Crimson California Pipeline v. Segundo Prop,






Filed 1/21/11 Crimson California Pipeline v. Segundo Prop, LLC CA2/4






NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 FOUR

CRIMSON CALIFORNIA PIPELINE, LP, Plaintiff, Cross-defendant, and Appellant, v. SEGUNDO PROP, LLC, Defendant, Cross-complainant, and Respondent.

B220764 (Los Angeles County Super. Ct. No. BC396460)

APPEAL from order and judgment of the Superior Court of Los Angeles County, John Shepard Wiley, Jr., and Coleman A. Swart, Judges. Reversed and remanded.
Hill, Farrer & Burrill, Kevin H. Brogan, Neil D. Martin, Dean E. Dennis, and Paul M. Porter for Plaintiff, Cross-defendant, and Appellant.
Mitchell Silberberg & Knupp, Thomas A. Freiberg, Jr., Karin G. Pagnanelli, and Paul Guelpa for Defendant, Cross-complainant, and Respondent.

After a dispute arose under their license agreement, the parties filed cross-actions for declaratory and other relief. When the trial court denied plaintiff’s motion for summary judgment, it construed the license agreement in favor of defendant and invited a motion for judgment on the pleadings. Defendant moved for judgment on the pleadings, which was granted. In this appeal from the judgment and attorney fee order, plaintiff contends that the trial court erred in granting the motion for judgment on the pleadings. In light of our determination that plaintiff should have been allowed to amend the complaint to allege a different interpretation of the agreement, we reverse and remand for further proceedings.^[1]

