Opinion
H035915
12-15-2011
JAMES CAMPAGNA, Plaintiff, Cross-Defendant, and Appellant, v. GATLEY PROPERTIES, et al., Defendants, Cross-Complainants, and Appellants, KENNETH ARUTUNIAN, et al., Defendant, Cross-Defendant, and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Santa Clara County Super.Ct.No. 1-97-CV769000)
This is the fourth appeal arising out of a dispute over the terms of a commercial lease in Palo Alto. In the second appeal (H033518) we directed the trial court to recalculate the amount of overage rent to which Gatley Properties (Gatley), the lessor, was entitled, along with prejudgment interest. On this occasion both parties appeal from the resulting modified judgment. Campagna asserts error in computing not only overage rent, but also prejudgment interest and credit for his past overpayments. Gatley complains that the court deducted a subtenant expense from the overage rent to which he was entitled, and on that basis, calculated an insufficient amount of interest on the overage award. We will modify the judgment and otherwise affirm.
The third appeal (H034112) was dismissed for mootness.
Background
Gatley and Campagna have been embroiled in litigation since July of 1999, when Campagna filed a first amended complaint for declaratory relief against Gatley, the current lessor; Kenneth Arutunian, the original tenant who had assigned his rights under the lease to Campagna; and The Board of Trustees of the Leland Stanford Junior University (Stanford), the original lessor. Gatley filed a cross-complaint in October 1999 against Arutunian and Campagna, and in February 2000 it added Stanford as a cross-defendant.
Campagna's original complaint, filed in September 1997, named only Arutunian.
Gatley's amended cross-complaint asserted only two causes of action: declaratory relief against all cross-defendants; and declaratory relief against only Stanford. Gatley presented a dispute over the adjustment date and amount of the base rent on this commercial property, claiming an increase in the base rental rate effective July 1, 1999, the end of the 15th year of the lease. The trial court, in a December 8, 2000 judgment, agreed that base rent was to have adjusted for years 16 to 19 of the lease. It further ruled that "overage" rent -- an additional annual sum based on income received from subtenants -- disappeared after the 15th year.
In an opinion filed on February 3, 2003, this court reversed the 2000 judgment and remanded for calculation of overage rent, which we held had not been eliminated under a reasonable construction of the lease. On remand in August 2008, the trial court calculated the overage amount due as $197,412.19; but on August 19, 2009, we considered Gatley's second appeal and held that the lower court had erred in the formula it had used in calculating this rental component. Overage rent, under the terms of the lease, consisted of 35 percent "of any gross rental income over $1.50 per square foot, excluding any recoveries for expenses, but including rental adjustments for cost of living, etc. received from subtenants."
Overage rent was described in paragraph 16.3 of the lease, as follows: "In addition to the Base Rent and adjusted Base Rent in section[s] 16.1 and 16.2, Tenant shall pay to Landlord thirty-five percent (35%) of any gross rental income over $1.50 per square foot, excluding any recoveries for expenses, but including rental adjustments for cost of living, etc. received from subtenants. Annually, within twenty (20) days after the close of each calendar year, Tenant will furnish Landlord with a written statement certified as true and accurate by Tenant setting forth by calendar month the total amount of gross rental income received by Tenant from subtenants during the preceding calendar year with a calculation of the overage rent due Landlord and accompanied by the annual overage rental payment." The reference to paragraph 16.2 was to a provision that was deleted by an amendment to the lease in 1986.
In the August 2009 opinion we also addressed an issue raised by the parties regarding prejudgment interest, which had not been awarded in 2008. Campagna had opposed an interest award, contending that a noticed motion was required and that damages were not "certain, or capable of being made certain by calculation," within the meaning of Civil Code section 3287. We disagreed and directed the court to make the calculation.
Both Campagna and Gatley sought prejudgment interest. Throughout this litigation none of the parties appears to have questioned the right to such an award in a declaratory relief action. As the litigation progressed over the years, the parties in significant respects treated the issues as if they pertained to a breach-of-contract action, including the determination of prejudgment interest.
The trial court heard the remanded matter over three days, concluding on April 1, 2010. In its "Further Modified Judgment" filed June 2, 2010, the court stated that it was awarding overage rent in the amount of $197,167.70. In addition, it noted that Campagna had paid a third-party broker $47,131.99 as a leasing commission for the broker's procurement of Campagna's subtenant, Text 100. Finally, the court awarded prejudgment interest of $154,625 on the "overage rent award" at the rate of 10 percent per year as of April 1, 2010, with additional daily interest of $54.02 accruing between April 1 and the June 2 filing date.
