Opinion
A157463 A158592
03-30-2021
GOLDEN GATEWAY CENTER, Plaintiff, Cross-Defendant and Respondent, v. SAN FRANCISCO WATERFRONT PARTNERS II, LLC, Defendant, Cross-Complainant 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco County Super. Ct. No. CGC-15 548437)
This appeal arises from a controversial attempt to develop the property known as 8 Washington along San Francisco's northeast waterfront. Appellant San Francisco Waterfront Partners II, LLC (Waterfront) entered into an option contract to purchase land owned by respondent Golden Gateway Center (Gateway) with the intent of developing a luxury high-rise condominium complex. After almost a decade of efforts to develop the property—which included the redesign of the project and an unsuccessful effort to defend its proposed height against a referendum by the voters—Gateway brought a lawsuit against Waterfront for declaratory relief seeking a determination that Waterfront had no further interest in the property and that it (Gateway) was entitled to keep the option payments. Waterfront appeals from a judgment entered against it on its cross-complaint against Gateway asserting causes of action for rescission, fraud and breach of contract, by which it sought the return of option payments made to Gateway over the years. We affirm.
I. FACTS AND PROCEDURAL HISTORY
1. The Property
Gateway owns and operates property known as 8 Washington near the Embarcadero area of San Francisco's waterfront. Timothy Foo is a managing partner. 8 Washington includes apartments and townhomes as well as a swimming and tennis club which has been operated by Bay Club at Gateway, a part of Western Athletic Club (Bay Club) since 1992. Bay Club also runs a fitness center for Gateway in the basement of one of its apartment buildings. It had been on a month-to-month holdover lease for all of the facilities it ran for Gateway since its initial lease expired in the early 2000's.
Simon Snellgrove, a principal of Waterfront, devised a plan to develop 8 Washington by constructing new condominiums and a new swimming and tennis club. Foo (correctly) represented to Snellgrove that Bay Club was on a month-to-month lease as a holdover tenant.
2. LOI and 2006 Option to Purchase
On November 2, 2005, Gateway and Waterfront signed a "letter of intent" (LOI) regarding the project. On February 14, 2006, they executed a two-year "Option to Purchase" (2006 Option) involving Blocks 201, 171 and 168, as well as Seawall 351. Six tennis courts and two outdoor swimming pools would be developed on Blocks 171 and 168 (the Tennis & Swim Club parcel); condominiums would be built on Block 201; and 12,000 square feet of Block 201 would be a health club facility (the "Health Club Parcel"). Gateway would retain ownership of both the Health Club Parcel and the Tennis & Swim Club Parcel.
3. Northeast Embarcadero Study
In June 2010, while the property was still under option, the San Francisco Planning Department issued the Northeast Embarcadero Study, which made a number of recommendations for the area, which included 8 Washington. Despite zoning for up to 84 feet (the height of the original 8 Washington project), the recommendation for the area was that some buildings be lower than 84 feet and some be higher—up to 125 to 130 feet.
4. Redesign of Project
Waterfront responded to the study by redesigning the project to have a tiered appearance, with portions of it under 84 feet and portions as high as 136 feet. Because the towers would have a larger footprint than in the original design, the tennis courts were eliminated, and a health and swim club would replace the current tennis and swim club. Foo consulted with Bay Club, which formulated a plan for operating a health club without tennis courts.
5. 2012 Option
Waterfront's 2006 Option on 8 Washington (which had been extended beyond the initial term) was due to expire on March 27, 2012, and it entered into an "Amended and Restated Option to Purchase" with Gateway (the 2012 Option). (Capitalization omitted.) This called for a two-story health club facility with an aquatic center and fitness space to be created on Seawall 351 and Block 171 (the Health & Swim Club Parcel), residential condominiums to be constructed on Block 201 and a portion of Seawall 351, and open space to be created within Blocks 168, 171, and 201 and Seawall 351. Gateway would retain title to the Health and Swim Club Parcel and the remainder would be purchased by Waterfront.
The 2012 Option, dated March 27, 2012, provided, "NOW, THEREFORE, in consideration of the mutual promises and covenants and other valuable consideration described herein, the Parties hereto agree that the Existing Option is hereby restated in its entirety as follows[.]" Paragraph 11.1 contained a list of warranties, including Paragraph 11.1(g), which provided: "To the best of Owner's knowledge, the documents delivered to the Optionee by Owner or its representatives pursuant to this Agreement are all of the material documents or agreements in Owner's possession or reasonable control affecting any portion of the property." Paragraph 11.1(i) provided: "There are no leases or agreements (recorded or unrecorded) affecting the Property except for the Lease, dated May 14, 1992 ("the WAC Lease") between Owner and Western Athletic Club, Inc. ("WAC"). The term of the WAC Lease commenced on May 26, 1992 and expired on May 31, 2002. WAC occupies the leased premises under the WAC Lease as a month-to-month hold-over tenant pursuant to Section 33 of the WAC Lease. WAC has not timely exercised its Renewal Term pursuant to Section 33 of the WAC Lease, has no further rights to exercise the Renewal Terms under the WAC Lease, and has no other options to extend or renew the term[s] of the WAC Lease, purchase the Property or expand the leased premises."
Paragraph 9.2(h) provided that the time for performing under the 2012 Option would be extended by a force majeure event, defined to include lawsuits and governmental actions.
6. Bay Club's Role & New Lease
Waterfront wanted the Bay Club's support for its project. Foo, who had a close relationship with the Bay Club, asked Bay Club President Matthew Stevens to cooperate.
