Judge: Jon R. Takasugi, Case: 21STCV13615, Date: 2023-08-22 Tentative Ruling

Case Number: 21STCV13615    Hearing Date: August 22, 2023    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Plaintiff’s motion for summary adjudication is GRANTED.

            On 4/9/2021, Plaintiff Ave I Group, LLC (Plaintiff) filed suit against Equity Partners, LTD and Christopher Lee, alleging: (1) breach of lease and (2) breach of guaranty of lease.

Defendants assert a Cross-Complaint for: (1) Breach of Lease; and (2) Detrimental Reliance.

Now, Plaintiff/Cross-Defendant (Plaintiff) moves for summary adjudication of the issue of reformation, and Defendants/Cross-Complainants (Defendants) claim for detrimental reliance.

Factual Background

This action involves two companion leases (the Leases) in a brand new mixed-use property located at 219 Avenue I, Redondo Beach, CA 90277, called “The Oshens” (hereinafter the Property). Both of the leases were negotiated at the same time by the same agents and brokers. The dispute concerns whether or not there it was mistake (whether unilateral or mutual) that the Lease for Unit 101 provided it was to commence the “earlier” of May 1, 2020, or the date that Plaintiff obtained a “Conditional Use Permit” from the City of Redondo Beach (the City) for the occupancy of the premises, instead of the “later” of May 1, 2020 or Lessor obtaining a Certificate of Occupancy, as provided in the Lease for Unit 103.

Discussion

I.                   Reformation

Plaintiff argues that it is entitled to reformation of the Lease for Unit 101 because it was intended to provide a commencement date of the “later of May 1, 2020 or Lessor obtaining a Certificate of Occupancy,” and it was mutual mistake that led it to improperly define the commence date as the earlier of the two events.  

            After review, the Court agrees that reformation is appropriate here.

            As a preliminary matter, Defendants argue that, based on the Leases’ integration clause, Plaintiff cannot rely on drafting evidence to show what the parties intended the commencement date language to be: “the Leases were intended to be “a final expression of their agreement with respect to the terms included therein,” and further the Leases were intended to be “a complete and exclusive statement of the terms of the agreement.” CCP § 1856(d).” (Opp., 12: 22-24.)

            However, while the parol evidence rule generally prohibits the introduction of extrinsic evidence to vary, alter, or add to the terms of an integrated written agreement, “[w]here a mistake…is put in issue by the pleadings,” the parol evidence rule “does not exclude evidence relevant to that issue.” (CCP § 1856, subd. (e); Reply, 8:18-23.) As such, the Court may consider parol evidence when determining whether or not a mistake was made in the drafting of the agreement.

            Here, Plaintiff submitted evidence that:

-         Plaintiff is the developer and owner of the Property. Plaintiff hired Sam Aaron of CBRE on February 24, 2020, to list the commercial units in the Property for lease. (UMF ¶¶ 1-2.)

-         On or about, March 21, 2020, Mr. Aaron received a message from Steve Chelebian, a real estate broker representing Defendants. (UMF ¶ 3.)

-         The parties’ brokers, Mr. Aaron and Mr. Chelebian, entered into negotiations, and Mr. Chelebian subsequently submitted revised offer letters for Units 101 and 103. Mr. Aaron forwarded to Ave I’s principals, Fred Mir and Marjan Adasha. (UMF ¶¶ 6-7.)

-         Ms. Adasha responded to the offers by asking Mr. Aaron to address the following clarification with Steve Chelebian regarding the commencement date, and she requested the following language for both proposed leases be added:

Commencement date is from Lessor obtaining certificate of occupancy. In the event Lessor does not receive its certificate of occupancy on or before May 1st, 2020 the rent shall extend till the date that the lessor obtains the Certificate of Occupancy.”

                                    (UMF ¶ 8.)

