Opinion
F079057
05-26-2022
AWCC ACQUISITION I, LLC, Plaintiff and Appellant, v. ON WIND ENERGY, LLC, Defendant and Respondent.
McCormick, Barstow, Sheppard, Wayte & Carruth and Scott M. Reddie; Kibler Fowler & Cave and Matthew J. Cave, for Plaintiff and Appellant. Alpha Trial Group, Richard K. Welsh and Jeff Zuidema; Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, Catherine E. Bennett and James R. Harvey, for Defendant and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Kern County. No. BCV-17-101734 David R. Lampe, Judge.
McCormick, Barstow, Sheppard, Wayte & Carruth and Scott M. Reddie; Kibler Fowler & Cave and Matthew J. Cave, for Plaintiff and Appellant.
Alpha Trial Group, Richard K. Welsh and Jeff Zuidema; Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, Catherine E. Bennett and James R. Harvey, for Defendant and Respondent.
OPINION
DE SANTOS, J.
Defendant ON Wind Energy, LLC (ON Wind) successfully sought summary judgment against plaintiff AWCC Acquisition I, LLC (AWCC) on AWCC's claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief. On appeal, AWCC contends the trial court's stated reason for granting summary judgment, that AWCC did not have standing to pursue these claims against ON Wind, is erroneous, and there remain triable issues of material fact on its breach of contract claim. Assuming AWCC has standing, we affirm the summary judgment on the alternate ground that there are no triable issues of material fact on the merits of any of AWCC's claims.
FACTUAL AND PROCEDURAL BACKGROUND
The Lease and the Royalty Agreement
In March 2011, Oak Creek Energy Systems, Inc. (OCES) leased land to ON Wind to operate an electricity generating wind farm pursuant to a "WIND ENERGY SITE LEASE," which had a 20-year term that would expire in 2031 (the lease). The lease required ON Wind to make monthly royalty payments to OCES based on the production of electricity and if those royalty payments did not meet a minimum threshold at the end of the year, an additional payment would be due the following year to reach the "minimum rent" described in the lease. ON Wind was required to maintain records reflecting its "Adjusted Gross Revenue" used to determine the royalty payments and gave OCES the right to, "upon prior written notice, examine and audit such records for the preceding calendar year, at [OCES]'s expense." The lease further provided if the audit revealed "an understatement of Adjusted Gross Revenue of more than two percent (2%) in any calendar year, [ON Wind] shall reimburse [OCES] for all reasonable costs of the audit." The lease provided there would not be a merger of the lease and the fee estate in the event both were held by the same person.
The lease contained a provision entitled "Lessee Event of Default" which provides, in pertinent part: "The occurrence of any of the following events shall constitute a 'Lessee Event of Default' under this Lease (and any of the following events, before the expiration of the applicable grace period specified below, is referred to as a 'Lessee Default'): [¶] (a) The failure by Lessee to pay amounts required to be paid to Lessor hereunder when due, when such failure has continued for thirty (30) days after written notice from Lessor."
The lease allows ON Wind to terminate the lease early as follows: "Provided no Lessee Default has occurred and is then continuing at the time of Lessee's exercise of the following right of termination, or on the effective date of such termination, Lessee shall have the right to terminate this Agreement if Lessee determines in its good faith reasonable discretion, that the operation of Lessee's Project on the Leased Premises will not be profitable or commercially or legally practicable without incurring extraordinary costs or expenses." ON Wind was required to give at least 180 days' prior written notice of the termination, and OCES was given the right to elect to either accept the return of the premises with the improvements remaining in place or require ON Wind to remove the improvements. Following termination and fulfillment of its obligations, ON Wind would be relieved of all liability under the lease, except for obligations that expressly survived termination.
The lease contained the following attorney fees and expenses provision: "Each of Lessor and Lessee shall be entitled to recover from the other party hereto all reasonable expenses, including reasonable attorneys' fees and expenses incurred in connection with exercising its remedies resulting from a Default of the other party hereto pursuant to this Lease."
At the same time the lease was executed, OCES and AWCC entered into a "ROYALTY ACQUISITION AGREEMENT" wherein AWCC purchased OCES's rights to the minimum rent and royalty payments ON Wind was required to pay OCES under the lease (the royalty agreement). Specifically, for $1.149 million AWCC purchased an interest in ON Wind's rents with a minimum yearly rent of $400,000, escalating to $500,000.
The royalty agreement provided that if ON Wind terminated the lease early and AWCC or an AWCC affiliate did not hold an equity interest in ON Wind, then "if Landowner enters into any subsequent lease, easement or other similar arrangement within three (3) years after such termination pursuant to which all or a portion of the Property is leased or otherwise demised … by Landowner to a third party for the generation of wind energy, this Agreement shall be reinstated in its entirety on the date such lease or other arrangement is entered into and, AWCC's right to receive the royalties or rents payable in connection therewith shall continue for a term equal to the term remaining under this Agreement as of the date of such termination."
The royalty agreement granted AWCC an attorney-in-fact right to step into the landowner's shoes under the lease: "Landowner hereby irrevocably constitutes AWCC, and its successors and assigns, as Landowner's true and lawful attorney-in-fact, with full power of substitution, in Landowner's or AWCC's name, to: (i) claim, demand, collect and receive the Royalty Amounts to the extent permitted by the Lease, (ii) demand any audit with respect to the Royalty Amounts (or with respect to any component of the Royalty Amounts) to the extent permitted by the Lease, (iii) declare any default under the Lease and (iv) claim, demand, collect and receive the proceeds of any exercise of remedies provided under the Lease or by law; provided, however, that (A) no Project Company Affiliation (as defined in Section 3.1 below) then exists, and (B) prior to undertaking any of the foregoing actions, AWCC shall provide written notice to Landowner requesting that Landowner take such actions directly and AWCC shall only be authorized to so act if Landowner has failed to take such specified actions immediately after delivery by AWCC of such written notice…."
Charles Hinckley, who was then AWCC's president, negotiated the lease and the royalty agreement, and signed the contracts, on AWCC's behalf, while Niels Rydder, OCES's chief executive officer, negotiated the contracts for OCES.
