Grove Way Investments, LLC v. Centene Management Company, LLC

Opinion

GROVE WAY INVESTMENTS, LLC, No. 2:19-cv-00696-JAM-JDP Plaintiff, v. ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S CENTENE MANAGEMENT COMPANY, MOTION FOR PARTIAL SUMMARY LLC, JUDGMENT AND DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT Defendant.

Grove Way Investments, LLC (“Grove Way” or “Plaintiff”) filed suit against its tenant, Centene Management Company, LLC (“Centene” or “Defendant”) for declaratory relief and breach of contract. See Compl., ECF No. 1. Centene filed counterclaims against Grove Way for breach of contract, breach of the covenant of good faith and fair dealing, breach of the implied duty to perform with reasonable care, quantum meruit/unjust enrichment, declaratory relief and accounting. See Answer and Countercl. ¶¶ 22-59, ECF No. 5. The parties filed cross-motions for partial summary judgment. See Pl.’s Mot. Summ. J. (“Pl.’s Mot.”), ECF No. 51; Def.’s Mot. Summ. J. (“Def.’s Mot.”), ECF No. 56. Each side has opposed the other and replied. See Pl.’s Opp’n, ECF No. 62; Def.’s Mot.; Def.’s Reply, ECF No. 67. For the reasons set forth below, the Court GRANTS in part and DENIES in part Plaintiff’s motion for partial summary judgment and DENIES Defendant’s motion for partial summary judgment.1 On or around January 24, 2017, RF3 International Drive, LLC (“RF3”) and Centene entered into a Single Tenant Office Lease Agreement (“Original Lease”) for an office building in Rancho Cordova (“the Property”). Pl.’s Resp. to Def.’s Undisputed Facts (“Def.’s SUF”) No. 1, ECF No. 62. In addition to the original lease, a Construction Rider provided that if certain conditions were met, the tenant, Centene, would be provided a one-time payment of up to $1,857,210.80 (“the Allowances”), reimbursing them for the costs of improvements made to the property. Def.’s Resp. to Pl.’s Undisputed Facts (“Pl.’s SUF”) No. 6-7, ECF No. 56; Def.’s SUF No. 2-3. On June 23, 2017, Grove Way purchased the property and RF3 assigned to Grove Way all of its rights and obligations under the original lease, including the obligation to pay the allowances. Pl.’s SUF No. 1-2; Def.’s SUF No. 13, 15. In October, 2017, Grove Way and Centene amended the lease which among other things, revised Section 2.2 of the Construction Rider, extending the

1 This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled for September 29, 2020. deadline Centene was required to “submit a request for application or disbursement of the entire Allowances, or of its election to apply up to $5 per square foot against Rent” from December 31, 2017 to June 30, 2018. Pl.’s SUF No. 4; Def.’s SUF No. 18. On January 25, 2018 Grove Way approved Centene’s construction plans, conditioned on Centene reimbursing Grove Way for the cost of review, paying an additional oversight fee equal to 1% of the total construction costs and paying to replace a security system that had been removed during demolition. Pl.’s SUF No. 19; Def.’s SUF No. 23-26. Centene agreed to the conditions shortly thereafter. Pl.’s SUF No. 19; Def.’s SUF No. 27. On April 5, 2018, Centene provided Grove Way with revised tenant plans reflecting the removal of the kitchen, gym, related bathrooms and generator. Pl.’s SUF No. 25-26; Def.’s SUF No. 28. On June 30, 2018, Grove Way sent an approval of the updated plans that was conditioned on Centene paying for a security system, an upgraded temperature control system and additional smoke detectors. Pl.’s SUF No. 34-35; Def.’s SUF No. 29-30, 41, 46. Centene paid to have the temperature control system upgraded but was not agreeable to paying for the security system, as Centene contends it was substantially more expensive than the one that had been removed and that it had previously agreed to pay for in January. Def.’s SUF No. 30, 33, 45. The fire detectors were not installed as set forth in the conditions for reasons which are disputed. See Def.’s SUF No. 45-56. On June 22, 2018 Centene submitted to Grove Way a written request for application of the entire allowances but acknowledged that disbursement would not be made until it had satisfied all the conditions laid out in Section 2.4 of the Construction Rider. Pl.’s SUF No. 32; Def.’s SUF No. 64. On February 7, 2019 Centene submitted a letter entitled “Disbursement of Allowances” to Grove Way, as well as a