That Case Decided by a Preposition and Delinquent Tenants. Quarterly Insights, Vol. XIII.

Photo by Willian Justen de Vasconcellos

Federal courts have a reputation, especially in Los Angeles, of running a tighter calendar and keeping a case moving along more quickly than state courts. I suspect that’s the real motivation behind the snafus in the first case reviewed here.

  Contracts: Governed by Commas and Prepositions

In the real-world dispute behind the case, the guarantor executed a guaranty of a lease. A to A Props., LLC v. CMJ Recovery Ctr. NV, LLC, 2025 U.S. Dist. LEXIS 206687 at 2. The tenant defaulted on the lease. Id. at 2-3. The landlord sought the guarantor to step up and make payments. Id. Pretty simple stuff. The guarantor did not step up. Id. at *3. Lawsuit ensued, and the landlord (i.e., now the Plaintiff) filed a lawsuit in the United States District Court for the Central District of California. Id. Again, pretty simple stuff.  

Probably not wanting to pay, but not seeing a lot of ways out, the Defendant guarantor filed a Motion to Dismiss for Forum Non Conveniens. Id. at *5. And that’s a fancy Latin way of saying it is the wrong, inconvenient forum. The forum selection clause in this guaranty reads as follows, and I have underlined the two phrases that will be considered in the opinion:

  “GUARANTOR HEREBY AGREES THAT GUARANTOR'S OBLIGATIONS HEREUNDER ARE PERFORMABLE IN THE COUNTY OF THE PREMISES AND HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, CALIFORNIA IN ANY ACTION OR PROCEEDING WHATSOEVER BY LANDLORD TO ENFORCE ITS RIGHTS HEREUNDER, AND WAIVES ANY RIGHT TO JURY TRIAL IN CONNECTION WITH ANY CLAIMS UNDER THE LEASE, THIS GUARANTY, OR RELATED TO THE ENFORCEMENT OF SAME.” Id. at *3.

As any legal reader knows, the Central District of California is in Los Angeles County. So, on the surface, this would seem to be the correct forum. Right?

When considering a Motion to Dismiss for Forum Non Conveniens where there is a forum selection clause in the agreement in question, the court considers only the public interest factors. Id. at 4.  These are such as "the administrative difficulties flowing from court congestion; the local interest in having localized controversies decided at home; and the interest in having the trial of a diversity case in a forum that is at home with the law.” Id. Additionally, the court added, the plaintiff bears the burden of showing why the court should not transfer the case to the forum to which the parties agreed, either by demonstrating that "the forum selection clause is not valid” or that “the public interest factors ... make transfer inappropriate”. Id. The opinion also stated that, when interpreting a forum selection clause, the issue is a matter of contract interpretation. Id. at 5. Then the opinion recited the law that contract terms are to be given their ordinary meaning, and when the terms of a contract are clear, the intent of the parties must be ascertained from the contract itself. Id.

In one respect, this is not a particularly interesting opinion as it really is simply a question of contract interpretation. But the court held that the phrase "Courts of Los Angeles County, California” meant the Superior Court of California, Los Angeles County. Id. at 8. In fact, the opinion also reasoned that it was required to make this holding because the 9th Circuit had adopted the interpretation that “courts of' a state” limits jurisdiction to state courts, but specification of “courts in' a state” includes both state and federal courts. Id. 8-9.

In legal lore, the interpretation of contracts has sometimes come down to the placement of commas. Here, it was the use of a preposition.

The Plaintiff next argued that some of its claims for fraud were outside of the scope of the guaranty. Id. at *10. I.e., that the fraud claims the Plaintiff was raising were not governed by the forum selection clause in the guaranty. Id.

Here, the court recited the rule that when a forum selection clause is drafted broadly, it reaches every dispute between the parties having a significant relationship to the contract and all disputes having their origin or genesis in the contract. Id. at 11. The court said the allegations "need only touch on matters covered by the contract.” Id. It then concluded that the forum selection clause, which applied to "any action or proceeding," was broad enough to encompass the legal claims that were directly stemming from the guaranty. Id. at 12.

With the normal caveats that nothing in this blog should be considered legal advice, I think the practice point for lawyers and clients is to scrutinize this section in their agreements. Cynically, but with some empathy for their real-world case burden, I think most courts will tend to favor interpretations that cause the case to be decided elsewhere. Your fate may be sealed by the simple difference of an ‘of’ versus an ‘in.’

Heads the Landlord Wins, Tails the Tenant Loses

The guarantor in the case above achieved a rare victory over a commercial landlord in California. A win is a win, even if it is temporary. In my career, among my matters, I do count two undeniable, unconverted victories over commercial landlords in California. One rested upon perhaps ten words in the lease, and the other rested upon common law.

