Opinion
NOT TO BE PUBLISHED
Super. Ct. No. SC20060207
BLEASE, Acting P. J.
This is an appeal from an order denying class certification of a cross-complaint. The cross-complainants are Rami Merrikh and his wife, Patricia Suda Merrikh. The cross-defendant is Trans-Sierra Investment, Inc. (TSI).
The Merrikhs operated a coffee shop by the name of Wildman Coffee that was located in a shopping center owned by TSI at Heavenly Village, Lake Tahoe. TSI brought a declaratory relief and breach of contract action against the Merrikhs based upon the Merrikhs’ refusal to pay real property taxes attributable to the premises they had leased from TSI.
The Merrikhs cross-complained on behalf of themselves and all other current and former tenants, and sought class certification. They alleged that TSI had collected property taxes without any right to do so under the provisions of the lease, had improperly charged tenants Common Area Maintenance (CAM) charges for unrelated expenses, had not complied with its obligation to advertise the shopping center, and had not provided an accounting. They also alleged that the tax language at issue is found in each of the leases of the class members and therefore there is a well-defined community of interest among the class members regarding the issue of taxes.
Based on that allegation the trial court denied class certification because it found the tax language ambiguous and the resolution of the ambiguity required that the intent of each of the lessees be ascertained by the admission of parol evidence. For that reason the court found common issues of law and fact would not predominate.
We review only the reasons given by the trial court for denying the class certification, and on that basis we shall reverse the order denying certification. (Bartold v. Glendale Federal Bank (2000) 81 Cal.App.4th 816, 829.) We shall conclude that the tax provisions of the lease agreement are not ambiguous because it is not reasonably susceptible to the interpretation put forth by the Merrikhs. As a consequence, the resolution of the class issue also resolves the substantive issue of property taxes adversely to the class pursuant to the law of the case. The order denying class certification is reversed.
As to the other claims set forth in the cross-complaint, the trial court did not make findings as to their suitability as class claims.
FACTUAL AND PROCEDURAL BACKGROUND
Leasing activities for the Shops at Heavenly Village, Lake Tahoe, (the Village) began in 2000, with the first tenants moving into the Village in 2002. The Merrikhs first became interested in leasing space there in 2001, when Patricia Merrikh, an attorney, interviewed for a job with Lewis Feldman, who was providing legal services to TSI in connection with the development and leasing of space at the Village.
The Merrikhs were interested in opening a coffee shop, and after meeting with the Merrikhs, Feldman sent them a letter of intent (LOI) for unit 35, outlining the key terms and conditions of a proposed lease agreement. The section of the LOI entitled “Property Taxes” stated: “Tenant will pay its proportionate share of property taxes for the Project.” The Merrikhs did not ultimately sign the LOI because they were financially unable to pursue the project at that time.
Almost a year later, Feldman met again with Rami Merrikh and Barry Vare, who intended to go into partnership with Merrikh under the name of Espresso, Etc. Merrikh and Vare met with Feldman at least three times to discuss the terms of a lease at the Village. During one meeting, they reviewed the terms of an LOI, and Feldman specifically told them that as tenants they would be responsible for paying real property taxes. The LOI, which was signed by Vare, stated: “Tenant will pay its proportionate share of property taxes and assessments for the Project.”
The lease for Espresso, Etc. was between TSI as landlord and Vare as tenant. Although the lease is not the lease that is the subject of the Merrikhs’ complaint, the lease terms involving property taxes are identical to the one later signed by the Merrikhs. Accordingly, both leases provided the base rent would be: “Three Thousand Five Hundred Sixteen Dollars ($3,516.00) per month during the first year of the Lease Term, which amount excludes Tenant’s share of Common Area Maintenance Expenses and Taxes, increased annually pursuant to Section 5.3 hereof.”
Under the heading, “Additional Rent” both leases provided: “In addition to Base Rent and Percentage Rental, Tenant shall pay all other sums of money or charges required to be paid by Tenant under this Lease, including, but not limited to, Common Area Maintenance Expenses and Taxes (which sums are referred to in this Lease as ‘Additional Rent’).”
