Judge William A. Crowfoot, Case 22AHCV00343 2023-05-15 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00343, Date: 2023-05-15 Tentative Ruling

Plaintiff Universal Shopping Plaza (“Plaintiff”) brought this commercial unlawful detainer action against its Tenant, Defendant Yin Tai Jewelry Inc. (“Defendant”), based on Plaintiff’s claim that Defendant failed to pay the demanded rent in one its two 3-Day Notice to Pay Rent or Quit – specifically, the 3-Day Notice dated May 20, 2022, to pay the “Total Additional Rent for March 2022-May 2022: $19,441.88,” which was itemized as follows: “$12,646.88 for unpaid Property Taxes, Insurance, CAM Estimate, Water fee, and 2021 NNN Reconciliation, and $6,795.00 for a security deposit installment due 4/1/22” (the “Notice”). Defendant occupies the property located at 140 W. Valley Blvd, Unit 121, San Gabriel, CA 91776 (“Premises”). A bench trial began on April 17, 2023, and continued on April 18, 2023, and April 20, 2023. Written closing arguments were provided according to a briefing schedule set by the Court.

The Complaint was filed on June 7, 2022. Defendant filed its Original Answer on or about June 22, 2022, containing its main defenses of: 1) the Notice was not properly served; and 2) the Notice and/or this case is retaliatory or discriminatory.

On or about April 17, 2023, with leave of the Court, Defendant filed an Amended Answer which alleged the following defenses: (1) Plaintiff breached the implied warranty of fitness or suitability for purpose; (2) Plaintiff waived, changed, or cancelled the notice; (3) Plaintiff is retaliating against Defendant; (4) Plaintiff is discriminating against Defendant; (5) the notice was not properly served; (6) the notice demanding $19,441.88 was invalid because the security deposit installment of $6,795.00 due on 4/1/22 listed on the notice is not “rent”; (7) the notice demanding $19,441.88 was invalid because it did not provide a year-end statement for each calendar year setting forth expenses actually incurred as required by Article 6.10 of the lease; (8) Plaintiff failed to apply the security deposit towards the notice demanding $19,441.88 pursuant to Article 5.1 of the lease; and (9) the summons and complaint were not properly served.

Defendant’s Trial Brief withdrew the defenses of improper service of the notice and discrimination, but otherwise pursued the remaining defenses listed in the Amended Answer.

On the first day of trial, this Court reviewed Defendant’s Trial Brief and Amended Answer to determine what defenses were being raised and needed to be addressed. As indicated below, a number of issues were ruled on before trial but then became the subject of renewed argument after trial in closing.

The Court granted Plaintiff’s Motion in Limine No. 1 thereby eliminating Defendant’s defense related to habitability or any other conditions in the Premises. The Court also ruled as a matter of law that retaliation does not apply to the present commercial unlawful detainer for non-payment of rent. (Civil Code Section 1942.5; S.P. Growers Assn. v. Rodriguez (1976) 17 Cal. 3d719, 724.)

The Court inquired of Plaintiff’s counsel why Defendant was served on the same date with two 3-Day Notices instead of one, and questioned whether that was appropriate. Plaintiff’s counsel explained that Plaintiff was only proceeding with the unlawful detainer action with respect to the second 3-Day Notice for Additional Rent, and not with respect to the first 3-Day Notice for the $40,770.00 in base rent for the months of April 2022 and May 2022, as Defendant had timely paid the full amount demanded in that notice. Plaintiff’s counsel argued that it was appropriate for Plaintiff to send two separate notices each addressing different amounts due. Defendant moved to dismiss Plaintiff’s complaint on the theory that serving two notices was improper but provided no legal authority in support of its motion. The Court denied the motion.

Defendant reasserts this argument in closing argument, contending that “[t]he fact that Plaintiff served Defendant with two separate 3-Day Notices invalidates both Notices as a matter of law.” (Def. Closing, p. 6.) In the absence of any authority supporting this argument, the Court declines to reach a different conclusion from that reached at the beginning of the trial.

