Salameh v. 5th and K Master Assoc. CA4/1

California Court of Appeal·Decided September 23, 2015·No. D066096·Unpublished

Opinion

Filed 9/23/15 Salameh v. 5th and K Master Assoc. CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE

STATE OF CALIFORNIA

TAMER SALAMEH et al., D066096 Cross-complainants and Appellants,

v. (Super. Ct. No. 37-2010-00094424-

CU-OR-CTL)

5TH AND K MASTER ASSOCIATION, INC. et al.,

Cross-defendants and Respondents.

APPEALS from a judgment of the Superior Court of San Diego County, Joel M.

Pressman, Judge. Affirmed.

Aguirre & Severson, Michael J. Aguirre, Maria C. Severson; Stris & Maher and Peter K. Stris for Cross-Complainants and Appellants.

Lewis Brisbois Bisgaard & Smith, Charles S. Haughey, Jr., Raul L. Martinez, Esther P. Holm and Eric Kizirian for Cross-defendants and Respondents 5th & K Master Association, Inc., 5th & K Parcel 1 Owners' Association, Inc., 5th & K Parcel 2 Owners'

Association, Inc., 5th & K Parcel 3 Owners' Association, Inc., Bhavesh Patel, Ron Adelhelm and Renee Molloy.

Cox, Castle & Nicholson, Frederick H. Kranz and Lynn T. Galuppo for Cross-

defendants and Respondents Tarsadia Hotels, 5th Rock, LLC, MKP One, LLC, MSP One, LLC, Gaslamp Holdings, LLC, T-12 Three, LLC, Evolution Hospitality, LLC, Tarsadia Investments, LLC, and T-2 Development, LLC.

Owners of condominium guestrooms (Owners) in the Hard Rock Hotel San Diego (Hotel) asserted various claims against the Hotel developer/operator and Owners' associations, including fraud, breach of fiduciary duty, and unfair competition. Owners appeal an order granting cross-defendants' motions for judgment on the pleadings, which the trial court entered after finding that the operative cross-complaint failed to state a cause of action. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND A. Factual Allegations in the Operative Third Amended Cross-complaint (TACC)

Beginning in 2006, cross-complainants/Owners purchased individual rooms at the Hotel, which is a full-service hotel comprised of 420 condominium-hotel rooms, meeting rooms, a spa, bars, retail stores, and restaurants. The Hotel development project was initiated by members of the Patel family for investment and commercial purposes. The Patel family formed, operated and/or controlled the companies that were sued as cross- defendants, including: 5th Rock, LLC (5th Rock), the entity that developed and sold the

condominium units; Tarsadia Hotels (Tarsadia), the entity that initially managed and operated the Hotel; and a number of other affiliated entities (collectively, Developer).

The Hotel is a common interest development constructed over several parcels of real property. Each Owner elected to contract with Tarsadia to provide room management services. By purchasing individual Hotel rooms, Owners also became members of the owners' associations (Association).1 The Association administered the Hotel pursuant to recorded covenants, conditions, and restrictions (CC&Rs). The individually sued Association directors, who comprised a majority of the Association's board, were employees of the Developer. The Association collected assessments from Owners for a variety of services, including maintenance of common areas, lighting, pest control, security, etc., which were deposited in Association-controlled bank accounts.

Owners allege that they were overcharged for both room management fees and Association assessments as a result of misrepresentations and/or omissions in information they were provided. These overcharges constitute the alleged harm underlying each of Owners' causes of action.

Owners allege that the overcharged room management fees, which they claim total more than $45 million since 2008, occurred as follows. Under optional rental management agreements (RMAs), Tarsadia agreed to charge each Owner an amount equal to 50 percent of the room's "Net Rental Revenues" in exchange for managing the

1 There were three sub-associations, each of which was an association of Owners of units located on three different parcels of property. Each of the sub-associations was a member of the "master association." The master association had the power to levy assessments on the sub-associations and their members.

room. It is undisputed that Tarsadia in fact charged each Owner this amount. The RMAs defined Tarsadia's responsibilities to Owners, which included renting the units, providing room service to the units' guests as needed, providing housekeeping services, and performing repairs. Owners claimed that instead of being charged 50 percent of "Net Rental Revenues," they should have been charged "[Three percent] of Gross Room Revenue" based on a hotel management agreement (HMA) between 5th Rock and Tarsadia.

The HMA defined Tarsadia's responsibilities to 5th Rock for Hotel operations, including purchasing uniforms and food, obtaining licenses, and entering into contracts with other service providers. Under the HMA, 5th Rock agreed to pay Tarsadia three percent of the Hotel's gross operational revenues as a fee for hotel management services.

With respect to the claim that Owners were overcharged for Association assessments, Owners allege that the Association retained an independent property management company, N.N. Jaeschke, Inc. (predecessor-in-interest Associa) (NNJ) to provide administration, repair, and maintenance services under an association management agreement (AMA). NNJ was the "master managing agent" of the Association. Owners maintain that without informing the Owners, individual Association board members forced NNJ to contract with Tarsadia to perform certain repair and maintenance supervisory duties that the Owners believed were being performed by NNJ. Owners contend that this constituted an improper delegation of duties. Owners also claim that, with respect to claims for reimbursement of expenses, NNJ "reverse- engineered" work orders by writing descriptions of amounts and purposes that materially

deviated from the amounts and purposes in the invoices that Tarsadia submitted to NNJ, and presented these "reverse engineered" invoices to Owners for payment. Owners further claim that NNJ used a shorthand method to keep Association records, such as naming the financial statements "Hard Rock Hotel Master" rather than using the actual name, "5th and K Master Association."

An independent services agreement (ISA) governed the business arrangement between NNJ and Tarsadia. The ISA provided that NNJ would pay 53 percent of its management fee to Tarsadia. The TACC characterized this as "kickback" payments.

B. Procedural History On multiple occasions, cross-defendants filed demurrers and motions for judgment on the pleadings related to prior iterations of the cross-complaint, which were overruled and denied by the trial court (Judge Denton). In 2012, the court granted Owners' motion for class certification. Thereafter, Judge Denton retired from the bench, and the case was reassigned to Judge Pressman.

At a November 2013 status conference, cross-defendants argued that Owners'

legal theories had morphed throughout the course of the proceedings in the trial court and that the allegations that Owners were making at the time did not match the operative cross-complaint, which had been based in large part on a theory of "fraud in the inducement"—a theory no longer being asserted. Cross-defendants urged the trial court to order Owners to file an amended cross-complaint to conform to their present legal theories. Prior to any such order being issued, Owners agreed to amend their cross- complaint, and in January 2014, Owners filed their TACC.

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