Discussion
Although Kenneth Arutunian is a defendant as well as cross-defendant in this action, he joins in all of Campagna's arguments on appeal.
Campagna's challenge to the June 2, 2010 judgment is primarily directed at the court's adjustments to the overage award attributable to prejudgment interest and his overpayment credits. He further argues that the court erroneously accepted an overage rent figure proffered by Gatley, which was based on a larger building area than was identified in the lease. As to interest and credits, Campagna argues, (1) the court should have used seven percent as the prejudgment interest rate rather than 10 percent; and (2) the court incorrectly applied his overpayment credits to offset the interest. Campagna maintains that the correct net amount owed to Gatley is $21,534.88.
A. Building Area
We first examine Campagna's contention that the court should have based the overage calculation on a total area of 6,000 square feet, rather than 6,458, the number used by the court. Gatley responds only that "it makes absolutely no difference what the square footage is" because overage rent is "solely a function of Campagna's receipt of gross rental income from his subtenants . . . ." Campagna does not suggest that the actual square footage of the premises is only 6,000; he admits that he testified at the remand trial that the rented space totaled 6,458 square feet. Instead, he invokes waiver and judicial estoppel to argue that Gatley may not "attack" the prior judgments, which were based on 6,000 square feet.
But Gatley is not presently attacking any findings, old or new. Notwithstanding Gatley's dismissal of this factual question as irrelevant, it was litigated as a material issue in the remand trial regarding the overage amount due. The prior judgments had repeated the lease terms defining the space as "[t]hat approximate 5,000 sq. ft. building plus mezzanine of approximately 1,000 sq. ft." Upon the second remand, the court received, without objection, evidence bearing on the actual square footage. Its implied finding that 6,458 was the correct number for purposes of the overage calculation is supported by the testimony presented at trial.
B. Interest Rate
At trial Campagna urged the court to apply a seven percent interest rate for prejudgment interest, citing California Constitution, article XV, section 1. That provision limits annual rate of interest "upon a judgment" set by the Legislature to 10 percent, and specifies seven percent "[i]n the absence of any legislative act to the contrary." The task of the court on this occasion, however, was to compute prejudgment interest, not interest upon a judgment.
This part of article XV states: "The rate of interest upon a judgment rendered in any court of this state shall be set by the Legislature at not more than 10 percent per annum. Such rate may be variable and based upon interest rates charged by federal agencies or economic indicators, or both. [¶] In the absence of the setting of such rate by the Legislature, the rate of interest on any judgment rendered in any court of the state shall be 7 percent per annum."
Gatley calls attention to paragraph 3.4 of the 1984 lease, which sets 10 percent as the rate of interest on rent and other amounts that the tenant fails to pay. Campagna does not address this point in his reply brief. He does contend that Civil Code section 3289, subdivision (b), which applies to breaches of contract, permits a 10 percent interest rate only for contracts entered into after January 1, 1986. The contract at issue here, he notes, though twice amended after January 1, 1986, was originally executed in 1984; consequently, he argues, a seven percent rate should be applied. Campagna disregards subdivision (a) of this statute, however, which states that "[a]ny legal rate of interest stipulated by a contract remains chargeable after a breach thereof, as before, until the contract is superseded by a verdict or other new obligation." Subdivision (b) specifically refers to contracts entered into after January 1, 1986, and thus is simply inapplicable to the contract at issue here. Thus, whether or not this case is regarded as an action for breach rather than declaratory relief, there was no impediment, under either Civil Code section 3289 or article XV of the California Constitution, to the court's adherence to the terms of paragraph 3.4 of the lease. We conclude that the court did not err in applying a 10 percent rate of interest to the judgment rather than seven percent.
Civil Code section 3289, subdivision (b), provides, "If a contract entered into after January 1, 1986, does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after a breach."
As noted earlier, though the case originated as a declaratory relief action, the parties have litigated it as if it were a breach-of-contract dispute, with reference to awards of damages and, concomitantly, prejudgment interest. Whether the contracting parties contemplated this cost as contract interest or prejudgment interest is immaterial. The court's calculation of interest, though it was denominated "prejudgment interest" in accordance with this court's prior opinion, was consistent with the contract term calling for 10 percent interest on any "unpaid amount."
