CHAVEZ, J.
The issue presented in this case is whether a bankruptcy estate's assignment of an unexpired lease included an unscheduled prepetition claim for breach of a right of first refusal under the lease. The assignee of the lease, plaintiff and appellant Broadway Victoria, LLC (Broadway), contends the assignment included such a claim and that it can assert that claim against defendant and respondent Elixir Industries (Elixir). Broadway appeals the summary judgment entered in favor of Elixir in this breach of contract action.
We affirm the judgment.
Elixir owned real property located in Gardena, California (the property) that it leased to Lorber Industries of California (LIC) pursuant to the terms of an industrial ground lease. The lease included a series of addenda paragraphs, one of which, paragraph 56, provided for a "right of first refusal to purchase." Paragraph 56 prohibited Elixir from selling the property without first giving LIC prior written notice. It also accorded LIC a period of 10 business days following receipt of such notice to exercise a right to purchase the property on the same terms and conditions.
Elixir sold the property to Sahm LLC in August 2004, without providing LIC the written notice required under paragraph 56 of the lease. Elixir notified LIC in February 2005 to begin paying rent on the property to Sahm.
In February 2006, LIC filed a petition for relief under Chapter 11 of the Bankruptcy Code. As part of its bankruptcy filing, LIC provided the bankruptcy court and its creditors with schedules of its assets and liabilities. Those schedules did not include any cause of action against Elixir for breach of the right of first refusal.
In June 2006, LIC filed a motion in the bankruptcy court for an order authorizing LIC, as the debtor in possession, to assume the lease and to assign it to Sahm or to the highest bidder. Broadway, a company affiliated with LIC, was the successful bidder for the lease. The bankruptcy court granted LIC's motion and issued an order authorizing LIC's bankruptcy estate to assume the lease and to assign it to Broadway. Broadway purchased the lease from the bankruptcy estate at a price in excess of $1 million.
In September 2008, Broadway learned that Elixir no longer owned the property because it had sold the property to Sahm.
Broadway filed the instant breach of contract action against Elixir, alleging that Elixir failed to give LIC notice when Elixir sold the property to Sahm in 2004 and that such failure was a breach of paragraph 56 of the lease. Broadway alleged that it is the owner of the breach of contract claim because it had purchased from LIC's bankruptcy estate all right, title, and interest in the lease, including the accrued claim against Elixir for breach of the lease.
Elixir moved for summary judgment on the ground that the bankruptcy estate's sale of the lease to Broadway did not include any cause of action against Elixir. Elixir argued that LIC and Broadway knew that the breach of contract claim existed at the time Broadway purchased the lease from the bankruptcy estate but neither sought bankruptcy court authority to assign or sell such claim to Broadway.
Broadway opposed the motion, arguing it had acquired the breach of contract claim as an incidental right to the lease assigned to it in the bankruptcy court proceeding. Alternatively, Broadway argued that neither LIC nor Broadway knew that the cause of action existed because Elixir never provided written notice of the sale as required by the lease. Broadway maintained that Elixir's failure to provide the notice estopped it from disputing Broadway's right to maintain the breach of contract action.
In reply, Elixir argued that Broadway had failed to meet its burden of establishing assignment of the breach of contract claim during the bankruptcy proceeding. Elixir conceded that neither Broadway nor LIC knew that a breach of contract claim existed at the time the bankruptcy court authorized assignment of the lease to Broadway. Elixir argued, however, that LIC's and Broadway's admitted ignorance of the claim precluded Broadway from establishing any intent to assign the claim during the bankruptcy court proceeding. Elixir further argued that under the terms of the lease, the right of first refusal was personal to LIC and not assignable.
Broadway urged the trial court to disregard Elixir's argument that the right of first refusal was not assignable under the terms of the lease because Elixir had failed to raise that argument in its moving papers. Alternatively, Broadway requested an opportunity to brief the issue. The trial court granted Broadway's request and ordered supplemental briefing as to whether the right of first refusal could be transferred with the assignment of the lease, and whether the breach of contract claim remained in LIC's bankruptcy estate. Both parties submitted supplemental briefs on these issues.
Following a hearing at which the parties presented argument, the trial court granted the summary judgment motion. After judgment was entered in its favor, Elixir filed a motion for attorney fees and a memorandum of costs as the prevailing party under Civil Code section 1717. The trial court granted the motion, awarding Elixir $242,065.77 in fees and $6,126.57 in costs. This appeal followed.
Summary judgment is granted when a moving party establishes the right to entry of judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) "The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute. [Citation.]" (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar).)