FACTS AND PROCEDURAL BACKGROUND

Plaintiff, cross-defendant, and appellant Crimson California Pipeline, LP (Crimson) is a pipeline corporation that allegedly operates as a utility under section 228 of the Public Utilities Code. Defendant, cross-complainant, and respondent Segundo Prop, LLC (Segundo) owns property (the property) that is adjacent to Crimson’s oil pipeline in El Segundo.
In November 2000, Crimson and Segundo entered into the license agreement that is the subject of this litigation.^[2] The agreement allowed Crimson to install and maintain on the property a vault box, meter station, and electrical and communication equipment that are linked to Crimson’s oil pipeline by two underground pipelines (collectively, the facilities).
After the facilities were installed, Crimson paid Segundo for the electricity used to run the facilities. In May 2008, Crimson sought to install its own electrical and communication lines for the facilities and filed an eminent domain complaint against Segundo to condemn a nonexclusive underground easement for that purpose.
In alleged retaliation for the eminent domain complaint, Segundo issued a 30-day notice requesting that Crimson move the facilities to a different part of the property as specified in an accompanying plot plan. Segundo invoked the agreement’s relocation clause, which requires Crimson to relocate the facilities within 30 days of receiving written notice that, in Segundo’s “opinion,” the existing location interferes with the use or operation of the property.^[3] Without stating the reasons for its opinion, the notice requested that the facilities be moved because, in Segundo’s opinion, the existing location interferes with the use and operation of the property.
After the notice was sent, the parties disagreed whether Segundo’s opinion of interference is subject to the implied covenant of good faith and fair dealing and must be subjectively or objectively reasonable. Crimson filed a complaint for injunctive and declaratory relief seeking to invalidate the 30-day notice. Crimson alleged that the 30‑day notice, which was attached as an exhibit to the complaint, was based on Segundo’s subjectively false opinion of alleged interference, and that the license agreement, which was also attached as an exhibit to the complaint, implicitly requires that Segundo’s opinion be objectively and subjectively reasonable. Crimson further alleged that in order to establish an actual interference with the property, Segundo must show that there has been a change in circumstances that has caused a new and different interference that was not contemplated when the agreement was signed.
Segundo filed an answer and a cross-complaint for breach of contract, declaratory relief, and specific performance, seeking to enforce the 30-day notice.^[4] Segundo alleged in the cross-complaint that its “absolute right” under the agreement to demand that the facilities be relocated is not dependent on the existence of changed circumstances.
Crimson moved for summary judgment on the theory that, due to Segundo’s factually devoid discovery responses regarding the existence of changed circumstances, Segundo was incapable of establishing an actual interference with the use or operation of the property. Crimson argued that because Segundo’s opinion of alleged interference was neither objectively reasonable nor subjectively in good faith, the 30-day notice was invalid as a matter of law.
In opposition, Segundo submitted the declaration of its managing member John Koo, who attested that Segundo wants to move the facilities to a less visible location in order to enhance its ability to lease and redevelop the property. Koo attested that the new plot plan was designed to “tuck the facilities below the grade at the south edge of the property, a location that Segundo believed (and still believes) is an area where the facilities cause the least interference with Segundo’s ability to lease and redevelop the property.” Koo further stated that Crimson wants to move the facilities before the property is redeveloped in order to avoid any possible delay.
The trial court (Judge John Shepard Wiley, Jr.) denied Crimson’s summary judgment motion and invited Segundo to move for judgment on the pleadings. (Code Civ. Proc., § 438, subd. (b)(2) [a court on its own motion may grant a motion for judgment on the pleadings].) In the order denying the summary judgment motion, the trial court stated that the agreement’s relocation clause, which it found to be clear and unambiguous, requires that Segundo have an opinion of interference, but the opinion need not be held in good faith nor based on objectively reasonable facts. Based on this interpretation of the opinion requirement, the trial court concluded that “Crimson must move its equipment as Segundo’s July 15, 2008 letter demands.”^[5]
In response to Crimson’s argument that the agreement would be rendered illusory if Segundo were allowed to enforce the relocation clause without holding an objectively reasonable and good faith opinion of interference, the trial court stated that the agreement was far from illusory in light of the parties’ successful eight-year contractual relationship: “Crimson says this interpretation is absurd because it would give Segundo the power to force it to move every 30 days. Not so. This case is not about any transparently bad faith effort by Segundo to impose pointless costs on Crimson to extract payments or concessions. In some eight years, Segundo has never before made such a request. Segundo in its briefing states a commercially plausible reason for relocating Crimson’s equipment. Improving visibility from the street could increase the potential value of its land. Segundo might get better offers for its property if Crimson moved its equipment out of the way. These are just lawyers’ arguments and are not facts, true, but they make simple sense and are enough to justify Segundo’s demand. It could be a different case if, after Crimson complied with the July 15 demand, Segundo demanded another move without stating some plausible reason. As things stand, however, transparent bad faith is not an actual issue in this case. The prospect of continuing contractual holdups is an extreme possibility some future court can engage if and when this farfetched hypothetical emerges. Crimson says the contractual words, taken literally, create[] an illusory contract. Not so. There is nothing illusory about this deal or this interpretation. This contract has been providing Crimson and its predecessors with a stream of pipeline operating benefits for the better part of a decade. For that stream of tangible advantages, Crimson has been paying only about $1000 [a] month[,] a rather modest sum in the realm of corporate costs. Presumably Crimson has been pleased with this lengthy and actual exchange of benefits.”
As suggested by the trial court, Segundo moved for judgment on the pleadings. In opposition to the motion, Crimson stated that it could amend the complaint to allege a different interpretation of the relocation clause. In support of this theory, Crimson submitted the early drafts of the agreement, which gave Segundo an unconditional right to demand relocation that it could freely exercise without an opinion of interference. In the final version of the agreement, Segundo’s formerly unconditional right was subjected to the present requirement that it form and express an opinion of interference. Crimson argued that unless the required opinion of interference is subject to the implied covenant of good faith and fair dealing, Segundo would receive the unintended windfall of an unconditional right to demand relocation, in contravention of the final version of the agreement.
On September 18, 2009, the trial court (Judge Coleman A. Swart) granted Segundo’s motion for judgment on the pleadings based on the view that Segundo may enforce the relocation clause without holding a bona fide good faith opinion of interference. On October 8, 2009, the trial court entered judgment for Segundo and ordered that the facilities be relocated within 30 days of service of notice of entry of judgment. On December 21, 2009, the trial court awarded Segundo contractual attorney fees of $125,811. Crimson filed separate appeals from the judgment and attorney fee order, which we consolidated.

