach of the rent ordinance, without leave to amend as to all of the related cases. On August 6, 2007, Cornu filed a request for dismissal of the breach of contract cause of action in BC364079 without prejudice.

On August 17, 2007, Cornu filed the instant action on behalf of himself and as a representative of a class of Nortons tenants (Los Angeles Superior Court case No. BC376171) alleging causes of action for fraud, violation of the CLRA, and violation of the UCL as follows. Cornu and other class members rented apartments from defendants based on defendants representation that the apartments were rented under the auspice of the rent ordinance, as described in paragraph 4 of Cornus lease agreement. After inducing the lease agreements, defendants raised rents in excess of the rent increase limitations in the rent ordinance. Common questions of law and fact pertain to all class members, including whether defendants had a pattern and practice of representing that they follow the rent ordinance and the rent restrictions therein contained in order to secure tenants and repudiating the agreements by failing to follow the rent restrictions or failing to disclose that they are exempt from the rent restrictions.

The cause of action for fraud was alleged solely against Norton. The complaint stated that Norton made the following representation, through its agent Rose from AWFMEX, INC. Regulations: This lease and your occupancy of the premises are governed by the regulations of the LAHD and . . . [CTCAC]. If any terms of this lease are inconsistent or in conflict with the Regulations, then the Regulations shall control. A copy of the regulations is available for inspection by you during normal business hours at our office. The representation was false, because Norton knew it was exempt from the rent ordinance and nevertheless induced Cornu and similarly situated people to rent apartment units under the guise that the rent ordinance would control the tenancy, specifically the annual rent increases, when the rent ordinance would not in fact control. Norton concealed a material fact, namely its tax exempt status, which Norton had a duty to disclose, by the lease term that induced Cornu not to discover the concealed or suppressed facts. The lease term amounted to a promise to comply with the rent restrictions of the rent ordinance, which promise Norton made without any intention of performing.

The cause of action for violation of the CLRA was alleged against defendants and stated that inserting language in the lease agreement that indicated compliance with the rent ordinance when defendants did not intend to be bound by the rent increase caps of the rent ordinance due to their exemption constituted a violation of the CLRA. The cause of action against defendants for unfair competition alleged defendants representations in the contract and in inducing consummation of the lease were a fraudulent business practice likely to deceive a reasonable consumer, and Cornu was in fact deceived.

On August 28, 2007, Cornu filed a third complaint against Norton and the current owner of the property for breach of written contract, violation of the rent ordinance and breach of the regulatory agreement (Los Angeles Superior Court case No. BC376641). On August 29, 2007, Cornu filed an amended complaint in that action adding several Norton tenants as plaintiffs.

On September 13, 2007, Cornus three pending actions were found to be related and assigned to Judge Minning in Department 61 under the lead case number of the instant action (BC376171). On September 20, 2007, Cornu filed a peremptory challenge to Judge Minning under Code of Civil Procedure section 170.6 in BC376171. The court accepted the peremptory challenge as timely and ordered BC376171 severed from the remaining cases and transferred to Department 1 for reassignment. The instant case was transferred to Superior Court Judge Mary Strobel.

Defendants filed a motion to strike the complaint or, in the alternative, for judgment on the pleadings. Defendants argued the complaint was a sham pleading to circumvent Judge Minnings rulings and Cornu should seek leave to amend the complaint in his other action to assert these claims. In addition, defendants argued that the lease provision was not a misrepresentation of law or fact: the lease states that the rent ordinance controls the landlord-tenant relationship and the rent ordinance states that the amount of the rent is determined by the regulatory agreement. Therefore, there was no cause of action for fraud and unfair business practice based on the statements in the lease. Defendants also argued that a lease is not a good or a service, and therefore, the CLRA has no application to the action. Norton asked the court to strike the class allegations as well.

On April 1, 2008, Cornu filed an opposition to the motion on the ground that the instant complaint alleges a different cause of action than Cornus other cases; namely, that the language in paragraph 4 of the lease was a promise to apply the rent ordinance and not increase rents in contravention of the rent ordinance. Nothing in the contract exempted Norton from the rent limitations and it was fraud to induce tenants to enter into misleading lease agreements without intending to fulfill the promise to limit rent increases. In addition, Cornu argued that rental agreements are goods under the CLRA.

