Opinion
D071910
07-25-2018
FITNESS INTERNATIONAL, LLC, Plaintiff and Respondent, v. MONTEREY PROPERTY ASSOCIATES ANAHEIM, LLC et al., Defendants and Appellants.
Bewley, Lassleben & Miller and Ernie Zachary Park for Defendants and Appellants. Schwartz Semerdjian Cauley & Moot, Dick A. Semerdjian and Sierra J. Spitzer for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2014-00034441-CU-BC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Randa Trapp, Judge and William McCurine, Temporary Judge. Affirmed. Bewley, Lassleben & Miller and Ernie Zachary Park for Defendants and Appellants. Schwartz Semerdjian Cauley & Moot, Dick A. Semerdjian and Sierra J. Spitzer for Plaintiff and Respondent.
The parties stipulated to have retired federal Magistrate Judge William McCurine serve as referee. (Code Civ. Proc., §§ 638, subd. (a), 640, subd. (a).)
Defendants Monterey Property Associates Anaheim, LLC (Landlord) and its management company Athena Property Management (Athena) appeal a judgment declaring Landlord responsible for certain roof repairs under a commercial lease. Under the lease, Fitness International, LLC (Tenant) is responsible for "any repairs necessitated by . . . improvements made by or on behalf of Tenant." Landlord and Athena argue that roof repair over the pool area was necessitated by such an improvement (Tenant's installation of a pool) and therefore was Tenant's responsibility.
We conclude the lease does not require Tenant to repair ordinary wear and tear to the roof brought about by normal, expected use of an indoor pool. Because substantial evidence supports the finding that the roof deterioration over the pool was mere wear and tear, we affirm the judgment. We also affirm the award of costs to Tenant as the prevailing party notwithstanding its failure to file a memorandum of costs.
FACTUAL AND PROCEDURAL BACKGROUND
Tenant owns and operates a nationwide chain of "LA Fitness" gyms. In 2001, it entered into a commercial lease with Landlord's predecessor-in-interest for property on Navajo Road in San Diego. The property was part of a shopping center built in 1971.
The lease allowed Tenant to make certain improvements, defined as "Tenant Improvements," to convert the retail space into a gym. As part of the buildout, Tenant constructed an indoor pool, ventilated with HVAC systems on the roof. During construction, Tenant moved existing HVAC equipment and installed skylights; in doing so, it replaced between two and five percent of the roof structure, leaving the remainder in its original state, and installed a new roof membrane. Landlord's predecessor approved construction plans and contributed $2.7 million toward the pool and associated roof work. The 15-year lease term commenced after construction completed, in January 2003.
As explained at trial, a roof includes a roof membrane and roof structure. The "roof membrane" is the watertight outermost layer of roofing that wraps to the perimeter walls. Beneath it lies the "roof structure" which includes both sheathing (in this case plywood decking) and associated structural components.
Landlord acquired the property "as is" in 2013, knowing the roof above the pool was in bad shape. During the due diligence process, it discovered the plywood deck (part of the roof structure) had rotted through and was a fall-through hazard. In 2014, Landlord's property manager Athena asked Tenant if it had repaired the roof over the pool area. Tenant responded that roof repair was the Landlord's obligation under the lease. The parties were unable to reach an agreement, with each contending roof repair over the pool was the other side's responsibility.
Tenant filed a complaint for declaratory relief against Landlord and Athena to resolve who was responsible under the lease to repair the roof over the pool area. Landlord filed a cross complaint for declaratory relief. The parties stipulated to resolving all issues by way of a general reference pursuant to Code of Civil Procedure, sections 638, subdivision (a) and 640, subdivision (a).
A general reference occurs where the court, with the consent of the parties, appoints a referee to "hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision." (Code Civ. Proc., § 638, subd. (a).) "The hearing before a referee is conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings." (Sy First Family Ltd. Partnership v. Cheung (1999) 70 Cal.App.4th 1334, 1341.) "In the case of a general reference, the referee must prepare a statement of decision which stands as the decision of the court and is reviewable in the same manner as if the court had rendered it." (Ibid.; Code Civ. Proc., §§ 644, subd. (a), 645.)
