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12400 Stowe Drive, LP v. Cycle Express, LLC

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
Sep 28, 2018
No. D069738 (Cal. Ct. App. Sep. 28, 2018)

Opinion

D069738

09-28-2018

12400 STOWE DRIVE, LP, Plaintiff, Cross-Defendant, and Appellant, v. CYCLE EXPRESS, LLC, Defendant, Cross-Complainant, and Appellant.

Law Office of Johanna S. Schiavoni and Johanna S. Schiavoni for Plaintiff, Cross-Defendant, and Appellant. Dentons US, Charles A. Bird; Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo and Antony M. Nash for Defendant, Cross-Complainant, and Appellant.


ORDER MODIFYING OPINION AND DENYING REHEARING AND PARTIAL PUBLICATION NO CHANGE IN JUDGMENT

THE COURT:

It is ordered that the opinion filed September 28, 2018, be modified as follows:

At the end of the first paragraph on page 25, after the citation to Mt. Holyoke Homes, LP, add the following to complete the paragraph:

In such circumstances, courts have considered equitable estoppel theories raised for the first time on appeal, notwithstanding the general rule that equitable estoppel typically presents a factual question that must be pleaded in the trial court. (Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1287-1288 [applying estoppel theory raised for the first time on appeal because it "involve[d] a legal question applied to undisputed facts"].)

There is no change in the judgment.

Plaintiff's petition for rehearing is denied.

The request for partial publication of the opinion is denied.

NARES, Acting P. J. Copies to: All parties

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2014-00023051-CU-MC-CTL) APPEALS from a judgment of the Superior Court of San Diego County, Timothy B. Taylor and Joel R. Wohlfeil, Judges. Affirmed. Law Office of Johanna S. Schiavoni and Johanna S. Schiavoni for Plaintiff, Cross-Defendant, and Appellant. Dentons US, Charles A. Bird; Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo and Antony M. Nash for Defendant, Cross-Complainant, and Appellant.

This appeal involves a dispute between a commercial landlord, 12400 Stowe Drive, LP (Stowe), and its tenant, Cycle Express, LLC (Cycle). The parties' lease granted Cycle an option to renew the lease when it expired, with rent set at a discounted percentage of the property's fair market rental value. Cycle renewed the lease, but the parties disagreed about the property's fair market rental value and Cycle's rent obligations. Thus, Stowe brought this action against Cycle, requesting catch-up rent, accounting, and ejectment. Cycle filed cross-claims against Stowe, alleging that the roof of the property leaked water each time that it rained and, as a result, Stowe breached its obligations under the lease.

After a bench trial, the trial court concluded that the fair market rental value of the property was $106,500 per month or $6.39 million over the course of the five-year lease renewal period, which entitled Stowe to just $338,750 in damages—far less than the $2.9 million Stowe sought. As for Cycle's cross-complaint, the trial court found that Stowe breached the lease by delivering a defective roof and awarded Cycle $32,960 in damages. The court denied both parties' motions for attorney fees and Cycle's request for prejudgment interest.

Stowe appeals the judgment, arguing that (1) the trial court erroneously precluded one of its proposed valuation experts from testifying, and (2) substantial evidence does not support the court's fair market rental value finding. Stowe also challenges the trial court's ruling that it breached the lease, contending that (1) the statute of limitations forecloses Cycle's claim, (2) Cycle is estopped from asserting any breach of the lease, (3) the lease requires Cycle to provide notice about defects within the first 30 days of the lease period and Cycle failed to do so, (4) the lease exculpates Stowe from liability, (5) any breach of the lease was attributable to the prior lessor of the property, and (6) the roof was not defective. Both parties also challenge the trial court's denial of their requests for attorney fees and Cycle appeals the court's denial of its request for prejudgment interest.

We find no error in the trial court's rulings. Accordingly, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

I. The Lease

In 2009, DEI, LLC (DEI) leased a 133,125-square-foot industrial park and an adjacent 112,830-square-foot vacant parcel of land (together, the Premises) to Cycle. The five-year lease (the Lease) began on June 1, 2009 and set a base monthly rent of $106,613, with annual upward adjustments. It also had an addendum granting Cycle an option to extend the Lease for three additional five-year periods at 95 percent of the Premises' fair market rent.

Paragraph 2.2, at the beginning of the Lease (under the heading "Condition"), states that the Premises "shall be in good operating condition" and "the structural elements of the roof . . . shall be free of material defects." It also establishes a 30-day period, during which the lessor (initially DEI, and later Stowe, see post) is required to rectify any defects of which it is notified. Paragraph 58 (under the heading "Condition of Facility") further states that the lessor must "deliver" the Premises to Cycle with the roof "in good working order."

All further paragraph references are to the Lease, unless otherwise noted.

Subject to these provisions, Paragraph 7.1 (under the heading "Lessee's Obligations") requires Cycle to keep the Premises, including its roof, "in good order, condition and repair" at its "sole expense," regardless of the reason(s) why the need for the repair arises. If Cycle fails to perform its duties, the lessor has a right, upon notice, to perform repairs and seek reimbursement from Cycle.

Finally, Paragraph 8.8 (under the heading "Exemption of Lessor and its Agents from Liability") exculpates the lessor from liability as follows: "Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for . . . injury or damage to the persons or goods, wares, merchandise or other property of Lessee . . . whether such damage or injury is caused by or results from . . . water or rain . . . [or] leakage . . . or [for] injury to Lessees' business or for any loss of income or profit therefrom."

II. The Roof Dispute

Shortly before the start of the Lease, DEI paid for the installation of a new roof on the Premises. Because the roof was new, Cycle believed it was in "great condition." However, Cycle noticed water leaking from the roof on September 21, 2009, 112 days after the Lease began.

At Cycle's request, DEI—acting through its property manager, Greene Properties (Greene)—contacted the general contractor that oversaw the roof installation. The general contractor investigated the site and concluded that birds pecking holes in the roof's foam membrane caused the leaks. The general contractor then contacted its subcontractor to attempt a repair. The repair proved unsuccessful and new leaks emerged. As each new leak manifested, Cycle contacted Greene, which coordinated with the subcontractor to attempt a repair. At no time during these repair efforts did Stowe inform Cycle that it bore responsibility for the leaks.

Yet another roof leak emerged in May 2010 and, on this particular occasion, Cycle—rather than asking Greene to coordinate the repair—obtained a repair quote from a new roof contractor. Before engaging the contractor, Cycle asked Greene to approve the repair bid. Greene advised Cycle to "proceed with [the] repair," stated that it would "absorb [the] cost," and reimbursed Cycle when Cycle paid out-of-pocket for the repair.

Stowe acquired ownership of the Premises, as well as DEI's obligations under the Lease, in December 2010. Stowe and DEI share common ownership—specifically, Darrell Issa and Katharine Issa are the members and owners of DEI, DEI is a general partner in Stowe, and the Issas are limited partners and co-owners of Stowe. The Issas are also the founders, owners, and officers of Greene, the property manager. Neither Stowe nor DEI have any employees, and Stowe, DEI, and Greene all use the same office. When DEI transferred the Premises to Stowe, there was no exchange of money between DEI and Stowe. In Darrell Issa's words, the transfer of the Premises to Stowe was a "simple movement of an asset from one entity owned by the same people to another entity owned by the same people."

On January 16, 2012, Cycle notified Greene the roof was still leaking, despite the repair efforts that had been undertaken. Greene offered to contact its roofing subcontractor, as it had in the past, and also referred Cycle to Paragraph 7.1 of the Lease (requiring Cycle to keep the Premises "in good order, condition and repair"). Although it quoted Paragraph 7.1, Greene never advised Cycle that it believed the roof repair constituted a maintenance issue for which Cycle was responsible. In fact, Greene coordinated with the subcontractor to perform the repair and told Cycle the subcontractor would get "the roof squared away."

When leaks persisted in 2013, Greene contacted a different roofing contractor to provide a repair estimate. Due to the extensive damage the roof exhibited, the contractor recommended that Stowe replace the roof. Greene approved a multi-phase roof replacement project, paid for the initial phases of the project (totaling $32,960), and on June 13, 2014, invoiced Cycle for all roof replacement costs. Cycle paid Stowe's invoices under protest.