Each of the notices was clear about the category of unpaid amounts due and each of the notices stated that “[t]he amount demanded herein shall be deemed “estimated” per California Code of Civil Procedure 1161.1(a). (Exhibits 2A and 2B.) As it happens, the notice demanding unpaid base rent was incorrect in stating that the base rent owed for the two months of April 2022-May 2022 was $40,770 because it appears to have been intended to cover the three months beginning in March 2022. Defendant, nonetheless, timely paid the full amount demanded in that notice and waived its CCP § 1161.1 right to challenge the reasonableness of the estimate by either not paying it at all or tendering what it calculated to be the correct amount.

Relatedly, Defendant seeks in closing to have the overage of the amount paid in response to the incorrectly calculated demand for unpaid base rent in Exhibit 2A in effect credited to the amount demanded in the Notice (Exhibit 2B). In theory, that would cause the amount of unpaid additional rent demanded in the Notice to be overstated and unreasonable. No amount demanded in the Notice seeks unpaid base rent, however, and the Court declines this invitation to re-write the Notice.

In closing, Defendant argues that the Notice was invalid as Plaintiff had failed to provide Defendant with a year-end statement, referred to in trial as a Triple Net Reconciliation statement (“NNN statement”). The legal basis for this argument is unclear, but, in any event, the NNN statement for 2021 was sent to Defendant and, while it was sent a few days late, that delay is immaterial and does not compel an invalidation of the Notice. (Exhibits 39-1 and 39-2.) Moreover, it was sent in a sufficiently timely way to enable its use by a defense witness to challenge the accuracy of the numbers in the Notice.

The Court also ruled as a matter of law that the security deposit installment due on April 1, 2022, was “rent” as defined by the Lease and it was properly included in the Notice. (Exhibit 1, pg. 3, Sections 4.4 and 5.1.) The Court also ruled that Plaintiff was not required to apply the security deposit to the unpaid balance before issuing a notice to pay or quit. (Civil Code Section 1950.7; Exhibit 1, pg. 3, Section 5.1.) The Court deemed the defense of improper service of the summons and complaint a moot issue and not a defense to this case.

In its closing, Defendant asks that the Court exercise its discretion to reconsider its ruling permitting the classification of unpaid security deposit installments as unpaid rent for purposes of the Notice. Defendant calls the Court’s attention to the many provisions in the Lease (Exhibit 1) in which additional amounts required to be paid are specifically identified as “additional rent.” Because the Lease does not similarly specifically define security deposit installments as “additional rent,” Defendant argues such could not be the intent of the Lease. Defendant’s analysis might be persuasive but for two reasons. First, Section 4.4 of the Lease defines “additional rent” to include “all other sums to be paid or reimbursed by Tenant to Landlord.” That language may be broad, but it’s also unambiguous. Second, Section 5.1 of the Lease, in its first sentence, provided for the deposit of the full amount of the security deposit “upon execution hereof.” If the Lease had not been modified by the added-on last sentence to Section 5.1, and if, in fact, the security deposit had been fully paid upon execution of the lease, as the Lease appears originally to have contemplated, then there would not have been any further periodic payment of security deposit installments to be made, or to be characterized as “additional rent.”. The added-on last sentence of Section 5.1 conveyed a benefit on Defendant by deferring payment of the security deposit, “notwithstanding” the first sentence of that same provision. Nothing about the add-on, however, evidences any intent to also exempt such instalment payments from the catch-all definition of additional rent in Section 4.4 of the lease as “all other sums to be paid or reimbursed by Tenant.” Thus, the Court stands by its original pre-trial ruling on this issue.

The Court found the parties entered into the Lease (Exhibit 1) dated April 4, 2020, for the Premises. Paragraphs 4.1 and 4.4 of the Lease requires payment of all sums defined as “rent” on the first (1^st) of the month. (Exhibit 1, p. 3-4.) The monthly base rent is $13,950.00. The Lease also defines other sums to be paid by Defendant as “rent”. The evidence showed there was no written modification of the Lease executed by Plaintiff and Defendant. On May 20, 2022, Plaintiff served two 3-Day Notices to Pay Rent or Quit, one demanding $40,770.00 in base rent (Exhibit 2A) and one demanding $19,441.88 in charges which were not base rent (Exhibit 2B). The Notices was properly served in accordance with the Lease and CCP Section 1162 by process servers via substitute service at the Premises and certified mailing, return receipt requested on May 20, 2022. (Exhibit 3)

Defendant admitted receipt of both Notices, though her employee only sent her a photo of Exhibit 2A while she was out of town. Defendant then tendered payment of $40,770.00 within the notice period. Defendant found both notices in her office when she returned to town. No other payments were tendered to Plaintiff within the notice period. The Notices expired on May 25, 2022. Defendant remains in possession of the Premises. Plaintiff filed the present case based on Exhibit 2B, the notice demanding $19,441.88.