binder of materials, purportedly to comply with Section 2.4. Def.’s SUF No. 66-67. The parties dispute whether the items sent met all of the conditions. See Pl.’s Mot. at 16- 19; Def.’s Mot. at 18-29. In total Centene paid over three million dollars to improve the premise. See Def.’s SUF No. 79- 80. Grove Way has not paid Centene any portion of the allowances. Def.’s SUF No. 92. Grove Way invoiced Centene for the security system, which Centene did not pay. See Pl.’s SUF No. 50D. Grove Way then brought this action against Centene in Sacramento Superior Court for declaratory relief and breach of contract. See generally Compl. Centene removed the case to federal court based on diversity jurisdiction. Notice of Removal at 1, ECF No. 1. Centene brought counterclaims against Grove Way for breach of contract, breach of the covenant of good faith and fair dealing, breach of the implied duty to perform with reasonable care, quantum meruit/unjust enrichment, declaratory relief and accounting. See generally Def.’s Answer and Countercl. Grove Way moved for partial summary judgment on Centene’s breach of contract, breach of the covenant of good faith and fair dealing, quantum meruit/unjust enrichment and accounting counterclaims. See generally Pl.’s Mot. Centene filed a cross motion for partial summary judgment on its breach of contract, quantum meruit/unjust enrichment and declaratory relief counterclaims, as well as Grove Way’s first cause of action for declaratory relief. See generally Def.’s Mot. A. Evidentiary Objections Plaintiff and Defendant raise several evidentiary objections. See Pl.’s Obj., ECF No. 63, 70; Def.’s Obj., ECF No. 62. The Court has reviewed these evidentiary objections but declines to rule on each one individually as courts self-police evidentiary issues on motions for summary judgment and a formal ruling is unnecessary to the determination of this motion. See Burch v. Regents of the University of California, 433 F.Supp.2d 1110, 1118-1122 (E.D. Cal. 2006) (objections challenging the characterization of the evidence are improper on a motion for summary judgment). B. Legal Standard A Court must grant a party’s motion for summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law.” Fed. R. Civ. Proc. 56(a). The movant bears the initial burden of “informing the district court of the basis for its motion, and identifying [the documents] which it believes demonstrate the absence of a genuine issue of a material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A fact is material if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Once the movant makes this initial showing, the burden rests upon the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.” Id. An issue of fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. C. Analysis 1. Breach of Contract In order to prevail on its breach of contract claim Centene must prove: (1) the existence of a contract, (2) Centene’s performance of the contract or excuse for nonperformance, (3) Grove Way’s breach, and (4) resulting damages. See Richman v. Hartley, 169 Cal. Rptr. 3d 475, 478 (Ct. App. 2014). Both parties have sought summary judgment on Centene’s first counterclaim for breach of contract. See Pl.’s Mot. at 15; Def.’s Mot. at 18. The existence of a contract is not contended. See Pl.’s Mot. at 15-19; Def.’s Mot. at 18-30. In dispute, however, is whether Centene has satisfied all conditions, triggering Grove Way’s obligation to pay the allowances. See Pl.’s Mot. at 16-19; Def.’s Mot. at 18-30. Centene claims that all conditions have been met or excused, such that Grove Way breached by failing to pay the allowances. See Def.’s Mot. at 18-30; see also Def.’s Answer and Countercl. at 10-11. Grove Way on the other hand, contends it was not obligated to pay, as not all the required conditions have been met. See Pl.’s Mot. at 16-19. A. Section 2.2 and the June 30, 2018 Deadline The first contention is over the interpretation of Section 2.2 of the Construction Rider. The pertinent portion states: If Tenant does not submit a request for application or disbursement of the entire Allowances, or of its election to apply up to $5 per square foot against Rent, as described in the preceding sentences, in accordance with this Section 2.2 by June 30, 2018, any unused portion of the Allowances shall be forfeited and shall accrue for the sole benefit of Landlord. The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity. Cal. Civ. Code § 1638. When a contract is reduced to a writing, the intention of the parties is to be ascertained from the writing alone if possible. Id. at § 1639. However, under California law, extrinsic evidence is admissible if it is relevant to prove a meaning to which the language is reasonably susceptible. Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 442 P.2d 641, 644 (Cal. 1968). Grove Way argues that under 2.2, Centene was required to both complete construction of the improvements and submit all the necessary paperwork required of Section 2.4 to Grove Way by June 30, 2018 in order to receive the allowances. Pl.’s Mot. at 2. Grove Way argues that the language in Section 2.2 referring to tenant’s “request for application” refers to tenant’s request to apply the $5.00 per rentable square foot credit to its rent, not a request for the improvement allowances. Pl.’s Opp’n at 12. Centene on the other hand, argues it was only required to submit a request for application of the allowances to Grove Way by the June 30, 2018 deadline, which it met when it submitted a written request for application before such date. Def.’s Mot. at 19. Centene contends Section 2.2 did not require it to complete construction or all the conditions of 2.4 by then in order to receive the allowance. Id. The plain reading of the contract supports Centene’s position. The Court reads the statement “request for application or disbursement of the entire Allowances” to mean that Centene was able to meet this requirement by notifying Grove Way of its intent to use the full allowances by the deadline. The explicit terms do not mention meeting all the conditions set forth in 2.4 or completing construction by the June 30, 2018 date. However, under California law, the test of whether parol evidence is admissible to construe an ambiguity is not whether the language appears to the court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is reasonably susceptible. Winet v. Price, 6 Cal. Rptr. 2d 554, 557 (Ct. App. 1992). Grove Way has introduced numerous exhibits it contends show that its interpretation was the true intent of the parties. See Pl.’s Opp’n 2-4. The Court has considered these but finds they are not relevant to prove a meaning to which the language is reasonably susceptible, as they are also consistent with the plain language meaning. See Def.’s Mot. at 5 (noting the evidence is consistent with Centene wanting to spend the entire allowance by the deadline so no portion would be unused and in order to submit the request in good faith). Even if the contract was reasonably susceptible to Grove Way’s interpretation, that Centene had to complete construction and the conditions of 2.4 by the deadline, Centene would still have not forfeited their right to allowances. Section 2.2 specifically states that if the tenant did not submit a request for application or disbursement by the deadline, “any unused portion of the Allowances” would be forfeited. See Pl.’s SUF No. 6; Def.’s SUF No. 2 (emphasis added). By the time the deadline passed, Centene had already completed tenant improvements in excess of the allowance. Def.’s SUF No. 65. As such, no portion of the allowance was unused and forfeited. B. Landlord Approval Grove Way also argues that under Section 6.0 of the Lease and Section 3.2 and 3.4 of the Construction Rider, Centene was required to obtain Grove Way’s approval of the improvements, which it did not. Pl.’s Mot. at 18. But as Centene notes, this was not one of the condition precedents laid out in Section 2.4 to receiving disbursement of the allowance. See Def.’s Mot. at 26; Pl.’s SUF No. 7; Def.’s SUF No. 4. In order then, to excuse Grove Way’s performance this would have to constitute a material breach. See Brown v. Grimes, 192 Cal. App. 4th 265, 277 (2011)(“When a party’s failure to perform a contractual obligation constitutes a material breach of the contract, the other party may be discharged from its duty to perform under the contract). At this point the Court cannot find as a matter of law that this does or does not constitute a material breach as there are too many genuine disputes of material fact. See Pl.’s Mot. at 18-19; Def.’s Mot. 26-29. As such, neither party is entitled to summary judgment. C. Conditions of 2.4 