In essence, Landlord and Athena claimed Tenant was responsible. Section 10.1 of the lease made Tenant responsible for repairs necessitated by "improvements" made by or on behalf of the Tenant. They claimed the pool, built during the "Tenant Improvements" period, was such an "improvement." They believed condensation from the pool caused dry rot to the roof structure.
All further section references are to the lease unless otherwise specified.
By contrast, Tenant argued section 10.2 of the lease made Landlord (and Athena as its property manager) responsible. It read section 10.1 to exclude "Tenant Improvements" from the word "improvements." It also claimed it was not responsible to ameliorate the effects of ordinary wear and tear resulting from normal, expected use of an indoor pool. Tenant argued that at most, section 10.2 required it to pay its pro rata share of repair costs, amortized over the useful life of the repair.
"Tenant's Pro Rata Share" is defined as the square footage of Tenant's gym divided by the square footage of the entire shopping center, which equals 29.77 percent. The lease requires capital expenditures incurred by the Landlord for common area maintenance to be "amortized over the useful life of the respective capital improvement in accordance with generally accepted accounting principles."
Following a two-day trial, the referee issued a statement of decision. Referee McCurine found Landlord responsible for roof repair and required Tenant to contribute its pro rata share of amortized repair costs. The superior court adopted the referee's statement of decision as the decision of the court and entered judgment. (Code Civ. Proc., § 644, subd. (a).) Tenant filed a postjudgment motion before the referee seeking attorney fees and costs. Finding Tenant was the prevailing party, the referee awarded $155,462 in fees and $25,418 in costs. The court entered the referee's ruling as a postjudgment order.
DISCUSSION
Landlord and Athena appeal the judgment and the postjudgment fee and cost award. Although we reach our conclusion on different reasoning than the referee, we agree the lease does not require Tenant to make roof repairs that are the result of gradual wear and tear caused by normal use of an indoor swimming pool. Roof repair is instead Landlord's duty, and Tenant is required to contribute only its pro rata share. For reasons we explain, we also find no error in the award of attorney fees and costs. 1. The Referee Properly Found Landlord, Not Tenant, Responsible for Roof Repair
a. Section 10.1 does not require Tenant to repair deterioration caused by ordinary wear and tear
"Tenant's Obligations" are set forth in section 10.1 of the lease. The provision states in relevant part:
"Tenant's Obligations. . . . Tenant shall also be responsible for the repair of any and all damage to the Premises and/or the Shopping Center caused by any act of Tenant or its employees, agents or contractors or any repairs necessitated by alterations, additions or improvements made by or on behalf of Tenant.""Landlord's Obligations" are set forth in section 10.2, which provides in relevant part:
"Landlord's Obligations. Subject to the foregoing, Landlord shall keep, repair and maintain in good and tenantable condition and repair . . . the roof, roof membrane, exterior walls, structural parts and structural floor . . . . Tenant shall reimburse Landlord for Tenant's Pro Rata Share of all costs and expenses incurred by Landlord pursuant to this Section 10.2."
The referee concluded that the lowercase word "improvement[]" in section 10.1 did not include the defined term, "Tenant Improvements." It adopted Tenant's position that section 10.1 applied only to repairs resulting from subsequent improvements during the lease term, not improvements made during the pre-lease term buildout phase in which the pool was built. It further concluded the deterioration of the roof over the pool reflected ordinary wear and tear, not damage caused by a design defect or other Tenant act.
The referee's statement of decision contains both findings of fact and conclusions of law. We apply de novo review to conclusions of law and independently construe governing provisions in the lease. (ASP Properties Group v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266 (ASP).) "A lease agreement establishing a landlord-tenant relationship is a contract and is subject to the general rules governing the formation and interpretation of contracts." (Id. at p. 1268.) Our aim is to "give effect to the mutual intention of the parties as it existed at the time of contracting." (Civ. Code, § 1636; Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 752 (Mountain Air).) If possible, we ascertain such intent "from the writing alone." (Civ. Code, § 1639.) We look to the " 'clear and explicit' " meaning of lease provisions and interpret terms in their " 'ordinary and popular sense.' " (Mountain Air, at p. 752; Civ. Code, §§ 1638, 1644.) We consider extrinsic evidence to ascertain a meaning only if the contract language is susceptible of more than one reasonable construction. (ASP, at p. 1266.) In such circumstances, we review the lease and any extrinsic evidence de novo unless the interpretation depends on resolving disputed factual issues, in which case we accept the factual findings adopted by the trier of fact if supported by substantial evidence. (Id. at pp. 1266-1267.)