A defendant moving for summary judgment bears the initial burden of proving that there is no merit to a cause of action by showing that one or more elements of the cause of action cannot be established or that there is a complete defense to that cause of action. (Code Civ. Proc., § 437c, subd. (p)(2); Cucuzza v. City of Santa Clara (2002) 104 Cal.App.4th 1031, 1037.) Once the defendant has made such a showing, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or as to a defense to the cause of action. (Aguilar, supra, 25 Cal.4th at p. 849.) If the plaintiff does not make such a showing, summary judgment in favor of the defendant is appropriate. In order to obtain a summary judgment, "all that the defendant need do is to show that the plaintiff cannot establish at least one element of the cause of action . . . . [T]he defendant need not himself conclusively negate any such element . . . ." (Id. at p. 853.)
On appeal from a summary judgment, an appellate court makes "an independent assessment of the correctness of the trial court's ruling, applying the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law. [Citations.]" (Iverson v. Muroc Unified School Dist. (1995) 32 Cal.App.4th 218, 222.)
The filing of a bankruptcy petition "creates an estate . . . comprised of . . . all legal or equitable interests of the debtor in property as of the commencement of the case." (11 U.S.C. § 541(a)(1).) Property of the bankruptcy estate includes all of the debtor's interests in any cause of action that has accrued before the filing of the bankruptcy petition. (Sierra Switchboard Co. v. Westinghouse Electrical Corp. (9th Cir. 1986) 789 F.2d 705, 707 (Sierra).)
An accrued cause of action is property of the estate even if the debtor was unaware of the claim when it filed for bankruptcy protection. (In re Lott (Bankr. E.D.Mich. 2005) 332 B.R. 292, 293 [a debtor's knowledge of the existence of a cause of action is not relevant to whether it becomes property of the estate]; Miller v. Pacific Shore Funding (Bankr. D.Md. 2002) 287 B.R. 47, 50 ["Property of the debtor does not escape the bankruptcy estate merely because the debtor is unaware of its existence"]; 5 Collier on Bankruptcy (16th ed. 2011) ¶ 541.07, p. 541.38 [property of estate "includes causes of action about which the debtor was not aware prior to the bankruptcy petition"].)
Upon the filing of a bankruptcy petition, the debtor is required to file a schedule of its assets and liabilities, including any causes of action. (11 U.S.C. § 521(l); Sierra, supra, 789 F.2d at p. 707.) An accrued cause of action becomes property of the bankruptcy estate, even if it is not scheduled as an asset of the estate. (11 U.S.C. § 541(a); Cusano v. Klein (9th Cir. 2001) 264 F.3d 936, 945.) Unscheduled claims remain in the bankruptcy estate unless abandoned by the trustee. (Alary Corp. v. Sims (In re Associated Vintage Group, Inc.) (Bankr. 9th Cir. 2002) 283 B.R. 549, 566, fn. 14; Cusano v. Klein, supra, at pp. 945-946.) "Lawsuits remain part of the bankruptcy estate unless the bankruptcy trustee abandons them." (Griffin v. Allstate Ins. Co. (C.D.Cal. 1996) 920 F.Supp. 127, 130.)
The parties do not dispute that any cause of action against Elixir for breach of the right of first refusal accrued before LIC filed its bankruptcy petition and therefore became property of LIC's bankruptcy estate. They disagree as to what happened to that cause of action during the bankruptcy proceeding.
Elixir contends the undisputed facts show that LIC's breach of contract claim was never assigned to Broadway and that there is no evidence of such an assignment. Broadway claims that a triable issue exists as to whether LIC's assignment of the lease during the bankruptcy proceeding included the breach of contract claim. Broadway further claims that a triable issue exists as to whether Elixir is barred from asserting that the breach of contract claim was not transferred to Broadway when the lease was assigned.
"The burden of proving an assignment falls upon the party asserting rights thereunder. [Citations.] In an action by an assignee to enforce an assigned right, the evidence must not only be sufficient to establish the fact of assignment when that fact is in issue [citation] but the measure of sufficiency requires that the evidence of assignment be clear and positive to protect an obligor from any further claim by the primary obligee [citation]." (Cockerell v. Title Ins. & Trust Co. (1954) 42 Cal.2d 284, 292.)
The nature of an assignment is determined by ascertaining the intent of the parties. (Cambridge Co. v. City of Elsinore (1922) 57 Cal.App. 245, 249.) "To `assign' ordinarily means to transfer title or ownership of property [citation], but an assignment, to be effective, must include manifestation to another person by the owner of his intention to transfer the right, without further action, to such other person or to a third person. [Citation.] . . . If from the entire transaction and the conduct of the parties it clearly appears that the intent of the parties was to pass title to the chose in action, then an assignment will be held to have taken place. [Citations.]" (McCown v. Spencer (1970) 8 Cal.App.3d 216, 225.)