Additionally, Grove Way argues that Centene failed to meet several of the conditions to disbursement required of Section 2.4 of the Construction Rider. That provision states: 2.4 Conditions to Disbursement. No disbursement of the Allowances shall be made unless and until Tenant shall have performed and/or submitted to Landlord all of the following: (a) A factually accurate Commencement Date Memorandum pursuant to Section 2.4 of the Lease demonstrating that the Rent Commencement Date shall have occurred; (b) Certificates of insurance showing that the insurance required of Tenant under Section 11.1 of the Lease is in place and fully effective; (c) Request for Taxpayer Identification Number and Certification (IRS Form W-9) signed and dated by Tenant; (d) An unconditional lien waiver and release from each construction contractor and subcontractor covering the full amount of the Tenant Improvements; (e) Copies of all licenses, permits and approvals required for the Tenant Improvements; (f) Original paid invoices for the work performed; (g) Tenant has delivered to Landlord “as built” plans for the Tenant Improvements (h) Tenant’s architect certifies to Landlord that the Tenant Improvements comply with all Laws, all Permits (as defined below) and the Final Plans (as defined below); (i) Certificate of Occupancy (or its equivalent) have been issued for the Premises; and (j) No mechanic’s liens have been recorded against the Premises or any portion thereof. Grove Way first claims Centene failed to meet condition 2.4(e) because Centene did not submit approvals from the landlord. Pl.’s Mot. at 17-18. Centene argues that it was not required to do so as “approvals” in 2.4(e) refers to approvals by the relevant governing authorities, not landlord approvals. Def.’s Mot at 24-25. The Court agrees with Centene. As Centene points out, Grove Way is the landlord. It would make little sense for the provision to require the tenant to submit the landlord’s own approvals back to the landlord. Id.; see County of Marin v. Assessment Appeals Bd.,134, Cal. Rptr. 349, 352 (Ct. App. 1976)(“The court shall avoid an interpretation which will make a contract extraordinary, harsh, unjust, inequitable or which would result in absurdity.”) Because Centene sent copies of all licenses, permits and approvals from the relevant authorities, the Court finds Centene has met this condition. Def.’s SUF No. 72. Grove Way also contends that Centene did not satisfy 2.4(g) because although Grove Way received the “as built” plans they were in electronic rather than hard copy form. Pl.’s Mot. at 18. Grove Way points out that under Section 22.1 of the lease “any notice, demand, or request, consent or approval that either party desires or is required to give the other Party under this Lease shall be in writing.” Id. While Centene sent its February 7, 2019 request for disbursement in writing and in full compliance with 22.1, as well as a disbursement binder, it did not include hard copies of the voluminous as built plans. Pl.’s SUF No. 43; Def.’s SUF No. 74. Instead, Centene sent these records electronically. Id. The Court finds Centene satisfied this condition. The as built plans were not required to be delivered in hard copy under 22.1 as they are not a notice, demand, request, consent or approval. Centene complied with 22.1 by mailing a written request for disbursement and satisfied 2.4(g) when it sent Grove Way, electronically, a copy of the as built plans. Id. The parties also dispute whether 2.4(h) has been satisfied. Grove Way argues that the tenant’s architect didn’t certify the tenant improvements complied with the final plans approved by Grove Way. Pl.’s Opp’n at 8. Centene contends this condition was excused because Grove Way unreasonably withheld and delayed its approval in violation of Section 6.1 of the Lease.2 See Jacobs v. Tenneco W., Inc., 231 Cal. Rptr. 351, 353 (Ct. App. 1986) (“Where a party’s breach by non-performance contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused.”) Under Section 6.1 Grove Way was only able to withhold its consent if the Tenant Improvements would adversely affect the structure or safety of the Building, otherwise, the Lease provided that Grove Way would not unreasonably withhold or delay its consent to the proposed alterations. Pl.’s SUF No. 10; Def.’s SUF No. 19. Grove Way conditioned its June 