The referee concluded the lease was an arms-length contract between sophisticated parties and declined to resolve ambiguities against either side. We follow the same approach. (Cf. Civ. Code, § 1654.)
The parties argue at length whether the referee properly excluded repairs necessitated by "Tenant Improvements" from the scope of section 10.1. We do not need to resolve this issue and assume for purposes of our analysis that section 10.1 requires Tenant to make any repairs necessitated by "Tenant Improvements," including the pool. The key question as we see it is whether that repair obligation extends to ordinary wear and tear. (ASP, supra, 133 Cal.App.4th at p. 1268 [affirmance is allowed on any correct basis presented by the record, whether or not relied upon below].) If section 10.1 covers repair necessitated by ordinary wear and tear, Tenant is required to repair the roof. Otherwise, roof repair remains a Landlord responsibility under section 10.2.
Section 10.1 falls within the chapter of the lease dealing with "Maintenance, Repairs, Alterations." We construe the provisions in this chapter together. (Civ. Code, § 1641 ["The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping interpret the other."].)
• Under section 10.1, Tenant is responsible for repairing "any and all damage" caused by a Tenant act or "any repairs necessitated by . . . improvements."
• "Subject to the foregoing," section 10.2 requires Landlord to "keep, repair and maintain in good and tenantable condition and repair . . . the roof, roof membrane, exterior walls, structural parts and structural floor." It also requires Tenant to reimburse Landlord for its Pro Rata Share of repair costs.
• When the lease term expires, section 10.3 requires Tenant to "surrender the Premises to Landlord in good and broom clean condition, excepting ordinary wear and tear and damage caused by fire or other casualty." (Italics added.)
• Section 10.4 forbids Tenant from making "any repair or alteration which affects . . . the exterior walls or roof of the Premises" without the Landlord's prior written consent, but consent will not be unreasonably withheld.
As we interpret these provisions, roof maintenance and repair is generally a Landlord obligation under section 10.2. The Tenant has a duty to repair the roof, roof membrane, exterior walls, etc. under section 10.1 only if something it does damages those structures. For example, if Tenant's employee discarded a lit cigarette on the roof causing a fire, Tenant would bear responsibility for the roof repair. Similarly, as Tenant explains, it would bear full responsibility for exterior wall repair if its equipment truck backed into it and damaged it. Section 10.1 also requires Tenant to make "any repairs necessitated by" its improvements (construed here to include the pool). Thus, Tenant would have to undertake repairs if, for example, its failure to seal the pool caused water extrusion onto the exterior walls. Such damage would not be considered "ordinary wear and tear" at the time of surrender under section 10.3. Before doing any repair to the roof or exterior walls under 10.1, Tenant would need the Landlord's consent under section 10.4.
In other words, construing sections 10.1 and 10.3 together, Tenant is not required to address ordinary wear and tear under the lease, even if such wear and tear is in some way tied to a Tenant Improvement. This interpretation is consistent with how courts construe analogous repair and surrender provisions. Markowitz v. Ikemoto (1958) 159 Cal.App.2d 242 involved a commercial lease with provisions requiring the tenant to (1) keep the premises, including improvements, " 'in good repair,' " and (2) surrender the premises at lease expiry " 'in as good a condition as reasonable use and wear thereof will permit.' " (Id. at p. 243.) At the expiration of the lease, the tenant left the premises in shambles. The court concluded the broken windows and damaged plumbing fixtures at surrender were damage, not mere " 'wear and tear,' " meaning the tenant breached its repair obligation during the lease term. (See id. at pp. 245-246.)
