Judge Upinder S. Kalra, Case Number: BC691352, Date: 2023-06-23 Tentative Ruling

Plaintiff¿Tufeld¿Corporation (“Plaintiff”¿or “Tufeld”)¿is the owner and landlord of property consisting of a city lot located at 973-77 Wilshire Blvd., Beverly Hills, California (“Property”).¿Defendant Beverly Hills Gateway LP (“Defendant”¿or “BHG”)¿is the current tenant on the Property pursuant to a¿ground lease (“Ground Lease”) which was executed in 1960 between Tufeld and a former tenant Douglas Emmett Realty Fund 1997 (“Douglas Emmett”).

In 2003, Douglas Emmett assigned its interest to BHG as the sole lessee by a grant deed (“Grant Deed”), and Tufeld executed and recorded an estoppel statement acknowledging such assignment. The Ground Lease provides for a termination date of December 31, 2058, or approximately 98 ½ years from the date upon which the Ground Lease was made.¿¿

On May 24, 2007,¿Plaintiff¿and¿Defendant¿executed a written instrument (“the 2007 Amendment”) which states that the parties agreed to extend the term of the lease for an additional 65 years effective January 1, 2059.¿As such, the new termination date of the lease¿would¿be December 31, 2123.¿The 2007 Amendment therefore resulted in a lease term that was 163 years from the date of the Ground Lease and 116 years from the date of the 2007 Amendment. This¿lease term, however, allegedly conflicts with Civil Code section 718, which¿provides,¿in part,¿that “No lease or grant of any town or city lot, which reserves any rent or service of any kind, and which provides for a leasing or granting period in excess of 99 years, shall be valid.” (Civ. Code § 718.)¿

As¿such, on January 25, 2018,¿Plaintiff¿Tufeld¿filed a Complaint against¿Defendant¿BHG¿for:¿

(1) Declaratory relief pursuant to section 1060 and cancellation of written instrument Civil Code § 3412,¿

(2) Declaratory relief pursuant to section 1060 and cancellation of written instrument Civil Code § 3412, and¿

On April 27, 2018, this Court (Judge Raphael) sustained¿BHG’s¿demurrer to¿the Complaint as to¿the cancellation and quiet title claims, and¿overruled¿the¿demurrer¿as¿to declaratory relief (“April 27, 2018 Ruling”).¿As¿to the declaratory relief,¿Plaintiff¿seeks a judicial declaration that the 2007 Amendment is invalid and/or cancelled, and that the termination of the Ground Lease is December 31, 2058.¿(Compl., ¶¶ 10-14.)
¿¿

On November 7, 2018,¿Defendant¿BHG¿filed a Cross-Complaint against¿Tufeld¿for:¿

In its Cross-Complaint, BHG requests a¿judicial declaration that the lease, as amended by 2007 Amendment, is valid in its entirety through its express termination date of December 31, 2123.¿(Cross-Compl., ¶¶ 22-27.)

On February 4, 2019, the Court denied BHG’s¿motion for summary judgment to Tufeld’s Complaint, and overruled in part and sustained in part Tufeld’s demurrer to BHG’s Cross-Complaint (“February 4, 2019 Ruling”). On February 19, 2019, BHG filed the operative First Amended Cross-Complaint (“FACC”).

On March 2, 2020, the Court granted BHG’s motion for summary adjudication of the first cause of action in its FACC seeking declaratory relief that the term of the lease should run for at least 99 years from October 29, 2003. ¿

On July 2, 2020, the Court granted BHG’s motions in limine to exclude evidence pertaining to (1) the enforceability of the Ground Lease before October 29, 2102 and (2) unconscionability as a contract defense.

On January 2021, trial concluded, and issued a Statement of Decision on August 16, 2021. Both sides appealed.

On December 7, 2022, the Court of Appeal issued an Opinion, affirming in part, and reversing in part as it pertains to prejudgment interest only.

On May 10, 2023, Defendant filed a Motion for Award of Prejudgment Interest. Plaintiffs’ Opposition was filed on May 26, 2023. Defendant’s Reply was filed on June 5, 2023.

Civil Code section 3287, subdivision (a) provides, in relevant part, as follows: “A person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in the person upon a particular day, is entitled also to recover interest thereon from that day….” (Civ. Code, § 3287(a).) “In other words, prejudgment interest is awarded only when the sum is liquidated within the meaning of the statute.” (Duale v. Mercedes-Benz USA, LLC (2007) 148 Cal.App.4th 718, 728.) “Damages are deemed certain or capable of being made certain … where there is essentially no dispute between the parties concerning the basis of computation of damages if any are recoverable but where their dispute centers on the issue of liability giving rise to damage.” (Id. at p. 729.) The test for recovery of prejudgment interest is “whether defendant actually know[s] the amount owed or from reasonably available information could the defendant have computed that amount.” (Ibid. (emphasis in original) [internal citations omitted].) “[W]here the amount of damages cannot be resolved except by verdict or judgment, prejudgment interest is not appropriate.” (Ibid. [internal citations omitted].)