III. The Estoppel Certificate

In October 2011, as part of an attempt to refinance the Premises, Stowe (through Greene) asked Cycle to execute an estoppel certificate. Greene informed Cycle the estoppel certificate "in no way alter[ed] [the] lease or [Cycle's] relationship" with Stowe, and instead "provide[d] certain rights to [Stowe's] bankers" at Union Bank, N.A. (the Bank) in connection with an anticipated refinancing plan.

In the estoppel certificate, Cycle represents to the Bank as follows: (1) Cycle "accepted the Premises and all construction of improvements required to be performed or paid by [Stowe] under the Lease has been completed"; (2) to the best of Cycle's knowledge, "[n]o default, or any event or condition which with the passing of time or giving of notice, or both, would constitute a default . . . exists under the Lease"; and (3) to the best of Cycle's knowledge, "no claim against [Cycle] or dispute exists between [Cycle] and [Stowe] under the Lease." As requested, Cycle executed the estoppel certificate.

IV. The Valuation Dispute

In 2013, as the Lease neared its expiration, Cycle exercised its option to renew the Lease. As noted, the Lease sets Cycle's rent during the renewal period at 95 percent of the fair market rental value of the Premises. When Cycle exercised its renewal option, it informed Stowe that it had procured an appraisal and believed the monthly rental rate calculated from the fair market rental value was $99,843.75. Stowe disputed this assessment, conducted its own appraisal, and informed Cycle that it believed the fair market rental value was $115,504.00 and the monthly rental rate was $109,648.40. Cycle remained on the Premises at the expiration of the first Lease period and used its own (lower) rent assessment to calculate its rent during the second Lease period.

V. The Lawsuit

On July 11, 2014, Stowe filed suit against Cycle based on the parties' rent dispute, and sought declaratory relief, an accounting, and ejectment. On September 5, 2014, Cycle filed a cross-complaint against Stowe, alleging breach of the Lease, violation of the covenant of good faith and fair dealing, and negligence based on purported defects in the roof and parking lot.

In advance of trial, Stowe designated David Davis as an expert to testify about the fair market rental value for the Premises, while Cycle designated Stephen Roach as an expert to testify about both the fair market rental value for the Premises and the overall market for commercial properties like the Premises. Stowe then designated a second valuation expert, D. Michael Mason, to provide testimony regarding "the methods, practices, and standard of care for appraisers in determining the fair market rental value of commercial property." Pursuant to Evidence Code section 723 and San Diego Superior Court Rules, rule 2.1.11, Cycle sought a protective order limiting Stowe to one valuation expert to avoid cumulative testimony. The court granted Cycle's motion and, as a result, Stowe selected Davis as its expert.

Evidence Code section 723 states: "The court may, at any time before or during the trial of an action, limit the number of expert witnesses to be called by any party."

San Diego Superior Court Rules, rule 2.1.11 states in pertinent part: "It is the policy of the court that parties are limited to one expert per field of expertise per side, pursuant to Evidence Code section 723, absent a court order to the contrary."

VI. Trial and Judgment

Trial proceeded as a two-part bench trial, with phase one dedicated to the fair market rental value of the Premises and phase two dedicated to Cycle's cross-claims.

During phase one, Davis (Stowe's valuation expert) testified that he analyzed comparable industrial properties, vacant land sales, and projected rates of return, which led him to conclude that the monthly fair market rental value for the improved lot was $0.92 per square foot and the monthly fair market rental value for the adjoining lot was $0.14 per square foot. After multiplying these figures by the area of each respective parcel, Davis concluded that the monthly fair market rental value for the entire Premises was $138,270. On cross, however, Davis conceded that the data on which he relied was inaccurate, leading Stowe to admit that its own expert's "work in [the] case was sloppy" and that he was "a bit of a bumbler" on the stand.

Unlike Davis, Roach (Cycle's valuation expert) testified that the improved and adjacent lots must be valued as a whole—not separately—because the Lease defines the Premises to include both lots, such that a tenant could not possess one without the other. As Roach explained, this method can result in an overall valuation that is either greater or lesser than the sum of the whole's component parts. Roach further testified that he analyzed six comparable properties and concluded that the fair market rental value for the Premises was $106,500 per month.

Eleven witnesses testified in the second phase of trial pertaining to Cycle's cross-complaint. Among other witnesses, Cycle's roof expert testified that the roof was defective from its installation. Specifically, he testified that the roof lacked protection against bird attacks and the subcontractor improperly installed the roof over a moist roof deck. By contrast, Stowe's roof expert testified that the roof installation was "average" and Cycle had neglected the roof for years. Stowe's expert testified that, on a letter-grade scale, the roof was a "C."

At the close of trial, the trial court issued a statement of decision in which it found that the fair market rental value of the Premises was $106,500 per month—the amount Roach (Cycle's expert) proffered. The court concluded that Roach provided a "solid, credible, and reliable" appraisal, whereas Davis (Stowe's expert) prepared a "profoundly flawed" appraisal. Thus, the court adopted Roach's appraisal and found that Stowe was entitled to $99,898.32 in catch-up rent, i.e., the difference between what Cycle had paid Stowe and the amount Cycle should have paid Stowe based on the true fair market rental value of the Premises.

As for phase two, the trial court found that Stowe breached the Lease by failing to deliver a roof in good operating condition. According to the court, the parties contracted for a "B" (good) or "A" (excellent) roof, not a "C" (average) roof. The court also found that Stowe waived the 30-day time limitation applicable to its duty to rectify material defects on the Premises. Finally, the court found that Stowe assumed DEI's liabilities under the Lease, both as DEI's successor and alter ego. The court awarded Cycle $32,960 in damages, but denied recovery on Cycle's remaining cross-claims.

After posttrial briefing, the trial court denied both parties' requests for attorney fees. In the court's words, "[n]either side enjoyed complete success" and "both sides suffered significant defeats." The court also denied Cycle's request for prejudgment interest. Both parties appealed the judgment.

DISCUSSION

I. Phase One: Fair Market Rent

A. Exclusion of Stowe's Second Valuation Expert

As noted, Stowe and Cycle initially designated one proposed valuation expert each to testify at trial regarding the fair market rental value of the Premises (Davis and Roach, respectively). Stowe then designated a second proposed valuation expert (Mason) to testify regarding "the methods, practices, and standard of care for appraisers in determining the fair rental value of commercial property." However, upon Cycle's filing of a motion for a protective order, the trial court ordered Stowe to "elect" between its two proposed valuation experts, noting that both experts were from the same "field of expertise." On appeal, Stowe challenges the trial court's order requiring it to "elect" between its proposed experts.

"The purpose of the expert witness discovery statutes is 'to give fair notice of what an expert will say at trial. This allows the parties to assess whether to take the expert's deposition, to fully explore the relevant subject area at any such deposition, and to select an expert who can respond with a competing opinion on that subject area.' " (Cottini v. Enloe Medical Center (2014) 226 Cal.App.4th 401, 416.) Under these statutes, a party, upon a timely demand, must exchange information concerning its expert trial witnesses, including a narrative statement about the expert's expected testimony. (Code Civ. Proc., §§ 2034.210, 2034.260.) A party may then, within 20 days of the exchange, "submit a supplemental expert witness list containing the name and address of any experts who will express an opinion on a subject to be covered by an expert designated by an adverse party to the exchange, if the party supplementing an expert witness list has not previously retained an expert to testify on that subject." (§ 2034.280, subd. (a).)

All further statutory references are to the Code of Civil Procedure, unless otherwise noted.

Separately, Evidence Code section 723 provides as follows: "The court may, at any time before or during the trial of an action, limit the number of expert witnesses to be called by any party." Under Evidence Code section 352, the trial court has discretion to exclude cumulative evidence at trial as well. (People v. Mincey (1992) 2 Cal.4th 408, 439.) We review a trial court's order limiting the number of experts that may testify at trial for abuse of discretion. (Horn v. General Motors Corp. (1976) 17 Cal.3d 359, 371; Redondo Beach School Dist. v. Flodine (1957) 153 Cal.App.2d 437, 449 (Redondo Beach).)

As an initial matter, Cycle argues that Stowe forfeited its ability to challenge the trial court's order because Stowe complied with the order and designated a single valuation expert to testify. We disagree. Stowe preserved the issue for appeal by opposing Cycle's request for a protective order based on the same arguments it now raises on appeal. (Platypus Wear, Inc. v. Goldberg (2008) 166 Cal.App.4th 772, 782.)