Alta Acquires the Property Subject to the Lease
In March 2013, OCES sold the property subject to the lease to Alta Oak Realty, Inc. (Alta), which is a subsidiary of Terra-Gen, LLC (Terra-Gen), and assigned the lease and royalty agreement to Alta. Matthew W. Scobee, Alta's senior vice-president, signed the relevant assignments on Alta's behalf. The next year, Hinckley, the then-CEO of American Wind Capital and president of ON Wind Holdings, LLC, sold ON Wind to a Terra-Gen subsidiary, TGP Mojave Wind, LLC, and Scobee became ON Wind's senior vice-president.
ON Wind Stops Paying Royalties
According to Scobee, in 2016, ON Wind began having a negative cash flow and conversations were initiated with AWCC to see if an alternative arrangement could be worked out, as under the current financial structure of the project ON Wind would not make enough money to cover its obligations. Long-term power purchase agreements were to expire at the end of 2016 and ON Wind would have to sell power on the open California market where prices "had dropped fairly precipitously."
In March 2017, Darren Kelly, ON Wind's business manager, advised Terra-Gen that given ON Wind's "EBITDA position and royalty obligations, " they would "be tracking cash more closely on a month to month basis," and royalty payments would be calculated as the last expense paid. Kelly wanted to discuss the tools available to "track cash, prioritize vendor payments and publish a monthly cash flow waterfall for our records." Scobee explained in his deposition that in prioritizing payments, the items that were needed to keep the facility operating were paid first.
EBITDA stands for "Earnings before Interest, Taxes, Depreciation and Amortization."
Terra-Gen generated a cash flow projection for ON Wind for 2017, which did not reflect any royalty payments because the cash balance never got to $50,000, which Kelly wanted to maintain before paying the royalty. The email with the projection stated that Terra-Gen had "in effect already 'loaned' On Wind money" because there was not enough revenue to cover expenses, they had not allowed the checking account to reach a negative balance, and "for this exercise it makes sense to show a negative balance to emphasize why we are not paying royalty." According to Terra-Gen, in March 2017, ON Wind had a negative balance even without the royalty being paid.
In early May 2017, AWCC notified ON Wind, through Terra-Gen, that it had not received the March 2017 statement for ON Wind and the payments had not come in for April. Scobee responded "due to the poor economic condition of the project we have suspended the payment of all royalties." On May 11, 2017, AWCC emailed Scobee that they had not seen ON Wind's minimum rent true-up payment of $197,329.68 for 2016. Scobee responded a week later that "the project cash flows do not support making a payment at this time," but they would "continue to monitor the situation and hopefully be in a position to make some sort of payment once we begin seeing better production or improvements in rates."
AWCC's Notice of Default
On June 12, 2017, AWCC sent a "Notice of Default" to ON Wind and Alta. The notice stated ON Wind failed to make the February 2017 payment due under the lease for the difference between the minimum rent and royalty payments for the 2016 calendar year in the amount of $197,329.68, as well as the royalty payments owed for the production months of February, March, and April 2017. AWCC advised ON Wind it "will be in default under the Wind Energy Lease" unless it tendered all these payments to AWCC within 30 days after receipt of the notice pursuant to the Section 19.1 of the lease, which is the "Lessee Event of Default" provision. AWCC reserved the right to terminate the lease because of any uncured default and to recover all losses and damages resulting from the default. The notice further stated: "Please note that this notice of default is being submitted to Landowner and Project Tenant at the same time to limit the legal expenses incurred by AWCC and Landowner, notwithstanding the provisions of the [royalty agreement] that indicate that AWCC should first demand that Landowner send a default notice to Project Tenant."
Scobee asked Kelly, who at that time was no longer employed at Terra-Gen but was acting as an outside consultant, to analyze the ON Wind "royalty matter." On June 22, 2017, Kelly reported back to Scobee via email, outlining a way to potentially avoid ON Wind's rent obligations to AWCC under the ON Wind royalty agreement. Kelly summarized the early termination provision in the ON Wind lease as allowing for early termination if "no default has occurred and is then continuing at the time of Lessee's exercise of the following right of termination" and the "project is not profitable." Kelly also summarized the rights granted AWCC under the royalty agreement pertinent to the lease and questioned what rights AWCC would retain "after the lease is terminated as the Royalty Acquisition Agreement relates to the royalty stream in connection with the lease only," which perhaps was "a question for [outside counsel] and the likelihood of AWCC litigating on." It appeared to Kelly that "AWCC did not button up" the royalty agreement as "much as they should have as they should have extended their collection rights through 2031 regardless of On Wind's early termination rights."
A week later, Scobee reported to others at Terra-Gen that the numbers for the ON Wind project showed it was headed "on a path of negative EBITDA for the year." Scobee noted the obligation to make the $440,000 lease payment was "a financial strangle to the project." Scobee explained that despite their "best efforts" to work things out with AWCC to restructure the lease payment obligations, AWCC was unwilling to move, and "[g]iven the financial circumstances" he felt they had "no choice but to terminate the leases and transfer the projects over to the land owner (Alta Oak Realty)." Scobee pointed out that "[i]f the projects were in the hands of Alta Oak Realty and (thus not having to pay any lease payments whatsoever) they would flip to positive EBITDA to the tune of roughly $600K and $200K respectively."
Scobee stated in his declaration he determined ON Wind would no longer be profitable based on ON Wind's negative performance resulting from a sustained drop in energy rates in California and on projections showing ON Wind would not likely turn a profit considering those rates and its operational expenses. Scobee claimed he discussed ON Wind's economic troubles with AWCC and no AWCC representative disagreed with his assessment that ON Wind was no longer profitable.
ON Wind's Notice of Early Termination
On July 10, 2017, ON Wind hand-delivered a notice of early termination to Alta. The termination notice stated that ON Wind had determined the operation of the project was "no longer profitable or commercially or legally practicable without incurring extraordinary costs or expenses"; therefore, it was giving notice of its "exercise of its right to terminate the Lease" pursuant to section 20.1 of the ON Wind lease, with an effective termination date of January 10, 2018. ON Wind asked Alta to confirm within 90 days whether it would either accept the return of the leased property with the improvements in place in their" 'as-is' condition," or have ON Wind remove the improvements. Alta subsequently advised ON Wind it elected to accept the property "as-is" under section 20.1(a) of the lease.