-         Because Unit 101 was originally permitted for use as a restaurant, Ms. Adasha asked Mr. Aaron to address with Steve Chelebian the need to obtain a conditional use permit (“CUP”) for Unit 101 to allow it to be used as a law office. Accordingly, Ms. Adasha asked that any proposed offers to lease contain the following language:

In addition, This agreement is contingent upon Lessor obtaining Conditional Use Permit from City of Redondo Breach planning department for the use of Law Office. In the event Lessor cannot obtain approval from the City of Redondo Beach for the premises to be used as a law office, Lessor shall provide written notice to Lessee within three (3) business days of the City of Redondo Beach’s decision, Lessee shall have the right to terminate the Lease, and Lessor shall refund to Lessee the Lessee payments and deposit. In the event of approval the lease term and agreement will be fully in effect.

                        (UMF ¶ 9.)

-         Mr. Chelebian’s revised offer letters for Units 101 and 103 that confirmed that the commencement date would be the later of May 1, 2020, or issuance of the certificate of occupancy for both leases. (UMF ¶ 10.)

-         Mr. Chelebian’s revised offer letters stated as follows for Units 101 and 103: “Commencement date is from Lessor obtaining certificate of occupancy. In the event Lessor does not receive its certificate of occupancy on or before May 1st 2020 the rent shall extend till the date that the lessor obtains the Certificate of Occupancy.” (UMF ¶ 11.)

-         After Mr. Aaron and Steve Chelebian confirmed the essential language of the proposed leases, including the “Commencement Date” to be triggered by the later of May 1, 2020, or the issuance of a CofO for the Property, Mr. Aaron’s office undertook to formal lease agreements consistent with the parties’ agreement. (UMF ¶ 13.)

-         Although the Leases would go through various revisions based on changes being requested by Defendants, the “Commencement Date” date for both leases was to remain the later of May 1, 2020, or the issuance of a CofO for the Property. (UMF ¶ 14.)

-         The Lease for Unit 103 accurately states the “Commencement Date” for the companion Leases as follows: “1.3 Term: five (5) years and zero (0) months (“Original Term”) commencing the later May 1, 2020 or Lessor obtaining Certificate of Occupancy for unit 103 at 219 Avenue I, Redondo Beach (“Commencement Date”) and ending … 5-years thereafter (“Expiration Date”).” (UMF ¶ 15.)

-         Although the Leases would go through various revisions based on changes being requested by Defendants, the “Commencement Date” date for both leases remained the later of May 1, 2020, or the issuance of a CofO for the Property. It was understood that the Leases for Unit 101 and 103 were to be identified. Mr. Aarron testified as follows:

o   Q.  But fair to say that prior to execution of the lease, Mr. Chelebian acknowledged that the language we can see in Exhibit 9, the lease for 103, should have been identical with the lease for unit 101, which we marked as Exhibit 8, correct?

o   A. Correct. That was the understanding is that these leases were supposed to be identical. Yeah, it was supposed to be on this exhibit, Exhibit 8, it’s supposed to say the same exact verbiage for that section as Exhibit 9. The unit number is supposed to be different, but they requested so many revisions that I guess this was an oversight that this language didn't get changed on this version when Daniela drafted it.

o   Q. So you would agree with me that the language we see in Exhibit 8 is a mutual mistake between the parties?

o   A. Yes, it was an oversight that this was not conformed to match Exhibit 9.

o   Q. Not to beat a dead horse, it was the understanding that the commencement date for both leases was going to be the later of May 1st, 2020, or the lessor obtaining the certificate of occupancy, correct?

o   A. Yes, that was the understanding by the tenant and landlord.

