Recent Cases


Commercial Leasing — The lease means what it actually says (Thrifty Payless v. Mariners Mile Gateway)


The lease said that, unless the lease commenced by June 30, 2008, either party would have the right to terminate the lease “for any reason.”  The tenant would eventually argue that the parties had actually agreed only the tenant had the right to terminate on June 30, 2008. 
The trial and appellate courts decided that the provision meant exactly what it said. The appellate court approved the trial court’s refusal to consider any evidence in support of the tenant’s argument that only the tenant had the right to terminate the lease on June 30, 2008.

One of the developers many obligations was to obtain the necessary approvals for a traffic signal.  The developer, despite a deteriorating relationship with the tenant, continued to attempt to obtain the approval of the traffic signal.  The developer never obtained the approval of the traffic signal, and did not build the shopping without that approval.  The developer exercised the right to terminate the lease on July 1, 2008.

The trial and appellate courts ignored the tenant's efforts to use the developer's misconduct to prevent its use of the June 30th termination right.  While continuing to work on getting the required approval, the developer also pushed for a rent increase, and, when the tenant refused, the developer looked for prospective replacement tenants.  When the developer attempted to exercise another termination right so that it could lease to a replacement tenant, the tenant secured a preliminary injunction preventing the developer from leasing to any other party and from developing the property inconsistent with the lease.

A few months after the court issued the preliminary injunction, the developer submitted what proved to be its last request for Caltrans’ approval of the traffic signal.  Caltrans once again disagreed with the developer’s arguments about the necessity of a traffic signal.  Believing Caltrans was unlikely to change its decision, and having decided that the preliminary injunction prevented a development without a traffic signal, the developer waited until June 30, 2008, to exercise the right to terminate the lease.

The appellate court's comments about the relevant points of contract and evidence law provide excellent lessons on the use of the lease-language to support the desired result.

When a contract is integrated (the subject lease, like most every commercial lease, was an integrated agreement), the court cannot consider drafts, statements, etc., which contradict the express terms.  The the court can consider such evidence to interpret ambiguous terms, but not to contradict the express terms.  While the difference between ambiguity and contradiction can be subtle, and therefore subject to legitimate debate, in many instances, these are not synonymous terms.

The implied covenant of good faith and fair dealing cannot be used to prevent a party from doing what that party has an express right to do.  It is easy to push the myraid of obligations imposed by the implied covenant of good faith and fair dealing too far.  For example, the California Surpeme Court, in one of its key decisions on the scope of the implied covenant of good faith and fair dealing, overturned both the trial judge and the California District Court of Apeals' use of the implied covenant of good faith and fair dealing to keep the landlord from using expressly reserved rights to prevent the requested assignment.


Construction — Refund of Money Paid an Unlicensed Contractor (Alatriste v. Ceasar’s Exterior Design)

A homeowner demanded a refund of the money paid a landscape contractor on a project started before, but completed after, the contractor had a license.  The contractor refused to refund the money paid because (1)  the homeowner would be unjustly enriched, (2) the contractor should be paid for work performed after the contractor obtained a license, and (3) the contractor should be paid for the materials provided.

Both the trial judge and the appellate court decided that the homeowner should recover the entire amount paid the contractor.  The Contractors’ State License Law gives property owners the right to recover money paid unlicensed contractors.  The appellate court read the Contractors’ State License Law as not creating exceptions if the owner knew the contractor was unlicensed when it started the work, or if the owner benefitted from the work completed by the contractor.  And, the appellate court read the Contractors’ State License Law as not creating exceptions for work performed after the contractor obtained a license, or for materials the contractor used in the project.

Purchases and Sales — Court Authority under 2002 Version of C.A.R. Purchase Agreement to Stay or Deny Arbitration (Valencia v Smyth)

The buyers of real property filed a complaint against their real estate agent, the seller’s broker and others for fraud, conversion, breach of fiduciary duty, negligence, declaratory and injunctive relief, unfair business practices, and negligent infliction of emotional distress.  The Seller’s broker moved to compel arbitration under the arbitration provision in the 2002 version of the California Association of Realtors’ purchase agreement.