In an email to AWCC attaching the early termination notice, Scobee explained the long-term power purchase agreements for the project expired in 2016 and since then the project had been selling into the California market. While the project remained in good operating condition, the market price of power in California had "dropped to near all-time lows and the projects are no longer economically sustainable." Scobee further explained a project representative had reached out to members of AWCC in the fall of 2016 to try to renegotiate the "out-of-market" lease, but the efforts were unsuccessful and there were "no viable alternatives but to terminate" the lease. Scobee represented the project would "continue to work hard to maximize revenues and minimize expenses" to try to fulfill the lease obligations through the effective termination date.
Scobee testified in his deposition the only other available option was to pursue bankruptcy. Given his belief that they had "unambiguous contractual rights" to terminate the lease and AWCC's unwillingness to work out something reasonable, he felt they had no choice but to terminate the lease, have ON Wind abandon the wind turbines, and have Alta operate the wind turbines for its own benefit on its own land without any rent obligation.
AWCC conducted its own analysis of ON Wind's profitability and concluded the project was unprofitable. Its assessment, which was based on the likely lower prices and the information that Terra-Gen provided, was that ON Wind would be "EBITDA negative."
Scobee stated in his declaration that if AWCC had "taken the position in its June 12th letter that ON Wind was in default because it owed rent and royalties to AWCC [as] opposed to ON Wind 'will be default under the Wind Energy Lease unless it tenders all Delinquent Payment Amounts to AWCC within thirty (30) days after Project Tenant's receipt of this notice,' ON Wind could and would have cured the defaults [] in full before it terminated its Lease on July 10th."
AWCC Files This Lawsuit and Declares an Event of Default
On July 27, 2017, AWCC filed this lawsuit against ON Wind. The next day, AWCC sent ON Wind, and Alta a letter regarding "Remedies for Payment Defaults and Related Issues." The letter stated: "Since [ON Wind] has not tendered all Original Delinquent Payment Amounts to AWCC within thirty (30) days after [ON Wind]'s receipt of the June 2017 Notice of Default, pursuant to Section 19.1 of the Wind Energy Lease, such failure has become a Lessee Event of Default under the Wind Energy Lease." AWCC asserted ON Wind's "purported termination" of the ON Wind lease was "invalid and of no force or effect" because a "Lessee Default has occurred and is continuing," and it did not consent to the "purported termination." AWCC also demanded, in its own name and as attorney-in-fact for Alta, an audit under the ON Wind lease and royalty agreement of the amounts payable to AWCC under the royalty agreement for the 2016 and 2017 calendar years.
Other named defendants were Terra-Gen and Oak Creek Wind Power, LLC (Oak Creek), another Terra-Gen subsidiary that had a comparable separate lease and royalty agreement with Alta.
On September 11, 2017, ON Wind informed AWCC it would take AWCC's audit demand as a request that Alta demand an audit and agreed the audit could move forward. On January 9, 2018, shortly after the auditor issued its report, ON Wind wire transferred $596,232.62 to AWCC, which it represented constituted all rents and royalties owed, including interest and penalties, through January 10, 2018. AWCC confirmed this payment covered amounts ON Wind owed for minimum rent through termination, with interest.
Oak Creek wire transferred $1,036,616.93, while ON Wind wire transferred $596,232.62.
On January 12, 2018, an attorney for AWCC sent ON Wind a letter stating ON Wind's lease termination was ineffective and the payment ON Wind made did not" 'cover all of the amounts due and owing for the payment obligations'" under the royalty agreement. The attorney asserted the payment "d[id] not cover late charges, interest on overdue amounts, or AWCC's reasonable expenses incurred in exercising AWCC's remedies resulting from ON Wind's … payment defaults, including but not limited to attorneys' fees and costs." AWCC demanded ON Wind pay $148,432 in attorney fees and $52,547.92 in auditor fees.
ON Wind's attorney replied by restating ON Wind's position that AWCC had no right to audit ON Wind, ON Wind agreed to the audit solely to eliminate the payment issues from this dispute and AWCC had no right to recover the audit costs under the lease. ON Wind asked AWCC's counsel to table the dispute over attorney fees until the court could determine which parties prevailed on the merits.
The Asset Purchase Agreement
The day after the leases terminated, ON Wind and Alta executed an asset purchase agreement (APA) transferring ON Wind's assets to Alta, other than the improvements that remained in place on termination of the lease, and granting ON Wind a "revocable license to occupy the Project premises to perform its obligations hereunder" until the transaction closed. Under the APA, Alta was required to pay ON Wind the purchase price of $370,000, less any net revenue ON Wind received from its operation of the wind farm for: (1) the sale of the assets covered by the APA; and (2) ON Wind's continued operation of the assets while the parties obtained consent to assignment of third-party project agreements and governmental approvals.
According to Scobee, they delayed having ON Wind and Alta secure the regulatory and third-party consents necessary to close the transaction pending the outcome of this litigation, as AWCC was seeking to invalidate ON Wind's termination of the lease and was challenging Alta's project ownership rights which they believed placed a cloud on Alta's rights and prevented Alta and ON Wind from representing to third parties and regulators that Alta definitively owned the wind farm. Once ON Wind and Alta could secure the necessary consents and approvals, Alta could operate the wind farm and ON Wind could be dissolved. Scobee declared that since the lease terminated on January 20, 2018, Alta had not leased or otherwise demised any portion of its property to a third party to generate wind energy for rent or royalties, and ON Wind paid no rent or royalties to Alta.
The First Amended Complaint
AWCC subsequently filed the operative first amended complaint, which alleged claims against ON Wind for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief. AWCC alleged it was entitled to sue ON Wind for breach of contract as assignee of the ON Wind lease, which ON Wind breached by failing to make all royalty payments required under the lease, and by giving notice of early termination while in default and failing to notify the appropriate parties of the purported early termination. AWCC alleged ON Wind breached the implied covenant of good faith and fair dealing when it "unfairly interfered with AWCC's right to receive" the lease's benefits by purporting to terminate the lease early with no intention of stopping operation of the project and continuing to operate the project with no intention of making payments to AWCC. Finally, AWCC alleged it was entitled to a declaration that ON Wind remained a tenant of the leased premises and its tenancy constitutes a successor lease or other right to occupy under the royalty agreement.