Landlord and Athena challenge this construction. They note section 10.1 does not explicitly carve out wear and tear. But the exclusion is implicit, as the following hypothetical shows. Suppose early in the lease and with Landlord's approval Tenant constructs a new yoga studio as an addition to the existing building, i.e., an addition or improvement under section 10.1. The addition includes new exterior walls. A decade later, those exterior walls show signs of ordinary wear and tear. Construing section 10.1 in the manner suggested would require Tenant to address this wear and tear. Because the very existence of the deteriorated exterior walls is "necessitated by" an addition or improvement under section 10.1, so too is any wear and tear. Before the lease expires, Tenant would have to repair exterior walls of the yoga studio even though section 10.3 allows it to leave ordinary wear and tear (without exception as to improvements) and despite section 10.2 generally making such repair a Landlord responsibility. We do not believe this to be a reasonable construction of section 10.1.
During the 2002 buildout, Tenant did build a new building to house racquetball courts and a new front entry. To avoid any confusion as to facts regarding that structure, we stick to a hypothetical.
Landlord and Athena object to the referee's focus on whether there was a design defect with the pool. They state "the alleged lack of any design defect has no bearing on the case" because the question is whether any repairs were necessitated by the existence of the pool. We agree that a design defect is not a prerequisite to section 10.1; improper maintenance might give rise to a duty to repair even as to a perfectly designed pool. For example, if Tenant failed to maintain the HVAC ventilation systems above the pool, leading to roof deterioration, it would bear full responsibility for repair. Or, as suggested at trial, there might be a duty to repair if Tenant knowingly failed to replace a malfunctioning sensor, resulting in roof damage. As to their broader point, for reasons our hypothetical reveals we do not agree that the mere existence of the pool makes Tenant responsible for all repairs to the roof above it, including ordinary wear and tear.
In short, even if we assume the pool is an "improvement made by or on behalf of Tenant" under section 10.1, that provision only requires Tenant to repair resulting damage, not ordinary wear and tear. Ordinary wear and tear falls under Landlord's maintenance and repair obligations in section 10.2. This is the only reasonable construction of the repair provisions in the lease. (WDT-Winchester v. Nilsson (1994) 27 Cal.App.4th 516, 529 ["A lease should also be interpreted so as to make it reasonable, if this can be accomplished without violating the intent of the parties."]; Civ. Code, § 1643 ["[a] contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect"].)
Although we could reach this conclusion "from the writing alone" (Civ. Code, § 1639), any ambiguity in sections 10.1 and 10.2 can be resolved by reference to the parties' predispute conduct. (Universal Sales Corp. v. California Press Mfg. Co. (1942) 20 Cal.2d 751, 761 ["when a contract is ambiguous, a construction given to it by the acts and conduct of the parties with knowledge of its terms, before any controversy has arisen as to its meaning, is entitled to great weight, and will, when reasonable, be adopted"].) The referee made a credibility finding that Tenant's evidence "was credible, detailed and adequate" whereas Landlord's and Athena's contrary evidence "was entirely conjectural" as to who repaired the roof over the years. Because the analysis of extrinsic evidence turns on credibility, we must accept any reasonable interpretation adopted by the referee. (ASP, supra, 133 Cal.App.3d at pp. 1266-1267.)
Operations Manager Carrie Blow served as Tenant's "gatekeeper" for all maintenance work and vendors. Since she started working for Tenant in 2011, Landlord or its predecessor had performed all roof maintenance. She had called Athena to repair roof leaks a dozen times, including over the pool area. As Tenant's expert later explained, leaks over the pool were caused by improper roof maintenance. Athena was responsive each time Blow made a repair request. Tenant had never hired its own roofing contractor to patch leaks, and there were no roofing contractors on Tenant's vendor list. Against this testimony, Landlord and Athena offered weak evidence that they had not made all prior roof repairs. Kevin Ashby testified he noticed cuts and patches during a 2014 roof inspection that were not made by him, and he believed himself to be Athena's sole roofing contractor.