The appellate court had previously decided that the 2000 version did not adopt the Federal Arbitration Act (“FAA”).  The question was whether the 2002 version did.  The only relevant difference between the 2000 and 2002 versions was the addition of a sentence which required the interpretation of the agreement to be governed by the FAA.  The appellate court decided that the FAA did not displace the procedural provisions of the California Arbitration Act (“CAA”).

The reason for the disagreement was the difference in the court’s power to stay arbitration.  Under the CAA, the court could stay or deny arbitration when some parties to the legal action were not parties to the arbitration or proceedings in different forums could result in conflicting rulings on common issues of fact or law.  The FAA did not give the court authority to say or deny arbitration for these reasons.

Land Ownership — What statute of limitations applies to the damage caused by flooding, and was the flooding a permanent or continuing trespass?  (Bookout v. State of California)

The plaintiff’s business was damaged by flooding caused by permanent improvements constructed by one or two private party landowners.  The plaintiff filed a legal action four years after complaining to the county and one of the private party landowners about the flooding.  The appellate court had to decide which statute of limitations applied — the three-year statute applicable to physical damage, or the five-year statute applicable to adverse possession.  The appellate court decided that the three-year limitation applied.  The appellate court had to decide whether the flooding was a permanent or a continuing trespass or nuisance.  The appellate court decided that the flooding was a permanent trespass or nuisance.

The owner of a nursery claimed that the defendants' flooding of his property ruined his nursery business.  He filed a complaint against a private party landowner, Union Pacific Railroad, Caltrans, the local county and the local water district, alleging causes of action for nuisance, trespass, and negligence.

The plaintiff purchased the property in 2000, complained to the private property owner and the county about flooding in 2002, and filed the complaint in 2006.  In the complaint, the plaintiff claimed that he discovered the flooding in 2004.  The plaintiff settled with the private property owner before trial.

Rainwater drained away from the plaintiff’s property and into a drainage channel on the railroad’s property.  An iron pipe conducted the water under the rail bed and discharged it onto the private party’s land.  Before the plaintiff purchased his property, the private party had constructed a subsurface junction box which collected and diverted the water through a second pipe into a retaining pond.  The water district occasionally discharged well water into the drainage channel.  The junction box, and possibly the pipe under the rail bed, was inadequate, so water backed up and flooded the plaintiff’s property.

The trial judge found that the cause of action for inverse condemnation accrued in 2002, and applied the three-year statute of limitations to the inverse condemnation claim, and the contintuing trespass or nuisance claims.  The trial judge found that the plaintiff had failed to prove that the water district, the county, or Caltrans had caused the flooding.  The trial judge found that the railroad may have been negligent in failing to enlarge the drainage channel and pipe under the rail bed.

If the flooding was a permanent nuisance, the plaintiff claimed that the five-year statute of limitations for adverse possession applied.  The defendants claimed that the three-year statute of limitations for physical injury to private property applied.  The appellate court agreed that the three-year statue applied.  Had anyone physically entered the plaintiff’s land, the five-year statute would apply.  But, since the plaintiff’s property was damaged by flood water, the three-year statute applied.

To avoid the statute of limitations defenses, the plaintiff claimed that flooding was a continuous nuisance.  The appellate court found that the flooding was a permanent trespass or nuisance because it was caused by solid structures completed before the plaintiff discovered the flooding in 2002.

Evictions & Commercial Leasing — Limits on when admitted receipt cures any defects in how a notice was served (Culver Center Partners, etc. v. Baja Fresh, etc.)

The California District Court of Appeals held that the lease required the service of the notice to pay or quit to the notice address, and refused to allow the receipt at a different address of the emailed notice to cure the procedural defects.  Given the purpose of service of notice requirements, and the overriding significance of actual receipt, this is a surprising decision.  The best explanation is that bad facts make bad law.