In March 2012, Alicia Allbin, a managing partner of Waterfront, asked Stevens to speak in favor of the project at a Planning Commission meeting, which he agreed to do. Stevens became upset by remarks made by Waterfront that he perceived as critical of Bay Club and left the meeting without speaking. He told Allbin what had happened and that he could no longer speak in favor of the project at 8 Washington but would remain neutral (like "Switzerland") and would not oppose it.
At about the same time, Bay Club began pushing for a new lease for a term of years. Although Bay Club had an informal agreement with Foo that it would be the operator of the Health and Swim Club to be constructed by Waterfront if Waterfront exercised its option, Bay Club wanted greater security than offered by its then-current month-to-month lease. Gateway and Bay Club began negotiations, and in December 2012, ultimately signed the "Fifth Amendment to the Gateway Center Health and Tennis Club Lease" (Fifth Amendment). (Capitalization omitted.)
Under the Fifth Amendment, which actually contained two leases, Bay Club would have a ten-year lease on the existing premises (which were on Block 201, on which Waterfront had an option to purchase) with options to renew. In the event Waterfront exercised its option to purchase, the lease would automatically terminate, and a second lease would go into effect under which Bay Club would lease the proposed new Health and Swim Club (which would be owned by Gateway and which was not part of the property purchased by Waterfront) for an initial 10-year term.
Waterfront was not directly involved in these negotiations but was advised at several points that Gateway was renegotiating a lease with Bay Club. In June 2012, Allbin emailed Stevens stating that she hoped he would send a letter to Bay Club members supporting the project "once a long-term deal is completed for [Bay Club's] ongoing operations." On December 5, 2012, Gateway's counsel, Natasha Hyman, emailed Snellgrove and Waterfront's attorney, Neil Sekhri, and advised them, "We are finalizing a 5th Amendment to the existing Lease (which would make it no longer a month-to-month lease) and the form of new lease which will apply in the event that you close on the option."
On February 15, 2013, Sekhri received a copy of a "Memorandum of Lease" (MOL) recorded by Bay Club, which described the lease as having a ten-year term. (Capitalization omitted.) Sekhri forwarded the MOL to Snellgrove, who asked Foo for further information about the lease. Foo responded to Sekhri and Snellgrove with an email assuring them the new long-term lease would not affect his ability to deliver the property under option: "The new document is a memorandum of lease for [Bay Club's] corporate refinancing purpose, reflecting that we have executed an amendment to the current lease to provide for a defined term instead of a month-to-month tenure. However, in respect to the land under option to [Waterfront], the lease will automatically be terminated in the event [Waterfront] exercises the option to purchase."
7. "No Wall on the Waterfront" Campaign and Aftermath
At approximately the same time as Gateway was negotiating a new lease with Bay Club, the Board of Supervisors approved its rezoning application in June 2012, increasing the allowable height of the project subject to a referendum if project opponents gathered 30,000 signatures to place the issue on the ballot. Opponents of the project gathered enough signatures under the No Wall on the Waterfront campaign for a referendum to be placed on the November 5, 2013 ballot. Bay Club as an entity was not part of the opposition to the project, but some individual members of the club were. On November 5, 2013, San Francisco voters rejected any rezoning of the property to increase the height limitation.
On June 24, 2020, Gateway filed a request that we take judicial notice of the ordinance amending the height restrictions for the area. We grant the request. (Evid. Code, §§ 452, 459.)
Waterfront had obtained an extension of the 2012 Option through February 2015. With 15 months to go before the option was set to expire, Waterfront continued to work on redesigning the project and securing the necessary approvals. After hiring a consultant, Waterfront reconceived the development as a hotel.
On February 6, 2015, Waterfront notified Gateway in writing that it would exercise the option, with closing set May 7, 2015. Foo was surprised, because the Option required that the required regulatory approvals for the project be in place before closing, and Waterfront had not yet obtained those approvals. Waterfront asserted that lawsuits which had been filed by third parties under the California Environmental Quality Act (CEQA) concerning certain aspects of the project constituted force majeure events that excused the failure to obtain the approvals and extended the closing date. The lawsuits involved discrete aspects of the project (a land swap of property with the City; the project's traffic study) and Foo did not believe that resolution of the suits in a manner favorable to Waterfront would result in the approvals being granted. The lawsuits were resolved adversely to Waterfront, which then asserted that the 2013 referendum was a force majeure event that indefinitely extended the closing date.
8. Lawsuit
On October 14, 2015, Gateway filed a suit for declaratory relief against Waterfront, seeking a determination by the court that the 2012 Option had expired, and that Waterfront had no claim on the 8 Washington property. In November 2015, Waterfront filed a cross-complaint seeking a declaration that third party CEQA lawsuits were force majeure events that extended the option and that alternatively, if the court found no force majeure event, Gateway had breached the 2012 Option by signing a new lease with Bay Club, which entitled Waterfront to a return of its payment for the option.
After 14 months of litigating their respective claims, on December 29, 2016, Waterfront asked Gateway to file a Preliminary Project Assessment (PPA) so that it could seek permits to develop a hotel at 8 Washington. The property owner's consent was needed for the PPA to go forward. Gateway declined.
Gateway filed its first amended complaint on March 7, 2017, which included a request for declaratory relief and other causes of action seeking damages. On July 19, 2017, Waterfront filed its second amended cross-complaint alleging causes of action that included rescission of the 2012 Option and breach of contract On January 18, 2018, Waterfront served written notice on Gateway that it was formally terminating the 2012 Option, which was memorialized in a stipulation between the parties.
9. Trial and Verdict
The remaining causes of action were dismissed before trial, and trial commenced on Gateway's claim for declaratory relief and Waterfront's claim for rescission and breach of contract. The rescission claim was bifurcated and tried before a jury.
