Tentative Ruling: Leon Lunt et al vs Novacoast Inc et al

Case Number

24CV04434

Case Type

Hearing Date / Time

Fri, 04/24/2026 - 10:00

Nature of Proceedings

CMC; Demurrer

Tentative Ruling

For the reasons set forth herein, the demurrer of defendants Novacoast, Inc., Paul Arthur Anderson, and Adam Gray to the second amended complaint is sustained in part and overruled in part. The demurrer is sustained, with leave to amend, as to defendant Anderson as to the first (breach of contract), second (breach of contract), and fifth (breach of covenant of good faith and fair dealing) causes of action. The demurrer is sustained, with leave to amend, as to all defendants as to the sixth (intentional misrepresentation) and seventh (negligent misrepresentation) causes of action. The demurrer is overruled in all other respects. Plaintiffs shall file and serve their third amended complaint on or before May 4, 2026.

Background:

On August 9, 2024, plaintiffs Leon Lunt, Joyce Lunt (collectively, the Lunts), and SeaLunt US LLC (SeaLunt) filed their original complaint in this action against defendants Novacoast, Inc. (Novacoast), Paul Arthur Anderson, and Adam Gray, asserting three causes of action: (1) breach of contract; (2) intentional misrepresentation; and (3) elder abuse.

On December 20, 2024, defendants filed their demurrer to the original complaint.

On January 15, 2025, the court entered its order, on the stipulation of the parties, for a protective order re financial, confidential, and proprietary information.

On July 23, 2025, the court sustained defendants’ demurrer to the original complaint with leave to amend.

On June 6, 2025, plaintiffs filed their first amended complaint (FAC), asserting seven causes of action against defendants: (1) breach of contract (1505 Chapala); (2) breach of contract (1511 Chapala); (3) breach of contract (1515 Chapala); (4) breach of contract (1517 Chapala); (5) breach of the covenant of good faith and fair dealing; (6) intentional misrepresentation; and (7) negligent misrepresentation.

On July 8, 2025, plaintiffs filed their demurrer and motion to strike as to the FAC.

On October 1, 2025, plaintiffs filed their motion for leave to file a second amended complaint.

On October 31, 2025, the court granted plaintiffs’ motion to file an amended complaint. On November 14, 2025, plaintiffs filed their second amended complaint (SAC), asserting the same seven causes of action as in the FAC.

The causes of action of the SAC arise from plaintiffs’ allegations that: SeaLunt is the owner and lessor of office spaces in the Chapala Building in Santa Barbara. (SAC, ¶¶ 1, 8.) The Lunts, as trustees of their revocable trust, are the sole owners of SeaLunt and formerly owned the Chapala Building directly. (SAC, ¶¶ 2, 13.) Novacoast is the lessee of office spaces pursuant to written leases and lease extensions guaranteed by Anderson. (SAC, ¶¶ 9-12.) Novacoast defaulted in payment of rent, leading to lease termination agreements. (SAC, ¶¶ 14-19.) Novacoast defaulted again. (SAC, ¶ 20.) Gray, on behalf of Novacoast, claimed that Novacoast could no longer pay rent and would be closing. (SAC, ¶ 26.) The parties negotiated for Novacoast to get out of the lease. (SAC, ¶¶ 27-31.) Instead, Novacoast was not closing business, but transitioned its employees to remote status and left open its offices elsewhere. (SAC, ¶ 36.) Novacoast asserts that it had reached a binding deal to terminate the leases for $50,000, which was paid to the Lunts (and subsequently returned). (SAC, ¶¶ 32-35.)

On December 16, 2025, defendants filed their demurrer as to the first, second, fifth, sixth, and seventh causes of action of the SAC. The demurrer is opposed by plaintiffs.

Analysis:

“ ‘The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also ‘give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.’ ” (Zhang v. Superior Court (2013) 57 Cal.4th 364, 370, internal quotation marks and citations omitted.)

(1)       Claims Against Anderson

Plaintiffs’ first cause of action is for breach of contract. “A cause of action for breach of contract requires pleading of a contract, plaintiff’s performance or excuse for failure to perform, defendant’s breach and damage to plaintiff resulting therefrom.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.)

