Zfaty¦Burns, Isaac R. Zfaty and Ryan N. Burns for Plaintiffs and Appellants. The Law Offices of Darin R. Dominguez and Darin R. Dominguez for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2012-00553907) OPINION Appeal from a judgment of the Superior Court of Orange County, David R. Chaffee, Judge. Reversed and remanded. Zfaty¦Burns, Isaac R. Zfaty and Ryan N. Burns for Plaintiffs and Appellants. The Law Offices of Darin R. Dominguez and Darin R. Dominguez for Defendants and Respondents.
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The issue presented by this appeal is whether the trial court erred by concluding a cause of action for declaratory relief was barred by the statute of limitations. The declaratory relief cause of action sought a declaration the parties had agreed that a ground lease and an option to extend the term of the ground lease would be assignable.
The court's ruling, made following a bench trial, was based on the conclusion that the statute of limitations for declaratory relief begins to run when a plaintiff first learns of a disagreement over contract terms. The statute of limitations on a cause of action for declaratory relief concerning the rights and obligations of the parties under a contract does not begin to run, however, until there has been an actual breach of the contract. The evidence at trial established an actual breach of contract did not occur until 2012, within the four-year limitations period for declaratory relief. We therefore reverse the judgment on the declaratory relief cause of action and remand.
A. The Transaction for the Sale of the Car Wash Business
Plaintiffs and appellants are NMT, LLC (NMT), Tony Sharifi, Noah Sharifi, and Mohammed Juma (collectively Plaintiffs). Defendants and respondents are C.E.C.W., LLC and LDK Enterprises, Inc. (LDK) (collectively Defendants). NMT is a single purpose limited liability company created for the purpose of owning and operating the car wash business located in Fullerton, California (the Car Wash). We refer to Tony Sharifi and Noah Sharifi by their full names to avoid confusion. Tony Sharifi, Noah Sharifi, and Juma are the members of NMT.
In early 2004, Tony Sharifi contacted Earl Taylor and Chuck Iverson of Coldwell Banker, which had listed the Car Wash for sale on behalf of Defendants and John Kalachian. Although Plaintiffs were interested in purchasing both the Car Wash and the underlying real property, the land was not for sale. Defendants and Kalachian offered to sell the Car Wash and enter into a ground lease for the real property. Plaintiffs agreed.
At Tony Sharifi's instruction, Taylor and Iverson prepared a document entitled "Business Purchase Agreement and Joint Escrow Instructions" (the Purchase Agreement). Under the terms of the Purchase Agreement, NMT offered to purchase the Car Wash for a total price of $950,000, of which $450,000 would be paid in cash, and LDK would take back a note (secured by the Car Wash and personal guaranties) for the balance. Paragraph 12.E. of the Purchase Agreement stated the sale would be contingent upon "[a] new lease with seller who is the owner of the real estate for a term of 20 years with a 10 year option to renew. See lease for terms and conditions." Tony Sharifi signed the Purchase Agreement, and Kalachian's wife countersigned it.
In response to the Purchase Agreement, Taylor and Iverson delivered to Tony Sharifi a counteroffer addendum to the Purchase Agreement (the Counteroffer) prepared by LDK. Tony Sharifi signed the Counteroffer, and under his signature wrote, "See additional notes on back of this page." On the back of the page, he wrote four terms, the fourth of which was, "Option can be assigned if the lease is assigned." Tony Sharifi included the fourth term because "when we reviewed the lease there was a provision in there that said the options are non-assignable. So that was a key point that we wanted to call out as part of the negotiations that we wanted the options to be assignable."
Taylor and Iverson sent the Counteroffer to Kalachian. Upon its receipt, Kalachian crossed out the third handwritten term (concerning a two-week observation period) and initialed the cross-out. Taylor and Iverson delivered the Counteroffer, as revised, to Tony Sharifi, who placed his initials beside those of Kalachian.
Taylor and Iverson delivered to Tony Sharifi a supplemental counteroffer to the Purchase Agreement (the Supplemental Counteroffer), which included three paragraphs. Paragraph 2 provided that the lease option would not be assignable. After Tony Sharifi received the Supplemental Counteroffer, he told Taylor and Iverson that NMT required that the option to extend the term of the lease be assignable. Tony Sharifi crossed out paragraph 2 and signed the Supplemental Counteroffer.
Taylor and Iverson delivered to Kalachian the Supplemental Counteroffer with Paragraph 2 stricken. He did not want to make the option assignable. Taylor and Iverson unequivocally told him that Plaintiffs would not accept the lease if the option were not assignable. Kalachian relented, and initialed the stricken paragraph in the Supplemental Counteroffer.
