Judge Gregory Keosian, Case Number: 20STCV41618, Date: 2023-10-26 Tentative Ruling

Plaintiff Hooman Enterprises, Inc.’s Motion for Summary Adjudication is GRANTED.

Defendant Long Beach Industrial Partners, LLC (Defendant) objects to the declarations of Anne Redcross Beehler and Hooman Nissani submitted with the motion for summary adjudication. Defendant’s objections to the Nissani declaration are not material to the resolution of the motion. (See Code Civ. Proc. § 437c, subd. (q).) The objections to the Beehler declaration are OVERRULED.

Plaintiff’s objections to the declaration of John L. Pagliasotti as a whole are OVERRULED, as Pagliasotti may testify as to industry custom in relation to commercial lease options. “Evidence of custom or standard practice is admissible to interpret the terms of a contract and to imply terms when no contrary intent is apparent from the other terms of the contract.” (Midwest Television, Inc. v. Scott, Lancaster, Mills & Atha, Inc. (1988) 205 Cal.App.3d 442, 451.) Objections No. 18–23 to the Pagliasotti declaration are SUSTAINED, as his opinions on the interpretation of the addendum are without foundation, since he had no role in the drafting of the addendum. Plaintiff’s objections to the declarations of Enrique Vassallo, Jason Schirn, Robert Neal, and Jennifer Penney are OVERRULED.

A party may move for summary judgment “if it is contended that the action has no merit or that there is no defense to the action or proceeding.” (Code Civ. Proc. § 437c, subd. (a).) “[I]f all the evidence submitted, and all inferences reasonably deducible from the evidence and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law,” the moving party will be entitled to summary judgment. (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) A motion for summary adjudication may be made by itself or as an alternative to a motion for summary judgment and shall proceed in all procedural respects as a motion for summary judgment. (Code Civ. Proc. § 437c, subd. (f)(2).)

The moving party bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact, and if he does so, the burden shifts to the opposing party to make a prima facie showing of the existence of a triable issue of material fact. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850; accord Code Civ. Proc. § 437c, subd. (p)(2).) Plaintiffs moving for summary judgment may meet their initial burden by “prov[ing] each element of the cause of action entitling the party to judgment on the cause of action.” (Code Civ. Proc. § 437c(p)(1).)

Once the plaintiff has met that burden, the burden shifts to the defendant to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. (Code Civ. Proc. § 437c(p)(1).) The defendant may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto. (Code Civ. Proc. § 437c(p)(1).) To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

Plaintiff Hooman Enterprises, Inc. (Plaintiff) moves for summary adjudication of its third and fourth cause of action in the Complaint for declaratory and injunctive relief and specific performance, on the allegation that Defendant Long Beach Industrial Partners, LLC (Defendant) failed to honor the option contained in the lease agreement (Lease) between the parties.

To obtain specific performance after a breach of contract, a plaintiff must generally show: “(1) the inadequacy of his legal remedy; (2) an underlying contract that is both reasonable and supported by adequate consideration; (3) the existence of a mutuality of remedies; (4) contractual terms which are sufficiently definite to enable the court to know what it is to enforce; and (5) a substantial similarity of the requested performance to that promised in the contract.

Plaintiff’s argument is based on Paragraph 54 of the Lease Addendum (Addendum), executed contemporaneously with a form lease drafted by the AIR Commercial Real Estate Association, which provides that between May 1 and October 31, 2019, Plaintiff could exercise an option to purchase the leased property for $6 million. (Motion Exh. A7, ¶ 54.)

The interpretation of a contract involves “a two-step process: ‘First the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine “ambiguity,” i.e., whether the language is “reasonably susceptible” to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is “reasonably susceptible” to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the contract. [Citation.]’ (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165, 6 Cal.Rptr.2d 554.) The trial court's determination of whether an ambiguity exists is a question of law, subject to independent review on appeal. (Ibid.) The trial court's resolution of an ambiguity is also a question of law if no parol evidence is admitted or if the parol evidence is not in conflict. However, where the parol evidence is in conflict, the trial court's resolution of that conflict is a question of fact and must be upheld if supported by substantial evidence. (Id. at p. 1166, 6 Cal.Rptr.2d 554.) Furthermore, ‘[w]hen two equally plausible interpretations of the language of a contract may be made ... parol evidence is admissible to aid in interpreting the agreement, thereby presenting a question of fact which precludes summary judgment if the evidence is contradictory.’

Defendant in opposition argues that Plaintiff could not exercise the option to buy the subject property because it was not in full possession of the property during the option period. It is undisputed that Plaintiff subleased the property. (Defendant’s Objections to the Separate Statement of Undisputed Material Facts (DUMF) No. 42.) Defendant points to a provision in the lease, Paragraph 39.2, which states:

Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

This court declined to adopt Defendant’s interpretation of the contract in overruling its demurrer on January 10, 2022. The court ruled that it could not perform the full evidence-based inquiry into competing contractual interpretations at the pleading stage, and further noted that Defendant’s argument based on the above paragraph failed to account for the Addendum in which the option is set out and which contains terms inconsistent with paragraph 39.2 of the Lease.