Waterfront's primary theory was that it had been induced to enter into the 2012 Option by Gateway's representation that the only lease on the option property was the month-to-month lease held by Bay Club. It argued that although it was aware for much of 2012 that Gateway was renegotiating a lease with Bay Club because Bay Club wanted more security, it believed the negotiations did not affect the current lease of the property under option, but instead concerned (1) the Fitness Club operated by Bay Club on Block 200 in the basement of Gateway's apartment building; or (2) the future lease that Bay Club would enter into for the new facility to be built by Waterfront if it closed on the 2012 Option. Waterfront took the position that it would not have agreed to the 2012 Option if it had known that Bay Club had been given a term lease on the option property, even though that lease would terminate if Waterfront closed on the 2012 Option. Having a term lease meant that Bay Club's interests were not aligned with the project going forward, as its long-term lease on the property would continue if Waterfront did not close on the option.
Gateway took the position that Waterfront was aware of and encouraged the negotiation of the Fifth Amendment as a way of keeping Bay Club satisfied. In any event, a misrepresentation regarding the nature of the Bay Club lease was not material because that lease would terminate if Waterfront closed on the 2012 Option and there had been no showing that Bay Club had anything to do with Waterfront's failure to close on the option (which was caused instead by the referendum).
The jury returned a special verdict finding that Gateway did not make a false material misstatement of fact, did not intentionally fail to disclose a material fact, and did not make a false promise that was material. It found that a reasonable person would have discovered the facts supporting the alleged fraud in February 2013.
Before trial, the parties had stipulated that if Waterfront did not prevail on its rescission claim, its claim for damages based on breach of contract would be limited to an allegation that Gateway was unable to fulfill its obligations under the 2012 Option and that under paragraph 3.2 of that agreement, it was required to refund the option payments. The trial court granted a directed verdict on this claim. It entered judgment in favor of Gateway based on the jury verdict and the directed verdict.
The court next considered whether a trial of Gateway's declaratory relief claim was still necessary. Waterfront had indicated to the court that on January 18, 2018, it had renounced any continuing interest under the 2012 Option "other than those set forth in the amended option, purchase agreement, or first amendment, to survive termination or expiration." Although the court at first expressed a concern about the language Waterfront used to qualify this renouncement, stating it was subject to interpretation, it dismissed Gateway's declaratory relief action pursuant to Civil Code section 1061 after it verified that Waterfront was unequivocal that it no longer claimed an interest in the property.
Code of Civil Procedure section 1061 provides, "The court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances."
10. Attorney Fees and Costs
On August 8, 2019, the trial court entered four post-trial orders regarding fees and costs: (1) Gateway was the prevailing party for the purpose of attorney fees; (2) Gateway was entitled to reasonable attorney fees totaling $8,159,103.50; (3) Gateway was entitled to an award of its costs under the 2012 Option as a prevailing party; and (4) Waterfront's motion to tax costs was denied to the extent it challenged certain categories of costs as not having been pled and proved.
II. DISCUSSION
Evidence Code section 622 provides, "The facts recited in a written instrument are conclusively presumed to be true as between the parties thereto, or their successors in interest; but this rule does not apply to the recital of a consideration." Waterfront argues that because the 2012 Option recited that the month-to-month nature of the Bay Club lease was material and was relied upon by Waterfront, those elements should have been conclusively presumed to be true notwithstanding what the evidence showed. We disagree.
a. Introduction
Paragraph 11.1(i) of the 2012 Option is part of the "Representations and Warranties" made by Gateway and provides that the month-to-month lease with Bay Club was the only lease affecting the premises under option. Paragraph 11.1 states that this representation and warranty (like the others) would last until 12 months after closing and was "material and . . . being relied upon by [Waterfront]." Waterfront's theory at trial was that it was entitled to rescind the 2012 Option based on fraud in its inducement because the representation regarding the month-to-month nature of the Bay Club lease was not true, in that there were already ongoing negotiations regarding what became the Fifth Amendment to the Bay Club lease with Gateway.
"The elements of actual fraud, whether as the basis of the remedy in contract or tort, are: (1) A false representation or concealment of a material fact susceptible of knowledge, (2) made with knowledge of its falsity or without sufficient knowledge on the subject to warrant a representation, (3) with intent to induce the person to whom it is made to act upon it; and such person (4) must act in reliance upon the representation (5) to his damage." (Pulver v. Avco Financial Services (1986) 182 Cal.App.3d 622, 639.) Accordingly, Waterfront's claim for rescission based on fraud required it to prove, among other things, that the month-to-month nature of the Bay Club lease was material and that Waterfront relied on this representation in entering the 2012 Option.
Waterfront brought a motion in limine asking the trial court to apply the conclusive presumption of Evidence Code section 622 to the recitation of materiality and reliance in the 2012 Option. The court denied the motion. Accordingly, the parties presented considerable evidence at trial on the question of whether the representation that Bay Club was on a month-to-month lease was material and was relied upon by Waterfront in entering into the 2012 Option. The jury was instructed on materiality and reliance as necessary elements of fraud and rejected Waterfront's claims because it found the alleged misrepresentation, concealment or false promise was not material.
Waterfront argues the trial court erred in ruling that the presumption of Evidence Code section 622 did not apply. We apply a de novo standard to an interpretation of statute based on undisputed facts. (Jenkins v. County of Riverside (2006) 138 Cal.App.4th 593, 604.)
b. Section 622 Does Not Apply
Evidence Code section 622, formerly in Code of Civil Procedure section 1962, subdivision 2, "codifies the common law doctrine of 'estoppel by contract.' " (Plaza Freeway v. First Mountain Bank (2000) 81 Cal.App.4th 616, 625-626.) It is "based on the principle that parties who have expressed their mutual assent are bound by the contents of the instrument they have signed, and may not thereafter claim that its provisions do not express their intentions or understanding." (City of Santa Cruz v. Pac. Gas & Elec. Co. (2000) 82 Cal.App.4th 1167, 1176 (Santa Cruz).)