-         There was an understanding that the commencement date had to be the later of the two dates because it would be nonsensical for the lease to commence before the certificate of occupancy, which would actually allow Defendants to occupy the space, had been issued. Mr. Chelebian testified:

o   Q: First question, have you ever heard of the term “certificate of occupancy”?

o   A. Yes.

o   Q. Okay. So what is your understanding of a certificate of occupancy?

o   A. That means that you – I’m -- I don’t work for the City. I’m just going to give you the layman’s opinion, which I think basically everything has been cleared and you can occupy the property.

o   Q. Gotcha. During the lease negotiations for Units 101 and 103, do you recall having any discussions with Mr. Aaron regarding the need for a certificate of occupancy before the lease terms could commence?

o   A. I -- I believe so, because you can't -- why -- why start a lease if you can't occupy the property?

o   Q. Understood. And no disagreement here, but my question is more specific as far as what discussions, if anything, that you can recall with Mr. Aaron, prior to execution of the leases, regarding a certificate of occupancy for the property?

o   A. I'm not 100 percent sure on what I recollect, but I know that that was a topic of discussion that was important.

o   Q. Do you know how that issue was addressed, if at all, in the leases?

o   A. Well, there was -- looking at the lease that you previously showed me, there was a clause in there about a certificate of occupancy.

o   Q. Let me rephrase slightly. Do you recall -- and this is prior to execution of the leases. Do you recall the understanding that the leases would not commence until a certificate of occupancy was issued by the City of Redondo Beach?

o   A. That sounds about right.

(See Ex. “B” to AOE, Chelebian Depo at 75:22-77:9.)

-         As to the issue of whether or not there was a mistake in drafting the Lease for Unit 101,  Mr. Aaron testified:

o   Q. If you look at the LOI we just marked as Exhibit 15 and look at the rent commencement date, do you see that?

o   A. Yes, I do

o   Q. Would you agree with me that the language is similar or exactly the same?

o   A. Yes, it looks like copy paste.

o   Q. So would that confirm your recollection that you did communicate the requested change to the lease commencement date, and Mr. Chelebian accepted that and actually restated it in a letter of intent issued to you?

o   A. That he sent to me, yes.

o   Q. You see this letter of intent is for unit 101, correct?

o   A. Yes.

o   Q. That would have been the law office, correct?

o   A. Yes.

o   Q. If we go back to the law office lease, does that further confirm your understanding and Mr. Chelebian's understanding that the lease language ultimately entered into the lease was incorrect?

o   A. It was incorrect verbiage. This was supposed to be copied from this LOI into the lease draft, and I believe it was Daniela that drafted the lease, and the verbiage wasn't correct in the draft she produced.

o   Q. A simple mistake?

o   Yeah, I would call it an oversight.

(See Ex. “B” to AOE, Aaron Depo at 84:3-85:9.)

            In opposition, Defendants argue that the initial offer contained in the initial Letters of Intent for both Leases included the language that the “earlier of May 1st Tenant takes possession.” (RUMF ¶ 11.) However, Defendants do not submit any evidence which contradicts the evidence of the subsequent redrafts. The fact that the initial offer contained the “earlier” language does not support a reasonable inference that the multiple intervening drafts which expressly altered that language to “later” did not constitute an intent to make the commencement date the “later” of the two events. Indeed, Defendants essentially admit that the contract language should have been “later” by arguing that the lease language was the result of Plaintiff’s unilateral mistake. 

The purpose of reformation is to correct a written contract that does not accurately and properly reflect the parties’ mutual agreement. (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524.) The “classic” type of case calling for reformation is one where “a contract is formed, but a provision of the writing that is executed, through mistake such as a scrivener’s error, contradicts the terms to which the parties agreed. In such a case, upon evidence of the actual agreement a court is empowered to correct the error by striking the mistaken language in the instrument and inserting appropriate language.” (Pacific Gas & Electric Co. v. Super. Ct. (1993) 15 Cal.App.4th 576, 593, abrogated on differed grounds in Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362; see also Mills v. Schulba (1950) 95 Cal.App.2d 559, 561 [“Our courts have repeatedly held that the mistake of a draftsman is a good ground for the reformation of an instrument which does not truly express the intention of the parties.”].)

Here, the Court finds reformation appropriate under a theory of either mutual mistake or unilateral mistake.

