Opinion
G043634 Super. Ct. No. 07CC11298
12-21-2011
GIFTIME, INC., et al., Cross-complainants and Respondents, v. KWI 1901 NEWPORT PLAZA, L.P., Cross-defendant and Appellant.
Law Offices of Marjorie G. Fuller, Marjorie G. Fuller, Lisa R. Wiley; Pistone & Wolder, Thomas A. Pistone, and Aaron C. Watts for Cross-complainants and Respondents. Kulik, Gottesman, Mouton & Siegel and Donald S. Gottesman for 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
OPINION
Appeal from a judgment of the Superior Court of Orange County, Peter J. Polos, Judge; Frederick Paul Horn, Judge. Reversed and remanded as directed.
Law Offices of Marjorie G. Fuller, Marjorie G. Fuller, Lisa R. Wiley; Pistone & Wolder, Thomas A. Pistone, and Aaron C. Watts for Cross-complainants and Respondents.
Kulik, Gottesman, Mouton & Siegel and Donald S. Gottesman for Cross-defendant and Appellant.
In this commercial landlord-tenant dispute, KWI 1901 Newport Plaza, L.P. (Newport Plaza) appeals the jury's award of more than $6 million in damages to its former tenant, Giftime. Newport Plaza does not contest the jury's finding that Newport Plaza breached its lease with Giftime by, among other things, replacing surface parking with a parking structure in a way that unreasonably interfered with the operation of Giftime's "Club Vegas" night club.
We shall refer to respondents Giftime, Inc., and Giftime, LLC, collectively as Giftime. Giftime, Inc., was incorporated in 2000, while Giftime, LLC, was organized in 2004. Giftime, Inc., signed the initial lease at issue; Giftime, LLC, is identified as the successor in interest to Giftime, Inc., in amendments to the lease in 2004 and 2005. Newport Plaza does not claim that only one of these parties should be a judgment creditor. For purposes of this appeal, we will simply treat both entities as a single entity — Giftime.
Instead, Newport Plaza attacks the damages awarded to Giftime by arguing: (1) the jury awarded speculative and unsupported lost profit damages; and (2) the jury awarded duplicative damages, i.e., lost profit damages and damages consisting of the equity investment in Giftime plus rent paid by Giftime. We agree with both contentions. We reverse the judgment and remand for a new trial on damages, unless Giftime consents to a remittitur of the damage award to $973,995.
FACTS
Lease - Basic Terms
On August 23, 2002, Giftime leased basement floor suites at 1901 Newport Boulevard, Costa Mesa, California, from its initial landlord, 1901, LLC. The lease designated the use of the premises as "a night club/restaurant and for no other purposes without the written consent of Landlord."
The history of ownership of the premises at issue during the six years of Giftime's tenancy is tortuous. Originally, Kennedy Wilson, Inc., and Rutter Development jointly owned 1901, LLC, which owned the premises. Kennedy Wilson, Inc., formed Newport Plaza (the appellant) to obtain ownership of the leased premises from 1901, LLC, in December 2002. In October 2006, Newport Plaza agreed to sell the premises to Jamison Properties, Inc. (Jamison), which assigned its interest in the premises to 1901 Newport, LLC. The judgment named Jamison, 1901 Newport, LLC, and Newport Plaza as judgment creditors, but only Newport Plaza appealed the judgment. Apparently, 1901, LLC, (the initial landlord) never appeared as a party in the case.
Giftime originally leased 13,804 square feet of interior space for a term of ten years, plus the option to extend the lease for two five-year terms. Newport Plaza and Giftime subsequently amended the lease to establish the lease commencement date as November 1, 2003. Newport Plaza and Giftime amended the lease on March 8, 2005 to expand the square footage leased by Giftime at the premises by 1,309 square feet. Base rent was originally $14,927, a number subject to increase pursuant to the consumer price index and raised by $1,415.90 to cover the additional leased space in 2005. Giftime also agreed to pay as additional rent (initially set at $6,073 per month) a share of the landlord's operating expenses. Giftime's principal, James Raven, signed a guaranty of lease.
The Lease - Parking and Driveways
The key dispute in this case pertains to the common areas of the premises, not the interior square footage leased by Giftime. During lease negotiations, leasing director Ted Crisell orally represented to Raven that Giftime would have the "exclusive use" of 355 parking spaces before 11:00 p.m. and all available spaces (448) after 11:00 p.m. A July 31, 2002, written memorandum from Crisell to Raven's attorney noted: "Tenant has unrestricted use of parking now. We need a valet parking plan to attach to lease as an exhibit." At the time of lease negotiations, only one other tenant, Turnip Rose, operated at the premises at night.
Section 39 of the lease, "COMPLETE AGREEMENT," provided: "There are no oral agreements between Landlord and Tenant affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Landlord and Tenant with respect to the subject matter of this Lease. There are no representations between Landlord and Tenant other than those contained in this Lease and all reliance with respect to any representations is solely upon such representations as are contained herein." The court allowed the introduction of evidence of Crisell's alleged oral and written representations over the objection of Newport Plaza as expressed in a motion in limine.
The lease provided: Giftime "shall have the nonexclusive right to use, in common with others . . . the Building's walkways, lobbies, entrances, stairs, elevators and other public portions of the Building, as well as the loading and unloading areas, parking areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas and similar areas and facilities . . . ." (Italics added.)
Section 21 of the lease specifically addressed parking. Section 21(a) provided: "Unless [Giftime] is in default hereunder, [Giftime] shall be entitled to the number of unreserved vehicle parking spaces set forth in Item E-3 of the Basic Lease Information in the Building parking facility. Tenant shall not be charged for parking during the term of this lease. Landlord may assign any unreserved and unassigned parking spaces and/or make all or a portion of such spaces reserved, if it determines in its sole discretion that it is necessary or appropriate. Tenant shall not use more parking than the number of spaces set forth in Item E-3 of the Basic Lease Information." But neither Item E-3 (which refers the reader to section 21(e)), nor section 21(e) identified the number of parking spaces to which Giftime was entitled. Instead, section 21(e) required Giftime to "prepare and submit to Landlord, for Landlord's written approval, a written proposal to provide valet parking service . . . to [Giftime's] patrons at the Premises." Giftime's vendor submitted a valet parking plan on or about August 21, 2002, which was silent on the number of spaces allocated for Giftime's use.