The first amended complaint added Alta as a named defendant and alleged that both Terra-Gen and Alta were liable for the obligations of ON Wind and Oak Creek under alter ego principles.
ON Wind's Summary Judgment Motion
ON Wind moved for summary judgment. ON Wind argued it was entitled to judgment on the breach of contract claim because: (1) it did not breach the lease by terminating it as ON Wind had an unambiguous right to terminate the lease, properly executed the termination rights, and AWCC did not have power-of-attorney standing to challenge the termination right; and (2) AWCC could not prove damages, as it fully paid the rent due under the lease and AWCC had no right to auditor or attorney fees as contract damages. ON Wind contended it was entitled to judgment on the claim for breach of the implied covenant of good faith and fair dealing because AWCC could not rely on the implied covenant to eliminate the lease's express early termination right. Finally, ON Wind argued it was entitled to judgment on the declaratory relief claim, as the basis of the claim, that ON Wind remained a tenant on Alta's property, was "indisputably wrong."
Alta and Oak Creek also moved for summary judgment. The trial court granted Oak Creek's motion but denied Alta's motion. The trial court entered judgment for Oak Creek on December 24, 2018. AWCC appealed the Oak Creek judgment, but it later dismissed the appeal.
In opposing the motion, AWCC argued there were factual disputes on the breach of contract claim regarding whether: (1) ON Wind had the right to terminate the lease at its sole discretion while in default and failed to provide notice of termination to the parties specified in the lease; and (2) ON Wind breached the lease by failing to pay royalties or rent after January 10, 2018, as it failed to pay the attorney fees and auditor costs AWCC incurred. AWCC argued ON Wind was not entitled to judgment on the claim for breach of the implied covenant of good faith and fair dealing, as a triable issue existed as to whether ON Wind breached the implied covenant by terminating the lease while in default to cut off AWCC's bargained-for rights. On the declaratory relief claim, AWCC argued there were "factual questions regarding the ongoing 'arrangement' between ON Wind and Alta" that precluded summary adjudication of that claim. AWCC also contended ON Wind was not entitled to summary judgment on any claim because AWCC's alter ego allegations involved numerous factual questions.
After oral argument on the motion, the trial court took the matter under submission. The trial court subsequently issued a minute order with its ruling granting the motion. The trial court found there could not be a breach of contract between ON Wind and AWCC as a matter of law because they never entered into any contract. Therefore, AWCC did not have standing to seek declaratory relief concerning its rights and duties as to ON Wind or assert breach of the implied covenant of good faith and fair dealing against ON Wind. The trial court further found the power of attorney in the royalty agreement "d[id] not confer authority on [AWCC] to litigate any of these claims on [Alta]'s behalf." The trial court entered judgment for ON Wind and against AWCC on February 14, 2019, which decreed that ON Wind submit its memorandum of costs and motion for attorney fees.
While the trial court ordered ON Wind to prepare an order consistent with this ruling, there is no such order in the clerk's transcript.
The trial court granted ON Wind's motion for fees, which AWCC challenges by separate appeal that is pending in this court in AWCC Acquisition I, LLC v. ON Wind Energy, LLC, F079720.
DISCUSSION
I. Standard of Review
Summary judgment is proper only if there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subds. (c).) As the moving party, ON Wind had the initial burden to show AWCC's action has no merit, which can be met by showing AWCC cannot establish one or more elements of its claim. (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 168-169; Code Civ. Proc., § 437c, subd. (p)(2).)
If ON Wind meets that burden, the burden shifts to AWCC to present evidence establishing triable issues exist on one or more material facts. (Teselle v. McLoughlin, supra, 173 Cal.App.4th at pp. 168-169; Code Civ. Proc., § 437c, subd. (p)(2).) A triable issue of material fact exists" 'if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.' [Citation.] Thus, a party 'cannot avoid summary judgment by asserting facts based on mere speculation and conjecture, but instead must produce admissible evidence raising a triable issue of fact.'" (Dollinger DeAnza Associates v. Chicago Title Ins. Co. (2011) 199 Cal.App.4th 1132, 1144-1145.)
We review the trial court's ruling on a summary judgment motion de novo and independently determine whether the moving party is entitled to judgment as a matter of law. (Hampton v. County of San Diego (2015) 62 Cal.4th 340, 347.) We consider all the evidence set forth in the moving and opposing papers, except that as to which objections have been made and sustained. (§ 437c, subd. (c).) We liberally construe the evidence in favor of the party opposing summary judgment and resolve all doubts concerning the evidence in favor of that party. (Hampton v. County of San Diego, at p. 347.)
We are not bound by the trial court's stated reasons for granting summary judgment, as we review" 'the trial court's ruling, not its rationale.'" (Dollinger DeAnza Associates v. Chicago Title Ins. Co., supra, 199 Cal.App.4th at p. 1144; Carnes v. Superior Court (2005) 126 Cal.App.4th 688, 694 [the "sole question" before us is whether the trial court "reached the right result … whatever path he might have taken to get there"].) Here, the trial court concluded AWCC lacked standing to assert its contract and declaratory relief claims against ON Wind because there was no contract between them, and the royalty agreement's power of attorney provision did not confer authority on AWCC to litigate these claims. We do not reach the standing issue, however, because the judgment may be affirmed on alternative grounds, namely, that AWCC's contract and declaratory relief claims are without merit.
We acknowledge that Code of Civil Procedure section 437c, subdivision (m)(2) requires an appellate court to provide the parties an opportunity to submit supplemental briefs presenting their views before the court affirms an order granting summary judgment on a ground the trial court did not rely on. ON Wind's brief addresses the merits of each of the three claims asserted against it. AWCC addresses the breach of contract claim in its opening and reply briefs, asserting there are triable issues of material fact on that claim and if we reverse on the standing issue, we should allow the merits of the claims for breach of the implied covenant of good faith and fair dealing and declaratory relief to be addressed first by the trial court. Since AWCC had a full and fair opportunity to brief the merits of all three of its claims in this court, Code of Civil Procedure section 437c, subdivision (m)(2) does not apply, and we may decide these issues based on the parties' briefing. (See, e.g., Flores v. Enterprise Rent-A-Car Co. (2010) 188 Cal.App.4th 1055, 1072, fn. 10 [Code Civ. Proc., § 437c, subd. (m)(2) inapplicable where the appellants had the opportunity to address the ground on which the appellate court affirmed but failed to do so]; Bains v. Moores (2009) 172 Cal.App.4th 445, 471, fn. 39; Byars v. SCME Mortgage Bankers, Inc. (2003) 109 Cal.App.4th 1134, 1147, fn. 7.)