In this case, Plaintiff must establish: (1) Plaintiff owns the Premises; (2) Plaintiff rented the Premises to Defendant; (3) Under the Lease Defendant was required to pay rent on the first of each month; (4) That as of the date of the Notice, Defendant owed the sum stated in the Notice or a sum within twenty percent (20%) of the amount stated in the Notice; (5) Plaintiff properly served Defendant three days’ written notice to pay the rent or vacate the Premises; (6) Within three days after service of the Notice, Defendant did not tender payment in the amount stated in the Notice or an amount which Defendant had reasonably estimated to be due; and (7) Defendant remains in possession of the Premises. See Code of Civil Procedure Sections 1161 (2); 1161.1 and 1161 et. seq.; CACI No. 4302-33.

Here, several of the foregoing elements were undisputed at trial. Plaintiff owns the Premises. The parties entered the Lease for the Premises (Ex. 1). Paragraphs 4.1 and 4.4 of the Lease requires payment of all sums defined as “rent” on the first (1st) of the month. (Exhibit 1, p. 3-4.) Plaintiff’s Complaint specifically identifies that Notice on which this unlawful detainer is based is the Notice to Pay or Quit attached to the Complaint as Exhibit 2 demanding $19,441.88 (“Notice 2B”). (Complaint, ¶9e; Exhibit 2B) Notice 2B is comprised of the non-base rent charges due by Defendant from March through May 2022 as of May 20, 2022. Plaintiff properly served the Notice to Defendant, and it expired on May 25, 2022. Plaintiff failed to pay the sum demanded in Notice 2B before the Notice expired, and Defendant remains in possession of the Premises. The fair daily rental value of the property is $453.00.

At trial, Defendant introduced evidence disputing Plaintiff’s proof as to whether Defendant owed the sum stated in the Notice or a sum within twenty percent (20%) of the amount stated in the Notice. Plaintiff argues that Defendant waived the ability to challenge the Plaintiff’s numbers at trial by not challenging them in Defendant’s answer. (Plaintiff’s Op. Closing, 5.) But Plaintiff bears the burden of proving each fact which is essential to its claim for relief, including the facts in element (4). California Evidence Code § 500. Defendant may challenge the accuracy of those facts at trial, which Defendant has done.

Aside from the amount of the unpaid security deposit installment due on April 1, 2022, which was stated in the Lease as $6,795, and repeated in the Notice (Exhibit 2B), all of the other numbers set forth in the Notice were based on information kept and compiled by Plaintiff. Accordingly, in challenging the Plaintiff’s calculations, Defendant’s witness relied almost entirely on information placed in evidence by Plaintiff, namely, Exhibits 4 (the Tenant Ledger maintained by Plaintiff) and Exhibits 39-1 and 39-2 (The Universal Shopping Plaza 2021 Common Area Operating Expenses (“CAM”)). Defendant provided the Court with Exhibits 41 (Common Area Operating Expenses document) and 42 (Analysis of Additional Rent Overcharge) which illustrated the testimony of witness Tiffany Cheung and which, as demonstrative exhibits, were marked for identification only.

These demonstrative exhibits, and Ms. Cheung’s conclusions that flow from the calculations in those exhibits, are referred to in paragraph (14) of the Joint Settled Statement of Facts prepared by the parties for April 20, 2023, as follows:

14) Then, Ms. Cheung summarized her calculations on Marked Exhibit 41-2 with the following: Credit for January 2022 Late fees charged while under Covid protections of $1,713.76, property tax charges of $1,171.29 each month for March 2022-May 2022, insurance charges of $85.83 each month for March 2022-May 2022, CAM estimate charges of $1,662.23 each month for March 2022-May 2022, credit for overcharge of property tax for January 2022-February 2022 of $804.52, credit for overcharge of CAM for January 2022-February 2022, NNN reconciliation of $1,354.41, and water fee of $32.44. Based on these calculations, if Security Deposit is considered additional rent, the 3-Day Notice in Exhibit 2B demanding the additional rent of $19,441.88 is overstated by 28.15%.”