Defendants filed a reply asking the trial court to strike the complaint as an improper attempt to relitigate issues decided by Judge Minning and improperly split causes of action claiming the same damages. In addition, defendants argued the lease contained no false statements and was not considered a good under the CLRA.

During the hearing on the motion on April 10, 2008, Cornu argued the complaint alleged oral misrepresentations in addition to the language of the lease. Cornu requested leave to amend if the complaint was not sufficiently clear in order to allege more clearly the oral misrepresentations that were made to induce the plaintiffs into renting the units and thereby later increasing the rents to more than the plaintiffs were promised. Defendants responded that if the trial court was inclined to grant leave to amend, the court should strike the complaint in its entirety because Cornu had submitted his cause of action and let a motion for leave to amend be made in the cases against the same defendants on the same facts pending in Department 61.

Judge Strobel concluded that apartment leases are not goods under the CLRA. In addition, she found that the causes of action for fraud and unfair business practices were based on the alleged representation that the apartment was being rented subject to the rent ordinance, as made in paragraph 4 of the lease agreement. However, the court found that paragraph 4 simply provided that the lease was subject to the regulations of the LAHD and the CTCAC. There is no representation in the lease agreement that rent increases would be determined by the rent ordinance. Judge Strobel found that the oral misrepresentations pled in the complaint were the same as the representation in the lease and the same as the representations consistently pled in the previous actions before Judge Minning. Judge Strobel concluded that there had been plenty of prior opportunities for Cornu to plead oral misrepresentations separate from the lease provisions and, therefore, denied leave to amend. Finding that no misrepresentation had been made as a matter of law, the court granted judgment on the pleadings. On April 29, 2008, the court entered a judgment of dismissal with prejudice. Cornu filed a timely notice of appeal.

DISCUSSION

Standard of Review

A motion for judgment on the pleadings may be made on the ground as for a general demurrer, namely, that the pleading at issue fails to state facts sufficient to constitute a legally cognizable claim or defense. (Colberg, Inc. v. State of California ex rel. Dept. Pub. Wks. (1967) 67 Cal.2d 408, 411-412; Sofiasv. Bank of America (1985) 172 Cal.App.3d 583, 586; Code Civ. Proc.,  438, subd. (c)(1)(B)(ii).) Our review is guided by the same rules governing the review of the sustaining of a general demurrer. We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed. [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] (Blankv. Kirwan (1985) 39 Cal.3d 311, 318.)

We review the trial courts decision to deny a motion to amend the complaint under an abuse of discretion standard. However, [i]f the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend and where the refusal also results in a party being deprived of the right to assert a meritorious cause of action or a meritorious defense, it is not only error but an abuse of discretion. (Morgan v. Superior Court (1959) 172 Cal.App.2d 527, 530.) The burden falls upon plaintiff to show what facts he could plead to cure the existing defects in the complaint. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 890.) To meet this burden, a plaintiff must submit a proposed amended complaint or, on appeal, enumerate the facts and demonstrate how those facts establish a cause of action. (Ibid.)

Fraud

Cornu contends that the complaint alleged a cause of action for promissory fraud or fraud in the inducement. We disagree.

The elements of fraud are (a) a false representation, concealment, or nondisclosure; (b) knowledge of falsity; (c) intent to defraud; (d) justifiable reliance; and (e) resulting damage. (McClain v. OctagonPlaza, LLC (2008) 159 Cal.App.4th 784, 792.) Accordingly, as Witkin explains: A party to a contract who has been guilty of fraud in its inducement cannot absolve himself or herself from the effects of his or her fraud by any stipulation in the contract, either that no representations have been made, or that any right that might be grounded upon them is waived. Such a stipulation or waiver will be ignored, and parol evidence of misrepresentations will be admitted, for the reason that fraud renders the whole agreement voidable, including the waiver provision. (1 Witkin, Summary of Cal. Law [(10th ed. 2005)] Contracts, 304, p. 330.) (Id. at p. 794.)

The only representation alleged in the complaint is Nortons promise that the lease agreement will be governed by LAHD and CTCAC regulations. The oral representations alleged to have been made to induce Cornu to enter into the lease are the same as the written representations made in the lease. However, paragraph 4 of the lease agreement is not a false representation. The lease is governed by LAHD and CTCAC regulations. Cornu does not allege that Norton told him anything different from the lease provisions to induce him to enter into the lease. The statements Norton is alleged to have made orally and in the written lease cannot support a cause of action for fraud.