Here, AWCC's case turns on the interpretation of the lease and royalty agreement. The construction of a written instrument is essentially a judicial function to be carried out according to generally accepted canons of interpretation. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) When interpreting a contract, a court must give effect to the parties' mutual intention as it existed at the time of contracting. (Civ. Code, § 1636; Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955 (Founding Members).) The parties' intent must be determined solely from the contract's written language, if possible. (Civ. Code, § 1639.) "California recognizes the objective theory of contracts [citation], under which '[i]t is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation.' [Citation.] The parties' undisclosed intent or understanding is irrelevant to contract interpretation." (Founding Members, supra, 109 Cal.App.4th at p. 956.)
Using these principles of review and contractual interpretation, we address each claim AWCC asserted against ON Wind below and find there are no triable issues of material fact and ON Wind is entitled to judgment as a matter of law.
Because we agree with ON Wind on the merits, we need not address its arguments that (1) AWCC is collaterally estopped from relitigating whether Alta leased or demised its property to a third party, and (2) the declaratory relief claim is not viable because the Federal Energy Regulatory Commission (FERC) issued an order in 2019 which determined Alta was the owner and operator of the wind farm. We deny ON Wind's pending request for judicial notice of court records concerning the Oak Creek summary judgment motion and the trial that was held on AWCC's claims against Alta, as well as the documents concerning the FERC's approval of the transfer of assets and operational control to Alta, because they are unnecessary to our analysis.
II. Breach of Contract
In the first amended complaint, AWCC alleged ON Wind breached the lease by failing to make all royalty payments required under the lease and improperly terminating the lease while in default and without notifying the appropriate parties of the purported termination. To prevail on a breach of contract claim, AWCC "must prove (1) the contract, (2) the plaintiff's performance of the contract or excuse for nonperformance, (3) the defendant's breach, and (4) the resulting damage to the plaintiff." (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)
On appeal, AWCC asserts there is an issue of fact concerning whether ON Wind properly terminated the lease because: (1) ON Wind was in default when it gave its notice of termination, since it was not current on its rent payments; (2) ON Wind did not make a good faith determination that "the project 'will not be profitable or commercially or legally practicable without incurring extraordinary costs or expenses' "; and (3) ON Wind was in default on the effective date of termination, since it had not paid the audit costs and attorney fees AWCC incurred in its efforts to collect the unpaid royalties and minimum rent.
A. The Notice of Termination
The first issue, whether ON Wind could provide notice of termination when it was in default under the lease, calls for interpretation of the termination provision in the ON Wind lease. The provision in the ON Wind lease that allows the lessee to terminate the lease early is contained in section 20.1, which provides, in pertinent part: "Provided no Lessee Default has occurred and is then continuing at the time of Lessee's exercise of the following right of termination, or on the effective date of such termination, Lessee shall have the right to terminate this Agreement if Lessee determines in its good faith reasonable discretion, that the operation of Lessee's Project on the Leased Premises will not be profitable or commercially or legally practicable without incurring extraordinary costs or expenses.… Lessee shall effect a termination meeting the requirements of this Section 20.1 by giving Lessor at least one hundred eighty (180) days' prior written notice and paying any Rent due for such one hundred eighty (180) day period." The ON Wind lease defines a "Lessee Default" in section 19.1 as, among other things, "[t]he failure by Lessee to pay amounts required to be paid to Lessor hereunder when due," while a "Lessee Event of Default" occurs when the lessee fails "to pay amounts required to be paid to Lessor hereunder when due, when such failure has continued for thirty (30) days after written notice from Lessor."
Reading these sections together, a lessee has the right to terminate the lease provided it is not in default, namely, it has not failed to pay the lessor amounts required to be paid when due, "at the time of Lessee's exercise of the following right of termination, or on the effective date of such termination." (Emphasis added.) The use of the word "or" shows the two clauses should be read in the disjunctive or alternative, which means the default may not exist either when the lessee provides notice of the termination or on the effective date of termination. In this case, the undisputed evidence shows that while ON Wind was in default when it gave the notice of termination, as it had not paid the minimum rent for 2016 or the royalties for much of 2017, by the time the termination was effective on January 10, 2018, it had paid all past due royalties and minimum rent.
AWCC asserts we should read this provision in the conjunctive, meaning the lessee must not be in default when the lessee provides notice of the termination and on the effective date of termination. But that is not what the lease says. Where the language of a contract is clear and not absurd, it will be followed. (Civ. Code, § 1638.) Here, the lease's language is clear and not absurd, as it ensures that termination will not be complete until the lessee cures any default. Since it is undisputed ON Wind paid the minimum rent and royalties due in full before the effective date of termination, the termination is not invalidated because ON Wind had not paid those amounts when it gave notice of termination and there can be no breach on this basis.
B. The Profitability Determination
AWCC next contends there is an issue of fact concerning whether ON Wind's profitability determination was made in good faith. To terminate the lease, ON Wind was required to "determine[] in its good faith reasonable discretion, that the operation of [ON Wind]'s Project on the Lease Premises will not be profitable or commercially or legally practicable without incurring extraordinary costs or expenses."
AWCC acknowledges that Scobee stated in his declaration in support of ON Wind's summary judgment motion that he determined "ON Wind would no longer be profitable based on ON Wind's recent negative performance resulting from a sustained drop in energy rates in California and on projections showing ON Wind would not likely turn a profit in light of those rates and its operational expenses." AWCC asserts, however, it presented evidence that at a minimum creates a triable issue of fact concerning whether ON Wind exercised its discretion in good faith.