Elixir met its initial burden in the motion for summary judgment by showing that there had been no assignment of the breach of contract cause of action. Elixir presented evidence that no cause of action against it was listed in any of the schedules of assets and liabilities LIC filed with the bankruptcy court and that neither LIC's motion to assign the lease, nor the bankruptcy court's order authorizing the assignment, referred to such cause of action.
Broadway failed to raise a triable issue as to whether the bankruptcy estate's assignment of the lease included the accrued cause of action for breach of the right of first refusal. It is undisputed that neither Broadway nor LIC knew that a claim for breach of the right of first refusal existed at the time the lease was assigned. Neither Broadway nor LIC could therefore have intended to include that claim as part of the lease assignment.
Broadway points out that LIC's motion to assign the lease expressly referred to "a right of first refusal to purchase the property throughout the lease term" as a material term of the lease. Broadway fails to demonstrate, however, how or why this reference raises a triable issue as to whether the accrued cause of action was included in the lease assignment. Whether the assignment included a right of first refusal that could be asserted against Sahm, the current lessor, should Sahm attempt to sell the property, is immaterial to determining whether the assignment included an accrued cause of action for a past breach.
Broadway failed to present any facts or evidence sufficient to raise a triable issue as to whether the lease assignment included an accrued cause of action for breach of the right of first refusal.
Broadway contends California law governs the bankruptcy estate's assignment of the lease, and that the accrued cause of action for breach of the lease was transferred to it as an incidental right by operation of California law. Broadway claims the judgment must be reversed because, as a matter of California law, it acquired the accrued cause of action as an incident to the lease.
Under California law, an unqualified assignment of a contract vests in the assignee "all rights and remedies incidental thereto." (National Reserve Co. v. Metropolitan Trust Co. (1941) 17 Cal.2d 827, 833 (National Reserve).) These incidental rights may "include certain ancillary causes of action arising out of the subject of the assignment and accruing before the assignment is made." (Ibid.) However, "[u]nless an assignment specifically or impliedly designates them, accrued causes of action arising out of an assigned contract . . . do not pass under the assignment as incidental to the contract if they can be asserted by the assignor independently of his continued ownership of the contract and are not essential to a continued enforcement of the contract. [Citations.]" (Ibid.) An accrued cause of action that "cannot be asserted apart from the contract out of which it arises or is essential to a complete and adequate enforcement of the contract . . . passes with an assignment of the contract as an incident thereof." (Ibid.)
Applying the foregoing legal principles to the instant case, Broadway has not established that it acquired the accrued cause of action for breach of the lease. Neither LIC's motion seeking bankruptcy court authorization to assign the lease nor the bankruptcy court order authorizing the assignment specifically or impliedly designate any accrued cause of action for breach of the lease. Both the motion and the order refer only to "that certain unexpired" lease for the property.
The accrued cause of action for breach of the lease can be asserted by LIC's bankruptcy estate even though it is no longer a party to the lease. The lease and the accrued cause of action for breach of the lease are separate assets of the bankruptcy estate, and the trustee or debtor in possession may assign the entire lease but retain the right to sue for past breaches. (Anheuser-Busch, Inc. v. Miller (Bankr. D.Mass. 1989) 99 B.R. 137, 139-140 [bankruptcy trustee may assign entire lease but retain claims for past due amounts under the lease].) Additional authorities are in accord. (29 Williston on Contracts (4th ed. 2003) § 74:6, p. 258 ["The assignment of rights under a continuing contract does not imply an assignment of rights of action for previous breaches of the contract"].)
Broadway argues that LIC's bankruptcy estate could not have retained the accrued cause of action for breach of the right of first refusal after assigning the lease because paragraph 39 of the lease prohibits such retention. Paragraph 39 of the lease contains a non-separation provision that prohibits any option granted under the lease, including the right of first refusal, from being separated from the lease. It states in pertinent part: "[N]o Option may be separated from this Lease in any manner, by reservation or otherwise." Paragraph 39, by its terms, applies only to an option granted under the lease and not to an accrued cause of action for breach of the lease. It does not preclude the bankruptcy estate from retaining an accrued cause of action for breach after assigning the lease.
The accrued cause of action for breach of the right of first refusal is not essential to a complete and adequate enforcement of the lease following the assignment. Broadway's ability to assert the accrued cause of action for breach of the right of first refusal against Elixir has no bearing on its ability to enforce the lease against Sahm, the current lessor.
Broadway failed to establish that it acquired the accrued cause of action for breach of the right of first refusal by operation of California law.