Section 1(c) of the lease outlined the scope of the landlord's power to make changes to the common areas: "Landlord reserves the right from time to time, without unreasonable interference with [Giftime's] use, to . . . (ii) make changes to the Common Areas, including, without limitation, changes . . . in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; (iii) temporarily close or designate for other uses any of the Common Areas for purposes of improvement, maintenance or repair, so long as reasonable access to the Premises remains available; (iv) use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building, or any portion thereof; (v) construct parking structures and other structures on the Common Areas, and convert portions of the Common Areas to non-Common Areas which may be improved with commercial or residential buildings; and (vi) do and perform such other acts and make such other changes in, to or with respect to the Common Areas or the Building as Landlord may, in the exercise of sound business judgment, deem to be appropriate." (Italics added.) "Landlord shall maintain the Common Areas in reasonably good order and condition . . . ."
Preparation for Opening
Giftime could not open Club Vegas immediately after signing the lease in August 2002. First, it needed to obtain a conditional use permit from the city of Costa Mesa, which it requested in an August 2002 letter. As to parking, Giftime merely noted that valet parking and self-parking would be available. At an October 28, 2002 hearing, the Planning Commission continued the hearing to November 25, 2002, based in part on parking concerns expressed by a city planner: "there is inadequate parking to support both the Turnip Rose banquet catering business and the proposed nightclub . . . ." Raven represented at the hearing: "Parking on site is substantial with 448 marked parking spaces. He said their plan would provide a minimum of 562 parking spaces to be shared between the nightclub and the Turnip Rose (the only off-hours uses). This provides 82 parking spaces in excess of requirements. This would be achieved through the use of valet parking for only half of the lot, which would optimize the parking area by 150% yielding 562 spaces (225 self-parked and 337 via valet). He said this is an industry standard and they believe it is very conservative considering the over-sized nature of the rear lot isles and parking spaces."
The initial landlord (1901, LLC) commissioned a parking analysis with Austin-Foust Associates, Inc. The Austin-Foust report, submitted November 15, 2002 to the Planning Commission, proposed an allocation of 125 spaces to Turnip Rose, 47 spaces to a proposed restaurant, and 355 spaces to Club Vegas for a total of 527 spaces. "While there is some difference in the hours of utilization . . . the parking requirements for each have been added together to essentially evaluate a worst case situation . . . ." The Austin-Foust report proposed Club Vegas utilize only valet parking.
It appears from its absence elsewhere in the record that this proposed restaurant did not become a reality.
At the November 2002 hearing, the city planners advising the Planning Commission continued to express concern that parking was not adequate. The report recommended a denial of the application, noting 480 parking spots were required according to development standards but only 448 parking spots were actually available at the premises. "The operating times of the nightclub and Turnip Rose will overlap." Turnip Rose objected that it needed much more parking depending on the type of event it hosted. "[A]lthough Code allocates 125 parking spaces for Turnip Rose's use, they feel they need approximately 233 to 310 parking spaces depending on the activity (wedding reception versus corporate event) and based on their approved occupancy of 466 patrons. This would generate a need for 588 to 665 parking spaces — a potential deficiency of 140 to 217 spaces — without accommodation for other tenants parking if they decide to remain past 5 p.m. Staff is unable to support the requested deviation because it appears that the two uses will generate a higher parking demand than is provided on the site." The distribution list appended to this document indicates a copy was provided to Raven.
Nonetheless, the Planning Commission ultimately issued Giftime's conditional use permit on November 25, 2002, subject to 21 "conditions of approval." One condition was that 168 of the 448 parking spaces at the premises were to be "retained for self-parking." Other than the Austin-Foust report, none of the documentation pertaining to the conditional use hearings (including hearing transcripts, the proposal submitted by Giftime, and committee reports) mentions exclusive parking allowances for Club Vegas either before or after 11:00 p.m.
Giftime next began construction, which took longer and was more expensive than originally projected due to building permit delays and disputes with the building contractor. One other reason for delayed construction and cost overruns was Newport Plaza's insistence that construction work be performed on "nights and weekends . . . ." But it is not alleged Newport Plaza breached the lease by requiring construction to be performed on nights and weekends. When Club Vegas opened for business on February 13, 2004, Giftime had a working capital deficit of $1.1 million. Giftime abandoned its efforts to include a restaurant in Club Vegas.
Allegations
In its operative cross-complaint, Giftime alleged Newport Plaza breached the lease, causing it damages, by: (1) "Removing, or causing to be removed, street-level surface parking from the common areas of the Premises held for use by [Giftime] and [its] customers and clientele"; (2) "Building, or causing to be built, a parking structure whose design was incompatible with [Giftime's] expressly-stated use of the Premises as a night club"; (3) "Allowing neighboring tenants to extend their operating hours, and thus expand their use of available parking within the common areas of the Premises, resulting in a shortage of common area parking"; (4) "Engaging in construction in and around the Premises and its associated common areas in such a manner as to deprive [Giftime's] customers and clientele of reasonable access to adequate parking"; and (5) "Materially and substantially changing the nature and character of the common area parking so as to make it impossible for [Giftime] to comply with the parking requirements" of the Costa Mesa conditional use permit (CUP) issued to Giftime.
Giftime also alleged Newport Plaza, through its agent John Prabhu, committed fraud by misrepresenting in 2006 "that the parking structure that was being constructed in the common areas of the Premises to service the Premises was designed in such a manner as to resolve and address all of the parking problems then being experienced by [Giftime], and also represented that the design of such parking structure would allow [Giftime] to remain in compliance with the CUP." Newport Plaza also falsely provided assurances that the parking structure could be negotiated by oversized vehicles.
Giftime did not allege in its complaint that its landlords committed fraud with regard to Crisell's pre-lease oral and written representations about parking availability. But the court allowed Giftime to argue this theory of fraud to the jury over the objection of Newport Plaza.
For the most part, Giftime's allegations are borne out by substantial evidence. For purposes of this appeal, we need not linger long on testimony and exhibits evidencing the inadequacy of the reconstructed common areas at the premises and the unreasonableness of the various landlords' responses to Giftime's complaints. Instead, we focus our recitation of facts on issues pertinent to the issues raised by this appeal.