The Addendum states in its preamble, “In the event of any inconsistency or contradiction between the terms and conditions of this Addendum and the terms and conditions of the Lease, the terms and conditions of this Addendum shall prevail.” (Motion Exh. A7.) Paragraph 54 of the Addendum states, “As a condition of this Lease, Lessee shall have an option to purchase the Premises (the “Option”) on the terms and conditions in the attached AIR Form Standard Offer, Agreement, and Escrow Instructions for Purchase of Real Estate.” (Motion Exh. A7, ¶ 54.) The Addendum lists the attached purchase agreement as describing the terms, and does not mention or expressly incorporate Paragraph 39.2 of the Lease. The Addendum states that the option can be exercised “[p]rovided Lessee is not in any current monetary default of the Lease.” (Ibid.) Finally, Paragraph 54 states that “the Option may be assigned to any of Lessee’s assignees.” (Ibid.) The Addendum expressly permits Plaintiff to sublease the premises. (Motion Exh. A7, ¶ 58.)

The Lease and Addendum are not susceptible to the Defendant’s interpretation. Defendant relies on Paragraph 39.2, which is a provision in a form contract that contemplates only a hypothetical option in general terms. The Addendum and the incorporated purchase agreement set out the actual terms of the option agreement between the parties. Paragraph 39.2 prevents a lessee from assigning the option and requires the original lessee to be in full possession of the premises for any option to be in effect. Paragraph 54 contradicts this provision, not only by the omission of any full-possession requirement, but by the express sanction it gives the lessee to assign the lease and the option to an assignee.

The two provisions are thus fundamentally in conflict. Defendant does not offer a good reason why the contract would require the original lessee to remain in full possession of the premises in order for an assignee to exercise the option, and Defendant cannot argue that Paragraph 39.2 requires the assignee to be in full possession of the property, since Paragraph 39.2 is intended to exclude assignees from the option full stop, and no provision in the Addendum requires it. Defendant’s argument that full possession is the only consideration for granting the option is unpersuasive, as the consideration for the option was Plaintiff’s agreement to pay rent on the property and abstain from monetary default through the option term. (Opposition at p. 16.) This is what is meant when Paragraph 54 sets out the option “[a]s a condition of this lease.” (Motion Exh. A7, ¶ 54.)

The extrinsic evidence cited by Defendant does not aid its interpretation. Defendant points to efforts made by Plaintiff to relocate subtenants from the premises, ostensibly in implicit acknowledgement of the Lease’s requirement that Plaintiff be in full possession of the premises in order to exercise the option. (Opposition at p. 19.) Defendant neglects the timing of these efforts — after Plaintiff had attempted to exercise the option, and Defendant had notified Plaintiff of its rejection on the grounds (and for the first time) that Plaintiff was not in full possession of the premises. (DUMF No. 75, 79, 128–149. Defendant contends in opposition that it had no duty to notify Plaintiff of its full-possession interpretation of the Lease. (Opposition at pp. 22–23.) But this mischaracterizes the argument. Defendant’s belated advancement of the position counts against its interpretation, and Plaintiff’s efforts to conform the premises to Defendant’s belated understanding does not count against their interpretation.

Rather, the extrinsic evidence uniformly favors Plaintiff’s interpretation. Plaintiff presents internal emails of Defendant’s principals — the individuals who signed the Lease and Addendum — expressing frustration with the profits being earned by Plaintiff on its subleases on the property, while simultaneously noting that Plaintiff had an option to purchase the property for $6 million, without mentioning paragraph 39.2 or a purported termination of the option resulting from Plaintiff’s loss of possession. (Motion Exhs. A8, A9.) Plaintiff presents evidence that Defendant in other instances[1] used a standard AIR form lease addendum when incorporating options to purchase into lease agreements, and that form agreement includes no preamble indicating that the addendum’s terms shall control over the lease, and further, expressly incorporates the provisions of Paragraph 39 of the form lease. (Motion Exh. A3.) No such incorporation took place in the Addendum.

Accordingly, Plaintiff was not required to be in full possession of the premises when it exercised the option, and it is entitled to specific performance of the option agreement.

Defendant in opposition argues that, notwithstanding the applicability of the full-possession provision, Plaintiff was in breach of the contract by virtue of its performing unpermitted construction work on the property. (Opposition at pp. 11–13.) Alternately, Defendant asks for a continuance to allow for discovery into whether such work has been done. (Ibid.)

Defendant’s argument is unpersuasive. It cites the provision of the Lease stating that the lessee “shall have no right to exercise an Option” during, among other circumstances, “the time Lessee is in Breach of this Lease.” (Motion Exh. A5, ¶ 39.4.) Defendant then cites Paragraph 13.1, subd. (c) of the Lease, identifying as a default “an illegal activity on the Premises by Lessee.” (Motion Exh. A5, ¶ 13.1, subd. (c).)

Defendant’s argument fails for a number of reasons. First, the Lease does not describe all illegal activity as a breach. The full provision describes as a breach a list of activities, including “illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee.” (Motion Exh. A5, ¶ 13.1, subd. (c).) Defendant does not contend that any unpermitted construction continued for a period of 3 business days after Plaintiff was give written notice. Additionally, the Addendum permits the option to be exercised “[p]rovided Lessee is not in any current monetary default of the Lease,” indicating that the absence of a monetary default is the sole condition precedent. (Motion Exh. A7, ¶ 54.) Even if Plaintiff had performed unpermitted construction, this would provide no basis to deny the motion.

[1] The lessors in the original lease were Pacific Industrial Partners, LLC, and SoCal Industrial Partners, LLC, and the lease was signed by Robert Neal and Jason Schirn. (Motion Exh. A5.) Title was transferred to Defendant in 2018. Defendant does not dispute that it is “an entity within the Pacific Industrial Partners umbrella.” (DUMF No. 1.)