C. Overpayment Credit
At trial the parties vigorously litigated the amount of credit to which Campagna was entitled as a result of rent payments he had made over the course of the dispute. Gatley claimed a total overage figure of $244,299.69 plus 10 percent prejudgment interest of $190,124.36, discounted by (a) a payment made in January 2004 of $132,764.30 and (b) the previously adjudicated credit of $44,968.89. Gatley disputed Campagna's proposed exclusion from overage of a $47,131.99 leasing commission Campagna had paid a third-party broker who had procured the Text 100 sublease for Campagna. Campagna, however, combined the amounts due for base and overage rent and subtracted the total amounts he had paid, including a $3,500 security deposit, to arrive at a total amount due of $21,534.88, with prejudgment interest at seven percent equaling $6,293.08. Campagna emphasized that the calculations of the prior two judgments had been based on the lease term that had specified a total rental area of 6,000 square feet, not its actual 6,458 square feet.
He added that if the court were inclined to use a 10 percent rate, the "total interest based upon the running totals of payments that were made is $8,990.11."
The court agreed for the most part with Gatley, finding it entitled to $244,299.69. It disagreed with Gatley's position that the leasing commission should not be excluded from the amount due; accordingly, the court subtracted $47,131.99 to arrive at $197,167.70. In its written judgment the court set forth the overage amount Campagna had been obligated to pay on each annual due date, from January 20, 2000 through January 20, 2004. For each of these amounts the court added 10 percent annual interest, which totaled $154,625 through April 1, 2010, along with the $54.02 daily interest between April 1 and June 2, 2010 (the filing date of the judgment).
On appeal, Campagna contends that all of his payments as well as the previously adjudicated credit of $44,968.89 should have been credited against interest on the days they were paid rather than as of April 1, 2010. He points out that Gatley, having cashed each check, "had beneficial use of large overpayments for many years" before the date on which they were credited.
As Campagna explained in his trial brief on remand, the August 2008 judgment had determined that his credit for overpayments between July 1, 1999 and June 1, 2003 amounted to $44,968.89. These overpayments, according to the court's 2008 findings, were a response to the three-day eviction notice, which was in turn the result of Campagna's refusal to pay the increase in base rent demanded by Gatley. Campagna argued below that "it's all . . . rent. And there should be credit whether you call it base or overage rent. It's credit for rent when paid and how paid."
The court explained on that occasion that total base rent due between July 1, 1999 and June 1, 2003 was $460,000 ($9,600 per month); Campagna had paid $505,767.89, resulting in his credit of $44,968.89.
The trial court, however, found that these credits were "conditional and unliquidated." It correctly observed that Campagna had not appealed from the 2008 judgment; consequently, the credit for payments made between July 1, 1999 and June 1, 2003 is beyond challenge. The January 2004 payment of $132,764.30, the court found, was likewise "conditional and unliquidated," as it was "conditional on entry of this Judgment both to establish entitlement to any credit at all, as well as [sic] to establish the amount of any credit." As to this finding we find no error. (Cf. Howard v. American Nat. Fire Ins. Co. (2010) 187 Cal.App.4th 498, 535-536 [interest available on liquidated claim notwithstanding uncertainty regarding liability or existence of defendant's unliquidated counterclaim or offset]; Chesapeake Industries, Inc. v. Togova Enterprises, Inc. (1983) 149 Cal.App.3d 901, 907 [allowable interest under section 3287 not subject to defeat by setting up unliquidated counterclaim as an offset]; Wisper Corp. v. California Commerce Bank (1996) 49 Cal.App.4th 948, 960 [same]; see also Hansen v. Covell (1933) 218 Cal. 622, 629 [interest on balance of liquidated claim allowed from time it became due]; E. L. White, Inc. v. City of Huntington Beach 138 Cal.App.3d 366, 377-378 [following Hansen].)
We do note, as does Campagna, that the court mistakenly wrote "$44,908.99" as the amount of the credit determined in 2008. It is obviously a clerical error, however, and did not affect the court's calculations. The total credit the court attributed to Campagna's overpayments, $177,733.19, reflects the correct amount of $44,968.89.