From these conflicting accounts, the referee reasonably determined that "whenever there was a problem with the roof, [Tenant] contacted the Landlord and the Landlord took care of the problem." This course of conduct sheds light on any ambiguity in the literal language of sections 10.1 and 10.2. Over the years, Tenant called Athena to repair periodic roof leaks, including over the pool. This indicates that Landlord is responsible under section 10.2 for roof maintenance over the pool even though the pool was a Tenant Improvement. Put differently, Tenant's repair obligations under section 10.1 do not cover roof deterioration over the pool caused by ordinary wear and tear, and Landlord must make such repairs under section 10.2.
Landlord and Athena argue it is improper to consider extrinsic evidence as to the parties' course of conduct where the contract is clear and ambiguous. We agree and rely on this evidence only to clarify any ambiguity in sections 10.1 and 10.2. They also challenge the admission of testimony regarding the parties' subjective understandings of governing lease provisions. Because we do not rely on this evidence, we do not address their contention.
In construing a lease, we " 'must avoid an interpretation which will make a contract extraordinary, harsh, unjust, or inequitable.' " (ASP, supra, 133 Cal.App.4th at p. 1269.) Courts "show reluctance to place too literal an interpretation on the [tenant's] covenant to repair. 'The covenant will be reasonably interpreted to avoid placing any unwarranted burden of improvement of the [landlord's] premises on the [tenant].' " (Lynn v. De Pue Warehouse Co. (1962) 198 Cal.App.2d 742, 746, accord ASP, at p. 1272.) Thus, "absent an express provision (or undisputed extrinsic evidence) showing a tenant has an obligation to replace a roof, a tenant's obligation to maintain or repair the premises . . . does not include an obligation to replace an old, dilapidated roof with a new roof at the tenant's expense." (ASP, at p. 1272 [collecting cases].)
At oral argument, Landlord claimed a case predating ASP—Brown v. Green (1994) 8 Cal.4th 812 (Brown)—reflected the current state of California law on repair obligations for wear and tear. The lease in Brown required the tenant to "keep in good order, condition and repair the Premises and every part thereof, structural and non-structural (whether or not . . . the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises) including, without limiting the generality of the foregoing, all plumbing, heating, air-conditioning." (Id. at p. 819.) Unless there was an event destroying the building, the landlord would "have no obligation in any manner whatsoever, to repair and maintain the Premises nor the building located thereon nor the equipment therein, whether structural or nonstructural, all of which obligations are intended to be that of the Lessee . . . ." (Ibid, italics omitted.) The tenant also agreed to undertake, at its expense, compliance with all laws regulating use of the premises. Given these terms, asbestos cleanup was the tenant's obligation. (Id. at pp. 826-827.) Brown emphasized "the context-dependent nature" of the inquiry, stressing that "[e]ach agreement must be evaluated in light of its individual terms." (Id. at p. 818.) The lease in Brown was a "net" lease that imposed on the tenant "a duty of repair that is, on its face, virtually global in scope." (Id. at pp. 826-827.) Because the tenant repair obligations in section 10.1 are not as broad, we reach a different result.
The deteriorated plywood deck was almost entirely in its original 1971 state; less than five percent was replaced during the 2002 buildout. The roof membrane was last replaced in 2002, during the buildout. By the time the dispute arose in 2014, the 43-year-old roof structure and 12-year-old roof membrane were both nearing the end of their useful lives. The plywood deck was a fall-through hazard due to dry rot and required complete replacement. With ideal maintenance, a new roof structure could last up to 50 years, and a new roof membrane could last up to 15 years. From what Tenant's construction expert saw, the roof had not been properly maintained, potentially decreasing its life expectancy. Requiring Tenant to repair wear and tear to the roof caused by the pool would be inequitable, giving Landlord a better building than was leased, with the life of improvements extending far beyond the Tenant's remaining few years on the lease. (See ASP, supra, 133 Cal.App.4th at pp. 1273-1274.)
Landlord and Athena argue Tenant had the right to extend the lease for up to 15 additional years. Tenant responds that after the lease expired, it vacated the premises. Neither the option to extend nor the fact that Tenant did not extend is relevant to our analysis. Tenant had no obligation to extend the lease, and unless it exercised its option the lease term was limited to 15 years.