The contract alleged in the SAC for this cause of action consists of a Lease Termination Agreement for property located at 1505 Chapala Street and a Guaranty. (SAC, ¶ 39 & exhibits F [Lease Termination Agreement], B [Guaranty].)

The Guaranty is dated March 22, 2011, and is between the Lunts and Anderson. (SAC, exhibit B, p. 47.) The Guaranty includes the following provisions:

“NOW THEREFORE, in consideration of the execution of said Lease by Lessor and as a material inducement to Lessor to execute said Lease, Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee the prompt payment by Lessee of all rents and all other sums payable by Lessee under said Lease and the faithful and prompt performance by Lessee of each and every one of the terms, conditions and covenants of said Lease to be kept and performed by Lessee. [¶] It is specifically agreed by Lessor and Guarantors that: (i) the terms of the foregoing Lease may be modified by agreement between Lessor and Lessee, or by a course of conduct, and (ii) said Lease may be assigned by Lessor or any assignee of Lessor without consent or notice to Guarantors and that this Guaranty shall guarantee the performance of said Lease as so modified.” (SAC, exhibit B, p. 47.)

The Lease Termination Agreement is dated as of March 15, 2021, and is between the Lunts and Novacoast. (SAC, exhibit F, p. 144.) The Lease Termination Agreement includes the following provisions:

“Lessor and Lessee entered into a Lease Agreement, dated March 22, 2011, further amended by a First [Amendment] dated February 1, 2016 and further amended by a Second Amendment dated November 28, 2016 (‘Lease’), for the premises located at 1505 Chapala Street, Suite D, Santa Barbara, California, consisting of approximately 4,642 rentable square feet, as further described in the Lease (the ‘Premises’).” (SAC, exhibit F, p. 144 [Lease Termination Agreement, recital A].)

“Lessor and Lessee hereby agree that the term of the Lease shall terminate and expire as of the close of business April 30, 2021 (the ‘Termination Date’) and the Termination Date shall be deemed the expiration date of the Lease, and of all obligations and liabilities of the parties thereunder, for all purposes. Lessee hereby agrees that as of the Termination Date, Lessee surrenders to Lessor all right, title and interest of Lessee in the Premises. Lessee hereby agrees that as of the Termination Date, Lessee shall deliver the Premises to Lessor in clean condition with all furniture, fixtures and equipment in place, per Exhibit A. Said FF&E shall

become the property of Keller Williams Realty upon execution of this Agreement.” (SAC, exhibit F, p. 144 [Lease Termination Agreement, § 1], bolding omitted.)

“As consideration for executing this Agreement, Lessor will agree to reduce Lessee’s Past Due Rent obligation from $128,862.00 to $64,431.00. Further, Lessor will allow Lessee to pay the $64,431.00 of Past Due Rent in equal monthly payments of $920.44 by the lst of each month over the next seventy (70) months, beginning April 1, 2021 and ending January 31, 2027. Lastly, beginning April 1, 2021, Lessee shall start paying its full Rent for its leases at 1515 and 1517 Chapala, as agreed in the October 23, 2020 letter between Lessor and Lessee.” (SAC, exhibit F, p. 144 [Lease Termination Agreement, § 3].)

“Upon the Termination Date, Lessor and Lessee and any assignee of Lessee’s or Lessor’s interest under the Lease (and their respective guarantors, parents, subsidiaries, affiliates, partners, officers, directors, employees, agents, attorneys, employees, representatives, successors and assigns) shall be deemed irrevocably and unconditionally discharged and released, from any and all liability, claims, demands, and causes of action, whether known or unknown, irrespective of when such accrue, (i) under the Lease or any documents or understandings arising under the Lease, and (ii) with respect to the Premises, including, without limitation, any actual or proposed construction work at the Premises, the condition of the Premises, the condition of the building in which the Premises are located and the condition of the real property surrounding the Premises and the building in which the Premises are located, and the Lease shall be deemed to be terminated as of the Termination Date. Consistent with the foregoing, Lessor and Lessee expressly and voluntarily waive and relinquish all rights and benefits under Section 1542 of the California Civil Code if in any way applicable to this Agreement. … [¶] … [¶] Each party acknowledges that it has received the advice of legal counsel with respect to the aforementioned waiver and understands the terms thereof.” (SAC, exhibit F, p. 145 [Lease Termination Agreement, § 6], bolding omitted.)