On the merits, however, we agree with Cycle. At base, Stowe's argument appears to be that the trial court predicated its order requiring Stowe to elect between experts on whether Stowe complied with the discovery statutes governing expert witness exchanges. Stowe is mistaken. As the trial court explained, Cycle sought, and the trial court granted, a "protective order to exclude an improper expert witness . . . [under] Evidence Code [section] 723 and San Diego Rule of Court 2.1.11 . . . [and] to exclude . . . testimony at trial . . . ." Accordingly, the propriety of the trial court's election order does not turn on any interpretation of the expert discovery statutes or whether Stowe satisfied those statutes; rather, it turns on whether the trial court properly exercised its discretion to limit the number of testifying experts at trial.

Turning to that issue now, we find no error in the trial court's order. Stowe contends that the trial court erred because it required Stowe to elect between its two proposed valuation experts too early, before the parties had initiated expert discovery. However, Evidence Code section 723 provides as follows: "The court may, at any time before or during the trial of an action, limit the number of expert witnesses to be called by any party." (Evid. Code, § 723, italics added.) By using the expansive term "at any time," the Legislature set no temporal limitation on a court's authority to regulate the number of testifying experts. (People v. Parker (2014) 231 Cal.App.4th 1423, 1433 ["[A]t any time" is "broad, not limiting."]; People v. Thomas (1990) 218 Cal.App.3d 1477, 1486-1487 [declining to impose a temporal limitation to a statute authorizing the court to dismiss an ill or incapacitated juror "at any time"].) Thus, we reject Stowe's argument that the trial court erred by limiting the number of testifying experts when it did.

Next, Stowe contends that the court's order imposed "manifest prejudice" on Stowe, by requiring it to elect between two proposed experts who purportedly intended to testify about different "subjects." We recognize that "[t]rial courts may not use their powers . . . to limit the number of expert witnesses" under Evidence Code section 723 "if it destroys a plaintiff's evidentiary presentation." (Monroy v. City of Los Angeles (2008) 164 Cal.App.4th 248, 266-267.) However, in this case, no such destruction occurred.

Most notably, Davis opined at trial regarding the methods and practices that appraisers use when determining the fair market rental value for properties like the Premises—testimony that is substantially similar to that which Stowe intended to elicit through Mason. For instance, Davis testified about the method by which appraisers choose comparable properties, obtain rental values for those properties, and adjust those values to account for differences between properties. He also presented his opinion regarding why, in his view, the improved and vacant lots should be valued separately. Thus, the trial court's order did not preclude Stowe from presenting the type of testimony it initially intended to elicit through Mason. (See Contra Costa County Flood Control & Water Conservation Dist. v. Armstrong (1961) 193 Cal.App.2d 206, 210 [court acted within its power when it limited cumulative appraisal expert testimony]; Redondo Beach, supra, 153 Cal.App.2d at pp. 448-449 [same].)

Furthermore, it is not reasonably probable that Stowe would have achieved a more favorable result if the trial court had permitted Stowe to designate a second expert. As the trial court found, Davis—the only expert Stowe designated to provide an analysis of the rental value of the Premises—conducted a "profoundly flawed" appraisal. Stowe itself conceded that Davis's appraisal was "sloppy." Thus, it is exceedingly unlikely that Stowe's second proposed expert, who Stowe designated to testify only about general valuation methods, could have compensated for the more fundamental weakness in Stowe's case—its faulty valuation of the Premises.

Under these circumstances, where the trial court excluded expert testimony that likely would have been cumulative and, in any event, was not reasonably likely to produce a different outcome, we find no abuse of discretion. B. Substantial Evidence

Stowe contends that San Diego Superior Court Rules, rule 2.1.11 (which limits a party to one expert per "field of expertise") conflicts with section 2034.280, subdivision (a) (which permits a party to designate a rebuttal expert on any "subject" for which it has not designated an expert), and should be invalidated. Given our conclusion that the trial court acted validly under Evidence Code section 723—a conclusion that does not depend on San Diego Superior Court Rules, rule 2.1.11—we do not reach Stowe's argument.

Stowe also contends that Roach (Cycle's expert) violated appraisal standards and, as such, his testimony does not constitute substantial evidence to support the judgment.

"Under the well-established standard of review applicable to a claim that a judgment or finding is not supported by the evidence in the record, 'we must consider all of the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference, and resolving conflicts in support of the judgment. [Citations.] [¶] It is not our task to weigh conflicts and disputes in the evidence; that is the province of the trier of fact. Our authority begins and ends with a determination as to whether, on the entire record, there is any substantial evidence, contradicted or uncontradicted, in support of the judgment.' " (Regalado v. Callaghan (2016) 3 Cal.App.5th 582, 595-596.) The considered opinion of one expert may constitute substantial evidence. (People v. Vega (2005) 130 Cal.App.4th 183, 190, disapproved on another ground in People v. Ruiz (2018) 4 Cal.5th 1100.) However, speculative, remote, or conjectural expert testimony is insufficient to support a judgment. (Wise v. DLA Piper LLP (US) (2013) 220 Cal.App.4th 1180, 1191.)

In this case, Roach testified that he valued the Premises as one collective unit, a method that, depending on the circumstances, can either produce a higher or lower valuation than would be achieved if each component of the property were valued separately and added together. In adopting this approach, Roach likened the adjacent lot to "surplus land" that "cannot be separated from the property" and "may or may not contribute value to the improved parcel." (Appraisal Institute, The Dictionary of Real Estate Appraisal (5th ed. 2010) p. 191.)

Stowe sought judicial notice of various appraisal definitions from The Dictionary of Real Estate Appraisal and The Appraisal of Real Estate. We grant Stowe's request. (Evid. Code §§ 451, subd. (e) & 452, subd. (h).)

Stowe contends that Roach violated accepted appraisal standards when he valued the improved and adjacent lots together as one unit. According to Stowe, Roach should have treated the adjacent lot as "excess land," which "may be sold off separately" and "must be treated separately in the valuation process." (Appraisal Institute, The Appraisal of Real Estate (14th ed. 2013) p. 290 & 291.) We disagree. As Roach testified, an appraisal of fair market rental value must take into consideration all restrictions of the lease agreement. In this case, one such restriction is that the Lease defines the Premises as both the improved and adjacent lots.

Wu v. Interstate Consol. Indus. (1991) 226 Cal.App.3d 1511 is instructive on this point. In Wu, the lessees of a movie theater sought declaratory relief to determine the rent they owed to their lessor. (Id. at pp. 1513-1514.) The parties' lease required the lessees to use the leased property as a movie theater and for no other purpose. (Id. at p. 1515.) On appeal, the lessor contended that fair market rent should be based on the highest and best use the property could support, "regardless of the restrictions" in the lease. (Ibid.) However, the Wu court rejected this argument, finding that fair market rent must be based "upon the particular purpose for which the premises were leased" due to the restrictions incorporated into the lease itself. (Id. at p. 1513.)

Similarly, the Lease in this case contains restrictions that must be accounted for when determining fair market rental value. One such restriction is the definition of the Premises itself. Under Wu, we find no error in Stowe's decision to calculate the fair market rental value for the Premises based on the conditions and restrictions contained in the Lease.

Stowe contends that the improved and adjacent lots are not restricted because Stowe, as the owner, can sell the adjacent lot without selling the improved lot. Stowe's argument is inapposite. Under the Lease, a prospective tenant cannot rent the adjacent vacant lot without also renting the industrial lot.

Next, Stowe contends that Roach erroneously ascribed "no value" to the adjacent lot. Stowe's argument falters, however, because Roach did not testify that the adjacent lot had "no value." Quite the opposite. Roach testified that the adjacent lot "[a]bsolutely" had value because a tenant could use it for parking. Indeed, when conducting his valuation, Roach adjusted the market rental value for the comparable properties he analyzed upwards to account for the extra parking available on the Premises relative to the other properties—in part, due to the adjacent lot. Roach then derived the fair market rental value of the Premises based on those upwards-adjusted comparable property figures. Thus, we reject Stowe's contention that Roach ascribed no value to the adjacent lot.