Under the heading, “Adjustment of Taxes” both leases provided that if due to a change to California tax law, “Landlord’s actual costs expended for Taxes in any year after the year in which the Rent Commencement Date occurs... exceed the amount expended for Taxes for the year in which the Rent Commencement Date occurs... Tenant shall pay its pro rata share of any such excess... to the Landlord, as Additional Rent, in the manner set forth below.” Patricia Merrikh reviewed the LOI and the lease before Vare executed it.
Vare and Rami Merrikh were in partnership as Espresso, Etc., until the summer of 2003, when their partnership was dissolved after they had a falling out. Patricia Merrikh informed Feldman that Vare had abandoned the business, and the Merrikhs told Feldman they wanted to continue the business under the name Wildman Coffee. Feldman prepared a new lease, identical in terms to the lease signed by Vare, except that it recognized that the deposit paid by Vare was in satisfaction of the Merrikhs’ deposit on the new lease. The Merrikhs executed the lease in September 2003. They did not sign an LOI.
TSI began sending the Merrikhs invoices in November 2003. The first invoice included a charge for a supplemental tax assessment itemized as “Property Taxes -- 1st installment 2003/2004 Assessment " 181 days.” This invoice was later revised because of an accounting error. Rami Merrikh asked for a meeting to explain these invoices. Gary Casteel, TSI’s vice president, met with them and explained the tax assessment and the calculation of the Merrikhs’ pro-rata share based upon the total assessment divided by their store space and the number of days since they took possession. In 2004, TSI began invoicing property taxes under the heading State/County/City taxes.
In 2004, after the Merrikhs had received and paid several invoices for property taxes, they executed an estoppel certificate containing the following statement signed under penalty of perjury:
“There are no defenses against the enforcement of the Lease by Lessor/Landlord and there is no default under the Lease. Both parties have performed the obligations required to be performed by each party thereunder through the date hereof. There are not any existing conditions which upon giving notice or lapse of time or both would constitute a default under the Lease, and Lessor/Landlord has satisfactorily complied with all requirements to the commencement of the term of the Lease.”
Because the Merrikhs were consistently delinquent in making their rent payments, TSI filed multiple unlawful detainer actions. The Merrikhs did not raise their defense regarding property taxes until the final unlawful detainer proceeding, which ultimately resulted in their vacating the premises.
TSI filed a declaratory relief action against the Merrikhs and two other tenants because of the tenants’ contention that they did not have to pay the portion of the real property taxes attributable to their leaseholds. The Merrikhs filed a class action cross-complaint, and the cross-complaint at issue here is the second amended cross-complaint.
The second amended cross-complaint alleged that TSI breached the lease agreement by: (1) charging for real property taxes, (2) awarding contracts to friends without engaging in competitive bidding, (3) collecting money for property management fees not charged by an outside management company, and (4) improperly billing trash charges. A cause of action for fraud is based upon the allegations with respect to property taxes, and causes of action for conversion, unlawful business practices and an accounting are based upon the breach of contract allegations.
Relevant to the issue of taxes, the Merrikhs contended that the lease agreement did not obligate them to pay property taxes because, although the lease provided that taxes were a part of the tenants’ additional rent obligation, the lease did not specifically state this was a property tax obligation.
DISCUSSION
I
The Issue of Taxes
Certification of a class requires proof: “(1) of a sufficiently numerous, ascertainable class, (2) of a well-defined community of interest, and (3) that certification will provide substantial benefits to litigants and the courts, i.e., that proceeding as a class is superior to other methods. [Citations.] In turn, the ‘community of interest requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.’ [Citation.]” (Fireside Bank v. Superior Court (2007)40 Cal.4th 1069, 1089 (Fireside Bank).) The party seeking certification has the burden of establishing a well-defined community of interest among the class members. (Washington Mutual Bank, FA v. Superior Court (2001) 24 Cal.4th 906, 913.)