The court had before it a letter accompanying the $132,764.30 check to Gatley's principal, Richard Gatley, tendered as "partial payment/credit against any sums which Mr. Campagna will owe to Richard Gatley/Gatley Properties, LLC. In the event the Court renders a ruling which is less than the amount paid, Mr. Campagna reserves the right to seek reimbursement."
Campagna also contends that the court erroneously found that his $3,500 security deposit was included in the 2008 judgment granting him a credit of $44,968.89. Gatley insists that the security deposit was in fact part of that calculation. The record, however, indicates otherwise. The 2008 judgment encompassed credit for payments made through June 1, 2003; the security deposit was paid on July 1 of that year. As reflected in Trial Exhibit 4, the amounts Campagna paid between July 1, 1999 and June 1, 2003 totaled $505,767,89, which is exactly the number the court determined to be the sum of Campagna's payments. Consequently, Gatley's representation that the security deposit was included in the 2008 judgment is unsupported. Gatley's further claim that Campagna should not receive any return of his deposit because the lease was in default at the termination of the lease is not consistent with the findings of the trial court, which appears to have intended Campagna to have the benefit of that credit.
We therefore agree with Campagna that he is entitled to a further credit of $3,500 against the amount due Gatley. Campagna does not suggest an adjustment to interest for this deduction; but we will allow him the opportunity to request one by remanding this matter once again. If the parties cannot come to agreement even on this point, they are free to submit the issue to the superior court for determination of the final amount.
II. Gatley's Appeal
The contentions in Gatley's opening and respondent's briefs are completely intermixed so that issues raised in its own appeal are combined with and repeated in the section purporting to be the opposition to Campagna's appeal. Disentangling these arguments and deciphering their meaning from Gatley's persistent use of sentence fragments have been challenging undertakings. The following assertions, however, appear to be at the core of its position as appellant: (1) The trial court's award of $197,167.70 for overage rent was insufficient, as it excluded the $47,131.99 leasing commission, contrary to the express language of paragraph 16.3; and (2) The award of prejudgment interest was based on the incorrect computation of overage rent.
We will not consider any arguments Gatley has made in response to Campagna's reply brief.
In its first contention, Gatley asserts that paragraph 16.3 calls for the exclusion of expenses recovered or recoverable from subtenants. Because the affected subtenant, Text 100, was not liable for the leasing commission, it was not, according to Gatley, an expense received from or payable by Text 100.
Campagna displays commendable candor in partially agreeing with Gatley that the overage amount was understated by the court. We disagree, however, that any error occurred in the exclusion of the leasing commission. Gatley's position depends on a reading of paragraph 16.3 that does not comport with a fair reading of its language. The provision calls for Campagna to pay Gatley 35 percent "of any gross rental income over $1.50 per square foot, excluding any recoveries for expenses, but including rental adjustments for cost of living, etc. received from subtenants." Gatley's construction would require an extra comma after "etc." to isolate the rental adjustments within a nonessential appositive phrase. By contrast, the phrase "rental adjustments for cost of living, etc." denotes what are received from subtenants. The expenses to be deducted need not be only those recoverable from subtenants, as they are set forth in a segregated part of the sentence. As the paragraph contains no limit (other than the specified "rental adjustments"), of either the nature or the amount of the expenses, the trial court did not err in excluding the entire leasing commission from the overage award. That the court misstated the nature of the expense as having been received from Text 100 does not alter this result.
Campagna describes the error as the result of the failure to deduct only 35 percent of the leasing commission as Gatley's "share."
The court's reference to the commission as a recovery for expenses received "from Text 100" exactly duplicated the language Gatley used in his proposed judgment.
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Gatley's complaint regarding the amount of prejudgment interest is predicated entirely on a finding of error in the overage calculation. As we have concluded, the only error we have found here is in the exclusion of Campagna's $3,500 credit. Because we find no insufficiency in the amount awarded to Gatley, we must reject its argument that it should receive additional interest.
Disposition
The judgment is reversed. The trial court is directed to reduce the judgment in Gatley's favor by $3,500 and, if requested by Campagna, to recalculate prejudgment interest accordingly. If there is no such request within the time set by the trial court, then the court shall enter judgment for $348,292.70. The parties shall bear their own costs in both appeals.
ELIA, J.
WE CONCUR:
RUSHING, P. J.
PREMO, J.