There can be no estoppel if the contract itself was invalid. "[C]ontractual estoppel based on factual recitations in an instrument is inapplicable to the extent that the agreement is void." (Santa Cruz, supra, 82 Cal.App.4th 1177.) "Rescission extinguishes a contract, rendering it void ab initio, as if it never existed." (DuBeck v. California Physicians' Service (2015) 234 Cal.App.4th 1254, 1264.)
Thus, it has been held that "Evidence Code section 622 . . . does not bar an assertion of fraud or other grounds for rescission." (Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1291 (Bruni); see Citizens Business Bank v. Gevorgian (2013) 218 Cal.App.4th 602, 625 (Gevorgian) [same].) Accordingly, a number of cases have recognized that when a party to a contract alleges fraud or seeks to have a contract rescinded, the other party may not rely on the presumption of Evidence Code section 622 to conclusively prove facts recited in the contract. (In re Marriage of Clark & Akel (2018) 19 Cal.App.5th 914, 920-921; Gevorgian, supra, 218 Cal.App.4th at p. 605; Bruni, supra, 160 Cal.App.4th at p. 1291; Santa Cruz, supra, 82 Cal.App.4th at p. 1176; Miller v. Criswell (1942) 54 Cal.App.2d 524, 527-528.)
Waterfront seeks to distinguish these cases because some of them involve adhesion contracts and a party "should not be bound to facts in a contract it was coerced or defrauded into signing." And as it points out, the party alleging fraud and an entitlement to rescission in this case—Waterfront—is also the party that seeks to invoke the mandatory presumption of Evidence Code section 622. Although the procedural posture of this case is somewhat different than the authorities cited above, in which the party defending against fraud or rescission is the party which sought to have Evidence Code section 622 applied against the party alleging fraud or seeking rescission, and although this case involves sophisticated parties on both sides, the fact remains that it is logically inconsistent to ask that an instrument be given binding effect when it is claimed to be void. A party who alleges an instrument to be invalid and seeks not to be bound by that agreement should not also be permitted to assert that the facts it recites are conclusively presumed to be true.
But even if we assume that Evidence Code section can be applied against a party who seeks to uphold an instrument in an action for fraud, it does not appear that "materiality" as an element of a fraud cause of action is a "fact" to which Evidence Code section 622 applies. Although materiality has factual components (did a party consider a fact important) materiality is also " 'a question of law, and is part of the concept of right to rely or justifiable reliance.' [Citation.] Accordingly, the term is essentially a label affixed to a normative conclusion." (Reed v. King (1983) 145 Cal.App.3d 261, 265-266.) It is one thing to say that parties who sign a contract should be bound by the factual representations they make in that contract; it is another to say that a party should be deemed to have conclusively admitted a legal element of a tort where that representation is contrary to the actual underlying facts.
Waterfront cites Sanders Construction Company v. San Joaquin First Fed. Savings and Loan Ass'n (1982) 136 Cal.App.3d 387, 395 (Sanders), claiming that it stands for the proposition that Evidence Code section 622 "applies to facts that have legal consequence in the pending claim." In that case, a party's acknowledgment of a tenancy in an instrument was held binding as an alternative ground for enforcing a lease. (Id. at p. 395.) It does not appear the applicability of Evidence Code section 622 was disputed by the parties in that case or that the court was called upon to determine its applicability. (See California Building Industry Assn. v. State Water Resources Control Bd. (2018) 4 Cal.5th 1032, 1043 ["It is axiomatic that cases are not authority for propositions that are not considered."].)
Nor does Palermo v. Pyke (1952) 111 Cal.App.2d 350, 351-352 (Palermo), also cited by Gateway, require a different result. In that case a contract for the sale of equipment was rescinded by an agreement reciting that illegal actions of the vendor had caused "irreparable damage" (id. at p. 352.) and the rescission agreement was "consideration" for that damage (id. at p. 356). The appellate court found that the recital of irreparable damage must be presumed true. (Id. at p. 355.) The court's holding does not implicate the factual versus legal nature of a recitation because "irreparable damage" was not an element of a cause of action.
We also note that materiality, even if viewed as a factual assertion, is defined differently in different contexts. (People v. Hedgecock (1990) 51 Cal.3d 395, 408; see People v. Wade (1995) 39 Cal.App.4th 1487, 1496 [ordinary meaning of materiality is " 'substantial, essential, relevant or pertinent.' "]; People v. Pierce (1967) 66 Cal.2d 53, 61; People v. Feinberg (1997) 51 Cal.App.4th 1566; Trovato v. Beckman Coulter, Inc. (2011) 192 Cal.App.4th 319, 327 [test for materiality is "whether the statement could probably have influenced the outcome of the proceedings" or whether "it is likely to produce a different result."].) Materiality can be subjective (the statement was important to a specific party) or objective (the statement was important to a hypothetical reasonable person). (See County of Kern v. Alta Sierra Holistic Exchange Service (2020) 46 Cal.App.5th 82, 101; Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 77.)
We cannot conclude that the recitation in the 2012 Option that certain representations were "material" at the time it was signed meant that they were material so as to satisfy an element of fraud. What if, for example, the 2012 Option's reference to materiality meant only that the representations and warranties were important to Waterfront subjectively? As the jury was instructed, an objective standard applies to fraud. (See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 976-977.) Thus, the parties' recitation that a fact was subjectively material to Waterfront does not conclusively establish that the same fact would be important to a reasonable person. They should not be presumed to satisfy this objective standard in subsequent litigation. The court correctly allowed evidence to be presented on this point. (See Cordasco v. Scalero (1962) 203 Cal.App.2d 95, 107, disapproved on another ground in Estate of Propst (1990) 50 Cal.3d 448, 462 [conclusive presumption of predecessor statute did not apply to bar extrinsic evidence when terms of a contract are ambiguous]; Perkins v. Maiden (1943) 57 Cal.App.2d 46, 51-52 [same].)