We disagree that AWCC's evidence creates a triable issue of fact, as it is taken out of context. First, AWCC points to an internal Terra-Gen email concerning a cash flow projection Terra-Gen generated for ON Wind for 2017. In that email, Terra-Gen personnel explained the projection did not reflect any royalty payments because the cash balance never got to $50,000, Terra-Gen had effectively loaned money to ON Wind as there had not been enough revenue to cover expenses and they had not allowed ON Wind's checking account to go to a negative balance, and "for this exercise" it made "sense to show a negative balance to emphasize why we are not paying royalty."
AWCC asserts this email shows ON Wind's accounts did not have a negative balance and ON Wind was going to show a negative balance only to emphasize why it was not paying royalties. But the email does not state that ON Wind was not profitable; instead, it shows ON Wind projected it would not make sufficient revenue to pay the royalties and rather than show infusions of cash from Terra-Gen to prevent ON Wind's checking account from going negative, the projection showed a negative balance. There is nothing in this email to indicate ON Wind in fact had sufficient revenue to cover its expenses after royalties were paid.
AWCC next points to an email from Scobee to others at Terra-Gen in which he stated the numbers for the ON Wind project showed it was headed toward having negative EBITDA of $250,000 for the year, the $440,000 lease payments were a "financial strangle to the project," and if the project was in Alta's hands, thereby not requiring "any lease payments whatsoever," it would have a positive EBITDA of $200,000. While AWCC asserts this email shows ON Wind could operate at a profit because the project would have a positive EBITDA if royalties were not paid; instead, it shows the opposite, namely, that with the royalties in place, it could not operate profitably. AWCC seems to believe ON Wind's profitability determination must be made without considering the royalties. There does not appear to be anything in the lease, however, that requires ON Wind to determine profits without taking the royalties into account.
Finally, AWCC points to the testimony of Dan McMahon, who was deposed as AWCC's person most knowledgeable. McMahon testified AWCC's analysis of the ON Wind project showed ON Wind would not be profitable when combining the payments Terra-Gen received as the management fee for operating the project along with the other expenses, including the rent. McMahon further testified that the position of AWCC's parent company is to pay rent before paying a management fee, which he thought was normal industry practice, but he would not say what Terra-Gen should do. AWCC asserts this shows ON Wind's profitability determination may be called into question because it paid management fees to Terra-Gen as well as "unknown expenses" before rent was paid. The order of payment of expenses, however, does not show whether ON Wind was profitable. Even if ON Wind paid rent to AWCC before its other expenses, if its expenses exceeded its revenues, it was not profitable. Therefore, AWCC did not create a triable issue of fact concerning whether ON Wind determined in its "good faith reasonable discretion" that the operation of the project would not be profitable, as required by the early termination provision of the lease.
C. The Attorney Fees and Audit Costs
AWCC lastly contends ON Wind was in default on the effective date of termination because ON Wind did not pay AWCC the costs and attorney fees it incurred when it exercised its remedies resulting from ON Wind's default, namely, the audit costs and attorney fees incurred in relation to the audit and the filing of this lawsuit. AWCC asserts it was entitled to recover these amounts pursuant to section 19.4 of the lease, which provides: "Each of Lessor and Lessee shall be entitled to recover from the other party hereto all reasonable expenses, including reasonable attorneys' fees and expenses incurred in connection with exercising its remedies resulting from a Default of the other party hereto pursuant to this Lease."
AWCC also contends the order granting summary judgment must be reversed because the trial court found there was "a genuine issue of material fact as to whether On Wind was in default as of the effective date of termination based on failure to pay all delinquent amounts" when ruling on Alta's summary judgment motion. Alta's summary judgment motion, however, is not before us. Moreover, we independently review whether there is a triable issue of material fact, and we conclude, on this record, that a triable issue of fact does not exist.
To the extent AWCC is entitled to recover its "reasonable expenses" under this provision, the failure to pay those expenses on demand is not a default under the lease. It is not an amount "required to be paid to Lessor hereunder when due" or a failure "to perform any other covenants, conditions or terms of this Lease," as set forth in the lease's default provisions, as the expenses do not have a due date and the provision does not state that the lessee is required to perform anything. Instead, section 19.4 is a provision that allows for an award of the "reasonable expenses" a party incurs in attempting to exercise the remedies available when the other party defaults.
The default provision provides that a "Lessee Default" occurs when the lessee fails "to pay amounts required to be paid to Lessor hereunder when due" or when the lessee fails "to perform any other covenants, conditions or terms of this Lease."
Here, AWCC exercised the remedy of suing for breach of contract. It was for the trial court to determine whether AWCC was entitled to recover attorney fees and audit costs in bringing this action. Where the contract grants attorney fees to the prevailing party, such fees are incidental to the principal cause of action and not an element of damages. (Mabee v. Nurseryland Garden Centers, Inc. (1979) 88 Cal.App.3d 420, 425.) Thus, the failure to pay absent a court order was not a default under the ON Wind lease.
AWCC questions the trial court's conclusion that ON Wind was entitled to its attorney fees, but AWCC was not, as reflected in the judgment that allows ON Wind to submit a motion for attorney fees. AWCC asserts it is entitled to attorney fees since ON Wind paid the past due rents and royalties after it filed this lawsuit. To the extent AWCC is arguing the trial court erred in finding ON Wind was the prevailing party, we do not reach the issue, as AWCC does not cite any legal authority to support its argument. An appellate brief must "support each point by argument and, if possible, by citation of authority" (Cal. Rules of Court, rule 8.204(a)(1)(B)), and a party forfeits the right to appellate review of an argument where the party fails to cite applicable supporting authority (Estate of Cairns (2010) 188 Cal.App.4th 937, 949).
AWCC also asserts ON Wind was required to pay the audit fees before the effective date of the lease's termination under the provision of the lease that allows the lessor to audit records reflecting ON Wind's adjusted gross revenue for the preceding calendar year "at Lessor's expense," but if the audit "reveals an understatement of Adjusted Gross Revenue of more than two percent … in any calendar year, Lessee shall reimburse Lessor for all reasonable costs of the audit." While AWCC cites to the ultimate amount of past due rent the audit determined ON Wind owed as evidence of a greater than two percent understatement of adjusted gross revenue, that does not show such an understatement or even allow such an inference. AWCC does not cite to any "understatement of Adjusted Gross Revenue" that would have required ON Wind to pay AWCC's audit fees as contractual damages.