The trial court determined that common questions of fact did not predominate because each individual member would be required to individually litigate its right to recovery. It found the term “Taxes” as used in the lease was reasonably susceptible to the interpretation urged by TSI to include real property taxes. It impliedly found that the Merrikhs’ claim of ambiguity was also a reasonable construction. Consequently extrinsic evidence would be admissible to explain the meaning of the agreement pursuant to the parol evidence rule. Because this would involve evidence of the individual lease negotiations and rental history of each tenant, the trial court determined that each individual member would be required to litigate substantial questions to determine his or her right to recovery.
This was the only reason given by the trial court for denial of class certification, and this is the reason we review. An appeal from an order denying class certification presents a departure from the general rule that we review the trial court’s result, but not its rationale. In this case, we review only the reasons given by the trial court for denying the class certification, and we ignore any other grounds that might support denial. (Bartold v. Glendale Federal Bank, supra, 81 Cal.App.4th at p. 829.)
We review the trial court’s decision regarding the certification of a class for abuse of discretion, affording its decision great deference, and reversing only for a manifest abuse of discretion. (Fireside Bank, supra, 40 Cal.4th at p. 1089.) The trial court is afforded such deference because it is best situated to evaluate the efficiency and practicality of permitting group action. (Ibid.) “A certification order generally will not be disturbed unless (1) it is unsupported by substantial evidence, (2) it rests on improper criteria, or (3) it rests on erroneous legal assumptions.” (Ibid.)
However, the decision to deny certification in this case necessarily followed a determination that the lease agreement was ambiguous, and that determination is a question of law subject to independent review on appeal. (WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1710.)
The terms of a written agreement may not be explained by extrinsic evidence in the absence of an ambiguity in the agreement. (Hotchkiss v. Nelson R. Thomas Agency (1950) 96 Cal.App.2d 154, 157.) A written agreement is ambiguous if the language of the agreement is reasonably susceptible to more than one application of consequence to the case. (See Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. (1968) 69 Cal.2d 33, 37.) If the lease agreement is not reasonably susceptible to more than one meaning, then no extrinsic evidence would be admissible to interpret it, and no issues of fact regarding the agreement’s interpretation, common or otherwise, would exist.
In this case there are three paragraphs of the lease agreement relevant to the payment of property taxes. The paragraph (§ 1.6) titled “Base Rent” states: “Three Thousand Five Hundred Sixteen Dollars ($3,516.00) per month during the first year of the Lease Term, which amount excludes Tenant’s share of Common Area Maintenance Expenses and Taxes, increased annually pursuant to Section 5.3 hereof.”
Section 5.3 provided for an annual rent increase tied to the increase in the Consumer Price Index.
Section 5.5, titled “Additional Rent, ” states: “In addition to Base Rent and Percentage Rental, Tenant shall pay all other sums of money or charges required to be paid by Tenant under this Lease, including, but not limited to, Common Area Maintenance Expenses and Taxes (which sums are referred to in this Lease as ‘Additional Rent’).”
Percentage Rental was a percentage of the tenant’s gross sales in excess of a certain amount.
The Merrikhs claim that the term “Taxes” in paragraph 5.5 refers to paragraph 2.7, which bears the title “Adjustment of Taxes.” It states in pertinent part: “Notwithstanding anything to the contrary set forth in this Lease, if due to a change in the California tax legislation commonly known as Proposition 13, whether by legislative or administrative action or by judicial determination (a ‘Prop 13 Change’), Landlord’s actual costs expended for Taxes in any year after the year in which the Rent Commencement Date occurs... exceed the amount expended for Taxes for the year in which the Rent Commencement Date occurs..., Tenant shall pay its pro rata share of any such excess (the ‘Excess Taxes’) to the Landlord, as Additional Rent, in the manner set forth below.”
The Merrikhs argue that because the lease agreement does not specifically obligate them to pay their portion of the landowner’s real property taxes, their only obligation was to pay a share of any excess taxes resulting from a Proposition 13 legislation change. We disagree.
It is apparent from these provisions that the lease requires the tenant to pay taxes to the landlord as a part of the rent. Although not specifically set forth, as the lease agreement is for the rental of real property, the only logical conclusion is that the taxes to which the lease refers are the real property taxes on the leased premises. The Merrikhs implicitly concede as much.