The court in this case instructed the jury that a matter was material if "a reasonable person would find it important in determining his or her choice of action."
Finally, although Paragraph 11.1 describes the Representations and Warranties as "material" and "relied upon" by Waterfront, Paragraph 11.2 defines "Material Changes" and provides, "[Gateway] shall deliver to [Waterfront], promptly after [Gateway's] receipt thereof, copies of written notices or other written communications or documentation received by [Gateway] that would affect the truth, completeness or accuracy of [Gateway's] representations and warranties under Section 11.1 hereof. If, prior to Closing, upon [Gateway's] notice or otherwise, [Waterfront] becomes aware of the material or fraudulent untruth or inaccuracy of any representation or warranty of [Gateway] in this Agreement, or any facts or circumstances that would constitute a material adverse change in any portion of the Property or its future use or operation, and which untruth or inaccuracy or material adverse change would prohibit or materially and adversely affect [Waterfront's] ability to obtain the Regulatory Approvals or construct the Improvements, then [Waterfront] shall have the option" of waiving the breach, adjusting the terms of the option, or terminating the option after giving notice.
Thus, while paragraph 11.1 declares that the representations and warranties are "material," paragraph 11.2 defines "material" in terms of misrepresentations or inaccuracies that "prohibit or materially and adversely affect" Waterfront's "ability to obtain the Regulatory Approvals or construct the improvements." Waterfront's rescission claim is that there was fraud in the inducement of the 2012 Option (which was executed in March 2012), and while paragraph 11.2 would encompass subsequent developments that fell within it provisions, the fact remains that it applies equally to misrepresentations that occurred when the option was exercised and defines those misrepresentations to be material only if they adversely affected Waterfront's ability to obtain approvals or construct its project.
The trial court correctly concluded that it would be inappropriate to instruct the jury it should conclusively presume any misrepresentation of the representations and warranties in paragraph 11.1 to be material, even when they did not affect Waterfront's ability to obtain approvals or construct its project.
It is not necessary to discuss Gateway's claim that the conclusive presumption set forth in Evidence Code section 622 does not apply for the additional reason that it is "a recital of a consideration" excluded from the statute. (Evid. Code, § 622.)
2. Directed Verdict on Breach of Contract Claim
Waterfront challenges the directed verdict on its breach of contract claim. We reject the argument.
"A directed verdict may be granted only when, disregarding conflicting evidence, giving the evidence of the party against whom the motion is directed all the value to which it is legally entitled, and indulging every legitimate inference from such evidence in favor of that party, the court nonetheless determines there is no evidence of sufficient substantiality to support the claim or defense of the party opposing the motion, or a verdict in favor of that party." (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 629.) "A directed verdict is subject[] to de novo appellate review." (Brassinga v. City of Mountain View (1998) 66 Cal.App.4th 195, 210.)
As relevant here, paragraph 5.1 of the 2012 Option provides that "as new or newly discovered information becomes available," Gateway "will make available to [Waterfront] all documents, records and other information. . . necessary for [Waterfront] to perform its due diligence. . . ." Paragraph 3.2(3) provides for the return of option payments if Gateway "is unable for any reason to fulfill any of its obligations under this Agreement. . . ." Waterfront's claim for breach of contract was based on the theory that because Gateway did not provide it with a copy of the Fifth Amendment to the lease with Bay Club or with other relevant documents as they became available, Gateway forever lost the ability to timely do so (and was thus unable to fulfill its obligations under paragraph 5.1). Waterfront argues Gateway was therefore required to return the option payments under paragraph 3.2(3).
The trial court ruled that no substantial evidence would support a jury finding that Gateway was unable to fulfill an obligation under paragraph 5.1. The court concluded that this was an "attempt to reinvent the claim that Gateway breached [paragraph] 11.2" (discussed below), which provides for its own remedy. It also found the requirement in paragraph 3.2(3) that Gateway be "unable" to fulfill an obligation, rather than "fail" to fulfill an obligation, suggests it contemplates circumstances in which Gateway was unable to fulfill the agreement due to circumstances beyond its control.
The court correctly found that Gateway was not "unable" to provide Waterfront with the Fifth Amendment and related documents as they became available. There was no substantial evidence Gateway was prevented from providing the documents; it simply elected not to do so. Consequently, paragraphs 3.2(3) and 5.1 did not apply, and the situation was instead covered by paragraph 11.2.
The interpretation of a written contract is a judicial function unless it depends on the credibility of extrinsic evidence. (Davies v. Sallie Mae, Inc. (2008) 168 Cal.App.4th 1086, 1091; Hillsman v. Sutter Cmty Hosps. (1984) 153 Cal.App.3d 743, 749-750.) Arguably, directed verdict was not the proper procedure for disposing of the breach of contract claim because it should not have been submitted to the jury at all, and was properly resolved by the court. (Code of Civ. Proc., § 630; see Medical Operations Management, Inc. v. National Health Laboratories, Inc. (1986) 176 Cal.App.3d 886, 895 [error to submit interpretation of instrument to jury].) We would reach the same result if we viewed the court's ruling as a determination of the merits.