Since the undisputed evidence shows ON Wind paid the rents and royalties in full through the termination of the lease and the lease was properly terminated, its duty to pay rent ended. Consequently, ON Wind did not breach the lease and it is entitled to judgment on AWCC's breach of contract claim.
III. Breach of the Implied Covenant of Good Faith and Fair Dealing
AWCC alleged in the first amended complaint that ON Wind breached the implied covenant of good faith and fair dealing when it "unfairly interfered" with AWCC's right to receive the lease's benefits by purporting to terminate the lease early with no intention to stop operating the project and by continuing to operate the project with no intention of making payments to AWCC.
Every contract contains an implied covenant of good faith and fair dealing that" 'neither party will do anything which will injure the right of the other to receive the benefits of the agreement.'" (Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400.) This implied covenant is "read into contracts 'in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract's purpose.'" (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 373 (Carma Developers); see Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1120 ["the implied covenant will only be recognized to further the contract's purpose"].)
The implied covenant "finds particular application in situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith." (Carma Developers, supra, 2 Cal.4th at p. 372; accord, Ladd v. Warner Bros. Entertainment, Inc. (2010) 184 Cal.App.4th 1298, 1306.) Nonetheless, if the express purpose of the contract is to grant unfettered discretion, and the contract is otherwise supported by adequate consideration, then the conduct is, by definition, within the reasonable expectation of the parties and "can never violate an implied covenant of good faith and fair dealing." (Carma Developers, at p. 376 [lessor's termination of lease for lessor's own financial gain was not breach of implied covenant of good faith because it was expressly permitted by the lease and therefore within parties' reasonable expectations]; see Wolf v. Walt Disney Pictures & Television, supra, 162 Cal.App.4th at pp. 1120‒1121; see also Third Story Music, Inc. v. Waits (1995) 41 Cal.App.4th 798, 808 ["courts are not at liberty to imply a covenant directly at odds with a contract's express grant of discretionary power except in those relatively rare instances when reading the provision literally would, contrary to the parties' clear intention, result in an unenforceable, illusory agreement"].)
"[B]reach of a specific provision of the contract is not a necessary prerequisite to a claim for breach of the implied covenant of good faith and fair dealing." (Schwartz v. State Farm Fire & Casualty Co. (2001) 88 Cal.App.4th 1329, 1339; accord, Carma Developers, supra, 2 Cal.4th at p. 373 ["breach of a specific provision of the contract is not a necessary prerequisite" to an action for breach of the implied covenant of good faith; "[w]ere it otherwise, the covenant would have no practical meaning, for any breach thereof would necessarily involve breach of some other term of the contract"].) However, a claim for breach of the implied covenant "must show that the conduct of the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement." (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395; see Mosley v. Pacific Specialty Ins. Co. (2020) 49 Cal.App.5th 417, 435‒436.)
Here, as we explained above, the undisputed facts show that ON Wind properly exercised its express right to terminate the lease. Once the lease terminated, ON Wind's express and implied duties under the lease also terminated. (Grant v. Aerodraulics Co. (1949) 91 Cal.App.2d 68, 75 [termination of a contract "means to abrogate so much of it as remains unperformed, thereby doing away with the existing agreement upon the terms and with the consequences agreed upon"]; 1 Witkin, Summary of Cal. Law (2022) Contracts, § 955 [when a contract is terminated," 'all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives"].) Therefore, once the lease terminated, ON Wind no longer had a duty to pay rents or royalties under the lease.
AWCC alleged ON Wind had no intention of stopping operation of the wind farm when it terminated the lease, but as ON Wind points out, the lease did not require the operation of the wind farm to stop on the lease's termination. Rather, the early termination provision of the lease contemplates that Alta may continue to operate the wind farm if it elects to have ON Wind leave the turbines in place at termination, which is what Alta did. While the royalty agreement provides for its reinstatement if Alta entered into a "lease, easement or other similar arrangement" with a "third party for the generation of wind energy" by which the property is "leased or otherwise demised" within three years of the lease's termination, that provision does not reinstate the original lease or require anything of the third party. Rather, Alta would be required to pay AWCC the royalties or rents it receives in connection with the "subsequent lease, easement or other similar arrangement."
AWCC essentially contests ON Wind's right to terminate the lease because the royalty agreement terminated with it and Alta ended up owning the turbines free of any rental obligations to AWCC. AWCC contends this outcome is unfair because Alta and ON Wind were affiliated when the lease was terminated. But the lease and royalty agreement expressly permitted this outcome. The lease acknowledged the lessee and lessor entities could be held in common ownership, as shown by the inclusion of a merger clause, and the project agreements do not impose any limitation on termination based on common ownership. In addition, the lease granted ON Wind the right to terminate the lease without AWCC's or Alta's consent and granted Alta the right to take ownership of the leases on termination.
The lease's merger clause provides: "There shall be no merger of this Lease, the leasehold estate created by this Lease, or the easements granted herein with the fee estate in the Oak Creek Property by reason of the fact that this Lease, the leasehold estate, any interest in the leasehold estate, or any easement granted hereunder may be held, directly or indirectly, by or for the account of any person or persons who shall own the fee estate or any interest therein, and no such merger shall occur unless and until the persons holding such interests in the Oak Creek Property, and all persons (including the Mortgagee) having an interest [in] this Lease, the leasehold estate, any interest in the leasehold estate, and any easement granted hereunder shall join in a written instrument effecting such merger and shall duly record the instrument."
Even if ON Wind worked with Alta to allow for the continued operation of the wind farm following the lease's termination, the lease expressly permitted both early termination and Alta's ability to take possession of the turbines. Neither the leases nor the royalty agreements required Alta to decline to accept the turbines should an affiliate such as ON Wind decide to exercise early termination rights, or otherwise prohibit Alta from operating the wind farms following early termination by an affiliate. ON Wind simply exercised its rights under the parties' agreement to terminate the lease early; it was not attempting to get more than it had bargained for. Had AWCC intended to limit the right of early termination or Alta's ability to accept the turbines only to situations where the lessee is not an affiliate of the lessor, it could have included that restriction in the royalty agreements. It is not the function of the implied covenant of good faith and fair dealing to correct lapses of one party's negotiating team. (See generally Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349‒350 [the implied covenant of good faith and fair dealing "cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement"].)