DISCUSSION

“‘A motion for judgment on the pleadings is the equivalent of a demurrer made after the pleadings are in.’ (Columbia Casualty Co. v. Northwestern Nat. Ins. Co. (1991) 231 Cal.App.3d 457, 463.) ‘The standard of appellate review of a judgment on the pleadings is, therefore, identical to that on a judgment following the sustaining of a demurrer.’ (Barker v. Hull (1987) 191 Cal.App.3d 221, 224.) A demurrer admits all material and issuable facts pleaded in the complaint, amplified by matters of which judicial notice may be taken such as court records (ibid.), and the concessions of a pleader. (Columbia Casualty Co., supra, 231 Cal.App.3d at p. 463.)” (Connerly v. Schwarzenegger (2007) 146 Cal.App.4th 739, 746.)
In our view, because Crimson demonstrated that it was capable of amending the complaint to allege a different interpretation of the agreement, the trial court abused its discretion in failing to afford Crimson an opportunity to amend.^[6] “In the case of either a demurrer or a motion for judgment on the pleadings, leave to amend should be granted if there is any reasonable possibility that the plaintiff can state a good cause of action. (See Okun v. Superior Court (1981) 29 Cal.3d 442, 460, disapproved on another point in Milkovich v. Lorain Journal Co. (1990) 497 U.S. 1, 19-21.) Where a demurrer is sustained or a motion for judgment on the pleadings is granted as to the original complaint, denial of leave to amend constitutes an abuse of discretion if the pleading does not show on its face that it is incapable of amendment. (See California Federal Bank v. Matreyek (1992) 8 Cal.App.4th 125, 130-131.)” (Virginia G. v. ABC Unified School Dist. (1993) 15 Cal.App.4th 1848, 1852.)
As previously mentioned, the early drafts of the agreement provided for relocation upon demand without requiring an opinion of interference. Crimson argued that in light of the evolution of the relocation clause, the final version’s conditional language demonstrated an intent to subject the required opinion to the implied covenant of good faith and fair dealing. Although the trial court reached a contrary conclusion after stating that the agreement was clear and unambiguous, the draft agreements were admissible to expose a latent ambiguity. “Extrinsic evidence can be offered not only ‘where it is obvious that a contract term is ambiguous, but also to expose a latent ambiguity.’ (Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc. (1999) 74 Cal.App.4th 1232, 1241.) Such evidence is admissible when ‘“relevant to prove a meaning to which the language of the instrument is reasonably susceptible.”’ (Ibid.)” (Employers Reinsurance Co. v. Superior Court (2008) 161 Cal.App.4th 906, 920.)
We therefore conclude that the trial court abused its discretion by granting the motion for judgment on the pleadings without affording Crimson an opportunity to amend the complaint. In light of our conclusion that the trial court abused its discretion, both the judgment and the order granting the motion for judgment on the pleadings must be reversed.
Although both parties have requested that we resolve the dispute on the merits, we decline the invitation. We refuse Crimson’s request that we review the order denying its motion for summary judgment because, in light of our determination that the judgment must be reversed, there is no longer a judgment from which the interlocutory order of denial may be reviewed. (See Federal Deposit Ins. Corp. v. Dintino (2008) 167 Cal.App.4th 333, 343 [order denying a motion for summary judgment is not an appealable order but may be reviewed on direct appeal from a final judgment entered after a trial].)
We also refuse Segundo’s request that we review and affirm the order granting the motion for judgment on the pleadings. The first order of business is for Crimson to file an amended complaint. If Crimson successfully alleges a different interpretation of the agreement, the parties may be entitled to produce additional evidence. It is therefore premature to interpret the agreement before the amendment is filed.
As to the attorney fee award, in light of our determination that the judgment and order granting the motion for judgment on the pleadings must be reversed, we necessarily conclude that neither party has prevailed. Accordingly, the attorney fee award must also be reversed as premature.

DISPOSITION

The order granting the motion for judgment on the pleadings, the judgment, and the attorney fee order are reversed. The matter is remanded for further proceedings in
accordance with the views set forth in this opinion. Crimson is awarded its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS



SUZUKAWA, J.

We concur:



WILLHITE, Acting P.J.



MANELLA, J.



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