Stowe also contends that Roach violated accepted appraisal standards because, according to Stowe, Roach valued the adjacent lot based on Cycle's limited use of the lot, rather than the value it would have for a hypothetical lessor. The record does not support Stowe's argument. Roach expressly testified that he based his appraisal on the property itself, not Cycle's use of the property. And, in regards to the vacant adjacent lot, Roach testified that although the lot added value due to its additional parking opportunities, "not a lot of industrial users" would require that additional parking due to the parking available on the improved lot. Thus, we decline Stowe's attempt to recharacterize Roach's testimony as pertaining to Cycle's idiosyncratic needs.

Next, Stowe claims that Roach improperly reduced the total fair market rental value of the Premises by 5 percent based on its deterioration, permitting Cycle to profit from its alleged failure to maintain the Premises. Again, Stowe is mistaken. Roach did not reduce the total fair market rental value of the Premises by 5 percent; rather, he adjusted the rent for just one of the comparable properties he studied up by 5 percent based on the superior condition of that property. In any event, Stowe has not directed us to any authority or appraisal standard that would compel an appraiser to consider whether a lessor caused a property's condition when determining that property's fair market rental value. In the absence of such authority, we decline to find that Roach violated accepted appraisal standards.

Finally, Stowe disputes Roach's decision to apply a 2.5 percent cost of living adjustment to the fair market rent, rather than a 3 percent cost of living adjustment. This is precisely the type of "run-of-the-mill disagreement" that is insufficient to demonstrate that an expert's opinion is improper for purposes of substantial evidence review. (Orange County Water Dist. v. Alcoa Global Fasteners, Inc. (2017) 12 Cal.App.5th 252, 322-323.) C. Conclusion

For the reasons discussed ante, we affirm the trial court's finding that the fair market rental value of the Premises was $106,500 per month.

II. Phase II: Breach of the Lease

A. Statute of Limitations

1. Accrual of the Statute of Limitations

As it did in the trial court, Stowe contends on appeal that the four-year statute of limitations applicable to breach of contract claims forecloses Cycle's cross-claim for breach of the Lease. Stowe raised this argument in its demurrer, summary judgment motion, and request for a statement of decision. Prior to trial, the trial court found that disputed issues of material fact existed regarding the effect of the statute of limitations. The trial court quoted its pretrial orders, but did not otherwise address the statute of limitations, in the statement of decision.

Stowe and Cycle agree that the statute of limitations for Cycle's cross-claim is four years (see § 337), the roof of the Premises began to leak on September 21, 2009, and Cycle did not file a cross-claim until September 5, 2014, five years later. Stowe claims that the statute of limitations began running September 21, 2009, when Cycle became aware of the leaks. Cycle, on the other hand, contends that the statute of limitations began running June 13, 2014, when Stowe sent an invoice for the roof replacement project. According to Cycle, it was not on inquiry notice before June 13, 2014 because Stowe had attempted to repair the roof up until that time. We agree with Stowe.

"In ordinary tort and contract actions, the statute of limitations begins to run upon the occurrence of the last element necessary to the cause of action. [Citation.]" (Krieger v. Nick Alexander Imports, Inc. (1991) 234 Cal.App.3d 205, 221; see Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 815.) This is commonly known as the "last element" accrual rule. (Otay Land Co., LLC v. U.E. Limited, L.P. (2017) 15 Cal.App.5th 806, 851.) "In contract actions, the cause of action generally accrues at the time of the breach." (Krieger, at p. 221.)

" 'An important exception to the general rule of accrual is the "discovery rule," which postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.' [Citation.] 'The discovery rule only delays accrual until the plaintiff has, or should have, inquiry notice of the cause of action.' " (WA Southwest 2, LLC v. First American Title Ins. Co. (2015) 240 Cal.App.4th 148, 156-157.) "[T]he discovery rule 'may be applied to breaches [of contract] which can be, and are, committed in secret and, moreover, where the harm flowing from those breaches will not be reasonably discoverable by plaintiffs until a future time.' " (Wind Dancer Production Group v. Walt Disney Pictures (2017) 10 Cal.App.5th 56, 73 (Wind Dancer).)

Here, the trial court found that the roof was defective "from the outset" of the Lease and Cycle was aware of the leaks no later than September 21, 2009. These leaks were sufficient to put a reasonable party on inquiry notice that the roof, as delivered, was not free from material defects. (See Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 648 [statute of limitations began running when homeowners realized that the siding on their home was warping and buckling, not when they realized the defendant would be able to correct the problem]; see also Landale-Cameron Court, Inc. v. Ahonen (2007) 155 Cal.App.4th 1401, 1408 [tort cause of action began accruing when plaintiff noticed water intrusion in building].) While Cycle may have had good reason to refrain from filing a lawsuit at that time—for example, its belief that Stowe would remedy the roof's defects or perhaps the possibility that the leakage may not be as widespread as it turned out to be—those beliefs do not mean that Cycle lacked inquiry notice of the roof's defects. (Davies v. Krasna (1975) 14 Cal.3d 502, 514 ["[O]nce plaintiff has suffered actual and appreciable harm, neither the speculative nor uncertain character of damages nor the difficulty of proof will toll the period of limitation."].) Thus, the statute of limitations began running September 21, 2009.

2. Equitable Estoppel

Next, we must also consider what effect, if any, to attribute to Stowe's continuous, multi-year efforts to repair the roof. Specifically, we now consider whether Stowe is equitably estopped from asserting a statute of limitations defense.

"Under the doctrine of estoppel, '[a] defendant may be equitably estopped from asserting a statutory or contractual limitations period as a defense if the defendant's act or omission caused the plaintiff to refrain from filing a timely suit and the plaintiff's reliance on the defendant's conduct was reasonable.' [Citation.] ' "It is not necessary that the defendant acted in bad faith or intended to mislead the plaintiff. [Citations.] It is sufficient that the defendant's conduct in fact induced the plaintiff to refrain from instituting legal proceedings. [Citation.]" ' " (Wind Dancer, supra, 10 Cal.App.5th at p. 79.) As the Supreme Court has explained, " ' "[w]here the delay in commencing action is induced by the conduct of the defendant it cannot be availed of by him as a defense." ' " (Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, 1152-1153; see Carruth v. Fritch (1950) 36 Cal.2d 426, 433, superseded by statute on another ground as stated in Village Northridge Homeowners Assn. v. State Farm Fire & Casualty Co. (2010) 50 Cal.4th 913 [" 'One cannot justly or equitably lull his adversary into a false sense of security, and thereby cause his adversary to subject his claim to the bar of the statute of limitations, and then be permitted to plead the very delay caused by his course of conduct as a defense to the action when brought.' "].)

In Holdgrafer v. Unocal Corp. (2008) 160 Cal.App.4th 907, for instance, the court found that an owner and operator of an oil pipeline was equitably estopped from asserting a statute of limitations defense to landowners' claims that the oil company's pipelines had contaminated their property. The landowners became aware of the oil contamination in 1989, but waited until 2001 before filing their lawsuit—long after the expiration of the statute of limitations—in reliance on the oil company's representations and conduct. (Id. at p. 925.) Specifically, the oil company informed the landowners its "investigation of the matter was ongoing," it would "begin remediation of the contamination," and it "would do whatever was necessary to ensure that the affected property owners did not suffer any damages." (Id. at p. 926.) Based on these statements, the landowners believed the oil company "would 'take care of the problem' without the need for a lawsuit . . . ." (Id. at p. 917.) On these facts, the Holdgrafer court concluded that the oil company was equitably estopped from asserting a statute of limitations defense. (Id. at pp. 925-927.)

We found that the defendants in Shaffer v. Debbas (1993) 17 Cal.App.4th 33 were estopped from asserting a statute of limitations defense based on similar statements suggesting they would rectify plaintiffs' injuries. In Shaffer, homeowners brought claims against the builders that constructed their home, alleging defects in the home's drainage and air systems. (Id. at p. 38.) The builders promised they would fix the construction defects and, based on these promises, we concluded that the builders were estopped from asserting a statute of limitations defense to the homeowners' emotional distress claims. (Id. at p. 43.) As we explained: "Where a potential defendant has promised to remedy a portion of the damages suffered by the plaintiff, it would be unreasonable to expect the plaintiff to jeopardize the possibility of repair by filing a lawsuit . . . . Certainly the effect of a contrary rule would be to foster the precipitous filing of actions and reduce the possibility of settlement without litigation, outcomes hardly in the best interests of the judicial system or the public at large." (Ibid.)