Turnip Rose and Common Areas Prior to October 2005
At all relevant times, Turnip Rose leased space at the premises. Turnip Rose is an elite catering firm, which hosts wedding receptions and other events. It generally operated Friday, Saturday, and Sunday nights until midnight or 1:00 a.m. Its original conditional use permit allowed Turnip Rose to sell alcohol until midnight. On average, about 225 people attend receptions at Turnip Rose. Attendees typically begin departing around 10:30 p.m. to 11:00 p.m. By 11:00 p.m., about 40 percent of attendees remain; by midnight, only 15 to 20 people typically remain. In March 2004, the Turnip Rose sought to extend its permit to sell alcohol until 1:00 a.m. The landlord consented to this extension. This extension was not sought as a way to bring in more customers before closing, but instead as a service to lingering guests at receptions. Turnip Rose's proprietor did not think the extension of the alcohol service hours would have any impact on parking. Parking was tight but manageable for Turnip Rose. The City of Costa Mesa approved the application for an extension of approved alcohol service hours.
Raven testified that at the time of Club Vegas's opening (February 2004), there was adequate parking and good "pass-through" for valet service, taxis, and limousines. From February 13, 2004 (the opening of Club Vegas) until mid-October 2005 (the beginning of parking construction), Club Vegas had surface parking and acceptable traffic flow available without construction impeding access. But a short time after February 2004, "we were running out of parking later at night." "The parking lot was full. We had to shut the lot." "We discovered that the Turnip Rose was actually operating up until [1:00 a.m.]" Raven "discovered" Turnip Rose's extended hours, which he deemed to be "sponsored by the landlord," by obtaining publicly available information from the city. Raven worked with the Turnip Rose to manage the parking situation. Raven turned away "hundreds" of cars on unspecified nights.
Raven's vague testimony is the extent of the evidence suggesting Club Vegas lost customers because Turnip Rose patrons were using parking spots that Club Vegas patrons otherwise would have used. Raven did contemporaneously complain in writing about several 2005 high school prom events at Turnip Rose, including one night when "50-plus limousines arrived . . . all at the same time and effectively closed the entrance to the parking lot," costing Club Vegas "over $10k in revenue that night alone." Raven sought compensation for the limousine incident from Turnip Rose, not Newport Plaza. As to parking, the gist of a May 3, 2005 email authored by Raven about the prom events was that the self-parking lot was full, but Turnip Rose patrons "can certainly use the valet parking . . . ." Despite the dearth of contemporaneous complaints or attempts to quantify Turnip Rose's use of parking during the initial 2004-2005 period, Raven testified he now attributed a profound shortage of parking in 2004 and 2005 to Turnip Rose operating until 1:00 a.m.
Common Area Construction of Parking Garage
Prior to signing the lease on behalf of Giftime, Raven was aware of a plan by the landlord: (1) to divide the premises in order to construct condominium units; and (2) to construct a parking garage to replace lost surface parking.
Parking garage construction began in mid-October 2005. The parking structure opened in December 2006. Construction fencing and the ultimate design of driveways on the premises prevented oversized vehicles from effectively dropping off patrons without clogging up the lanes trying to exit. Construction and the parking garage prevented the creation of an effective valet parking staging area and valet parking optimization. Patrons were required to walk much further to Club Vegas than before construction. The design of the parking structure created safety problems for patrons walking to and from the structure. Moreover, it took much longer for patrons to leave the premises because of the bottleneck created by a single parking structure entrance/exit for use by Giftime's customers.
Miscellaneous Defense Evidence
In addition to the aforementioned negative $1.1 million in working capital at the opening of Club Vegas's doors, several other pieces of evidence provided alternative explanations for Club Vegas's failure. For one, Giftime's contractor eventually obtained a judgment of approximately $450,000 (including attorney fees and interest) against Giftime for breach of contract. The contractor sent keepers to enforce the judgment by seizing cash from Club Vegas's operations. Raven wrote in contemporaneous correspondence that the keepers harmed his business because they would not allow customers to use credit cards. Secondly, a competing nightclub ("Sutra") opened across the street from Club Vegas. More generally, it is difficult to operate a successful night club even if one has adequate parking. As one of Giftime's experts testified, the "nightclub crowd" is a "fickle group."
Night Club Expert Testimony
Gregg Hanour, proprietor of the "Shark Club" in Costa Mesa, testified as an expert witness. The Shark Club, which has been open since 1990, utilizes approximately 12,000 square feet (about the size of Club Vegas). The Shark Club's annual gross revenues in "[a] good year could be up to 4 million, typically it's closer to 2 million." The Shark Club has a restaurant, televisions, billiard tables, and is open four days per week from 9:00 p.m. to 2:00 a.m.
Hanour opined that Club Vegas's parking was very favorable when it first opened, but he would not want to operate a night club at the premises based on the parking situation after the construction of the parking garage. As part of the process of obtaining permits for his club, Hanour participated in two parking studies, in which it was determined an average of between 2.3 and 2.5 passengers travelled in each "single car going to a nightclub" like the Shark Club. In other words, if 150 cars were turned away for lack of parking on a given night, it could be 375 people whose business was lost.
Business Plan Estimate of Profitability
Raven prepared a business plan for the "Club Vegas" night club; the document is dated October 2, 2003. According to the business plan, "The Vegas entertainment venue consists of a complete state of the art Nightclub, Restaurant, and Martini Bar." The business plan included financial estimates (a "pro forma") for the first five years of operation, which we summarize in the following chart. Raven's projections were based on "the numbers" from his prior experiences managing nightclubs.
As noted above, Club Vegas did not actually include a restaurant.
+-----------------------------------------------------------------------------------+ ¦ ¦Year 1 ¦Year 2 ¦Year 3 ¦Year 4 ¦Year 5 ¦ +----------------+------------+--------------+------------+------------+------------¦ ¦Total Revenues ¦$6,884,159 ¦$6,337,666 ¦$6,591,172 ¦$6,755,952 ¦$6,924,850 ¦ +----------------+------------+--------------+------------+------------+------------¦ ¦Cost Goods ¦$1,059,553 ¦$979,945 ¦$1,019,143 ¦$1,044,622 ¦$1,070,737 ¦ +----------------+------------+--------------+------------+------------+------------¦ ¦Other Expenses ¦$2,480,554 ¦$2,306,949 ¦$2,399,227 ¦$2,459,208 ¦$2,520,688 ¦ +----------------+------------+--------------+------------+------------+------------¦ ¦Net Profits ¦$3,344,052 ¦$3,050,77[2] ¦$3,172,802 ¦$3,252,122 ¦$3,333,425 ¦ +-----------------------------------------------------------------------------------+
Actual (Lack of) Profitability
Club Vegas closed its doors in April 2008. It did not attain the success projected by Raven in his "pro forma." According to an exhibit prepared using income tax returns by Giftime's accounting expert, Scott Brooks, the Club Vegas venture lost money each year of its operation, even using "straight-line depreciation expense, as opposed to accelerated conventions under 'tax.'"
