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Gietzen v. Covenant Re Management, Inc.

California Court of Appeals, Second District, Sixth Division

September 24, 2019

ROD E. GIETZEN et al., Plaintiffs and Appellants,
v.
COVENANT RE MANAGEMENT, INC., Defendant and Respondent.

          Superior Court County of Ventura No. 56-2012-00413479-CU-CO-VTA Kent M. Kellegrew, Judge

          Lurie & Seltzer, Barak Lurie, Michele A. Seltzer and Brent A. Kramer for Plaintiffs and Appellants.

          Voss, Cook & Thel, Francis T. Donohue; Sheppard, Mullin, Richter & Hampton, Aaron J. Malo and Karin Dougan Vogel for Defendant and Respondent.

          OPINION FOLLOWING REHEARING

          GILBERT, P. J.

         The effect of an uncollected judgment may change through circumstances occurring after judgment. The judgment holder may suffer a loss or in this case gain a benefit.

         Once again, we visit the judgment arising from Yolanda’s Inc.’s (Yolanda’s) action against its landlord. This time the issue is whether a third party beneficiary of a contract has more rights than the promissee. A shopping center lease contains a provision limiting the lessor’s liability for breach of the lease to the lessor’s interest in the shopping center. Yolanda’s, the lessee, obtained a judgment against its lessor, a limited partnership. Yolanda’s moved to amend the judgment to add the general partner of the limited partner lessor as a judgment debtor. The trial court denied the motion on the ground that the general partner is a third party beneficiary of the provision limiting liability.

         We reverse. By virtue of a foreclosure, the lease was assigned to the foreclosing lender. The assignment terminated the lessor’s rights under the lease. The termination of the lessor’s rights also terminated the rights of the third party beneficiary general partner.

         FACTS

         We continue to chronicle Yolanda’s odyssey to collect its judgment. Yolanda’s owns and operates restaurants. It entered into a lease with K&G/Seabridge II, LLC (K&G) and Rocklin Covenant Group, LP (Rocklin) to operate a restaurant at the Seabridge Shopping Center in Oxnard. Yolanda’s president Rod Gietzen personally guaranteed the lease.

         During lease negotiations, K&G and Rocklin failed to inform Yolanda’s that they were in negotiations to lease another space in the shopping center to a gym. The gym’s customers monopolized the parking spaces in the shopping center’s common parking lot, resulting in a loss of business for Yolanda’s.

         In March 2012, Yolanda’s sued K&G, Rocklin, and their agent, Kahl and Goveia Commercial Real Estate (KGCRE), alleging, among other causes of action, fraud and breach of lease. Yolanda’s obtained judgment for breach of the lease in the amount of almost $2 million plus attorney fees and costs. On the first appeal, we reversed the judgment against KGCRE because it was not a party to the lease. We otherwise affirmed. (Gietzen v. Goveia (March 30, 2016, B255925) [nonpub. opn.].) On remand, the trial court awarded KGCRE almost $500, 000 in attorney fees as the prevailing party.

         Meanwhile, lessors lost their interest in the shopping center through foreclosure. Thereafter, in June 2017, Yolanda’s brought the instant motion to amend the judgment to add KGCRE and Covenant Real Estate Management, Inc. (CREM) as judgment debtors. Yolanda’s alleged that KGCRE is an alter ego of K&G and that CREM is an alter ego of Rocklin. Yolanda’s also alleged that CREM is the general partner of a limited partnership of which Rocklin is a limited partner; thus, CREM is liable for Rocklin’s obligations pursuant to Corporations Code section 15904.04, subdivision (a).

         KGCRE and CREM denied they are alter egos and asserted they have no liability per article 39 of the lease. Article 39 provides: “The liability of Landlord under this Lease shall be limited to Landlord’s interest in the Shopping Center. Tenant agrees to look solely to Landlord’s interest in the Shopping Center for the satisfaction of any liability, duty or obligation of Landlord with respect to this Lease, or the relationship of Landlord and Tenant hereunder, and no other assets of Landlord shall be subject to any liability therefor. In no event shall Tenant seek, and Tenant does hereby waive, any recourse against shareholders and/or constituent partners of Landlord and the partners, directors, officers or shareholders thereof, or any of their respective personal assets for such satisfaction.”

         Yolanda’s attached as an exhibit to its moving papers portions of an earlier action it brought in the Orange County Superior Court against K&G, Rocklin, KGCRE, CREM, and others. That action alleged the fraudulent transfer of personal property. The defendants moved for summary judgment because they believed that article 39 limited satisfaction of the judgment to the shopping center assets, and that they no longer had an interest in the shopping center due to their lender’s foreclosure.

         In response, Yolanda’s argued that article 39 is merged into the judgment; that a determination of an Orange County Superior Court on the applicability of article 39 is res judicata; and that the benefit of article 39 was assigned with the lease to Rocklin’s lender in foreclosure.

         The trial court in the Orange County action denied the motion for summary judgment. The court ruled that the article 39 defense was not available because it had been merged into the original judgment.

         The Ventura Trial Court’s Ruling on Yolanda’s ...


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