Novacoast’s signature on the Lease Termination Agreement by Anderson as its CEO is dated March 16, 2022, approximately a year after the date of the agreement and after signatures by the Lunts. (SAC, exhibit F, p. 147.)

Plaintiffs allege that on April 1, 2023, Novacoast breached its obligation to pay the monthly past due rent for 1505 Chapala pursuant to the Lease Termination Agreement and Anderson breached the Guaranty by not complying with the terms of the Lease Termination Agreement. (SAC, ¶ 40.)

Anderson argues that plaintiffs have not alleged breach of contract as to Anderson because Anderson is not personally a party to the Lease Termination Agreement and paragraph 6 of the Lease Termination Agreement releases liability under the Lease including guarantors. Plaintiffs argue that there are disputed questions of fact regarding consideration and performance of the Lease Termination Agreement and hence the effectiveness of the release as to Anderson as guarantor.

As quoted above, by its terms, the Lease Termination Agreement releases liability under the Lease as of April 30, 2021, the “Termination Date.” Plaintiffs allege that the Lease Termination Agreement was breached by Novacoast on April 1, 2023, almost two years later by its failure to make payment when due. At the same time, by its terms, the Guaranty is for payment under the Lease. The terms of the Lease to which the Guaranty applies may be modified by agreement between the Lessor and Lessee. On its face, the Lease Termination Agreement does not appear to be a modification of the Lease within the meaning of the Guaranty because it provides for the termination of the Lease and the surrender of the Premises. The release in the Lease Termination Agreement expressly include guarantors with respect to interests under the Lease.

“ ‘Ordinarily a written contract is sufficiently pleaded if it is set out in full or its terms alleged according to their legal effect.... But if the instrument is ambiguous, the pleader must allege the meaning he ascribes to it. [Citations.]’ [Citation.] Where a written contract is pleaded by attachment to and incorporation in a complaint, and where the complaint fails to allege that the terms of the contract have any special meaning, a court will construe the language of the contract on its face to determine whether, as a matter of law, the contract is reasonably subject to a construction sufficient to sustain a cause of action for breach.” (Hillsman v. Sutter Community Hospitals (1984) 153 Cal.App.3d 743, 749-750.)

As pleaded, the Lease Termination Agreement terminates the Lease and releases liability of a guarantor as to the Lease. Somewhat consistently, plaintiffs do not allege guarantor liability for amounts owing under the Lease. Instead, plaintiffs allege Anderson’s liability as a guarantor based upon failure to comply with the terms of the Lease Termination Agreement. However, plaintiffs do not allege that the Lease Termination Agreement is intended as modification of the Lease within the meaning of the Guaranty. Plaintiff have thus failed sufficiently to allege a breach of the Guaranty by Anderson based upon a failure of performance of the Lease Termination Agreement.

In opposition, plaintiffs also argue failure of consideration as a reason why the release is ineffective. Failure of consideration is ordinarily a basis for rescission of a contract (see Civ. Code, § 1689, subd. (b)(2)), by which theory the rescinded contract is disaffirmed (see Koenig v. Warner Unified School Dist. (2019) 41 Cal.App.5th 43, 59–60). Here, plaintiffs base their claim in this cause of action upon affirming the payment obligations of the Lease Termination Agreement and not upon the prior existing obligations of the Lease. Plaintiff’s existing allegations of breach of the Guaranty are based upon breach of obligations under the Lease Termination Agreement. The existing allegations are thus insufficient to support a claim for breach of the Guaranty under a failure of consideration theory.

The demurrer to the first cause of action will be sustained as to defendant Anderson.

The second cause of action is based on the same legal premises as the first cause of action, but with a different lease termination agreement (SAC, exhibit G) and a different guaranty (exhibit D). The affected property is different from the first cause of action, but the relevant terms of the agreements are not. The demurrer to the second cause of action will be sustained for the same reasons.

(2)       Implied Covenant of Good Faith and Fair Dealing

Plaintiffs’ fifth cause of action is for breach of the implied covenant of good faith and fair dealing. Defendants Novacoast and Anderson both demur to this cause of action.

“Breach of the covenant of good faith and fair dealing is nothing more than a cause of action for breach of contract.” (Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga (2009) 175 Cal.App.4th 1306, 1344.) As an action for breach of contract, the elements of breach of contract must be pleaded.