Paragraph 11.2 required Gateway to promptly deliver "copies of written notices or other written communications or documentation received by [Gateway] that would affect the truth, completeness or accuracy of [Gateway's] representations and warranties under section 11.1 hereof." But that paragraph is limited to material changes that affect Waterfront's ability to secure regulatory approvals and it provides a specific remedy: Waterfront would have the option of waiving such a change, making an agreement with Gateway to adjust the terms of the agreement, or terminating the agreement (and having the option payments returned) upon five days' notice. Because the jury found that any misrepresentation with respect to the Bay Club lease was not "material" and there is no evidence it would have affected Waterfront's ability to secure regulatory approvals or proceed with the development, and because Waterfront did not terminate the agreement, there was no issue left for the jury to resolve under paragraph 11.2.
Waterfront argues that we should not treat paragraph 5.1 as imposing an obligation that is merely duplicative of paragraph 11.2. That is not what we are doing. Rather, we conclude Gateway was not "unable" to perform its obligations under paragraph 5.1 within the meaning of paragraph 3.2(3), and that Waterfront's remedy for its failure to provide a copy of the Fifth Amendment, if any, was limited to that provided in paragraph 11.2.
3. William Murray's Testimony
Attorney William Murray of Orrick, Herrington & Sutcliffe represented Gateway in its negotiation of the 2006 and 2012 Options with Waterfront, as well as the Fifth Amendment to Gateway's lease with Bay Club. Waterfront contends that he was allowed to testify, over objection, to his "understanding" and unexpressed subjective intent regarding those documents. We reject the claim.
Gateway originally designated Murray as an expert witness but withdrew him as an expert and called him as a percipient witness after Waterfront filed a motion in limine arguing that he should be precluded from offering expert testimony that touched on the parties' intent.
a. Standard of Review and Legal Principles
A trial court's ruling on the admissibility of evidence is reviewed for abuse of discretion. (Gordon v. Nissan Motor Co., Ltd. (2009) 170 Cal.App.4th 1103, 1111.) An appellant must "affirmatively show prejudicial error resulting in a manifest 'miscarriage of justice.' " (Pool v. City of Oakland (1986) 42 Call.3d 1051, 1069.) A miscarriage of justice occurs only if it is reasonably probable, based on the entire record, that a party would have achieved a more favorable result absent that error. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 801-802.)
We begin with the parol evidence rule, which " 'generally prohibits the introduction of any extrinsic evidence, whether oral or written, to vary, alter or add to the terms of an integrated written instrument.' [Citation.] The rule does not, however, prohibit the introduction of extrinsic evidence 'to explain the meaning of a written contract . . . [if] the meaning urged is one to which the written contract terms are reasonably susceptible.' " (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 343.)
Relevant parol evidence includes the parties' discussions at the time the contract was negotiated, but not a party's "uncommunicated subjective intent as to the meaning of the words of the contract." (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166-1167 & fn. 3; Reigelsperger v. Siller (2007) 40 Cal.4th 574, 579 [a contracting party's "uncommunicated subjective intent is irrelevant"].) Parol evidence may also include "the circumstances which attended the making of the agreement, ' ". . . including the object, nature and subject matter of the writing . . ." so that the [trier of fact] can "place itself in the same situation in which the parties found themselves at the time of contracting." ' " (Winet, supra, at p. 1168; see Code Civ. Proc., § 1860.)
b. Relevant Testimony
Murray testified about the general subject matter of his discussions with Waterfront's counsel Neil Sekhri in negotiating the 2006 and 2012 Options. He testified that he did not remember specific conversations, although he knows they discussed all aspects of the agreements. The trial court sustained a number of objections to Murray's testimony on the grounds that it conveyed unexpressed subjective intent, amounted to a legal conclusion, or lacked foundation.
Waterfront complains that despite the court's rulings sustaining many of the objections, Murray was allowed to testify to the following: (1) with regard to paragraph 3 of the 2006 Option and paragraph 3.2 of the 2012 Option, which formed the basis of Waterfront's Breach of Contract Claim, Murray's "understanding" was that Gateway would be required to return the option payments only if something "really serious" had happened or if Waterfront was deprived of benefits under the agreement; and (2) Murray testified about his intention behind paragraphs 11.1 of the Option Agreements, indicating it was a description of the Bay Club's month-to-month status rather than a representation of the same, and that the paragraph only gave Waterfront the ability to terminate the 2012 Option if there was a material change that adversely affected its ability to obtain regulatory approvals.
c. Analysis
Among the disputed issues in this case was whether the representation that Bay Club was on a month-to-month lease was material and whether Waterfront relied on that representation for purposes of fraud. Another issue was whether Gateway failed to provide sufficient information and documentation regarding the Fifth Amendment to Waterfront for purposes of breach of contract. It was appropriate for Murray to testify about the mutually expressed intention of the parties relevant to these points.
Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 435 (Garcia), is instructive. In Garcia, the Supreme Court affirmed the decision of the trial court permitting testimony concerning the meaning of an integrated insurance contract from an attorney responsible for negotiating that policy. The attorney testified about the negotiation of the agreement, the rationale for adding certain provisions to that agreement, and the meaning of certain elements of the contract. In finding that the testimony had been properly admitted, the court observed that " 'The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.' " (Garcia, supra, 36 Cal.3d at p. 435.)
Murray could not recall specifics regarding the conversations he had with Sekhri, but this does not mean the trial court abused its discretion in overruling Waterfront's objection to his testimony as an expression of unilateral intent. Murray testified that they went through the agreements page by page and line by line. The court could reasonably conclude that Murray's understanding regarding paragraphs 3.2 and 11.1 were based on his conversations with Sekhri.