As for mutual mistake, the only reasonable inference supported by the evidence is that the parties were mutually mistaken as to the terms of the Lease for Unit 101. The parties’ negotiations, as well as the offer letter issued by Defendants’ broker, Mr. Chelebian, plainly reflected the understanding that the “Commencement Date” for both Leases would be the later of May 1, 2020, or Plaintiff obtaining the CofO for the Property. The correct language for the Leases can be found in the Lease for Unit 103, and there is no dispute that the leases were to be essentially identical in all terms, excepting the parties to the Leases and unit numbers. (Renshaw v. Happy Valley Water Co. (1952) 114 Cal.App.2d 521, 524-525.) (“By mutual mistake is meant a situation where both parties share the same misconception,” and it makes “no difference who wrote the instruments to be reformed so long as all parties were in common mistake as to what was contained therein.”)

As for unilateral mistake, Plaintiffs’ evidence establishes that Mr. Chelebian was Defendants’ agent throughout negotiations. His knowledge of the lease terms of the Leases are imputed to Defendants. (“A principal is chargeable with and is bound by the knowledge of, or notice to, his agent received while the agent is acting within the scope of his authority and which is with reference to a matter over which his authority extends.”) (Columbia Pictures Corp. v. De Toth (1948) 87 Cal.App.2d 620, 430.) Given the knowledge imputed to Defendants from their broker, Defendants either knew or should have known that language for the Lease of Unit 101 was incorrect. (Lemonge Elc. v. San Mateo County (1956) 46 Cal.2d 659, 663-664, noting that “[r]eformation may be had for a mutual mistake or for the mistake of one party which the other knew or suspected….”

Moreover, the Court does not find any basis to support Defendants’ claim that reformation of the lease would render the Leases illusory. The fact that a contract is based on an exchange of future performance does not render an agreement illusory, because “where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.” (Bleecher v. Conte (1981) 29 Cal.3d 345, 350351; Reply, 7:26-8:2.)

Based on the foregoing, Plaintiff’s motion for summary adjudication as to the issue of reformation is granted.

II.                Detrimental Reliance 

Plaintiff argues that Defendants cannot establish this cross-claim because detrimental reliance is not a cause of action, and because they cannot show they relied on any promise other than those contained in the Lease.

As for the first contention, the Court agrees that detrimental reliance itself is not a cause of action, and that Defendants are, in substance, pleading a promissory estoppel cause of action. However, the Court agrees with Defendants that it is the substance of a claim, rather than the title affixed to the claim, that drives the analysis.

Here, Defendants’ claim is based on a contention that they relied upon Plaintiff’s assertion that they would deliver the Property when they each paid a deposit to their detriment, and that Defendants never received a permanent COO or the keys to the unit and as such found themselves to have paid deposits on offices they never receive. Defendants further argue that they lost viable months pending the satisfaction of the Plaintiff’s promise that never ripened and as such the time spent was to Defendants detriment.

In support, Defendants argue that they were made a “clear and unambiguous” promise to “deliver move-in ready units within [a] reasonable time….” However, the Leases established the “Commencement Date” as the later of the May 1, 2020, or the issuance of a CofO. Given that the Leases here were integrated, any such an alleged promises would be superseded by the Leases because “the terms contained in an integrated written agreement may not be contradicted by prior or contemporaneous agreements.” (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 344.)

Moreover, payment of the security deposit was mandated by the express terms of the lease. As such, Defendants have not submitted evidence of any detrimental reliance of a promise made separate and apart from the underlying Leases. (See Malmstrom v. Kaiser Aluminum & Chemical Corp. (1986) 187 Cal.App.3d 229, 318-319.)

Based on the foregoing, Plaintiff’s motion for summary adjudication of Defendants’ detrimental reliance cause of action is granted.

It is so ordered.

Dated:  August    , 2023

   Hon. Jon R. Takasugi
   Judge of the Superior Court

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