Finally, in the analogous context of equitable tolling, a statute of limitations may be tolled while a warrantor attempts to repair a latent construction defect and assures the injured party it will repair the defect. (Aced v. Hobbs-Sesack Plumbing Co. (1961) 55 Cal.2d 573, 585 ["The statute of limitations is tolled where one who has breached a warranty claims that the defect can be repaired and attempts to make repairs."]; Mack v. Hugh W. Comstock Associates, Inc. (1964) 225 Cal.App.2d 583, 589-590 ["[T]he statute was tolled during the entire period when the respondents attempted to repair the heating plant and assured the appellants that they would make the plant perform in accordance with its warranty."].) "Tolling during a period of repairs rests upon the same basis as does an estoppel to assert the statute of limitations, i.e., reliance by the plaintiff upon the words or actions of the defendant that repairs will be made." (A&B Painting & Drywall, Inc. v. Superior Court (1994) 25 Cal.App.4th 349, 355.)

Equitable tolling is a judge-made doctrine whereby the statute of limitations stops running during the duration of a tolling event. (Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 370-371.)

In this case, Cycle did not assert an equitable estoppel argument in the trial court. Stowe claims that it therefore had no incentive to elicit evidence regarding the issue of equitable estoppel and contends that it would be inappropriate for us to apply equitable estoppel principles on appeal. However, there is no dispute that the parties extensively litigated the doctrines of delayed discovery (ante at Part II.A.1.) and waiver (post at Part II.D.), which required the trial court to examine many issues directly relevant to equitable estoppel, including the timing and content of Stowe's representations to Cycle, the reasonableness of Cycle's reliance on those representations, and Cycle's diligence in filing suit. Stowe also has not directed us to any evidence that it would have elicited had it been on earlier notice that Cycle intended to rely on equitable estoppel. Further, we permitted the parties to file supplemental briefs regarding equitable estoppel and the issue was discussed extensively at oral argument. On this record, Stowe has not persuaded us that it will be prejudiced by our consideration of Cycle's equitable estoppel arguments.

Nor is it dispositive that the trial court did not expressly rule on whether Stowe was equitably estopped from asserting a statute of limitations defense. As we have explained, "[w]e are not bound by the issues actually decided by the trial court." (Schmidt v. Bank of America, N.A. (2014) 223 Cal.App.4th 1489, 1498.) Rather, "we may affirm the trial court's ruling 'on any basis presented by the record whether or not relied upon by the trial court.' " (McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 802.) Further, equitable estoppel, though usually a question of fact, "is a question of law when the facts are undisputed and only one reasonable conclusion can be drawn from them." (Mt. Holyoke Homes, LP v. California Coastal Com. (2008) 167 Cal.App.4th 830, 840.)

We conclude that only one reasonable conclusion can be drawn from the undisputed facts of this unique case: Stowe is equitably estopped from asserting a statute of limitations defense. When the roof of the Premises began to leak in September 2009, Stowe did not request that Cycle pay or assume responsibility for the attempted repairs. On the contrary, Stowe worked directly with its subcontractor to repair the leaks, time and again. And, on the one occasion when Cycle contacted a contractor for a roof repair, Greene (on Stowe's behalf) expressly instructed Cycle that it accepted the proposed repair and would "absorb" the cost of the repair—a representation that it later followed through on when it reimbursed Cycle for its out-of-pocket expenses.

We also find that Cycle's reliance on Stowe's statements and conduct was reasonable. As noted, the trial court found that Stowe coordinated roof repairs over the span of several years, without invoicing Cycle or requesting payment from Cycle, and Stowe (acting through Greene) even reimbursed Cycle for its out-of-pocket roof repair expenses.

Notwithstanding these facts, Stowe contends that Cycle acted unreasonably when it refrained from filing suit against Stowe. Specifically, Stowe contends that, on two occasions in 2012, it "reminded" Cycle of its duties to maintain the roof. We disagree that these "reminders" render Cycle's reliance unreasonable. As the trial court found, Stowe never advised Cycle it viewed the roof repairs at issue in this case as maintenance issues. Further, the trial court found that Stowe, even after "reminding" Cycle of its maintenance duties, "continued to work directly with [the subcontractor] on repairs." We do not find that Stowe's nonspecific "reminder" that Cycle had a duty to maintain the Premises, followed by Cycle's continued assumption of all roof repair duties, undercuts the reasonableness of Cycle's reliance.

Nor can there be any dispute that Cycle acted diligently after Stowe sent it invoices for the roof replacement project, thereby indicating its intent to disclaim further responsibility for the roof repairs. When Stowe invoiced Cycle on June 13, 2014, Cycle filed its cross-complaint just three months later. For all these reasons, we find that Stowe is equitably estopped from asserting a statute of limitations defense.

Stowe also contends that the trial court committed error by failing to meaningfully address the statute of limitations argument in the statement of decision. Because the facts permit only one reasonable conclusion—namely, that Stowe is equitably estopped from asserting a statute of limitations defense—we find that the trial court's failure to address the statute of limitations did not prejudice Stowe and does not warrant reversal of the judgment. (F.P. v. Monier (2017) 3 Cal.5th 1099, 1108 (Monier).) B. The Estoppel Certificate

As noted, Stowe's property manager asked Cycle to execute an estoppel certificate containing various statements regarding the Lease and the relationship between Stowe and Cycle. The estoppel certificate stated that (1) Stowe completed or paid for all required improvements under the Lease, (2) Cycle had no knowledge of a default of the Lease, and (3) Cycle had no knowledge of any claim, offset, or defense against Stowe under the Lease. Stowe contends that the estoppel certificate precludes Cycle from asserting that Stowe breached the Lease.

" 'An "estoppel certificate" (or "offset statement") is a signed certification of various matters with respect to a lease [citation].' " (Plaza Freeway v. First Mt. Bank (2000) 81 Cal.App.4th 616, 626 (Plaza Freeway).) Estoppel certificates "inform lenders and buyers of commercial property of the tenant's understanding of the lease agreement. Lenders and buyers rely upon the certificates in finalizing loans and purchase." (Id. at pp. 628-629.) An estoppel certificate constitutes a binding recital of facts that estops a signatory from asserting contrary facts at a later time. (Id. at p. 626.) It is a "written instrument," and, as such, triggers the Evidence Code section 622 "conclusive presumption that the facts recited are 'true as between the parties thereto, or their successors in interest.' [Citation.]." (Greenwald et al., Cal. Practice Guide: Real Property Transactions (The Rutter Group 2017) ¶ 7.292.2.)

We apply de novo review to the interpretation of an estoppel certificate. (Robert T. Miner, M.D., Inc. v. Tustin Ave. Investors, LLC (2004) 116 Cal.App.4th 264, 271; Plaza Freeway, supra, 81 Cal.App.4th at p. 621.) "The basic goal of contract interpretation is to give effect to the parties' mutual intent at the time of contracting. (Civ.Code, § 1636.) Where, as here, there is a written contract, the parties' intention is determined from the writing alone, if possible. (Civ.Code, § 1639.)" (Miner, supra, 116 Cal.App.4th at p. 271.)

We asked the parties to provide supplemental briefing on whether Cycle is bound to the representations contained within the estoppel certificate in this case, given that Stowe is not a party to the estoppel certificate and all of Cycle's representations in the estoppel certificate are directed to the Bank, not Stowe. We also conducted an independent review of the case law and uncovered no published authority in California suggesting whether an estoppel certificate is binding if the signatory to that certificate directs its representations only to a third-party lender or buyer. Courts outside California have addressed this issue, with mixed results—some have found that statements made by an estoppel certificate signatory are binding only in a subsequent action with the third-party lender or buyer to whom the representations are made, while others have found that the signatory's statements are binding in landlord-tenant disputes. (Compare Servco Pac., Inc. v. Dods (D.Hawaii 2002) 193 F.Supp.2d 1183, 1191 [statement from landowner to lender in estoppel certificate not binding in landowner-lessee dispute] & NHS Nat'l Health Servs. v. Kaufman (N.Y.App.Div. 1998) 250 A.D.2d 528, 529 [estoppel certificate executed in favor of lender did not bar tenant's claim against landlord] with HRC Guam Co. v. Bayview II L.L.C., 2017 Guam 25, ¶ 17 [enforcing estoppel certificate addressed to lender in landlord-tenant action].)