The cause of action for violation of the CLRA is based solely on the language of the lease agreement, which was not fraudulent. The cause of action for violation of the UCL is based on the same allegations of fraud as the other causes of action. Therefore, the trial court properly granted judgment on the pleadings as to these causes of action as well.

Apartment Leases Under the CLRA

In addition, judgment on the pleadings was properly granted because apartment leases are not goods under the CLRA.

The CLRA prohibits specified unfair and deceptive acts and practices in a transaction intended to result or which results in the sale or lease of goods or services to any consumer ([Civ. Code], 1770, subd. (a)). (Fairbanks v. Superior Court (2009) 46 Cal.4th 56, 59.) The Consumers Legal Remedies Act defines goods as tangible chattels bought or leased for use primarily for personal, family, or household purposes, including certificates or coupons exchangeable for these goods, and including goods that, at the time of the sale or subsequently, are to be so affixed to real property as to become a part of real property, whether or not severable from the real property. (Civ. Code,  1761, subd. (a).) (Id. at pp. 60-61.)

Cornu leased an apartment. An apartment is real property, not a tangible chattel. Because an apartment is not a tangible chattel, it is not a good as that term is defined in the CLRA. (Civ. Code, 1761, subd. (a).) Therefore, we agree with the trial court that Cornu did not lease a good and judgment on the pleadings was properly granted as to the cause of action for violation of the CLRA on this basis as well.

Leave to Amend

In the trial court, Cornu requested leave to amend the cause of action for fraud based on oral misrepresentations. However, he failed to identify any representations by Norton other than statements identical to the provisions of the lease agreement.

At the request of this court, in a supplemental letter brief following oral argument on appeal, Cornu states that he can amend the fraud cause of action to add the following allegations. Cornu discussed the terms of the lease with Nortons leasing agent Rosa. Before Cornu signed the lease, Rosa told him that his monthly rent would not be raised in excess of three or four percent in keeping with the rent stabilization ordinance. Rosa told Cornu that the City would determine the amount of any rent increases and increases had not been in excess of three to four percent per year for years. Norton, through Rosa, promised not to increase the rent in contravention of the rent ordinance restrictions or in excess of three to four percent per year. Cornu and Rosa orally agreed rent increases would be limited to a maximum of four percent per year for the entire term of Cornus tenancy. Cornu was told that the lease agreement was an accurate reflection of the terms he had been promised. He was told that his tenancy would be governed by the rent ordinance, including the restrictions on rent increases. Norton, through Rosa, orally promised to be bound by the terms of the rent ordinance, including the limitations on rent increases. Norton made this promise with the intent to induce reliance by Cornu and defraud him, because Norton did not intend to perform. Cornu executed the lease in reliance on the terms of the lease and the oral representations made by Nortons leasing agent Rosa that the rent would not be increased more than three or four percent per year. In addition, Norton did not inform Cornu that it was a tax-exempt entity. Norton intentionally concealed a material fact from Cornu during the discussion of the lease terms, namely, that Norton was a tax-exempt entity, and therefore, exempt from compliance with the restrictions of the rent ordinance.

We conclude that Cornu should be permitted an opportunity to amend the complaint to state a cause of action for fraud with specificity based on the proposed additional allegations. Because the cause of action for violation of the UCL is based on the fraud cause of action, Cornu should be permitted to amend his UCL claim as well.

DISPOSITION

The judgment of dismissal and the order granting judgment on the pleadings are reversed. The trial court is directed to enter a new and different order granting the motion for judgment on the pleadings with leave to amend the causes of action for fraud and violation of the UCL. Respondents Norton Community Apartments, L.P., Social Services & Affordable Housing Corporation, and Paul Saben are awarded their costs on appeal.

KRIEGLER, J.

We concur:

TURNER, P. J.

MOSK, J.

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^[1] Defendants motion requesting that this court take judicial notice of portions of the legislative history of the CLRA filed April 27, 2009, is granted.

^[2] All further statutory references are to the Los Angeles Municipal Code, unless otherwise stated.