30, 2018 approval on having additional smoke detectors installed. Pl.’s SUF No. 34-25; Def.’s SUF No. 46. Because there is a genuine dispute as to whether these smoke detectors affected the safety of the building, the Court cannot determine as a matter of law whether or not Grove Way’s withholding of approval was reasonable. Def.’s SUF No. 47-57. Also relevant is the parties’ dispute over whose fault it was that the smoke detectors were not installed. Def.’s SUF No. 53. Centene claims Grove Way is at fault for not signing the proposal or sending the necessary letter to the Fire Department. See id. Grove Way, on the other hand, contends it did not 2 Grove Way claims this argument is barred by Section 29.1 of the Lease which states: “[i]f it is determined that Landlord failed to give consent where it was required to do so under this Lease, Tenant shall be entitled to injunctive relief but shall not be entitled to monetary damages.” Pl.’s Mot. at 19. But Centene is not seeking monetary relief based on Grove Way’s failure to give consent. See Def.’s Mot. at 26-29. Instead, Centene is seeking monetary relief based on Grove Way’s failure to pay the allowances. Id. This argument regarding the unreasonable withholding of consent supports Centene’s position that certain conditions were excused, which is not barred by 29.1. follow through with the necessary requirements because Centene would not pay for it. Id. Accordingly, the Court cannot find as a matter of law that this condition was or was not excused. Finally, Grove Way argues that Centene failed to meet condition 2.4(b) requiring Centene to submit certificates of the insurance required under Section 11.1. Pl.’s Opp’n at 7-8. The parties’ statement of facts indicates a dispute over whether the insurance certificates Centene sent met all the requirements of Section 11.1. See Def.’s SUF No. 69. However, the parties do not fully address in their briefing why the items sent do or do not comply with the extensive list of requirements laid out in 11.1, which from its own review cannot readily be determined by the Court. See Pl.’s Opp’n at 7; Def.’s Mot. at 24-26; Def.’s Reply at 9. As such, the Court does not find either party has met its burden of showing as a matter of law that this condition has or has not been met. D. Conclusion For the foregoing reasons Grove Way’s motion and Centene’s cross motion for partial summary judgment on Centene’s breach of contract counterclaim are DENIED. Centene’s cross motion for partial summary judgment on its counterclaim for declaratory relief and Grove Way’s first cause of action for declaratory relief is also DENIED. 2. Breach of Covenant of Good Faith and Fair Dealing The covenant of good faith and fair dealing, implied by law in every contract, exists to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement. Gus v. Bechtel Nat. Inc., 8 P.3d 1089, 1110 (Cal. 2000). If a claim does not go beyond the statement of a mere contract breach, and relying on the same alleged acts, simply seeks the same damages or other relief claimed in a companion contract claim, it may be disregarded as superfluous, as no additional claim is actually stated. Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 272 Cal. Rptr. 387, 398 (Ct. App. 1990). Grove Way seeks summary judgment on Centene’s second counterclaim for the breach of the implied covenant of good faith and fair dealing, arguing that it fails to go beyond the breach of contract claim. Pl.’s Mot. at 20-22. Specifically, both counterclaims allege Grove Way breached by attempting to force Centene to pay for a substantially upgraded security system, unreasonably delaying and withholding approval of their construction plans and refusing to pay the allowances due. See Answer and Countercl. ¶¶ 22-36. However, as Centene’s motion clarifies, their breach of contract claim is based on Grove Way’s failure to pay the allowances. See Def.’s Mot. at 29. The other facts alleged regarding the security system and withholding of approvals, support Centene’s position that certain performance obligations of theirs were excused. See id. at 18-30. In addition, Centene claims Grove Way’s insistence on payment for a security system and unreasonable approval delays amounted to a breach of the covenant of good faith and fair dealing by unfairly frustrating their right to receive allowances. See