For instance, the estoppel certificate states as follows: Cycle "acknowledges that Bank is relying on this Tenant Estoppel Certificate in considering a Loan to Darrell E. Issa and Katharine S. Issa. [Cycle] represents and warrants to Bank that this Tenant Estoppel Certificate is a valid and authorized certificate of [Cycle] . . . . This Tenant Estoppel Certificate shall inure to the benefit of the Bank and its successors and assigns." In its letter to Cycle, Stowe (acting through Greene) even reiterated that the estoppel certificate "in no way alter[ed] [Cycle's] lease or [its] relationship with [Stowe], but rather provide[d] certain rights to [Stowe's] bankers . . . ." (Italics added.)

However, we need not resolve that issue here. That is because Cycle's statements in the estoppel certificate do not deny the existence of the leakage that gave rise to its cause of action. "[A]n estoppel certificate reveals the present intent and understanding of the parties to a commercial lease agreement." (Plaza Freeway, supra, 81 Cal.App.4th at p. 626, italics added.) Here, Cycle executed an estoppel certificate stating that "to the best of [Cycle's] knowledge," there were no existing disputes or claims between the parties. Similarly, the estoppel certificate states that, "to the best of [Cycle's] knowledge," no Lease default presently existed. Cycle made these statements only after Stowe had arranged for the completion of roof repairs—repairs that, for all Cycle knew at the time it executed the estoppel certificate, rectified the roof's defects—and long before Stowe unequivocally disclaimed responsibility for the quality of the roof. On the facts of this case, we find that the estoppel certificate is consistent with Cycle's cause of action.

Stowe also contends that the estoppel certificate precludes Cycle's cross-claim because the certificate states that Cycle "has accepted the Premises and all construction of improvements required to be performed or paid by Landlord under the Lease had been completed." This statement is likewise consistent with, and does not bar, Cycle's cause of action. Cycle's mere "acceptance" of the Premises does not connote, as Stowe apparently contends, that it has waived any right to assert a breach of the Lease based on the quality of the Premises. Nor do we find that the repair of a defect in the roof constitutes an "improvement" to the Premises. Thus, the statement that Stowe performed or paid for all "improvements" required by the Lease is inapposite.

Under these circumstances, where the estoppel certificate does not undercut Cycle's cross-claim, we find that the trial court's failure to address the estoppel certificate in the statement of decision did not prejudice Stowe. (Monier, supra, 3 Cal.5th at 1108.) C. The Exculpation Clause

Paragraph 8.8 of the Lease contains an exculpatory clause that shields Stowe from liability for certain types of damages caused by water, rain, or leakage. Stowe contends that this clause precludes Cycle's cross-claim as a matter of law.

Parties to a lease may agree to limit a lessor's liability for ordinary negligence with an exculpatory clause, in the absence of a contrary public interest or statutory prohibition. (Fritelli, Inc. v. 350 North Canon Drive, LP (2011) 202 Cal.App.4th 35, 43 (Fritelli).) They may also limit a lessor's liability for breach of a lease through such a clause. (Id. at pp. 47-48.) "Whether an exculpatory clause 'covers a given case turns primarily on contractual interpretation, and it is the intent of the parties as expressed in the agreement that should control. When the parties knowingly bargain for the protection at issue, the protection should be afforded. This requires an inquiry into the circumstances of the damage or injury and the language of the contract; of necessity, each case will turn on its own facts.' " (Burnett v. Chimney Sweep (2004) 123 Cal.App.4th 1057, 1066 (Burnett).)

"To be valid and enforceable, a written release purporting to exculpate a tortfeasor from damage claims based on its future negligence or misconduct must clearly, unambiguously, and explicitly express this specific intent of the subscribing parties." (Leon v. Family Fitness Center (# 107) (1998) 61 Cal.App.4th 1227, 1233.) "The law requires exculpatory clauses to be strictly construed against the party relying on them." (Salton Bay Marina v. Imperial Irrigation Dist. (1985) 172 Cal.App.3d 914, 932; see Queen Villas Homeowners Assn. v. TBC Property Management (2007) 149 Cal.App.4th 1, 6 ["[E]xculpatory clauses are construed against the released party."].)

Paragraph 8.8 exculpates Stowe only for two categories of damages: (1) injury to Cycle's person or goods, wares, merchandise, or other property; and (2) injury to Cycle's business or loss of income or profit. (Burnett, supra, 123 Cal.App.4th at pp. 1066-1067 [interpreting exculpatory clause identical to Paragraph 8.8. and finding that it only applies to "liability for property damage or personal injury" and "loss of profits"].) In this case, however, Cycle sought damages for out-of-pocket roof repair and replacement expenses, not damages relating to injury to property, employees, reputation, or profitability. Thus, by its plain terms, Paragraph 8.8 does not apply.

In its appellate brief, Stowe urges this court to enforce the exculpatory clause because our colleagues in the Second District enforced a nearly identical clause in Fritelli, supra, 202 Cal.App.4th at p. 35. In Fritelli, a commercial lessee asserted claims against its lessor arising from property construction that the lessor had undertaken, which purportedly impaired the lessee's business operations. (Id. at pp. 39-40.) Based on an exculpatory clause very similar to Paragraph 8.8, the trial court granted summary judgment for the lessor and the Court of Appeal affirmed. (Id. at pp. 40, 44.)

While the exculpatory clause in this case may be nearly identical to the clause that the Fritelli court enforced, the injury in this case bears no similarity to the injury alleged in Fritelli. The Fritelli lessee asserted claims based on alleged impairment to its business and therefore sought damages that fell directly within the scope of the exculpatory clause. (Fritelli, supra, 202 Cal.App.4th at pp. 40, 44.) Here, by contrast, Cycle sought to recover out-of-pocket roof repair costs—again, these are damages that the exculpatory clause does not purport to govern. Accordingly, Fritelli does not compel us to enforce Paragraph 8.8 in this case.

Because the exculpatory clause does not apply, the trial court's failure to address the exculpatory clause in the statement of decision did not prejudice Stowe, and we decline to disturb the judgment on that basis. (Monier, supra, 3 Cal.5th at p. 1108.) D. The 30-Day Time Limitation

Paragraph 2.2 of the Lease requires the lessor (DEI, and later Stowe) to provide Cycle a roof that is in "good operating condition" and "free of material defects," and to rectify any such defects. However, this warranty extends only to defects that Cycle notifies the lessor about within the first 30 days of the Lease. After that time, the duty to correct defects—even those that existed at the start of the Lease—shifts to Cycle. The trial court found that Stowe impliedly waived this 30-day limitation, a finding that Stowe challenges on appeal.

Parties "may, by their words or conduct, waive contractual rights." (Wind Dancer, supra, 10 Cal.App.5th at p. 78.) Timeliness provisions, like the 30-day time limitation, are no exception. (Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1339.) " ' "[T]he pivotal issue in a claim of waiver is the intention of the party who allegedly relinquished the known legal right." [Citation.]' [Citation.] ' "The waiver may be either express, based on the words of the waiving party, or implied, based on conduct indicating an intent to relinquish the right. [Citation.]" [Citation.] Thus, " 'California courts will find waiver when a party intentionally relinquishes a right or when that party's acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.' [Citation.]" [Citation.]' " (Wind Dancer, at p. 78.) "Waiver is ordinarily a question of fact unless ' "there are no disputed facts and only one reasonable inference may be drawn." ' " (Ibid.) Accordingly, we generally will uphold a trial court's finding of waiver as long as it is supported by substantial evidence. (Guild Wineries & Distilleries v. Land Dynamics (1980) 103 Cal.App.3d 966, 977.)

In its brief, Stowe contends the trial court's finding of implied waiver was "erroneous as a matter of law" and asks that we review that finding "as a legal question," in an apparent invitation for us to apply de novo review. We decline Stowe's request. As the above-referenced authorities demonstrate, a finding of implied waiver is generally a question of fact. (Wind Dancer, supra, 10 Cal.App.5th at p. 78.)

Here, substantial evidence supports the trial court's finding that Stowe impliedly waived the time limitation governing Stowe's duty to correct material defects in the roof. Cycle notified Stowe that it discovered a leak on September 21, 2009—112 days after the start of the Lease—and yet Stowe neither invoked the 30-day time limitation nor advised Cycle it was Cycle's obligation to repair the leak. Instead, Stowe (through Greene) coordinated directly with its general contractor to identify the cause of the leak and, on several occasions, arranged with its subcontractor to perform repairs. Furthermore, as discussed ante, Stowe (through Greene) even reimbursed Cycle for out-of-pocket repair expenses.