That leaves us to define ordinary wear and tear. Because the term is not defined in the lease, we construe it in its ordinary and popular sense. (Civ. Code, § 1644.) The term is common in real property leases—"ordinary wear and tear contemplates that deterioration will occur by reason of time and use despite ordinary care for its preservation." (Kanner v. Globe Bottling Co. (1969) 273 Cal.App.2d 559, 565 (Kanner).) Damage that is "attributable to the usual practice and custom of [a commercial lessee] in carrying out its business . . . constitute[s] 'ordinary wear and tear.' " (Id. at p. 566.) For example, in Kanner, the commercial tenant was a beer distribution company. Conditions at the expiration of the lease attributable to normal beer distribution activities were deemed to be " 'ordinary wear and tear.' " (Ibid.)
Here, the lease explicitly envisions Tenant using the property for a pool. "Permitted Use" of the property include "the operation of a full service health and fitness facility and ancillary uses typically found in an L.A. Fitness Sports Club, including, but not limited to, . . . whirlpools, swimming pool . . . [and] swim lessons . . . ." By contrast, the lease prohibits Tenant from using the property for such other purposes as a funeral home, disco, or flea market (among others). The original landlord contributed $2.7 million during the buildout for Tenant to construct a pool and complete associated roof work. Consistent with the lease, Tenant used the premises for "basketball, racquetball, weight lifting, free weights, fitness classes, [and] swim." Because the lease envisions using the premises for indoor swimming, conditions associated with the normal, expected use of the pool is " 'ordinary wear and tear.' " (Kanner, supra, 273 Cal.App.2d at p. 566.)
b. Roof deterioration over the pool reflected normal use of an indoor pool
The referee determined that deterioration of the roof above the pool area reflected "normal wear and tear" and that the roof was simply nearing the end of its useful life. He credited the testimony of Jon Zaich, who had designed and constructed 15 to 25 LA Fitness gyms, nearly all including indoor pools. He did not find credible Landlord and Athena's expert, architect Ron Bartlo, who had never designed an indoor pool, had no knowledge of ventilation or dehumidification systems, and relied on a perfunctory call with a mechanical engineer who never saw the pool or inspected building plans. The referee also noted that both sides agreed that moisture and evaporation were common and expected in an indoor swimming pool.
Landlord and Athena argue the referee erroneously allowed Tenant to elicit expert testimony from Zaich, who was not designated as an expert. Over defense objection, the referee allowed Zaich to testify about the state of the art for pool ventilation systems in 2002. He reasoned that the premise for disclosing experts was to allow the other side to prepare. Because Landlord and Athena had their own expert (Bartlo) who could testify about steps that could have been taken to mitigate against moisture, it allowed the testimony and gave them a chance to recall Zaich as a witness.
"The decision to grant relief from the failure to designate an expert witness is addressed to the sound discretion of the trial court and will not be disturbed on appeal absent a showing of manifest abuse of that discretion." (Dickison v. Howen (1990) 220 Cal.App.3d 1471, 1476.) "Thus, even where evidence has been erroneously admitted, the judgment shall not be reversed unless the reviewing court believes the error resulted in a miscarriage of justice." (Barboni v. Tuomi (2012) 210 Cal.App.4th 340, 352 (Barboni).)
At the outset, Zaich designed the pool in question. As Tenant noted, he could therefore testify within his personal knowledge that certain ventilation measures were not taken in 2002 because such measures were not (to his knowledge) required. Indeed, Zaich offered testimony along these lines without defense objection, stating the pool design and roof work during the buildout met industry standards.
To the extent Zaich gave expert testimony, there was no abuse of discretion. There is no indication Tenant avoided disclosure to disadvantage Landlord and Athena. (Barboni, supra, 210 Cal.App.4th at p. 353.) Nor was there prejudice where the referee permitted similar defense expert testimony over Tenant's objection as "fair game." "At worst, the two experts simply canceled each other out. In no reasonable universe can the expert testimony here be considered so prejudicial as to result in a miscarriage of justice." (Barboni, at p. 353.)