The document includes a summary of numbers for both Giftime, LLC, and Giftime, Inc. Each year, Giftime, LLC, paid "Management fees" to Giftime, Inc., which fees appear in Brook's summary as "Gross Receipts" for Giftime, Inc. We consolidate the total numbers for the Giftime enterprise in our summary chart.
+-------------------------------------------------------------------------+ ¦ ¦2004 ¦2005 ¦2006 ¦2007 ¦2008 ¦ +-------------------+----------+----------+----------+----------+---------¦ ¦Gross Receipts ¦$2,122,034¦$2,071,266¦$1,737,459¦$1,601,209¦$318,959 ¦ +-------------------+----------+----------+----------+----------+---------¦ ¦Total Expenses ¦$2,659,861¦$2,351,511¦$2,153,080¦$2,009,347¦$979,879 ¦ +-------------------+----------+----------+----------+----------+---------¦ ¦Actual Net Income ¦-$537,827 ¦-$280,245 ¦-$415,621 ¦-$408,138 ¦-$660,920¦ +-------------------------------------------------------------------------+
According to Brooks, if one completely ignores depreciation of assets, "[t]here is one year where [Giftime] lost a little bit of money . . . . But, for the most part, [Giftime] either broke even or made a little bit of money." One year (ignoring depreciation), there was a "profit" of "a little over a hundred thousand."
Of course, simply ignoring depreciation is ignoring a real expense for an
ongoing business (particularly a "high end" night club claiming it would have earned profits for 15 years absent its landlord's breach of lease). (Cf. Kaufman, Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger (2005) p. 120 ["I think that, every time you see the word EBITDA [i.e., earnings before interest, taxes, depreciation, and amortization], you should substitute the words 'bullshit earnings'"].)) Brooks just as easily could have opined that Giftime's financial performance looked much better if one excluded from consideration its alcoholic beverage costs and payroll expenses.
A separate Brooks exhibit collates Giftime's revenues month by month.
+-------------------------------------------------------------------+ ¦ ¦2004 ¦2005 ¦2006 ¦2007 ¦2008 ¦ +-------+-----------+-----------+-----------+-----------+-----------¦ ¦Jan. ¦N/A ¦$185,024.17¦$124,435.73¦$164,333.00¦$67,941.80 ¦ +-------+-----------+-----------+-----------+-----------+-----------¦ ¦Feb. ¦$165,333.69¦$173,134.47¦$140,255.00¦$132,402.50¦$107,071.02¦ +-------+-----------+-----------+-----------+-----------+-----------¦ ¦March ¦$311,675.80¦$169,635.67¦$126,559.12¦$172,054.00¦$82,994.24 ¦ +-------+-----------+-----------+-----------+-----------+-----------¦ ¦April ¦$195,712.28¦$193,111.10¦$137,500.50¦$120,632.00¦$52,844.66 ¦ +-------+-----------+-----------+-----------+-----------+-----------¦ ¦May ¦$157,868.12¦$169,042.28¦$106,502.08¦$112,564.00¦N/A ¦ +-------+-----------+-----------+-----------+-----------+-----------¦ ¦June ¦$129,815.50¦$150,089.95¦$121,740.44¦$140,196.69¦N/A ¦ +-------+-----------+-----------+-----------+-----------+-----------¦ ¦July ¦$147,829.50¦$222,669.06¦$155,294.00¦$99,421.62 ¦N/A ¦ +-------+-----------+-----------+-----------+-----------+-----------¦ ¦Aug. ¦$175,003.90¦$149,796.00¦$147,099.76¦$184,877.14¦N/A ¦ +-------------------------------------------------------------------+
+----------------------------------------------------------+ ¦Sep. ¦$126,834.03¦$149,903.67¦$205,582.62¦$137,993.00¦N/A¦ +------+-----------+-----------+-----------+-----------+---¦ ¦Oct. ¦$233,810.68¦$181,299.29¦$181,196.52¦$117,935.99¦N/A¦ +------+-----------+-----------+-----------+-----------+---¦ ¦Nov. ¦$189,757.54¦$150,110.60¦$158,115.77¦$80,404.71 ¦N/A¦ +------+-----------+-----------+-----------+-----------+---¦ ¦Dec. ¦$215,229.96¦$177,449.94¦$133,177.43¦$138,394.13¦N/A¦ +----------------------------------------------------------+
Reviewing these numbers, Brooks determined there was a two percent decline in revenues from 2004 to the fall of 2005 before parking garage construction began. From 2005 (before construction) to 2006, there was a 16 percent drop in revenue. And from 2005 to 2007, there was a 23 percent drop in revenue.
Asked about Giftime's cash flow, Brooks opined: "They made it work. I mean, the business, from a cash perspective, was breaking even basically every year, and to the extent that they needed additional working capital to kind of cure the timing differences between when they owed people money was basically coming from [Raven's mother and Giftime officer Heather Rooney] in the end."
Brooks Expert Opinions
Brooks also testified to the amount of net profits he thought Giftime would have earned "had the parking problem not happened." Brooks assumed the parking situation caused Giftime's lack of profitability; he was not asked to opine on whether "parking caused a problem or not." It was assumed in Brooks's models that Newport Plaza's breaches caused the "lost profits." Brooks prepared two lost profit calculations, one based entirely on numbers provided by Giftime, and one based on expense/profitability numbers derived from an industry study prepared by a third party firm. The projected revenues utilized in both models were based on Giftime's projections (not the industry study).
The court overruled Newport Plaza's objection to the testimony of Brooks as speculative and lacking in foundation.
Using solely information obtained from Giftime, including the business plan, Brooks calculated cumulative lost profits of: (1) $11,673,812 through year five; (2) $14,732,771 through year 10; and (3) $16,356,433 through year 15. Raven's numbers and assumptions led to a 30 to 35 percent pretax profit. These profits were based on revenue projections of approximately $4.2 million per year, or $350,000 per month.