A much more common scenario in the small and medium-sized business community is when a client wants to get out of a lease, and it is much more complicated than they thought. They typically send me a PDF of the lease that they “negotiated” without counsel. Often, the lease is the form lease, or a near derivation of it, of an industry association for commercial landlords. Every provision and every definition is one-sided. Sometimes, even the client’s principal has signed a guaranty. The guaranty is for the full term of the lease and may extend through the second coming of Christ. Or eternity, whichever is shorter. And so forth.

The second case of this blog illustrates the point that I have to make to these clients. And that is that the law with respect to commercial leases is rarely forgiving to the tenant. Certainly, it is vastly different from the context of a residential lease.

In 73 Mkt. St., LLC v. 73 Mkt. Lessee LLC, 2025 Cal. Super. LEXIS 49982, at 1, the lease in question was for a twenty-one-year term, beginning February 12, 2019, and ending on January 31, 2040. Tenant failed to pay rent in December 2024, January 2025, and February 2025. Id. at 1-2.

Landlords do not like it when tenants fail to pay rent, and this one apparently did not like it either. On March 18, 2025, the landlord served a Three-Day Notice, which is a requirement prior to filing an unlawful detainer action. Id. at *2. The tenant neither paid nor vacated the premises within three days, and the landlord filed an unlawful detainer action. Id. As of the date the Three-Day Notice was served, the tenant owed the landlord $186,313.04, representing rent for the period from December 2024 through February 2025. Id.

The tenant answered the complaint with affirmative defenses. Id. Chiefly, the tenant alleged that the landlord had failed to maintain the premises and provide necessary utilities. Id. The tenant also alleged that the amount of rent had been misstated in the three-day notice. Id.

The landlord filed a motion for summary judgment. Id. at 3. By the time of the hearing, the tenant had essentially conceded on the issue of the maintenance of the premises. Id. at 6. A cynic might suggest these had never been a real concern. Therefore, the final issue remaining then was the misstatement of the rent owed in the three-day notice. Id. at *7.

The court found that the amount stated was correct. Id. But more interesting, from my vantage point, is the additional law cited by the court on this issue. Id. The opinion found that:

“Even if the amount on the Three-Day Notice was incorrect, that does not render the Three-Day Notice legally void. This is a commercial lease. While residential leases require a landlord to provide the precise amount of rent due, commercial leases have a far less stringent standard. The landlord may prevail in an unlawful detainer action even if the demand for rent is incorrect so long as the amount stated in the notice is "clearly identified as an estimate.” Id. at *7-8.

The court further stated that under California law, a rebuttable presumption that a demand by a landlord is "reasonably estimated" if there is a "judicial determination that the amount claimed did not exceed the actual amount due by more than 20 percent.” Id. at *8.

The court then reviewed the facts of the instant matter. Id. The tenant’s claim was that the proper rent was $167,752.29, and the Three-Day Notice reflected $186,313.04. Id. at 8-9.  The court found that this difference of $18,569.75 was only a 10% difference. Id. at 9. Therefore, the tenant could not rebut the presumption that the Three-Day Notice reflected a reasonable demand. Id.

Given the amounts at stake, it is apparent that neither party here is “the little guy.” And, having represented commercial landlords in my practice, I have at least some leanings toward the landlord's position. The tenant in this case stopped paying rent in December of 2024, and the date of this ruling was September 2, 2025. I.e., the landlord has already been without rent for nine months. On the other hand, I think of the minor delays by tenants everywhere that lead to late fees or interest. Against that context, a 20% deviation allowed in the “estimate” on the Three-Day Notice seems quite generous to commercial landlords.

And I suppose that’s the reason I included this case as an exemplar in this blog. Previously, I have called attention to scenarios where small and medium-sized enterprises may consider avoiding the use of counsel (see, e.g., here). But I think most prospective tenants should engage counsel when considering commercial leases in Southern California. The terms presented are woefully one-sided. Even changing one or two provisions in the lease can give the tenant more leverage in a termination scenario. And if the matter ends up in court, the commercial tenant can expect little of the natural sympathies that flow from the court to the residential tenant.

Exercising Dissolution Rights? Not a Basis for Breach of Contract

The last case I am reviewing in the set of cases from the third quarter of 2025 involves a somewhat tricky issue for the uninitiated. By and large, members of a limited liability company in California have a broad latitude in the provisions that they include in their operating agreement. However, California law provides that certain members' rights cannot be modified or waived by the operating agreement. 

That interplay of the law and the operating agreement was at play in Meads v. Driggers, 337 Cal.Rptr. 3d 7. For many years, the company's original owners operated a business that included liquor sales, a service station, and a convenience store. Id. at 10. They ran the business as a sole proprietorship and lived off the income it generated. Id.