Since the covenant of good faith and fair dealing is limited to assuring compliance with the contract's express terms, terminating the lease as permitted by its terms, even if solely because it was in the financial interests of Alta and ON Wind to do so, cannot frustrate the reasonable expectations of the parties and thereby breach the covenant. (See Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094 [" 'The implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract.' "].) Accordingly, ON Wind is entitled to judgment on AWCC's claim for breach of the implied covenant of good faith and fair dealing.
IV. Declaratory Relief
In its declaratory relief claim, AWCC alleged "[a]n actual and justiciable controversy exists between AWCC and ON Wind concerning whether ON Wind remains a tenant of the leased premises and whether ON Wind's tenancy constitutes a successor lease or other right to occupy under the ON Wind [royalty agreement]." AWCC sought a declaration that "ON Wind remains a tenant of the leased premises and that ON Wind's tenancy constitutes a successor lease or other right to occupy under the ON Wind [royalty agreement]."
In asserting this claim, AWCC relies on section 7.10 of the royalty agreement, which provides that if ON Wind terminates the lease early, "then, if Landowner enters into any subsequent lease, easement or other similar arrangement within three (3) years after such termination pursuant to which all or a portion of the Property is leased or otherwise demised … by Landowner to a third party for the generation of wind energy, this Agreement shall be reinstated in its entirety on the date such lease or other arrangement is entered into and, AWCC's right to receive the royalties or rents payable in connection therewith shall continue for a term equal to the term remaining under this Agreement as of the date of such termination" (the tail provision).
Pursuant to the plain terms of the tail provision, if ON Wind terminates its lease early, the royalty agreement will be reinstated if (1) Alta "enters into any subsequent lease, easement or other similar arrangement" within three years after the termination, (2) in which the property, either in whole or in part, is "leased or otherwise demised," (3) to a third party, (4) for the generation of wind energy. If triggered, the reinstatement clauses entitle AWCC to receive the rents payable in connection with the new "lease or other arrangement."
ON Wind's evidence shows that ON Wind did not enter into a lease with Alta, but rather it received a revocable license to operate the wind farm in exchange for payment from Alta for the assets it would transfer to Alta and its operating costs. AWCC asserts there is an issue of fact as to whether this constitutes a "similar arrangement" within the meaning of the tail provision. A license, however, is not similar to a lease or a demise, as it does not create or convey an interest in real property. (Richardson v. Franc (2015) 233 Cal.App.4th 744, 758‒759; accord San Jose Parking, Inc. v. Superior Court (2003) 110 Cal.App.4th 1321, 1329 ["licenses create no interest in real property"]; Chandler v. Hart (1911) 161 Cal. 405, 413 ["[a] demise is defined as 'a conveyance either in fee, for life, or for years,' and as 'a lease or conveyance for a term of years' "].)
Moreover, for the tail provision to apply, ON Wind must be a "third party." Pursuant to the terms of the tail provision, the "Project Company" first must terminate the lease. The royalty agreement defines the "Project Company" as ON Wind. The tail provision goes on to state the royalty agreement is reinstated if the landowner leases or demises the property to a "third party." Since ON Wind is a "Project Company" within the meaning of the tail provision, it cannot also be a "third party" to whom the landowner leases or demises the property within the same provision. (See, e.g., Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1386 [plaintiff's interpretation of the term "gallon" in the parties' sales agreement "ha[d] a specified meaning that plainly conflicts with plaintiffs' proposed definition of that term"].) The use of the "third party" language required AWCC to prove that Alta entered a lease with a new project company.
Finally, AWCC did not present any evidence that Alta received royalties or rents from ON Wind. Alta entered into the APA to transfer assets and pay for operational services because Alta could not take operational control of the wind farms until it received certain consents and approvals, which Alta delayed in obtaining due to this litigation. Under the APA, Alta paid ON Wind a purchase price, which included payment for the assets and to compensate it for operating the turbines, which was offset by any net revenues ON Wind earned. ON Wind did not pay Alta anything in the form of rent. Instead, the transactions were set up to simulate Alta running the wind farms and keeping the revenues, with Alta paying ON Wind to operate them. There simply was no rent or royalty payments from ON Wind to Alta.
The only evidence AWCC produced to try to contradict ON Wind's evidence was Hinckley's understanding that "if ON Wind terminated the Lease and the lessor was able within three years to enter into another arrangement for the operation of a wind farm on the property, then the [royalty agreement] would be reinstated and AWCC would again be entitled to royalties or rent under the [royalty agreement]," as well as explanations of this arrangement by Scobee and Jeffrey Cast, who was an officer at Terra-Gen, in their depositions. But Hinckley's subjective unexpressed intent is irrelevant to the interpretation of the tail provision. (In re Marriage of Minkin (2017) 11 Cal.App.5th 939, 948 [" 'The parties' expressed objective intent, not their unexpressed subjective intent, governs'" when interpreting a contract]; Vaillette v. Fireman's Fund Ins. Co. (1993) 18 Cal.App.4th 680, 690 ["[t]he true, subjective, but unexpressed intent of a party is immaterial and irrelevant"].) And the deposition testimony showed merely that the APA allowed ON Wind to continue to operate the wind farm for Alta's benefit until the transaction closed. The testimony does not dispute the fact that the property was not leased or otherwise demised to a third party to generate wind energy for rent or royalties or support AWCC's assertion that the APA represents an arrangement similar to a lease under the royalty agreement.
In sum, the arrangement Alta entered into with ON Wind to continue to operate the wind farms while Alta obtained the necessary approvals to do so in its own name does not fall within the express terms of the tail provision. Therefore, AWCC was not entitled to a declaration that "ON Wind remains a tenant of the leased premises" and its "tenancy constitutes a successor lease or other right to occupy" under the royalty agreement, and ON Wind was entitled to judgment on that claim.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to ON Wind.
WE CONCUR: POOCHIGIAN, ACTING P. J., SMITH, J.