Plaintiffs allege that “Plaintiff (through their predecessors in interest, and agents) and Defendants entered into two (2) lease agreements and two (2) lease termination agreements.” (SAC, ¶ 57.) “Defendants Novacoast and Paul Anderson unfairly interfered with Plaintiffs right to receive the benefits of the four (4) contracts described herein.” (SAC, ¶ 59.)

The four contracts are the lease agreements and the lease termination agreements previously discussed. None of these agreements include Anderson individually as a party. Consequently, plaintiffs have failed to allege a contract for which Anderson would be liable for breach. The demurrer will be sustained as to defendant Anderson on that basis.

Novacoast argues that there is no allegation of what defendants did or did not do to breach the implied covenant. Plaintiffs allege:

“Specifically, Defendants, acting in part through their agent Adam Gray and others, misrepresented that Novacoast was going completely out of business. Defendants fraudulently induced Plaintiff to enter negotiations to terminate Defendants’ existing lease obligations at a significantly lower amount than they otherwise would be willing to consider, thereby depriving Plaintiff from receiving the benefits of the Operative Leases and Lease Termination Agreements. Defendants unfairly interfered with Plaintiffs right to receive the benefits of the contracts by continuously claiming that an irrevocable email agreement between the Lunts and Novacoast was reached. Plaintiff is informed and believes that Defendants’ prior conduct in obtaining the Lease Termination Agreements is part of a larger effort to avoid their obligations pursuant to each of the leases described herein.” (SAC, ¶ 60.)

“ ‘The implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract.’ [Citation.]” (Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094, italics omitted.) The express terms of the contracts alleged as against Novacoast required payments to plaintiffs at various times. The conduct of Novacoast is alleged to interfere with this performance by inducing plaintiffs to take action or to refrain from taking action to assure full performance when due. This is a sufficient allegation of breach of the covenant of good faith and fair dealing.

The overlap with the fraud claims does not preclude an action based on breach of contract. “A plaintiff fraudulently induced to enter into a contract has the power to elect to affirm the contract and sue for damages resulting from the fraud; the plaintiff may recover ‘out-of-pocket’ damages in addition to benefit-of-the-bargain damages. [Citation.]” (Wang v. Massey Chevrolet (2002) 97 Cal.App.4th 856, 872.) “[P]laintiffs can generally plead ‘alternative factual allegations relying on alternative legal theories.’ [Citation.]” (Batta v. Hunt (2024) 106 Cal.App.5th 295, 304.)

The demurrer to the fifth cause of action will be overruled as to defendant Novacoast.

(3)       Fraud Claims

Plaintiffs’ sixth cause of action is for intentional misrepresentation.

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) “In California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Id. at p. 645.)

Defendants argue that plaintiffs have not alleged specific facts with respect to the elements of reliance and damages because plaintiffs alleged that SeaLunt returned the $50,000 that was negotiated between plaintiffs and Gray.

“ ‘Actual reliance occurs when a misrepresentation is “ ‘an immediate cause of [a plaintiff’s] conduct, which alters his legal relations,’ ” and when, absent such representation, “ ‘he would not, in all reasonable probability, have entered into the contract or other transaction.’ ” [Citations.] “It is not ... necessary that [a plaintiff’s] reliance upon the truth of the fraudulent misrepresentations be the sole or even the predominant or decisive factor in influencing his conduct.... It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision.” ’ [Citation.]” (Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1256.)

Plaintiffs have adequately alleged reliance upon the misrepresentations as their taking action or omitting to take action that would not have been taken otherwise. While plaintiffs may be in a similar financial situation as it relates to the nonpayment of amounts on the leases, plaintiffs have also alleged taking additional actions. However, the nature of the damages from these additional actions is not stated with sufficient specificity. For example, as discussed above, the lease termination agreements are asserted by defendants to have legal consequences different from those asserted by plaintiffs, yet plaintiffs do not specifically allege how those legal consequences translate to fraud damages, i.e., out-of-pocket expenses to plaintiffs. The demurrer to the sixth cause of action will be sustained on this ground.

Defendants demur to the seventh case of action on the same grounds. The demurrer will likewise be sustained to the seventh cause of action.

(4)       Leave to Amend

The court will grant leave to amend as to each of the causes of action subject to demurrer.