The lease agreement is not reasonably susceptible to the interpretation advanced by the Merrikhs. The lease (§ 5.5) states that the tenant must pay common area maintenance expenses and taxes as additional rent. The paragraph (§ 2.7) dealing with Proposition 13 changes, an occurrence that is unlikely to happen, is entitled “Adjustment of Taxes.” There is no need to adjust something that does not exist. If there are no property taxes to be paid there are no taxes to be adjusted. Moreover, the lease refers to such additional taxes caused by a legislative change as “excess taxes, ” distinguishing them from the regular “taxes” that are set forth in the additional rent provision.
A contract unambiguous on its face may nevertheless contain a latent ambiguity that can be exposed by extrinsic evidence. (Manufactured Home Communities, Inc. v. County of San Luis Obispo (2008) 167 Cal.App.4th 705, 714.) However, the Merrikhs have offered no extrinsic evidence to support their interpretation, but rely solely on the language of the lease. Contrary to their claim, the extrinsic evidence supports the non-ambiguity of the agreement. The pre-dispute, post-contract conduct of the Merrikhs, their payment of property taxes, indicates they were well aware of their obligation to pay property taxes. The conduct of the parties prior to the controversy is entitled to great weight in construing the meaning of the contract. (Automobile Salesmen’s Union v. Eastbay Motor Car Dealers, Inc. (1970) 10 Cal.App.3d 419, 424.)
By making this determination we are not improperly deciding the merits of the action. In Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429 (Linder), the Supreme Court held that class certification may not be denied on the ground that the claim lacks merit. However, the court recognized that “issues affecting the merits of a case may be enmeshed with class action requirements, such as whether substantially similar questions are common to the class and predominate over individual questions or whether the claims or defenses of the representative plaintiffs are typical of class claims or defenses.” (Id. at p. 443.) In a subsequent case, the Supreme Court further explained that the holding in Linder was “only that a plaintiff need not establish a likelihood of success on the merits in order to obtain class certification.” (Fireside Bank, supra, 40 Cal.4th at pp. 1091-1092.) Nothing prevents the court from “considering how various claims and defenses relate and may affect the course of the litigation, considerations that may overlap the case’s merits.” (Id. at p. 1092.)
The trial court determined that common questions of fact did not predominate in this case because the extrinsic evidence that would be admissible to interpret tax provisions of the lease agreement would vary from plaintiff to plaintiff. Before the trial court could determine that extrinsic evidence would be admissible to explain the lease terms, it necessarily determined the tax provisions of the lease were reasonably susceptible to the interpretation put forth by the plaintiffs. It is this predicate question of law that we conclude the trial court resolved incorrectly. There being no question that the lease required the tenants to pay their share of the landlord’s property taxes as part of the rent, no extrinsic evidence will be admissible to explain the terms of the lease. Since plaintiffs have alleged that the substantive language at issue is found in all the leases, there is a well defined community of interest among the class members regarding the issue of taxes.
We thus conclude that the class claims regarding property taxes do not require individualized proof of knowledge, reliance, and damages for the reason that the lease unambiguously requires the tenant to pay property taxes on the leased premises. This finding is the law of the case and is binding in subsequent proceedings. (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, §§ 459, 460, pp. 515-517.) As a consequence the decision on the certification of the class is also determinative of the merits of the property tax issue.
II
Other Issues
In addition to the claims regarding taxes, the Merrikhs’ complaint alleged improper collection of excessive CAM charges and the diversion or conversion of collective advertising fees. The trial court’s ruling mentioned these claims, but based its findings on its conclusion that the term “Taxes” as used in the lease was reasonably susceptible to the meaning urged by TSI, therefore parol evidence would be admissible, and numerous and substantial questions of fact would have to be litigated.
The trial court did not rule on the other legal issues presented by the cross-complaint. We thus review only the reason given by the trial court and ignore any other ground that might support denial. (Bartold v. Glendale Federal Bank, supra, 81 Cal.App.4th at p. 829.)
DISPOSITION
The judgment (order denying certification of class) is reversed. Appellants and respondents shall bear their own costs on appeal.
We concur: ROBIE, J. CANTIL-SAKAUYE, J.