Even if we assume the court erred in admitting isolated portions of Murray's testimony into evidence, the error was not prejudicial because it is not reasonably probable that the jury would have reached a different result had the evidence not been admitted. (Pool, supra, 42 Cal.3d at p. 1069.) The jury had the contracts itself and ample admissible testimony about the actions and circumstances surrounding them. Waterfront argues that Gateway's counsel relied "extensively" on Murray's interpretation of the contract during closing argument, by claiming that Murray put protections in the contract precisely to avoid a later lawsuit by Waterfront. But counsel for Gateway could just as readily have made this argument based on the language of the contract Murray drafted, without relying on the challenged portions of Murray's testimony. There was no prejudicial error.
4. Prevailing Party Costs and Attorneys' Fees
The court issued orders determining that Gateway was the prevailing party for purposes of costs and fees and awarded it $8,159,103.50 in attorneys' fees and $963,422.19 in costs. Waterfront argues that it, not Gateway, was the prevailing party entitled to costs under Code of Civil Procedure section 1032. We disagree.
"Generally, a trial court's determination that a litigant is a prevailing party, along with its award of fees and costs, is reviewed for abuse of discretion." (Goodman v. Lozano (2010) 47 Cal.4th 1327, 1332.) When a claim involves an issue of law based on undisputed facts, our review is de novo. (City of Long Beach v. Stevedoring Services Of America (2007) 157 Cal.App.4th 672, 678.)
Code of Civil Procedure section 1032, subdivision (b) provides, "Except as otherwise provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." Code of Civil Procedure section 1032, subdivision (a)(4) provides, "As used in this section, unless the context clearly requires otherwise: [¶] . . . [¶] 'Prevailing party' includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against the defendant. If any party recovers other than monetary relief and in situations other than as specified, the 'prevailing party' shall be determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not, and, if allowed, may apportion costs between the parties on the same or adverse sides. . . ." (Italics added.)
Code of Civil Procedure section 1033.5, subdivision (a)(10) provides that costs allowable under Code of Civil Procedure section 1032 include "Attorney's fees, when authorized by any of the following: [¶] A. Contract." When attorney fees are authorized by contract and an action is on the contract (as opposed to one in tort) the court looks to Civil Code section 1717 to determine whether fees should be granted. (Santisas v. Goodin (1998) 17 Cal.4th 599, 615 (Santisas).)
Paragraph 22 of the 2012 Option provided: "Attorney's Fees. In the event of any dispute between the parties, whether based on contract, tort or other cause of action involving bankruptcy or similar proceedings, in any way related to this Agreement, the non-prevailing party shall pay to the prevailing party all reasonable attorneys' fees and costs and expenses of any type, without restriction by statute, court rule or otherwise, incurred by the prevailing party in connection with any action or proceeding (including arbitration proceedings, any appeals and the enforcement of any judgment or award), whether or not the dispute is litigated or prosecuted to final judgment. . . ."
After trial, Gateway filed a costs bill that included attorney fees and a motion requesting its attorney fees. Waterfront also filed a costs bill, as well as a motion asking that it be declared the prevailing party for the purposes of costs only, and that there be no prevailing party declared as to attorneys' fees. Both parties urged the court to exercise its discretion under Civil Code section 1717. (See Santisas, supra, 17 Cal.4th at p. 614 [§ 1717 applies to claims for rescission].)
The court determined that Gateway was the prevailing party. It reasoned that Gateway had prevailed on Waterfront's rescission and breach of contract claims and had obtained its litigation objectives on its declaratory relief claim: "Although the court dismissed Gateway's declaratory relief claim at the February 8, 2019 hearing, it did so only after (1) the parties stipulated that the Option Agreement was terminated as of January 18, 2018; (2) the parties stipulated that Waterfront had no rights in the Option Property; and (3) the Court granted Gateway's motion for a directed verdict on Waterfront's breach of contract claim. . . . Therefore, contrary to Waterfront's argument that Gateway did not prevail on its declaratory relief claim because it did not obtain any affirmative relief, the litigation resulted in Gateway obtaining the very relief it sought—the Court finding that 'the Option is terminated, [Waterfront] has no rights to the Property, and Gateway may retain the option payments pursuant to the terms of the Option Agreement.' " The court concluded that there was no prevailing party on the various claims that had been dismissed before trial, but those claims were so closely intertwined that the fees incurred could not be segregated.
Waterfront contends that the dismissal of Gateway's declaratory relief claim under Code of Civil Procedure section 1061 made it a "defendant where neither plaintiff nor defendant obtains any relief" and a prevailing party entitled to costs as a matter of right. (See McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn. (1991) 231 Cal.App.3d 1450, 1452-1456.) We disagree. As the trial court found, Gateway satisfied its litigation objectives and effectively obtained relief. (See Childers v. Edwards (1996) 48 Cal.App.4th 1544, 1549 [" 'Relief' in this sense has been defined generally as 'deliverance from oppression, wrong, or injustice.") Where nonmonetary relief is granted, the statute expressly gives the court the discretion to award fees. (Goodman v. Lozano (2010) 47 Cal.4th 1327, 1333.)
The dismissal of Gateway's declaratory relief cause of action under Code of Civil Procedure section 1061 does not require a different conclusion. The dismissal was only entered because the court determined that Gateway's litigation objectives had already been met—both by a stipulation between the parties and by a directed verdict in favor of Gateway on the breach of contract claim. Waterfront should not be permitted to rely on that dismissal to say that it was a prevailing party as to that claim.
Finally, even if we were to view this as a case in which neither party obtained relief, the categories of prevailing party enumerated in Code of Civil Procedure section 1032 only apply "unless the context clearly requires otherwise." (Code of Civ. Proc., § 1032, subd. (a).) The court could reasonably find that here, the context clearly requires otherwise.