Using the same revenue projections, but basing costs and profitability on industry data, Brooks calculated cumulative lost profits of: (1) $4,328,168 through year 5; (2) $4,928,710 through year 10; and (3) $5,203,034 through year 15. The industry standard model featured a 6.5 percent pretax profit.
Brooks did not use any of Giftime's actual revenue numbers in making his calculations. "[W]e were doing a projection of what should have happened. It was a 'what if' scenario. So in that case, by definition, you wouldn't put in the actual numbers." "We considered the actual results completely irrelevant to the assignment that we had." "[W]e looked at the business plan as a baseline, basically as a starting point, and discussed those assumptions with [Raven] and to the extent that he saw actual results that may have deviated, we may have modified the assumptions to suit what he had seen through history." Brooks utilized (to some extent) Giftime's actual data in formulating the expenses for his models.
For example, with regard to door revenues (cover charges), Brooks's model estimated revenues between $1.1 and $1.4 million per year. Actual door revenues were: $457,537.51 (2004); $552,657.71 (2005); $367,679.00 (2006); $353,075.70 (2007); and $63,745.00 (2008). In 2004 (the first year of operation, before construction began on the parking structure), Brooks's model included $1,248,000 in door revenues, an approximately 250 percent increase from the actual door revenues in 2004.
On redirect, Brooks testified with regard to an assumption of revenues of $3 million per year ($250,000 per month). This number was prompted by an understanding from hearing Hanour's testimony that the Shark Club had average revenues of $3 million per year. Using this revenue assumption for Giftime, Brooks opined there were more than $5 million in lost profits using Raven's cost assumptions (up to about $5.7 million in profits over 15 years) and more than $3.8 million in lost profits (up to $4.4 million in profits over 15 years) using industry data cost assumptions. Exhibit 817, a one-page document reiterating Brooks's conclusions under this third analysis, was admitted into the record.
Reviewing Giftime's financial documentation, Brooks determined Giftime was financed in the following manner: (1) $962,181 in loans; (2) $1,149,530 in credit; and (3) $1,433,799 in investments by shareholders and members. Brooks also determined (by asking Raven) that Giftime paid $981,635 in rent to its various landlords over the course of its tenancy.
Special Verdicts and Judgment
In a special verdict form, the jury found the landlords each breached the lease and Giftime was harmed in the amount of $6,168,701 as a result. Next to the award, a notation appears: "See calculation below." We reproduce as follows the jury's explanation, which appeared at the bottom of the page:
We produce the jury's work as it appears on the verdict form, including minor mathematical errors.
+-----------------------------------------------------+ ¦Ex. 814¦#1¦Sources of Capital¦$3,545,510¦ ¦ +-------+--+------------------+----------+------------¦ ¦ ¦_ ¦Debt Owed ¦$2,111,711¦ ¦ +-------+--+------------------+----------+------------¦ ¦ ¦ ¦Equity Capital ¦$1,433,799¦$1,433,799 ¦ +-----------------------------------------------------+
+-----------------------------------------------------------------+ ¦Exhibit 817¦#2¦Lost Profits ¦ ¦ ¦ +-----------+--+--------------------------+----------+------------¦ ¦ ¦ ¦1-10 yr Projection based ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦upon $250,000 mo. from ¦5,367,818 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦Brooks ¦ ¦ ¦ +-----------+--+--------------------------+----------+------------¦ ¦ ¦ ¦1-10 yr projection based ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦+ ¦industry standard from ¦4,220,630 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦Brooks ¦ ¦ ¦ +-----------+--+--------------------------+----------+------------¦ ¦ ¦ ¦ ¦9,588,452 ¦ ¦ +-----------+--+--------------------------+----------+------------¦ ¦ ¦ ¦2 (Average) ¦$4,794,228¦4,794,228 ¦ +-----------------------------------------------------------------¦ +-----------------------------------------------------------------¦ ¦ ¦ ¦ ¦ ¦6,228,025 ¦ +-----------+--+--------------------------+----------+------------¦ ¦Ex 587 ¦_ ¦Actual Profits (2004-2008)¦ ¦59,324 ¦ +-----------+--+--------------------------+----------+------------¦ ¦ ¦ ¦ ¦ ¦$6,168,701 ¦ +-----------------------------------------------------------------+
It is unclear from our review of the record how the jury determined Giftime earned "actual" profits of $59,324.
The jury also found Newport Plaza (not the other landlords) liable for fraud in the amount of $325,904. Next to the award appears an explanatory note, which indicates the jury derived fraud damages by subtracting the rent that would have been paid for storage space for 16 months ($32,000) from the rent actually paid by Giftime from June 2005 to October 2006 ($357,904).
Thus, the jury awarded a total of $6,494,605 in damages to Giftime and against Newport Plaza. The jury also found Giftime to be in breach of lease and awarded $489,795 in damages to the landlords. Judgment was entered on February 5, 2010 against Newport Plaza in the total amount of $6,004,810. Newport Plaza appealed this judgment.
Newport Plaza was not a plaintiff. But the judgment reflects a reduction of the damage awards against all three landlords. Perhaps because all three landlord cross-defendants were held jointly liable for all of Giftime's breach of contract damages, it was proper to reduce the award against non-plaintiffs Newport Plaza and Jamison.
The court subsequently awarded Giftime $18,000 in costs and approximately $368,000 in attorney fees pursuant to the prevailing party attorney fees provision in the lease. The court also calculated postjudgment interest and cited this amount ($407,205.63) in a document titled "Second Amended Judgment." In addition, the court acknowledged a partial satisfaction of judgment of $2 million in the second amended judgment, apparently due to a settlement between Giftime and the two other judgment debtors (Jamison and 1901 Newport, LLC). But the only judgment before us pursuant to the notice of appeal is the February 5, 2010 judgment, and we express no opinion as to how our decision in this appeal affects subsequent post-judgment orders of the trial court.
The court denied by operation of law various motions for new trial and/or judgment notwithstanding the verdict. "The Court acknowledges and appreciates the parties' substantial time and skill expended in bringing these motions. However, due to the time constraints on the Court and the number and complexity of the issues raised in these motions, there was insufficient time for the Court to properly research, review and determine the issues raised and transcript excerpts submitted." Newport Plaza also appealed the court's denial of its motion for judgment notwithstanding the verdict.
As a result of the trial judge's retirement, Judge Frederick Paul Horn was assigned to rule on the parties' posttrial motions.