Def.’s Mot. at 31. Because Centene’s breach of the implied covenant of good faith and fair dealing rests on different conduct of Grove Way’s, not claimed to be a violation of an explicit term of the lease, the Court finds that this counterclaim is not superfluous as a matter of law. See Digerati Holdings, LLC v. Young Money Entertainment, LLC, 123 Cal. Rptr. 3d 736, 745 (Ct. App. 2011)(noting the gravamen of the two claims rests on different facts and different harm); see also CACI No. 325 (noting the harm alleged in a breach of the implied covenant of good faith and fair dealing may produce contract damages that are different from those claimed for breach of the express contract provisions). Grove Way also argues that to the extent Centene’s claim rests on Grove Way’s conduct regarding the security cameras, it fails because Centene agreed to pay them. Pl.’s Mot at 21-22. But Grove Way cites no authority that this would preclude Centene from bringing a claim that Grove Way placing unreasonable conditions on approval violated the implied covenant of good faith and fair dealing. Id. Further, it is in dispute what type of security system Centene agreed to pay for. See Pl.’s SUF No. 58. Centene’s claim is that it was in bad faith for Grove Way to condition its approval of the revised plans on Centene paying for a substantially more expensive system than it had removed and previously agreed to replace. See Def.’s Mot. at 31-32. For these reasons Grove Way’s motion for partial summary judgment on Centene’s second counterclaim for breach of the implied covenant of good faith and fair dealing is DENIED. 3. Quantum Meruit/Unjust Enrichment A quantum meruit or quasi-contractual recovery rests upon the equitable theory that a contract to pay for services is implied by law for reasons of justice. Hedging Concepts, Inc. v. First Alliance Mortgage Co., 41 Cal. App. 4th 1410, 1419 (1996). However, it is well settled that there is no equitable basis for an implied-in-law promise to pay reasonable value when the parties have an actual agreement covering compensation. Id.; see also Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 1370 (2010)(“As a matter of law, an unjust enrichment claim does not lie where the parties have an enforceable express contract.”) Here, there is a valid, enforceable contract, making the quantum meruit/unjust enrichment claim inapplicable. See id. For this reason, Grove Way’s motion for partial summary judgment on Centene’s quantum meruit/unjust enrichment counterclaim is GRANTED and Centene’s cross motion for partial summary judgment on this counterclaim is DENIED. 4. Accounting “An accounting is an equitable proceeding which is proper when there is an unliquidated and unascertained amount owing that cannot be determined without an examination of the debts and credits on the books to determine what is due and owing.” Prakashpalan v. Engstrom, Lipscomb & Lack, 167 Cal. Rptr. 3d 832, 859 (Ct. App. 2014). Centene’s sixth counterclaim is for accounting. Answer and Countercl. ¶¶ 54-59. Centene contends this claim is necessary to ascertain the amounts due and owing under the Lease, as Grove Way in its breach of contract claim asserts that Centene is past due on rent. Def.’s Mot. at 33; Compl. ¶ 28. Centene claims it does not owe rent and that Grove Way has misappropriated ——— mE IIE I III II OIE SIN

Centene’s rent payments to disputed amounts. Def.’s Mot. at 33. Accordingly, an accounting is valid and necessary to determine what has been paid to Grove Way, where this money has been allocated and what if anything is currently due under the Lease. For these reasons Plaintiff’s motion for partial summary judgment on Defendant’s accounting counterclaim is DENIED. Til. ORDER For the reasons set forth above: (1) Plaintiff’s motion for summary judgment on Defendant’s first, second and sixth counterclaim is DENIED. (2) Plaintiff’s motion for summary judgment on Defendant’s fourth counterclaim is GRANTED. (3) Defendant’s motion for summary judgment on its first, fourth and fifth counterclaims is DENIED. (4) Defendant’s motion for summary judgment on Plaintiff’s first cause of action is DENIED. (5) Pursuant to Federal Rule of Civil Procedure 56(g) any fact not genuinely in dispute is deemed established in the case. Dated: December 28, 2020

Lklpot, HN A, MENDEZ, UNITED STATES DISTRICT 17