Waterfront argues that a different result is required by Cussler v. Crusader Entertainment, LLC (2012) 212 Cal.App.4th 356, 371-372 (Cussler). We disagree. In Cussler, an author sued the production company that had optioned some of his books and the production company filed a cross-complaint. (Id. 359.) The case proceeded to trial, and the jury rejected the claims of both sides, such that neither side obtained any relief. (Id. at pp. 359-362.) Although one of the option contracts that was disputed at trial lapsed for reasons unrelated to the litigation, this was not considered "nonmonetary relief." (Id. at 372.) Here, by contrast, Gateway secured its litigation objectives by reason of stipulation and directed verdict, and thus obtained "nonmonetary relief" within the meaning of Code of Civil Procedure section 1032.
Citing Cussler, Waterfront suggests Gateway did not obtain any affirmative relief by virtue of the directed verdict in its favor on Waterfront's breach of contract claim. It argues that what Gateway did, instead, was successfully defend against any damages. (See Cussler, supra, 212 Cal.4th at p. 366 [defense verdict on complaint was not affirmative relief].) This ignores that Gateway did not merely secure a directed verdict on Waterfront's breach of contract claim seeking return of the option payments; it brought its own declaratory relief action seeking a determination that it was entitled to keep the option payments under the contract. That action was dismissed by the trial court, but only after it determined that Gateway had already obtained the relief it sought. In Cussler, the parties did not obtain declaratory relief or its equivalent.
Waterfront makes much of the fact that it terminated the 2012 Option in January 2018, more than a year before trial, suggesting it was not the lawsuit by which Gateway obtained relief. But by its own terms, the January 2018 termination was only effective if it was determined in the lawsuit that the 2012 Option was effective. It was the litigation, therefore, that resulted in the 2012 Option being terminated by stipulation.
Finally, although Waterfront argued in the trial court that neither party was the prevailing party for purposes of attorneys' fees under Civil Code section 1717, and although the trial court relied on Civil Code section 1717 in ruling that Gateway was a prevailing party, neither party discusses Civil Code section 1717 on appeal. We assume the trial court's analysis of that section, and of Gateway's status as a prevailing party under that statute, was correct.
5. Costs Not Authorized by Statute
Waterfront contends the trial court erred in allowing Gateway to recover costs not that were not authorized by Code of Civil Procedure section 1033.5, such as the fees of expert witnesses not appointed by the court. It argues such items should have been pled and proven as an element of prevailing party damages, rather than submitted post-trial as part of a costs bill. We disagree.
Waterfront does not specify in its opening brief precisely which costs are at issue. But the costs challenged in the trial court include $1,119 in FedEx costs, $24,887 in photocopies, $367,275 in expert witness fees, $132,585 in consultant fees, $105,300 in payments to Trial Behavioral Consulting, $8,576 in business meals and $5,051 in travel expenses.
Prevailing party costs that are not allowable under Code of Civil Procedure section 1033.5 may be awarded when a contract specifically provides for such costs. (See Thrifty Payless, Inc. v. Mariners Mile Gateway, LLC (2010) 185 Cal.App.4th 1050, 1065 (Thrifty); Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464, 491.) The 2012 Option provided that a prevailing party would recover "costs and expenses of any type, without restriction by statute, court rule or otherwise. . . ." As the trial court properly found, the reference to costs "without restriction by statute" encompassed expert witness fees and other costs that would not otherwise be authorized by Code of Civil Procedure section 1033.5. Waterfront does not claim that such costs were unauthorized by the 2012 Option, but it argues that Gateway did not follow the proper procedure for recovering them. It suggests that Gateway should have pled and proved the costs.
We disagree for the reasons stated in Thrifty, which dealt with expert witness fees authorized by a contract. "While the Legislature has not adopted a specific provision addressing the recovery of expert witness fees, such fees are, indeed, a cost, and when 'expressly authorized by law[,]' they are 'allowable as costs' under Code of Civil Procedure section 1033.5, subdivision (b)(1). We therefore see no reason why they should not be recoverable as costs when the parties specifically agree to such a provision in a freely negotiated contract." (Thrifty, supra, 185 Cal.App.4th at p. 1066.) Like the trial court, we find Thrifty persuasive. We reject other authority to the extent it is inconsistent. (Ripley v. Pappadopoulos (1994) 23 Cal.App.4th 1616, 1627; Carwash of America-PO v. Windswept Ventures No. I (2002) 97 Cal.App.4th 540, 544; First Nationwide Bank v. Mountain Cascade, Inc. (2000) 77 Cal.App.4th 871, 878.)
6. Award of Fees and Costs Based on Redacted Bills
Waterfront argues that the trial court "rubber-stamp[ed]" Gateway's request for attorneys' fees because Gateway submitted only its redacted legal bills in support of its claim. It cites only Syers Properties III, Inc. v. Rankin (2014) 226 Cal.App.4th 691, 700, in which the court affirmed an award of attorneys' fees based on counsel's computation of attorney hours and which contradicts Waterfront's challenge to the fee award: "It is well established that 'California courts do not require detailed time records, and trial courts have discretion to award fees based on declarations of counsel describing the work they have done and the court's own view of the number of hours reasonably spent. [Citations.]' [Citations.] [¶] 'Because time records are not required under California law. . . , there is no required level of detail that counsel must achieve." (Id. at pp. 698-700.) There was no abuse of discretion. (See Akins v. Enterprise Rent-A-Car Co. (2000) 79 Cal.App.4th 1127, 1134.)
III. DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to respondent Gateway.
/s/_________
NEEDHAM, Acting P.J. We concur. /s/_________
BURNS, J. /s/_________
SELIGMAN, J.
Judge of the Superior Court of Alameda County, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.