DISCUSSION
Preliminarily, we agree with Newport Plaza that the jury's unsolicited written explanations of its damage awards on the special verdict forms are considered part of the verdict. (Maxwell v. Powers (1994) 22 Cal.App.4th 1596, 1602-1604 [jury's note explaining verdict, submitted contemporaneously therewith, is part of verdict and cannot be ignored in order to uphold verdict when the additional material demonstrates legal error by jury].) We will therefore take the jury's explanation of its verdict at face value in this appeal.
"Lost Profits" Award
Having concluded Newport Plaza breached its lease with Giftime, the jury was obligated to determine the amount of monetary loss suffered by Giftime as a result of Newport Plaza's actions. "For the breach of an obligation arising from contract, the measure of damages . . . is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom." (Civ. Code, § 3300.) Giftime sought to prove it suffered "lost profits" as a result of Newport Plaza's breach, rather than seeking the "difference between the agreed rent and the rental value of the premises" in light of Newport Plaza's breaches. (S. Jon Kreedman & Co. v. Meyers Bros. Parking-Western Corp. (1976) 58 Cal.App.3d 173, 184 [tenant may pursue either measure of damages].) The jury, by awarding lost profits of $4,794,228, implicitly accepted at least three premises.
Premise #1: Brooks accurately estimated (in his redirect testimony) the potential revenues of Giftime at $3 million per year. By referencing exhibit 817, the jury expressed its acceptance of Brooks's third revenue/lost profits model. Recall Brooks conceded he was not providing any opinion as to why Giftime did not attain higher revenues than it actually did, but instead assumed something had gone wrong. Brooks threw actual revenues out from consideration because of the assumption that actual revenue numbers were artificially low and therefore irrelevant to Giftime's reasonable expected revenues. This $3 million per year assumption was based on testimony by Hanour, the Shark Club owner, that the annual gross revenues for the Shark Club in "a good year could be up to 4 million, typically it's closer to 2 million."
Premise #2: Brooks's cost structure assumptions and net profit calculations were reasonable and accurate. "Damage awards in injury to business cases are based on net profits. [Citation.] '"'Net profits are the gains made from sales "after deducting the value of the labor, materials, rents, and all expenses, together with the interest of the capital employed."'"'" (Electronic Funds Solutions, LLC v. Murphy (2005) 134 Cal.App.4th 1161, 1180.) In reaching its "lost profits" number, the jury averaged the two cost scenarios analyzed by Brooks on exhibit 817 with regard to the $3 million annual revenue number.
Premise #3: Based on other evidence (not Brooks's testimony), the difference between Giftime's potential performance and Giftime's actual performance was wholly attributable to the landlords' breaches of lease. "Bad behavior does not establish damages; causation does." (County of Ventura v. Channel Islands Marina, Inc. (2008) 159 Cal.App.4th 615, 618.) "[N]o person can recover a greater amount in damages for the breach of an obligation, than he could have gained by the full performance thereof on both sides." (Civ. Code, § 3358.) Here, the jury seemingly found the entire difference between potential and reality to be attributable to breaches by the landlords. The jury (apparently) did not find any of the difference between potential and actual performance to be caused by: (1) Raven's decision to forego including a restaurant at Club Vegas; (2) unexpected competition, e.g., Sutra; (3) undercapitalization; (4) delays and cost overruns; (5) the contractor dispute, which ultimately resulted in keepers being stationed at Club Vegas for a limited period of time; or (6) inherent parking difficulties at the premises known to Raven at the time of leasing (as opposed to changes in parking/driveways that made things worse).
Newport Plaza attacks multiple aspects of the jury's "lost profits" damage award, as well as various evidentiary rulings that made it possible for the jury to reach its conclusion. But regardless of the merits of the remainder of Newport Plaza's arguments, the jury's lost profit award cannot stand because of the lack of substantial evidence supporting Giftime's first premise — Giftime could have earned $3 million in annual revenues absent Newport Plaza's breach.
"In reviewing a damage award of lost business profits, the appellate court must couple the substantial evidence concept with recognition that evidentiary imponderables are unavoidable." (Guntert v. City of Stockton (1976) 55 Cal.App.3d 131, 143 (Guntert).)"Where the fact of damages is certain, the amount of damages need not be calculated with absolute certainty. [Citations.] The law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation." (GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 873.)
Despite the deference owed to a jury's verdict, evidence of damages must be "reasonable, credible and of solid value." (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 651.) "Inferences may constitute substantial evidence, but they must be the product of logic and reason. Speculation or conjecture alone is not substantial evidence." (Ibid; Civ. Code, § 3301 ["No damages can be recovered for a breach of contract which are not clearly ascertainable in both their nature and origin"].) "Loss of profits which exist 'only in the fond dreams of the adventurer' will not support a verdict for damages." (Engle v. City of Oroville (1965) 238 Cal.App.2d 266, 272.)
The law "compels the plaintiff to present 'the best evidence . . . [of damages] of which the nature of the case is capable.'" (S. C. Anderson, Inc. v. Bank of America (1994) 24 Cal.App.4th 529, 538 [affirming grant of nonsuit motion].) Typically, established businesses use their own revenue data to prove damages. (Natural Soda Prod. Co. v. City of L.A. (1943) 23 Cal.2d 193, 199 ["plaintiff's probable gross receipts could be estimated from its sales in the preceding two years"]; Kids' Universe v. In2Labs (2002) 95 Cal.App.4th 870, 883 ["'past volume of business and other provable data'" can be utilized by established business].) For instance, in a case in which a tenant sought lost profit damages for the landlord's failure to build additional space for tenant's use as required by the lease, the tenant used its revenues and profits derived from the usable portion of the premises to prove the profits it would have earned if it had additional space available to service automobiles. (Hoag v. Jenan (1948) 86 Cal.App.2d 556, 560-564.) If there is no basis in the record for assumptions underlying an accounting expert's opinions, then mathematical calculations of damages based on those assumptions are irrelevant. (Maatuk v. Guttman (2009) 173 Cal.App.4th 1191, 1197-1200 [affirming trial court's grant of motion to strike accountant's expert testimony concerning alleged lost patent royalties when there was no evidence plaintiff had an actual product or the ability to achieve actual market penetration].)
There are two independent reasons Brooks's selection of $3 million as a reasonable estimate of Giftime's annual revenues ($250,000 per month) is not supported by the record.