It is undisputed that the cause of action against Elixir for breach of the right of first refusal accrued prepetition and became property of LIC's bankruptcy estate. It is also undisputed that the cause of action against Elixir is not listed in LIC's schedule of assets and liabilities filed with the bankruptcy court. There is no evidence that the cause of action was abandoned by the bankruptcy trustee. The claim against Elixir therefore remains in LIC's bankruptcy estate. (11 U.S.C. § 554(d) ["property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate"]; Cusano v. Klein, supra, 264 F.3d at pp. 945-946.)
Broadway seeks to avoid this result by arguing that the claim against Elixir was not scheduled because LIC was unaware of the claim. LIC's ignorance of the claim did not preclude the claim from becoming property of its bankruptcy estate. An accrued cause of action is property of the bankruptcy estate even if the debtor was unaware of the claim when it filed for bankruptcy protection and did not schedule it for that reason. (Crum v. Tomlinson (In re Hettick) (Bankr. D.Mont. 2009) 413 B.R. 733, 752.) "Even a cause of action that the debtor, when filing the petition, did not know the law granted belongs to the estate. . . . Property of the debtor does not escape the bankruptcy estate merely because the debtor is unaware of its existence." (Miller v. Pacific Shore Funding, supra, 287 B.R. at p. 50.) Broadway failed to establish that the cause of action against Elixir, that neither it nor LIC knew existed, was conveyed out of the bankruptcy estate.
The trial court did not err by granting summary judgment in favor of Elixir.
Broadway raises several arguments under the general category of "estoppel." None of these arguments raises a triable issue precluding summary judgment in this case.
"A valid claim for equitable estoppel requires: (a) a representation or concealment of material facts; (b) made with knowledge, actual or virtual, of the facts; (c) to a party ignorant, actually and permissibly, of the truth; (d) with the intention, actual or virtual, that the ignorant party act on it; and (e) that party was induced to act on it. (13 Witkin, Summary of Cal. Law (10th ed. 2005) Equity, § 191, pp. 527-528.) There can be no estoppel if one of these elements is missing. (Id. at p. 528.)" (Simmons v. Ghaderi (2008) 44 Cal.4th 570, 584.)
Broadway claims that Elixir's failure to notify LIC when the property was sold to Sahm estops Elixir from denying that Broadway acquired the breach of contract claim. Broadway's admitted ignorance that a breach of contract claim existed when it purchased the lease from LIC's bankruptcy estate precludes it from establishing the element of reliance necessary to assert an equitable estoppel claim. The purchase price Broadway paid for the lease necessarily excluded any accrued but unknown claim against Elixir. Broadway purchased the lease, and not a cause of action that it did not know existed. It therefore received the full benefit of its bargain.
Broadway cites Gryczman v. 4550 Pico Partners, Ltd. (2003) 107 Cal.App.4th 1 as support for its argument that Elixir should be estopped from disputing Broadway's assertion of the breach of contract claim. That case, however, is inapposite. In Gryczman, the court applied the delayed discovery rule to toll the statute of limitations on a breach of contract claim. The defendant in that case sold property to a third party without notifying the plaintiff, who held a contractual right of first refusal on the property, and the court determined that plaintiff's cause of action did not accrue until it had discovered the breach. The instant case involves no statute of limitations issue, nor is there any issue as to when the claim against Elixir accrued.
Broadway contends a discovery sanction imposed on Elixir should have precluded Elixir from bringing its motion for summary judgment. The discovery sanction resulted in a deemed admission by Elixir that it had no evidence to support an affirmative defense asserted in its answer that Broadway lacked standing to sue Elixir for breach of contract. The trial court did not err by concluding that the discovery sanction had no bearing on Elixir's motion for summary judgment. The summary judgment motion is premised on Broadway's inability to establish an assignment of the claim against Elixir by LIC's bankruptcy estate, a necessary element of Broadway's breach of contract claim. It is not premised on an affirmative defense. Neither of the cases on which Broadway relies to support its argument, Kids' Universe v. In2Labs (2002) 95 Cal.App.4th 870, and Consumer Cause, Inc. v. SmileCare (2001) 91 Cal.App.4th 454, are authority for the proposition that a discovery order precluding a defendant from asserting certain affirmative defenses also precludes the defendant from challenging a plaintiff's ability to prove the elements of the plaintiff's claim.
Broadway's estoppel arguments provide no basis for reversing the summary judgment.
Broadway's sole basis for challenging the trial court's fee award is that a reversal of the judgment in Elixir's favor requires reversal of the fee award. Because there are no grounds for reversing the judgment, the fee award will remain intact.
The judgment is affirmed. Elixir is awarded its costs on appeal.
DOI TODD, Acting P. J. and ASHMANN-GERST, J., concurs.