Deferring to the referee's credibility determination, as we must, substantial evidence supports his finding that roof deterioration over the pool reflected ordinary wear and tear. Zaich testified that deterioration of the plywood deck was consistent with the age of the roof, which was already nearing the end of its useful life, and the expected effects of moisture from normal use of the pool. He believed dry rot in the pool area roof was consistent with wear and tear; "[d]ry rot over any place could be expected, depending on how far into the useful life of a deck and/or roof structure the timeline had progressed." Bartlo agreed with Tenants' witnesses that some level of moisture and evaporation in a pool area was to be expected and would affect the immediate environment over time.
Tenant admitted that the roof showed 20 percent greater deterioration over the pool compared to other areas due to moisture from the pool. Nevertheless, Zaich testified that this deterioration reflected the gradual effects of normal use of an indoor pool, where moisture was to be expected. Bartlo countered that Tenant installed a pool that was not adequately designed to deal with moisture. But the referee credited Zaich, who stated the HVAC system and sensors put in place were considered sufficient and met industry standards. Indeed, Zaich explained that Tenant continues to design pools in the same manner today.
The testimony of a single witness is sufficient to uphold a factual finding. (In re Marriage of Mix (1975) 14 Cal.3d 604, 614.) Zaich's testimony, which the referee found credible, supports the finding that the condition of the roof above the pool reflected ordinary wear and tear associated with the normal use of an indoor swimming pool. (See Kanner, supra, 273 Cal.App.2d at p. 566.) The roof structure and membrane were nearing the end of their useful lives and showing the effects of gradual deterioration associated with normal, expected use of an indoor pool.
Because roof deterioration over the pool reflected ordinary wear and tear, Tenant was not responsible for repair under section 10.1. Instead, roof repair was Landlord's duty under section 10.2, and Tenant was required to reimburse Landlord for its 29.77 percent pro rata share of repair costs. The referee implicitly found roof repair to be a "capital expenditure" for common area maintenance under the lease when it limited Tenant's contribution to its pro rata share amortized over the useful life of the repair, considering the remaining time on the lease. As Landlord and Athena do not challenge that finding, we do not disturb it on appeal.
2. Attorney Fees and Costs
After the superior court entered judgment, Tenant filed a motion before the referee seeking attorney fees and costs. Landlord and Athena challenge the fee award solely to the extent we reverse the judgment. Because we affirm, that argument is moot. They raise a different challenge as to the award of costs: that the referee lacked authority to award costs because Tenant did not file a memorandum of costs. They do not challenge the amount of costs awarded.
We apply de novo review to the question of whether the applicable statutes and court rules required Tenant to file a memorandum of costs. (Kaufman v. Diskeeper Corp. (2014) 229 Cal.App.4th 1, 6 (Kaufman).)
"Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." (Code Civ. Proc., § 1032, subd. (b).) Code of Civil Procedure, section 1033.5 identifies cost items that are allowable in subdivision (a), items not allowable in subdivision (b), and states in subdivision (c)(4) that other items "may be allowed or denied in the court's discretion." Any allowable costs must be "reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation" and be "reasonable in amount." (Code Civ. Proc., § 1033.5, subd. (c)(2)-(3).)
Attorney fees may be recovered as costs when authorized by contract. (Code Civ. Proc., § 1033.5, subd. (a)(10).) The parties' lease allows the "prevailing party" to recover "all court costs, witness fees and reasonable attorneys' fees" in "an action at law or in equity to enforce, interpret or seek redress for the breach of this Lease, . . ."
"A prevailing party who claims costs must serve and file a memorandum of costs within 15 days after the date of service of the notice of entry of judgment . . . ." (Cal. Rules Court, rule 3.1700(a)(1), italics added.) The Judicial Council has approved a form for optional use entitled "Memorandum of Costs (Summary)" (MC-010) and a corresponding worksheet (MC-011). (See rule 1.35(a) [optional forms "may be used by parties"].) If the other party wishes to challenge the cost request, it must file a motion to tax costs. (Rule 3.1700(b)(1).)
Further rule references are to the California Rules of Court.