On appeal, Stowe argues that the trial court could have drawn inferences from Stowe's conduct unrelated to waiver—specifically, that Stowe wanted to foster a positive working relationship with its new tenant at the start of the Lease. But we do not view these inferences as mutually exclusive. On the contrary, a landlord might hope to foster a positive working relationship by waiving a contractual time limitation that it otherwise would be able to assert. Even if these inferences were in conflict, "the test on appeal is not whether substantial evidence supports a finding the appellant wishes the court had made but rather whether substantial evidence, contradicted or not, supports the conclusions the court did make." (Adoption of A.B. (2016) 2 Cal.App.5th 912, 925.) Thus, we conclude that substantial evidence supports the trial court's finding of waiver. E. The Quality of the Roof

Given that we affirm the trial court's finding of implied waiver, we do not reach Cycle's alternative arguments regarding why the 30-day time limitation does not apply.

Stowe next contends that the trial court erred in finding that Stowe failed to provide a roof "in good operating condition," free from "material defects." According to the trial court, the Lease mandated that the roof would be an "A" (excellent) or "B" (good) roof, not a "C" (average) roof. On appeal, Stowe claims that the trial court committed legal error by misinterpreting its duties under the Lease and, specifically, by equating a roof in "good operating condition" with an "A" or "B" roof.

The purpose of the law of contracts is to protect the reasonable expectations of the parties." ' [Citation.] ' " 'Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage" (id., § 1644), controls judicial interpretation. (Id., § 1638.)' [Citations.]" [Citation.] . . . . " Courts must avoid an interpretation that will make a contract extraordinary, harsh, unjust, or inequitable." (Medina v. South Coast Car Co., Inc. (2017) 15 Cal.App.5th 671, 681-682.)

As noted, Stowe criticizes the trial court's analogy between the contractual term "good operating condition" and the academic letter grades "A" and "B," and contends that the Lease does not require it to deliver a "perfect" roof, free from "minor imperfections." In resolving this appeal, we need not try to graft a letter grade system onto the term "good operating condition," as the trial court did in its statement of decision. (J.B. Aguerre, Inc. v. American Guarantee & Liability Ins. Co. (1997) 59 Cal.App.4th 6, 15 ["We do not review the trial court's reasoning, but rather its ruling."].) Instead, our inquiry is far simpler. We need only decide, as a matter of contractual interpretation, whether a persistently leaking roof is in "good operating condition."

Stowe does not challenge the sufficiency of the trial court's finding that the roof was defective at the outset of the Lease and would have "failed," regardless of whether Cycle had satisfied its independent contractual duty to "maintain" the roof.

The answer to this question is obvious. Under any plausible reading, a roof in "good operating condition" means a roof that does not continuously leak and permit the elements into the building. (Hyatt v. Tedesco (2002) 96 Cal.App.4th Supp. 62, 68 [landlord breached the warranty of habitability by leasing a property with a leaking roof, a condition that was "not merely cosmetic or aesthetic, but affect[ed] the health and safety of the tenant."].) Accordingly, we find no error in the trial court's conclusion that the roof of the Premises was not in "good operating condition." F. Successor Liability

Finally, Stowe contends that substantial evidence does not support the trial court's finding that Stowe, which took title to the Premises from DEI, was liable for the acts and omissions of DEI under the doctrines of successor liability and alter ego liability. Because the parties focus primarily on successor liability, we do as well.

"[S]uccessor liability, like alter ego and similar principles, is an equitable doctrine." (Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1330 (Cleveland).) "The general rule is 'where one [business entity] sells or transfers all of its assets to another [business entity], the latter is not liable for the debts and liabilities of the former unless (1) the purchaser expressly or impliedly agrees to such assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing [business entity] is merely a continuation of the selling [business entity], or (4) the transaction is entered into fraudulently to escape liability for debts. [Citations.]' " (McClellan v. Northridge Park Townhome Owners Ass'n, Inc. (2001) 89 Cal.App.4th 746, 753-754 (McClellan).) The trial court found liability here under the mere continuation doctrine of successor liability.

As our Supreme Court has explained, a finding that a business entity is the mere continuation of another business entity is warranted "upon a showing of one or both of the following factual elements: (1) no adequate consideration was given for the predecessor [business entity's] assets and made available for meeting the claims of its unsecured creditors; (2) one or more persons were officers, directors, or stockholders of both [business entities]." (Ray v. Alad Corp. (1977) 19 Cal.3d 22, 29, italics added (Ray).) Ample evidence supports both of these alternative bases for successor liability.

With respect to the first basis, DEI transferred the Premises to Stowe for zero consideration, despite the fact that Stowe claims the Premises are located in "an extraordinarily valuable and desirable business park" in Poway. On this fact alone, we find lack of adequate consideration. (Ray, supra, 19 Cal.3d at p. 29.)

Substantial evidence of overlap between the owners and managers of DEI and Stowe also supports the trial court's finding of successor liability. (McClellan, supra, 89 Cal.App.4th at p. 756 [buyer was mere continuation of seller, in part, because "the same individuals served on the boards" of both corporations].) As noted ante, Katharine Issa and Darrell Issa are members and owners of DEI, as well as limited partners and owners of Stowe, and DEI is a general partner of Stowe. Darrell Issa himself testified that the transfer of the Premises was a "simple movement of an asset from one entity owned by the same people to another entity owned by the same people." This evidence is substantial, and it supports the trial court's finding that Stowe was a mere continuation of DEI. (Ray, supra, 19 Cal.3d at p. 29.)

On appeal, Stowe contends that the trial court erred in applying successor liability because there was no evidence that DEI transferred the Premises to perpetuate a fraud. As discussed ante, a finding that a company transfers its assets fraudulently to escape liability for debts constitutes one possible basis for imposing successor liability. (McClellan, supra, 89 Cal.App.4th at p. 754.) However, the mere continuation theory is an independent ground on which successor liability may attach, and it requires no finding of fraudulent intent. (Ibid.; accord, Engineering Service Corp. v. Longridge Inv. Co. (1957) 153 Cal.App.2d 404, 415 ["Application of the alter ego doctrine does not depend upon pleading or proof of fraud."].) Thus, we reject Stowe's claim of error.

Next, Stowe argues that we must reverse the finding of successor liability because DEI continues to exist and possesses assets that Cycle could have reached if it had sued DEI directly. In support of this proposition, Stowe cites Beatrice Co. v. State Bd. of Equalization (1993) 6 Cal.4th 767. In Beatrice, the Supreme Court found no successor liability under a mere continuation theory, even though certain individuals were officers or directors of a parent company that transferred its assets and a subsidiary company that received those assets. (Id. at pp. 778-779.) As the Supreme Court found in Beatrice, successor liability was inappropriate because "recourse to the debtor [parent] corporation [was] available and the two corporations [had] separate identities." (Id. at p. 778.)

However, unlike Beatrice, successor liability in this case does not depend solely on the fact that the transferor and transferee companies possess overlapping officers and directors. Rather, as discussed ante, DEI did not transfer the Premises to Stowe for any consideration (much less adequate consideration) and the same property manager managed the Premises after the transfer in the same manner it had before the transfer. In any event, to the extent Stowe suggests that successor liability can never attach if the transferor company remains extant, we reject that argument. (See Cleveland, supra, 209 Cal.App.4th at p. 1331 [affirming finding of successor liability where transferor corporation remained in operation after transfer]; McClellan, supra, 89 Cal.App.4th at p. 756 [same].)

Finally, Stowe claims that the trial court erred in finding that it was liable for breach of the Lease because the Lease contained an attornment clause, which stated that, in the event of a transfer of the Premises to a "new owner," the transferee would not be liable for acts or omissions of the transferor. However, for the reasons just discussed, Stowe was a mere continuation of DEI, not a "new owner" of the Premises. G. Conclusion

Our conclusion that Stowe is liable as a successor to DEI obviates the need for us to address whether Stowe is an alter ego of DEI.

For the reasons discussed ante, we affirm the trial court's finding that Stowe breached the Lease by delivering a materially defective roof.