First, Brooks's methodology was inappropriate given the evidence in the record. Giftime operated from February 2004 to October 2005 without the encumbrance of parking garage construction or the completed parking garage/new driveway arrangement. As there is revenue data in the record pertaining to Giftime's revenues from February 2004 to October 2005, Brooks's attempt to estimate Giftime's potential revenues wholly by reference to other sources was speculative.
We do not agree with the simplistic notion that an absence of profitability in its first two years of operation precluded Giftime from trying to prove future lost profits as a matter of law. The lack of "a profit at the time [of fraud] does not of itself prevent recovery of damages for loss of profit so long as there is an evidentiary basis establishing that the loss period was a foundation for profitable operation." (Dean W. Knight & Sons, Inc. v. First Western Bank & Trust Co. (1978) 84 Cal.App.3d 560, 568.) Instead, our review of the record leads us to conclude there is no evidentiary basis for Brooks's use of hypothetical revenues rather than Giftime's actual revenues as a starting point for calculating damages. It is certainly possible an evidentiary record could have been developed that would have justified an upward departure from Giftime's pre-breach revenue history. But to simply throw the revenue history out entirely was not justified.
Brooks ignored Giftime's revenue data on the flimsy pretext of Newport Plaza's alleged breach/fraud pertaining to the operating hours of Turnip Rose. But as Giftime's trial counsel represented to the trial court during a dispute over jury instructions: "The Turnip Rose operating hours [thing is] kind of a red herring." "[T]he real issue is the construction. When the construction of the parking structure and the condos started, it changed things. And then the parking lot, when it came on board and was operational, made it permanent. And I mean, that's really what this case is all about." While these comments might not rise to the level of a judicial admission, they accurately summarize the evidentiary record. Other than several prom night events hosted by Turnip Rose (which did not necessarily create shortages of parking spaces but rather clogged access to the premises), there is no specific evidence linking the use of common area facilities by Turnip Rose patrons/employees to alleged parking shortages or traffic snarls before October 2005. There is no specific evidence indicating Turnip Rose utilized more than 93 of the 448 parking spots prior to 11:00 p.m., from February 2004 to October 2005, at a moment in which additional Club Vegas patrons needed new parking. Nor is there any specific evidence Turnip Rose patrons were utilizing parking spots after 11:00 p.m. that would have been used by Club Vegas patrons. It is mere speculation to suggest Club Vegas turned away patrons as a result of Turnip Rose patron parking, in particular that the extension by the City of Costa Mesa of Turnip Rose's liquor service permit to 1:00 a.m. had any causal impact on Club Vegas parking issues.
For that matter, there is no evidence Newport Plaza breached its lease with Giftime by not opposing Turnip Rose's application. It seems more likely Newport Plaza would have breached its lease with Turnip Rose had it unreasonably opposed a modest alteration of Turnip Rose's conditional use permit.
Second, even if ignoring Club Vegas's actual revenues in favor of references to industry data was appropriate, the $3 million revenue number used in the model accepted by the jury was derived entirely from a single, inaccurate data point. Hanour did not testify that the Shark Club averaged $3 million in revenues; he testified the Shark Club's revenues were typically closer to $2 million but could be "up to $4 million" in a good year. Moreover, there are multiple differences between the Shark Club and Club Vegas: (1) the Shark Club was open four nights per week; (2) the Shark Club had a restaurant; and (3) the Shark Club had withstood the test of time, having been in business approximately 15 years. "If future profits are to be estimated for a new business from an old business there must be similar type conditions." (MacMorris Sales Corp. v. Kozak (1968) 263 Cal.App.2d 430, 442.) A passing reference to a single, successful night club's revenues (which were not even documented for the jury or Brooks) is not substantial evidence of Club Vegas's potential revenues. (Compare Kids' Universe v. In2Labs, supra, 95 Cal.App.4th at pp. 887-888 [reference to success of Etoys firm not substantial evidence of projected success of startup internet toy competitor] with Nelson v. Reisner (1958) 51 Cal.2d 161, 171 ["Various witnesses testified to the profits made by them per acre for the same crops during the years under consideration"].)
The $4.2 million annual revenue number used in Brooks's other models would not support a damage award either. This figure was based entirely on projections and other speculative estimates provided to Brooks by Giftime. (See Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, 289-290 [expert's calculations based on speculative information provided by plaintiff were not reliable evidence of damages].)
Thus, the jury's award of $4,794,228 in "lost profits" is not supported by substantial evidence. This does not mean there is no evidence of breach of contract damages based on Giftime's expectancy of reasonable parking and driveway common areas from October 2005 through April 2008. The record certainly supports the jury's finding that, starting in October 2005, Newport Plaza breached the lease by unreasonably altering the previously favorable parking/driveway arrangement. "If a . . . valuable property right is invaded, the least that can be said is that plaintiff would have lost less money had this not occurred." (1 Dunn, Recovery of Damages for Lost Profits (6th ed. 2005) § 4.9, p. 401.)
Giftime's revenues declined after October 2005. The average monthly revenues from March 2004 through October 2005 were $181,362, which is derived by adding all monthly revenues from March 2004 through October 2005 ($3,627,243) and dividing such number by the number of months added together (20). From November 2005 through April 2008, the average monthly revenues were $132,569, which is derived by adding all monthly revenues during this time period ($3,977,080) and dividing by 30. The record therefore supports an inference that Giftime lost approximately $48,793 in revenues each month after October 2005 as a result of Newport Plaza's breach. This means, over the course of the final 30 months of its operation, Giftime might have earned approximately $1,463,790 in additional revenues.
February 2004 is excluded from this calculation as it was a short month, and October 2005 is included as it was a relatively favorable month for Giftime despite the mid-month beginning of construction.
Obviously, lost revenues are not the same thing as "lost profits." But in this case, there is substantial evidence supporting a jury award of $1,463,790 in damages. First, the detailed financial documents in the record and common sense suggest most of Giftime's expenses were fixed or unaffected by a marginal increase in paying customers on a night on which Club Vegas was already open. Giftime paid rent, overhead, payroll, and loan interest regardless of the number of patrons arriving on a particular night; similarly, Giftime's assets depreciated whether marginal customers came to Club Vegas or not. This revenue would be reduced to some extent by costs incurred by Giftime to obtain these additional revenues (e.g., extra alcohol purchased to serve additional customers). Second, there is evidence Giftime expended significant effort trying to mitigate Newport Plaza's breaches (e.g., filming driveway problems, communicating with the city and the landlord, trying various valet parking scenarios, trying to create a new entry into the premises). Third, the jury's award of more than $6 million in damages against Newport Plaza should be honored to the fullest extent possible.
