Williams v. La Perla North America, Inc.
- Jacquelyn Corley
- 3:23-cv-01633
- U.S. District Court · Northern District of California
- 10
In Williams v. La Perla, Judge Corley granted Williams’s motion to dismiss La Perla’s counterclaims, allowing 20 days to amend.
La Perla’s restitution, breach-of-contract, and implied-covenant counterclaims were dismissed, but La Perla was given 20 days to amend. Williams’s underlying lease claims were not decided by this order.
What happened
Williams v. La Perla North America, Inc. concerns a commercial lease and La Perla’s counterclaims against Gregg Williams, a state-court-appointed receiver. La Perla alleged that Williams failed to reduce the landlord’s losses after La Perla left the property and stopped paying rent.
The court rejected Williams’s argument that La Perla needed permission from the appointing state court to bring its compulsory counterclaim. But it concluded that La Perla had not plausibly alleged that Williams had a duty to reduce the losses because the lease allowed the landlord to keep the lease in effect unless it terminated the lease. The court also found that La Perla’s good-faith claim repeated its contract claim and that its restitution claim lacked allegations that the lease was void or rescinded.
Judge Corley granted Williams’s motion to dismiss all of La Perla’s counterclaim causes of action, with 20 days’ leave to amend. The order did not decide Williams’s underlying lease claims.
The detailed version
- Williams v. La Perla North America, Inc. · No. 3:23-cv-01633
- Jacquelyn Corley
- July 20, 2023
Background
Gregg Williams sued La Perla North America, Inc. as the successor-in-interest to the landlord of commercial property at 170 Geary Street in San Francisco. Williams brought the action solely as a state-court-appointed receiver. He alleged that La Perla breached a 10-year lease by abandoning the property around April 2021 and failing to pay rent beginning in May 2021. Williams sought $541,121.37 in amounts allegedly due under the lease.
La Perla answered and asserted counterclaims for restitution, breach of contract, and breach of the implied covenant of good faith and fair dealing. La Perla alleged that it left the property because of crime, homelessness, and waste in the surrounding area. It claimed Williams failed to make good-faith efforts to re-let the property and instead applied La Perla’s $1,290,598.36 security deposit to rent allegedly owed under the lease.
Rulings on the Receiver Argument
Williams argued that La Perla’s counterclaims should be dismissed because La Perla had not obtained permission from the California state court that appointed him. The court rejected that argument. It reasoned that La Perla’s counterclaim was compulsory, meaning it had to be brought in response to Williams’s lawsuit or potentially be forfeited. The court also concluded that Williams waived the permission objection by choosing to sue La Perla in federal court. The court therefore held that La Perla could bring its claims against Williams without obtaining permission from the appointing court.
Failure-to-Mitigate Allegations
The court applied Rule 12(b)(6), which permits dismissal when a pleading does not allege enough facts to state a legally plausible claim. It concluded that all of La Perla’s claims depended on the assertion that Williams had a duty to mitigate, or reduce, the landlord’s damages by re-letting the property.
The lease gave the landlord three options after default: continue the lease and collect rent, terminate the lease and recover damages, or re-let the property for La Perla’s account. The lease also required mitigation only to the extent that mitigation was not contrary to the landlord’s rights and contractual choices. The court held that, under the lease and California Civil Code section 1951.4, the landlord could keep the lease in effect and collect rent without an affirmative duty to re-let the property. A duty to mitigate would apply if the landlord terminated the lease.
La Perla argued that Williams had effectively terminated the lease. The court could not consider material outside the counterclaim when deciding the motion to dismiss, and the counterclaim did not allege that Williams terminated the lease. The lease also stated that no landlord act would terminate it without written notice. Because La Perla did not allege that Williams gave written notice of termination, the court held that La Perla had not plausibly alleged a failure-to-mitigate breach of contract.
Implied Covenant Claim
The court dismissed La Perla’s claim for breach of the implied covenant of good faith and fair dealing. It found that the claim repeated the same alleged failure to mitigate and sought the same damages as the breach-of-contract claim. Because the claim added no distinct conduct beyond the alleged contract breach, the court treated it as duplicative.
Restitution Claim
The court also dismissed La Perla’s restitution claim. A party to an express contract may seek restitution based on unjust enrichment by alleging that the contract is void or was rescinded. La Perla did not sufficiently allege either. Although La Perla alleged that crime, homelessness, and waste made it unable to operate at the property, the court held that those general allegations did not plausibly show the total or nearly total destruction of the lease’s purpose or otherwise establish that the lease was void or rescinded.
Disposition
The court granted Williams’s motion to dismiss La Perla’s counterclaim causes of action, with 20 days’ leave to amend. The order disposed of Docket No. 16. It did not resolve Williams’s underlying claims concerning La Perla’s alleged lease breach.
Read the full 10-page opinion on CourtListener, the free public archive maintained by the Free Law Project.