III. Attorney Fees

After the trial court rendered its statement of decision, Stowe and Cycle both filed requests for attorney fees, each asserting that it was the "prevailing party" under section 1717, subdivision (a). The trial court disagreed with both parties, however, finding that neither was a "prevailing party." Both parties challenge the court's ruling.

Under section 1717, subdivision (a), the prevailing party in an action on a contract may recover reasonable attorney fees in addition to other costs. A party is entitled to recover attorney fees if it obtains a " 'simple, unqualified win' " on the contract. (Hsu v. Abbara (1995) 9 Cal.4th 863, 877 (Hsu).) Stated differently, a party is entitled to fees when it "completely prevail[s] on or defeat[s] all contract claims in the action . . . ." (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109 (Scott), italics added.) In such circumstances, the party that obtained the unqualified victory must be considered the prevailing party as a matter of law. (DisputeSuite.com, LLC v. Scoreinc.com (2017) 2 Cal.5th 968, 973.)

But, "[i]f neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees. '[I]n deciding whether there is a "party prevailing on the contract," the trial court is to compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources.' " (Scott, supra, 20 Cal.4th at p. 1109, italics added.) "[C]ourts should respect substance rather than form, and to this extent should be guided by 'equitable considerations.' " (Hsu, supra, 9 Cal.4th at p. 877.)

On appeal, Stowe contends that it is the "prevailing party" under section 1717 because it purportedly achieved its "main litigation objective" when it obtained a judicial order setting the fair market rental value of the Premises at an amount higher than the amount Cycle proposed when it renewed the Lease. We do not agree. Although the trial court rendered a fair market rent determination that entitled Stowe to $338,750 in damages, that amount is just 12 percent of the nearly $2.9 million in additional rent that Stowe sought in this case. (See Marina Pacifica Homeowners Assn. v. Southern California Financial Corp. (2018) 20 Cal.App.5th 191, 206-207 [trial court did not abuse its discretion by declining to name defendant the "prevailing party," where defendant received 40 percent of its claimed damages].)

Stowe suffered other significant defeats in the litigation as well. For example, Stowe sought a declaration that Cycle's Lease renewal was ineffectual. Stowe asked the trial court to eject Cycle from the Premises. And Stowe argued that Cycle was entitled to no recovery in its cross-complaint. The trial court ruled against Stowe on all these issues, finding that Cycle properly exercised its renewal option, Stowe was not entitled to eject Cycle, and Cycle was entitled to $32,960 for Stowe's breach of the Lease. For all these reasons, we find no error in the trial court's order finding that Stowe was not a "prevailing party" under section 1717.

On appeal, Stowe contends that it requested ejectment as an "alternate" remedy, with Cycle's payment of additional rent as Stowe's preferred remedy. The record does not support this argument. Stowe filed standalone claims for declaratory relief regarding the fair market rental value of the Premises and ejectment of Cycle from the Premises.

In addition to touting its (mixed) successes and trying to downplay its (rather significant) defeats, Stowe suggests that the trial court necessarily abused its discretion because it considered improper factors when denying Stowe's request for attorney fees. Specifically, the trial court noted Stowe's filing of a notice of appeal of the judgment as one reason why Stowe was not the "prevailing party." We agree that the mere filing of a notice of appeal does not dictate whether a party is a "prevailing party," given that a "total victory," while sufficient, is not necessary to recover attorney fees. (See de la Cuesta v. Benham (2011) 193 Cal.App.4th 1287, 1293.) However, insofar the trial court relied on Stowe's filing of a notice of appeal to support its order denying Stowe's request for attorney fees, any error arising therefrom was not prejudicial, for the reasons discussed ante. (Mann v. Quality Old Time Service, Inc. (2006) 139 Cal.App.4th 328, 341.)

The question whether the trial court abused its discretion by denying Cycle its attorney fees is a closer call, but the outcome is ultimately the same. As discussed ante, Cycle achieved valuable victories in this litigation, namely by limiting Stowe's recovery to just 12 percent of its claimed damages. Nevertheless, we cannot ignore that Cycle initially claimed that the monthly fair market rental value of the Premises was $0.75 per square foot and Stowe was entitled to nothing, yet the trial court ultimately found that the monthly fair market rental value was $0.80 per square foot, thereby entitling Stowe to $338,750.

As part of Cycle's cross-claim against Stowe, Cycle also sought damages totaling $500,000 to replace the defective roof. However, the trial court did not order Stowe to replace the roof or award Cycle $500,000 in damages; rather, it awarded Cycle $32,960 in damages. Finally, Stowe defeated Cycle's claim that Stowe breached the lease by delivering a defective parking lot (valued at $10,995) and Cycle's request for an additional $5,000 in miscellaneous repair expenses. Thus, we find no abuse of discretion in the trial court's finding that Cycle was not a "prevailing party." (See Nasser v. Superior Court (1984) 156 Cal.App.3d 52, 59-60 [no abuse of discretion where court denied attorney fees for lessee, even though lessee requested rent of $565, lessor requested rent of $1,500, and trial court set rent at $674].)

IV. Prejudgment Interest

Cycle also contends that the trial court should have granted its request for prejudgment interest on the $32,960 it recovered based on Stowe's breach of the Lease.

Section 3287, subdivision (a) provides in pertinent part: "A person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in the person upon a particular day, is entitled also to recover interest thereon from that day . . . ." "The test for recovery of prejudgment interest under section 3287, subdivision (a) is whether defendant (1) actually knows the amount of damages owed plaintiff, or (2) could have computed that amount from reasonably available information." (KGM Harvesting Co. v. Fresh Network (1995) 36 Cal.App.4th 376, 391.) On appeal, we independently determine whether damages were ascertainable, absent a factual dispute as to what information was known or available to the defendant at the time. (Collins v. City of Los Angeles (2012) 205 Cal.App.4th 140, 151.)

Cycle contends that the amount of its damages was certain or capable of being made certain because Cycle's payments to Stowe for the roof replacement project (totaling $32,960) were undisputed at trial. Cycle is correct that the amount of Stowe's invoices was undisputed at trial, but it overlooks that the parties contested the scope and amount of damages to which Cycle would be entitled if it were to prevail on its cross-claim. For example, Cycle claimed (and Stowe disputed) damages for labor costs that Cycle incurred to send its own personnel onto the roof to attempt repairs (totaling approximately $4,000), out-of-pocket patching materials that Cycle purchased to repair the roof (nearly $1,000), and over $500,000 to replace the entire roof.

Cycle's attempt to analogize this action to Children's Hospital & Medical Center v. Bontd (2002) 97 Cal.App.4th 740 is unavailing. In that case, the trial court entered judgment in favor of plaintiff-hospitals challenging the constitutionality of California's Medi-Cal reimbursement methodology. (Children's Hospital, at p. 756.) On appeal, the Court of Appeal found that the hospitals were entitled to prejudgment interest, even though they proffered two alternative methods for calculating damages—(1) the methodology on which they prevailed, and (2) a quantum meruit methodology that would have augmented the amount they recovered. (Id. at pp. 774-775.) Unlike the plaintiff-hospitals in Children's Hospital, Cycle did not proffer alternate theories of recovery, but rather sought various damages based on the same theory of liability. The trial court awarded some of those damages, but not others.

Furthermore, the greater the disparity between the amount that a party claims and the damages awarded, the less likely it is that prejudgment interest is appropriate. (Wisper Corp. v. California Commerce Bank (1996) 49 Cal.App.4th 948, 961.) Here, the disparity between Cycle's request for damages (about $557,000) and its actual damages ($32,960) is significant, which cuts against a finding that prejudgment interest is warranted. On these facts, we find no error in the trial court's denial of prejudgment interest.

DISPOSITION

The judgment is affirmed. Each party is to bear its own costs on appeal.

NARES, Acting P. J. WE CONCUR: HALLER, J. DATO, J.


Summaries of

12400 Stowe Drive, LP v. Cycle Express, LLC

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
Sep 28, 2018
No. D069738 (Cal. Ct. App. Sep. 28, 2018)
Case details for

12400 Stowe Drive, LP v. Cycle Express, LLC

Case Details

Full title:12400 STOWE DRIVE, LP, Plaintiff, Cross-Defendant, and Appellant, v. CYCLE…

Court:COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

Date published: Sep 28, 2018

Citations

No. D069738 (Cal. Ct. App. Sep. 28, 2018)