Ms Cheung also reached certain other conclusions as to higher percentage overstatements based on assumptions the Court has already rejected as a matter of law, namely, the exclusion from the calculation of the unpaid $6,795 security deposit amount, and the “crediting” to the Notice in Exhibit 2B of the overcharge in Exhibit 2A that Defendant paid. Thus, the Court will not address those conclusions.

With respect to Defendant’s conclusions about the percentage of overstatement of amounts due in the Notice, as set forth in cited paragraph (14), above, while the Court accepts certain of the Defendant’s calculations, it rejects others and finds that Defendant owed a sum well within 20% of the amount stated in the Notice, though not the entire $19,441.88 demanded by Plaintiff.

The Court rejects the argument that the amount due is overstated by the amounts of impermissible late fees that should be credited back to the Defendant, or the amounts for “overcharged” property taxes or CAM amounts for January and February 2022. The amounts demanded in the Notice correspond to certain categories within a defined time period and do not purport to take into account credits and debits that may be due from either party to the other over the longer rental period.

That said, the Court concludes that the amount of property taxes charged for each month covered by the Notice should not exceed by more than 2% (the maximum possible yearly increase of those taxes under California law), the monthly property tax payment required for the prior year. The 2021 monthly amount, as may be determined from Exhibit 39-2, was $1,158.78. Plaintiff does not explain how that amount could have grown legally to $1,573.55, in 2022, a 35.79% increase over the prior year. Accordingly, the monthly property tax estimate in the Notice should not have exceeded $1,181.96 (x3=$3,545.88). Defendant offered no admissible evidence, however, in support of capping that property tax increase at 1.08%.

While there is a legal basis for capping the increase in the monthly property tax estimate at 2%, Defendant offered no credible reason for limiting the increase in the monthly CAM estimate to $1,662.23 (down from the Plaintiff’s estimate of $1,888.25). That the percentage increase from 2021 to 2022 is greater than the percentage increase from 2020 to 2021 is not a reason, in the absence of more facts, to limit the increase arbitrarily to the percentage increase of the prior year. The Court declines to do so.

Defendant’s witness testified that the 2021 NNN Reconciliation amount included in the Notice ($1,765.64, as derived from Exhibit 4, p. 3, entry for 03/30/2022) is overstated and that the correct amount should be $1,354.41. The Court agrees that this amount is correctly calculated by Defendant as illustrated in Exhibit 41, based on Exhibits 39-2, 1, and 4.

Finally, Defendant does not explain its basis for concluding that the water bill for the three months in question should be $32.44 rather than the $238.32 calculated by Plaintiff.

Accordingly, as of May 20, 2022, Defendant owed Plaintiff the sum of $17,855.88 in additional rents for March-May 2022 (PT$3,545.88, +Ins$257.49,+CAM$5,664.78,+NNN$1,354.41,+Water$238.32). This amount is approximately 91.8% of the amount demanded in the Notice, and the Court finds the amount demanded in the Notice to have been a reasonable estimate of the amounts due. The fair daily rental value of the Premises is $453.00 per day which is calculated by dividing the monthly base rent of $13,950.00 by 30 days.

Judgment is entered in favor of Plaintiff against Defendant. The Lease is hereby forfeited. Plaintiff is awarded possession of the subject property at 140 W. Valley Blvd, Unit 121, San Gabriel, CA 91776. Plaintiff is also awarded damages as follows: $17,855.88 as demanded in the complaint and reduced by the Court and daily holdover damages of $453.00 from June 1, 2022 through May 15, 2023 for a total judgment of $175,952.88 ($17,855.88 + [$453.00 x 349 days]).

This is the Court’s Statement of Decision and Judgment in this matter. CRC Rule 3.1590(c)(1) subject to a party’s objection under CRC Rule 3.1590(g). The Court reminds the parties that the purpose of objections is not to reargue the merits of the case but rather to identify inconsistencies between the court’s ruling and the document that embodies and explains that ruling. Golden Eagle Ins. Co. v Foremost Ins. Co. (1993) 20 Cal. App. 4^th 1372, 1380. The 15-day objection period expires May 30, 2023.

William A. Crowfoot

Judge of the Superior Court