As the trial court did not rule on Newport Plaza's new trial motion, our independent review of the record leads us to conclude damages of $1,463,790 are supported by substantial evidence and would be "fair and reasonable." (See Code Civ. Proc., § 662.5, subd. (a) [authorizing trial courts to deny new trial motions for excessive damages on the condition that plaintiff accept reduction of damages to amount that is "fair and reasonable"]; Cal. Rules of Court, rules 8.264(d), 8.888(c) [acknowledging power of appellate courts to condition affirmance of money judgments on reduction in damages]; Oceano Beach Resort Co. v. Clark (1930) 106 Cal.App. 582, 586-587 [conditioning affirmance on reduction of damage award to amount supported by evidence].)
This amount ($1,463,790) must be offset by $489,795, which was the amount of damages awarded by the jury to the three landlords in the action. Giftime did not argue at trial that this amount should not be awarded to Newport Plaza. Nor did Giftime file a cross-appeal claiming this offset should not be applied to a judgment against Newport Plaza. Thus, the total amount of expectancy damages supported by the record is $973,995.
Duplicative Damages
Newport Plaza also contends the jury awarded duplicative damages — both "lost profits" and money expended by Giftime in order to reap the "profits." "To award the plaintiff not only lost profit but also the cost of producing the profit causes a double recovery." (Guntert, supra, 55 Cal.App.3d at p. 149; see also Housing 21, L.L.C. v. Atlantic Home Builders Co. (8th Cir. 2002) 289 F.3d 1050, 1058 [award of lost investment and lost profits would be double recovery].) The jury awarded both the equity capital invested into Giftime ($1,433,799) and a portion of the rent paid by Giftime ($325,904) from June 2005 to October 2006 as damages, even though the jury separately attempted to award Giftime its lost profits. Obviously, to have engaged in any operations, Giftime would have had to utilize its capital and pay rent at the premises. Had we found substantial evidence supporting the lost profits awarded by the jury, we would simply have modified the judgment to eliminate this double recovery.
Our determination that the "lost profit" award was proper only with regard to post-October 2005 months and only up to the amount of $1,463,790 does not change the applicability of this rule with regard to the equity capital portion of the damages award. The jury essentially attempted to award both expectancy damages (i.e., put Giftime in the position it would have been had Newport Plaza performed on its promises) and reliance damages (i.e., reimburse Giftime for expenses it incurred that it would not have incurred had it not relied on Newport Plaza's promises). To have engaged in operations from 2005 through 2008 and incurred expectancy damages thereby, Giftime needed its capital investment.
We also note (as to the equity capital award) that the method selected by the jury to calculate reliance damages was improper. The parties could not identify any authority supporting an award of the amount of equity capital invested in an entity as breach of contract damages to the entity. Raven and other investors in Giftime are not suing Newport Plaza for fraud, seeking to undo their failed investments in Giftime. Instead, Giftime is suing Newport Plaza for breach of lease and fraud. "Reliance damages concern money spent by the plaintiff in preparation for or partial performance of the agreement, not investments made by third parties." (24/7 Records, Inc. v. Sony Music Entertainment, Inc. (S.D.N.Y. 2008) 566 F.Supp.2d 305, 319.) It was legal error for the jury to base contract damages to Giftime on the equity investments made by various third party investors.
As to the fraud damages, any award of damages based on rent paid after October 2005 clearly would be duplicative of the $1,463,790 in damages discussed above. However, in light of our discussion above, the portion of the $323,904 in fraud damages awarded by the jury for June 2005 to October 2005 is not duplicative. Nor was an award based on the difference in rent rates too speculative. The jury measured fraud damages as the difference in rent between Giftime's actual rent and the rent Newport Plaza was receiving for storage space prior to the Giftime lease.
The question, then, is whether there is substantial evidence that pre-October 2005 damages were caused by Crisell's misrepresentations about the number of spaces available to Newport Plaza at night and the hours of operation of Turnip Rose. (See Civ. Code, § 3333 [damages for fraud consists of "amount which will compensate for all the detriment proximately caused thereby"].) Our discussion with regard to lost profits during this period found no substantial evidence for any damages during the period of time from February 2004 to October 2005. There is a lack of any creditable evidence showing revenues were actually affected by Turnip Rose utilizing parking beyond that disclosed by Crisell in the pre-lease negotiations with Giftime. We therefore conclude the jury's non-duplicative portion of the fraud damages award is not supported by substantial evidence.
Newport Plaza also contends that the fraud verdict should be reversed because the court allowed Giftime to expand its fraud allegations to include Crisell's misrepresentations regarding available parking at the premises in 2004. But the court was within its discretion by allowing Giftime to pursue its fraud action, as Crisell's representations were central to Giftime's case that Newport Plaza breached the lease. (See South Bay Building Enterprises, Inc. v. Riviera Lend-Lease, Inc. (1999) 72 Cal.App.4th 1111, 1124-1125 [court must allow new legal theory based on same underlying facts].) Newport Plaza was well-aware of Crisell's expected testimony; it filed a motion in limine to exclude any parol evidence pertaining to exclusive use of parking at the premises. Under Code of Civil Procedure section 469, a variance between the pleading and the proof is material only if "it has actually misled the adverse party to his prejudice in maintaining his action or defense upon the merits." And, pursuant to Code of Civil Procedure section 470, the court, when presented with an immaterial variance, may either: (1) "direct the fact to be found according to the evidence" or (2) "order an immediate amendment, without costs." Here, the court impliedly found the variance to be immaterial and, rather than ordering an immediate amendment, simply directed the facts to be found according to the evidence already admitted.
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DISPOSITION
The February 5, 2010 judgment is reversed and the matter is remanded for a new trial as to damages only, unless, before the decision is final under California Rules of Court, rule 8.264(b)(1), Giftime consents to a remittitur of the jury's damage award against Newport Plaza to $973,995 and timely serves and files notice of such consent pursuant to the procedures specified in California Rules of Court, rule 8.264(d). If Giftime timely consents to the remittitur, the judgment is affirmed as modified by the remittitur. In the interests of justice, the parties shall bear their own costs on appeal.
IKOLA, J.
WE CONCUR:
RYLAARSDAM, ACTING P. J.
O'LEARY, J.