Hammes Co. Healthcare, LLC v. Tri-City Healthcare District
2011 U.S. Dist. LEXIS 74253
S.D. Cal.2011Background
- Hammes Company Healthcare, LLC and HC Tri-City I, LLC sue Tri-City Healthcare District, Larry Anderson, and Pamela Smith over a failed outpatient surgery center/medical office building project in Oceanside, California.
- A May 2005 letter of intent directed Hammes to provide pre-construction services with reimbursement of initial development costs and a breakage fee if Tri-City chose not to proceed.
- In July 2007, HC entered into a ground lease with Tri-City; two waivable contingencies and one non-waivable condition precedent to construction are embedded in the lease.
- In July 2008, HC entered into a space lease with Pacific View Surgery Center (Tri-City and physicians' joint venture); Tri-City signed as guarantor for Pacific View.
- The project was terminated in early 2009; Tri-City did not reimburse development costs or pay any breakage fee; a related action also exists (Case No. 09-CV-2334).
- The complaint asserts six claims: breach of the letter of intent, breach of the ground lease and space lease, breach of the implied covenant of good faith and fair dealing, fraud, tortious interference with the space lease, and promissory estoppel.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Tri-City breached the letter of intent. | Tri-City unilaterally terminated the project, obligating reimbursement and breakage fee. | No termination of the LOI occurred; no damages incurred by Hammes. | Genuine issue exists as to unilateral termination and damages; summary judgment denied for LOI claim. |
| Whether Hammes lacks standing to sue on the ground and space leases as a non-signatory. | Hammes was an intended third-party beneficiary of both leases. | Hammes is not an intended beneficiary; lacks standing. | Hammes is not an intended beneficiary; summary judgment for Tri-City on breach of ground and space leases granted. |
| Whether Tri-City breached the ground lease due to failure of pre-leasing contingency. | Pre-leasing contingencies could be waived by HC and were satisfied. | Pre-leasing contingency was not satisfied and cannot be waived to enforce obligations. | HC failed to satisfy the pre-leasing contingency; ground lease is null; summary judgment for Tri-City on breach of ground lease granted. |
| Whether Tri-City breached the space lease as a result of termination. | Guaranty under space lease obligates Tri-City to cover Pacific View's defaults. | Guaranty only applies if Pacific View defaults; project termination prevented that. | No damages; ground lease failure precluded performance under space lease; summary judgment for Tri-City on breach of space lease granted. |
| Whether Tri-City breached the implied covenants of good faith and fair dealing. | District undermined negotiations and intended to terminate the project to displace Hammes/HC. | No breach given lack of valid conditions precedent and independent grounds. | No triable issue; implied covenants claims fail; summary judgment for Tri-City on third claim. |
| Whether the fraud claim against Anderson and Smith survives. | Misrepresentations regarding ongoing project and future use of documents caused damages. | No competent reliance or damages proven; theories inconsistent with pleadings. | Fraud claim dismissed; summary judgment for Defendants on fourth claim. |
| Whether tortious interference with the space lease is viable. | Defendants interfered with Pacific View/space lease despite project termination. | No damages since ground lease failure foreclosed benefits of space lease. | Tortious interference claim dismissed; summary judgment for Defendants on fifth claim. |
| Whether promissory estoppel supports damages. | Promise to pay or termination assurances caused reliance and injustice if unenforced. | No substantial reliance or position change shown. | Promissory estoppel claim dismissed; summary judgment for Defendants on sixth claim. |
Key Cases Cited
- Alcalde v. NAC Real Estate Invs. and Assignments, Inc., 316 F. App'x 661 (9th Cir. 2009) (elements of contract and damages; third-party beneficiary status analyzed)
- First Commercial Mortg. Co. v. Reece, 89 Cal. App. 4th 731 (Cal. App. 2001) (California contract damages framework)
- Prouty v. Gores Tech. Grp., 121 Cal. App. 4th 1225 (Cal. App. 2004) (intended vs incidental third-party beneficiary; contract interpretation)
- E. Aviation Grp., Inc. v. Airborne Express, Inc., 6 Cal. App. 4th 1448 (Cal. App. 1992) (intended beneficiary and contract benefit analysis)
- Neverkovec v. Fredericks, 74 Cal. App. 4th 337 (Cal. App. 1999) (intent of parties; incidental vs intended beneficiary)
- Garcia v. Truck Ins. Exch., 36 Cal.3d 426 (Cal. 1984) (contract interpretation and third-party beneficiary principles)
- Rosenfeld v. JPMorgan Chase Bank, N.A., 732 F. Supp. 2d 952 (N.D. Cal. 2010) (elements of bad faith/implied covenant; damages requirement)