The purpose of the service of notice requirements in a lease is to put a written notice in the hands of the responsible person.  The contracting parties identify one or more methods of service which they have agreed are reasonably calculated to put the notice in the hands of the responsible person.  How the party serving the notice attempted to do what the lease required is important only when the responsible person denies seeing the notice.  The general rule, therefore, is that the responsible party’s admission he/she received the notice eliminates the need to debate how the party serving the notice succeeded in doing what the lease required.  Nevertheless, a California District Court of Appeals recently held that, even though the tenant admitted it had received the notice to pay or quit, the landlord needed to serve the notice at the lease-required address.

The subject commercial lease replaced the statutory service of notice requirements with the lease-required procedures.  This lease identified a street address as the address for the service of notices.  This lease did not identify a responsible person.  While this lease permitted an electronic service of notices, it failed to identify an email address.  The tenant’s leasing manager subsequently sent a letter identifying a new service of notice street address.

The landlord emailed a notice to pay or quit to the tenant’s leasing manager, and she admitted that she received the emailed notice on the date it was emailed.  However, the leasing manager received the email at her business street address, which was not the new street address for the service of notices.  The landlord also faxed the notice to the leasing manager’s business telephone number, and mailed it by certified mail to this business street address, but not to the new street address for the service of notices.  The landlord could not prove that the notice was emailed to the new service of notice street address, and failed to offer any justification for communicating with the leasing manager at her business street address, instead of at the new service of notice street address.

Why did the California District Court of Appeals ignore fact that the tenant actually received the notice?  This appears to be a good example of how bad facts can result in an unusual use of existing law.  This was not a case in which the tenant had failed to pay the money owed and was attempting to manipulate the strict unlawful detainer requirements to stay in possession without paying rent.  Rather, the tenant attempted to pay the rent demanded within the lease-required cure period -- the tenant mailed the check to the correct address, but without identifying the landlord’s bank.  When the tenant discovered its mistake, it re-sent the check.  The landlord’s bank received the check two days after the expiration of the cure period, and the landlord refused to accept the late payment.

Litigation — Recovering attorney’s fees on contract claims (Hyduke Valley Motors v. Lobel Financial Corporation)

Many clients, as well as attorneys, have inaccurate or partial understandings of the relevant law.  Anyone who remembers that California law prevents one-way attorney’s fees provisions is correct.  That is, a contract that only awards attorney’s fees to a landlord will also award attorney’s fees to a tenant who prevails on a contact claim.  The reason is that Section 1717 of the Civil Code requires a reciprocal right to attorney’s fees on contract claims.

The California courts have used Section 1717 of the Civil Code to create reciprocal rights to attorney’s fees when a non-party unsuccessfully attempts to enforce a contract against a party to the subject contract.  That is, if person or company who is not a party to the subject contract unsuccessfully attempts to enforce a contract claim against a person or company who is a party to the subject contract, the successful party can enforce the attorney fee provision in the subject contract against the unsuccessful non-party.

The catch addressed by the recent case is that the claim must be “on a contract” because Section 1717 only applies to “actions on a contract.”  California case law does not definitively define a claim “on a contract.”  Rather, judges have the discretion to use several factors to determine the legal basis of the prevailing party’s claims.  These factors include the theories of recovery plead, the theories asserted at trial and the evidence produced, and any additional evidence submitted at the motion of attorney’s fees to identify the legal basis of the prevailing party’s recovery.

Claims based on duties arising out of the relationship created by a contract are not contract claims.  For example, fraud claims arising out of a contract are not contract claims.

In the recent case, the attorneys for an automobile wholesale dealer included a breach of consumer contracts claim against the assignee of the consumer contracts (which awarded attorney’s fees to the prevailing party) among the Motor Vehicle and Commercial Code claims plead in its legal action.  The California District Court of Appeal upheld the trial judge’s decision that the inclusion of a breach of claim was not dispositive.  Since the automobile wholesale dealer had relied on California statutes and the policies embodies in those statutes, the trial and appellate courts denied its motion for attorney’s fees based on the attorney’s fees provision in the consumer contracts.

 
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