In 2010, the original owners were approached and solicited to expand the business by joining forces with an individual whom I will refer to as the partner. Id. The original owners contributed their existing business and its goodwill, and the partner contributed capital and his know-how. Id. Around this time, the arrangement was formalized with the creation of a California limited liability company. Id. The original owners and the partner entered into an operating agreement. Id. The operating agreement gave the original owners 49% of the profits and the new partner 51% of the profits. Id. The operating agreement was prepared by the partner's legal counsel, and the original owners signed it without seeking advice of counsel. Id. Pertinent for the later analysis here, among other things, the operating agreement contained the following provision:

“The LLC shall be dissolved only upon the occurrence of one of two ‘Events of Dissolution’: (1) The vote of the Members to dissolve the LLC, or (2) The bankruptcy or insolvency of the LLC.” The operating agreement also stated that: “Notwithstanding anything in Cal. Corp. Code §§ 17350 and 17351 to the contrary, the foregoing Events of Dissolution are the exclusive events which may cause the LLC to dissolve. Each of the Members hereby agrees not to take any other voluntary action that would cause the LLC to dissolve.” Id. at 11.

Presumably, things worked out well for some period of time. If you have a lawyer friend who is curmudgeonly and often negative in their outlook, I blame caselaw. There are no legal opinions documenting the times when everyone makes a lot of money, sells the business, and rides off into the sunset. And sure enough, here, things soured. A decade later, the original owners contended that the partner had improperly diverted monies from the business that should have been considered profits and split accordingly. Id. at 10.

So, in July 2022, the original owners filed a lawsuit against the partner and the LLC that included a cause of action seeking to dissolve the LLC. Id. All pretty simple stuff so far. Where it gets interesting from my perspective is that the partner filed a counterclaim for breach of contract and breach of fiduciary duty. The partner claimed that by filing the lawsuit for dissolution, the original owners violated the operating agreement. Id. at 11. Specifically, the partner alleged the original owners violated the provision to “not to take any … voluntary action that would cause the LLC to dissolve.” Id.

The original owners filed a motion to strike the cross-complaint pursuant to the anti-SLAPP statute, arguing it arose out of their right to petition the government for redress of grievances. Id. The original owners argued that the partner could not demonstrate a probability of prevailing because the provision prohibiting the taking of voluntary actions of dissolution was unlawful and/or violated public policy. Id.

The trial court ruled in favor of the original owners, and the appeal followed. Id. at 11.

The appellate court began by reviewing what constituted a cause of action under the Anti-Slapp statute. Id. at 11-12. The Code of Civil Procedure section 425.16 provides, “A cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.” Id. Courts frequently refer to acts in furtherance of a person’s right of petition or free speech as “protected activity.” Id. at 12.

According to the opinion, in order to prevail on the motion, the original owners would need to show 1) that the allegations of the partner in the cross-complaint arise from the protected activity of the original owners; and 2) that the claim has minimal merit. Id.

Here, the court found that the claims of the partner of the cross-complaint did arise from protected activity – “Put another way, “but for” the original owners’ claim for judicial dissolution, there would be no basis for the cross-complaint, and the cross-complaint “therefore falls squarely within the ambit of the anti-SLAPP statute’s ‘arising from’ prong.” Id. at 13.

Next, the court found that the provision in the operating agreement on which both claims were unlawful, void, or otherwise violated public policy and is thus unenforceable. Id. at 13-14. The court found that under the Beverly-Killea Act (the predecessor to California’s current law on limited liability companies), the provision on judicial dissolution could only be varied by the operating agreement to the extent expressly permitted by the Beverly-Killea Act. Id. at 14. And since former section 17351 does not provide (expressly or otherwise) for the variance of its provisions, it effectively prohibited members of a limited liability company from bargaining away their right to seek judicial dissolution. Id. at 14-15.

In essence, since the operating agreement could not lawfully cause members to waive their right to seek judicial dissolution, the original owners had a substantive defense to the partner’s cross-complaint. Id. at 15. Accordingly, the cross-complaint lacked the requisite minimal merit because the prohibition on dissolutions, on which the cross-complaint was based, violated the law and was void and unenforceable. Id. at 16.

This case is a little limited to its facts insofar as the Beverly-Killea Act has been replaced. Still, many limited liability companies continue to operate under operating agreements drafted during that time, and for them, the old law still applies. On the planning side, the practice point is pretty clear. Do not include provisions in the operating agreement that are forbidden by the California Corporate Code. Next, with all the caveats that this does not constitute legal advice, if you have an operating agreement from that time that contains prohibitions against judicial dissolution, you may wish to consider updating your agreement. Note: I said consider.  Though lawyers always encourage action with the advice of counsel, in this instance, it’s especially true. In 2014, the Beverly-Killea Act was replaced by the California Revised Uniform Limited Liability Company Act, and several changes occurred. Still, some of these sticky situations are better approached when there’s still hope that all parties will ride off into the sunset.