Civil Code section 3287, subdivision (b) provides that “[e]very person who is entitled under any judgment to receive damages based upon a cause of action in contract where the claim was unliquidated, may also recover interest thereon from a date prior to the entry of judgment as the court may, in its discretion, fix, but in no event earlier than the date the action was filed.” (Civ. Code, § 3287(b).) “By allowing an award of prejudgment interest, but only for a limited time period and only if the trial court finds it reasonable in light of the factual circumstances of a particular case, Civil Code section 3287, subdivision (b), seeks to balance the concern for fairness to the debtor against the concern for full compensation for the wronged party.” (Lewis C. Nelson & Sons, Inc. v. Clovis Unified School Dist. (2001) 90 Cal.App.4th 64, 69.)

Defendant Beverly Hills Gateway, L.P. moves for prejudgment interest of $484,123.75.

This Court previously issued an amended statement of decision, indicating that Defendant was owed restitution, but found that prejudgment interest was unavailable under Civil Code § 3287. However, after each party appealed, the Court of Appeal reversed as to prejudgment interest, indicating that the Court did not consider its “equitable discretion in deciding whether to award prejudgment interest.”

Defendant argues that the Court has discretion to award prejudgment interest pursuant to Civil Code § 3287. Prejudgment interest is appropriate in this matter because Defendant lost $484,615 between 2007 and 2021, and Plaintiff Tufeld “unjustly gained the use of that amount.” (Motion 14: 24-26.) Plaintiff was able to keep $1.5 million, and throughout the trial, Plaintiff maintained “baseless arguments” to ensure Defendant would default. Thus, the Constitutional rate of 7%, would be appropriate, starting from May 22, 2007, until August 25, 2021. Therefore, a prejudgment interest of $484,123.75 is appropriate

Plaintiff argues that the motion should be denied because awarding prejudgment interest would be inequitable. First, there is no precedent for awarding interest based on these circumstances. Second, nothing indicates that the $1.5 million paid was less than the value. Third, the restitution award was miscalculated and the prejudgment interest should be not be calculated on that error. The pro rata formula utilized by Judge Landin was incorrect, and while nothing can be done now, the Court “should take it into account in deciding whether it would be equitable to award prejudgment interest on the restitution award.” (Opp. 17: 6-8.) Further, the restitution award was disputed. Plaintiff then argues that if prejudgment interest is to be awarded, it should be from January 27, 2021.

Previously, the Court of Appeal in in this case determined that subdivision a of Civil Code § 3287 applies to damages, the court has discretion to award equitable prejudgment interest “as a component of restitution.” (Tufeld Corporation v. Beverly Hills Gateway, L.P. (2022) 86 Cal.App.5th 12, 33.) Here, the Court finds that prejudgment interest is appropriate. As a note, the Court finds Plaintiff’s argument concerning the restitution award unavailing. Whether the restitution award was sufficient has already been decided twice, once by this Court and once by the Court of Appeal, which affirmed the award of restitution. “The policy underlying an award of prejudgment interest is to make the injured party whole for the accrual of wealth that could have been produced during the period of loss.” (Espejo v. The Copley Press, Inc. (2017) 13 Cal.App.5th 329, 375.) Here, the facts indicate that Plaintiff accepted $1.5 million from Defendant, but Defendant did not receive what it bargained for. The Court of Appeal determined that restitution was proper. In Espejo, the Court stated:

“Well, the court's visceral reaction, and I think it's pretty obvious, is under the facts of this case, it would be inappropriate to not award the plaintiffs interest just because that's the way people get compensated. If you take their money or make them pay for something that they didn't have to pay for, they get interest for the money that they no longer have that they were entitled to.” In other words, plaintiffs were entitled to recover interest they could have earned on the class award had that money not been wrongfully withheld. The court's oral explanation of its discretionary decision to award prejudgment interest accords with the principle that prejudgment interest is a necessary component of restitution.

Here, the restitution award was based on Defendant’s loss of use of funds between the date they made the $1,500,000 payment, May 22, 2007, and the day the $484,615 judgment was awarded, August 25, 2021, because Defendant did not receive the benefit of its bargain with Plaintiff. Similarly, Defendant lost the opportunity to invest these funds. As such, based on Espejo, the Court exercises its discretion to award prejudgment interest as a component of restitution to make the Defendant whole. Civil Code § 3287(c) provides that the rate “shall not exceed 7 percent per annum.” Thus, the rate of 7% is appropriate. Since the daily rate of interest is $92.93[1] and Defendant’s loss use of the funds for 5,209 days[2], Defendant is awarded $484,072.37 in prejudgment interest.

As to Plaintiff’s argument that the amount should be around $20,000, the Court finds this argument without merit. The restitution award was based on the 2007 payment of $1.5 million dollars and the term extension that was deemed void. Therefore, because prejudgment interest is a necessary component of restitution, it logically follows that the prejudgment interest should be based on the restitution award. The argument that the time should be either in December 2020 or January 2021 is also nonsensical.

Therefore, the Motion for Prejudgment Interest is GRANTED, in the amount of $484,072.37.[3]

[1].07/365 X $484,615 = $92.93 per day.

[2]There were 5,209 days between May 22, 2007 and August 25, 2021.

[3]Defendant calculated $484,123.75.