Tenant did not file a memorandum of costs in superior court. It instead filed a motion before the referee enclosing an attorney declaration listing cost items and attaching documentation. The referee overruled the objection made by Landlord and Athena, stating it would treat Tenant's motion as a timely filed memorandum of costs because it "does exactly what a cost bill would do, and more." He noted that because the matter was adjudicated by judicial reference, it would have been inefficient to require Tenant to litigate costs in superior court. In total, he awarded $25,418.96 in costs, consisting of filing fees ($682.45), deposition costs ($4,452.51), judicial reference fees ($13,069), and post-offer expert fees under Code of Civil Procedure section 998, subdivision (d) ($7,215).
A review of applicable statutes and court rules convinces us that Tenant did not need to file a costs memorandum in superior court. The parties stipulated to submit the entire matter to judicial reference. In doing so, they agreed that the referee would have the authority "to hear and make a determination as to any and all issues in this lawsuit." Where the parties agree to a consensual general reference under Code of Civil Procedure section 638, "the decision of the referee . . . upon the whole issues must stand as the decision of the court." (Code Civ. Proc., § 644, subd. (a).)
Were this matter tried in court, "the cost procedure requirements are mandatory" and a court "does not have discretion to disregard noncompliance." (Russell v. Trans Pac. Grp. (1993) 19 Cal.App.4th 1717, 1726; see Hydratec, Inc. v. Sun Valley 260 Orchard & Vineyard Co. (1990) 223 Cal.App.3d 924, 926-929 [trial court properly denied costs and attorney fees where party did not file costs memorandum or fee motion].) But the rule has no application where the parties have agreed to let the referee decide "any and all issues in this lawsuit," which necessarily include postjudgment costs. There is no purpose served by requiring a party to file a memorandum of costs in superior court when costs cannot be entered by the clerk and must be awarded by the referee. (See Anthony, supra, 166 Cal.App.4th at p. 1016 ["there would be no point in requiring a party to include in its memorandum of costs those cost items which are awarded in the discretion of the court and thus cannot be entered by the clerk of the court under rule 3.1700"].)
Even in that scenario, "rule 3.1700 applies only to the items 'allowable as costs' that are listed in subdivision (a) of [Code of Civil Procedure] section 1033.5—that is, those cost items to which a party is entitled 'as a matter of right.' " (Anthony v. City of Los Angeles (2008) 166 Cal.App.4th 1011, 1015 (Anthony).) Two cost items fall outside that category: (1) judicial reference fees, which the parties agreed would be recovered by the prevailing party as a cost of suit (Code Civ. Proc., § 645.1, subd. (a) ["the referee's fees shall be paid as agreed by the parties"]); and (2) postoffer expert fees, which the referee had discretion to award (Code Civ. Proc., § 998, subd. (d)).
"Generally, in construing a court rule, we seek ' "a reasonable and commonsense interpretation consistent with its apparent purpose, practical rather than technical in nature, which upon application will result in wise policy rather than mischief or absurdity." ' " (Kaufman, supra, 229 Cal.App.4th at p. 9.) An interpretation that would require Tenant to file a costs memorandum in superior court when the referee alone could decide the issue invites absurdity, and we therefore reject it.
The day after judgment was entered, Tenant filed a noticed motion before the referee with a declaration describing each requested cost item. This declaration contained greater detail than found in the optional Judicial Council form, Memorandum of Costs (MC-010), and provided supporting documentation not required by the rule. (Jones v. Dumrichob (1998) 63 Cal.App.4th 1258, 1266.) Consistent with rule 3.1700(a)(1)'s verification requirement, the attorney declared under penalty of perjury that the cost information was "true and correct." (See Pacific Southwest Airlines v. Dowty-Rotol Ltd. (1983) 144 Cal.App.3d 491, 495 [accepting substantial compliance with verification language in the rule].)
In the context of a consensual general reference, where the referee had to decide any cost award, Tenant's motion gave Landlord and Athena ample notice to challenge its request. We find no error in the award of costs to Tenant notwithstanding its failure to file a memorandum of costs in superior court.
DISPOSITION
The judgment and postjudgment order on fees and costs are affirmed. Respondent is entitled to its costs on appeal.
DATO, J. WE CONCUR:
HALLER, Acting P. J.
GUERRERO, J.