As part of the transaction, the parties entered into a 36-page ground lease (the Ground Lease) with C.E.C.W. Limited Partnership as landlord and NMT as tenant. Section 30(a) of the Ground Lease provides that the tenant may not assign or transfer the lease without the landlord's express written consent and such consent "may be withheld in Landlord's sole and absolute discretion." Section 30(e) provides that "[a]ny attempted assignment or sublease by Tenant in violation of . . . Section 30 shall be void and such act shall constitute a material breach of this Lease." Section 37 of the Ground Lease states the 10-year option to extend the Ground Lease (the Ground Lease Option) "may only be exercised by the original Tenant" and "may not be assigned." Section 35(f) of the Ground Lease is an integration clause. B. Disputes Over Assignability of the Option to Extend
In December 2007, Tony Sharifi received an unsolicited offer from a prospective buyer for the Car Wash. He provided the prospective buyer the Ground Lease and other documents. The prospective buyer asked Tony Sharifi for clarification whether the renewal option was assignable. Tony Sharifi called Kalachian to obtain clarification. At trial, Tony Sharifi testified Kalachian "was very clear that he would honor the assignment of the options once we had a deal in place and we can close."
As directed by Tony Sharifi, Juma prepared and sent to the Kalachians a letter dated December 3, 2007 confirming Tony Sharifi's conversation with them. That letter includes the following passage: "I spoke with you in reference to the lease option that we have. [W]e have agree[d] to have that option assignable if we have to assign the lease. The Lease now does not allow us to do that we over looked [sic] that at the Close of Escrow. If we could correct this we would pay for it if your Lawyer charge[s] for it."
Later in December, Tony Sharifi received a letter dated December 13, 2007 from George Eadington, the Defendants' attorney. In that letter, Eadington wrote: "Please be advised that the Landlord will NOT agree to the assignment of either the extension option or the Tenant's right of first refusal set forth in the Lease (paragraphs 37 and 38, respectively). These rights are expressly personal to the original tenant and may not be assigned."
After receiving the December 13, 2007 letter, Tony Sharifi called Eadington and left him a voice mail message. Receiving no response from Eadington, Tony Sharifi sent Kalachian a letter dated February 4, 2008 stating: "I received your lawyer letter in reference to the Lease. I have called him [and] I left him a message to call me back [and] I have not received a call back. We all have agreed at the beginning of the purchase for haveing [sic] the option and the first right of refusal to be assignable[.] Like the Lease we over look [sic] that in escrow and should not be stubborn about [it] now. I am not asking to change anything on the lease[.] I am asking to write what we agreed on."
Several days later, Tony Sharifi received a letter from Eadington dated February 12, 2008. In this letter, Eadington wrote: "This confirms our brief conversation earlier today wherein I reiterated, on behalf of the Kalachians, that the Landlord will not agree to the assignment of either the extension option or the tenant's right of first refusal set forth in the Lease (paragraphs 37 and 38, respectively). As we both acknowledged, these rights are expressly personal to the original tenant and may not be assigned." (Tony Sharifi testified the brief conversation referred to in Eadington's letter was between Eadington and Juma.)
On receiving the February 12, 2008 letter, Tony Sharifi called Kalachian, who again stated he would "accommodate" a request for assignment once Plaintiffs had a buyer and "you're ready to execute." However, the sale of the Car Wash went no further because the prospective buyer walked away due to "a financial detail" unrelated to whether the option to extend could be assigned.
In 2012, Plaintiffs decided to sell the Car Wash and listed it for sale. They received and accepted an all-cash offer from a prospective buyer. Tony Sharifi and Juma contacted Kalachian's son-in-law, Mr. Nagy, who was now the point of contact for matters concerning the Car Wash, and requested that Defendants honor the agreement to permit assignment of the renewal option. Nagy, denying the request, said "we're going by the lease and the options are not assignable." When negotiations failed to produce a different response, Plaintiffs filed this lawsuit in March 2012.
III. Procedural History
Plaintiffs asserted causes of action against Defendants for declaratory relief, reformation of contract, fraudulent misrepresentation, intentional interference with prospective economic advantage, and negligent interference with prospective economic advantage. Kalachian was named as a defendant, but he has since passed away and was dismissed from the lawsuit.
The trial court sustained without leave to amend demurrers to the causes of action for reformation of contract, fraudulent misrepresentation, intentional interference with prospective economic advantage, and negligent interference with prospective economic advantage, and had granted summary judgment in Defendants' favor on the declaratory relief cause of action. In a prior nonpublished opinion, NMT, LLC v. C.E.C.W., LLC (Oct. 14, 2014, G048907), a panel of this court reversed the judgment on the declaratory relief and reformation causes of action and otherwise affirmed.
A bench trial was conducted on Plaintiffs' causes of action for declaratory relief and reformation. At the conclusion of trial, the court concluded the option to extend was assignable. We had reached the same conclusion in our prior opinion. (NMT, LLC v. C.E.C.W., LLC, supra, G048907 ["The undisputed evidence shows the parties intended the Ground Lease Option would be assignable"].) We also had concluded, as a matter of law, the Ground Lease, the Purchase Agreement, the Counteroffer (with the handwritten notes), and the Supplemental Counteroffer (with the redaction initialed by Kalachian) were each elements of a single transaction for the purchase and sale of the Car Wash. (Ibid.)
The trial court concluded, however, the statute of limitations barred the declaratory relief and the reformation causes of action. The court found the reformation cause of action accrued in December 2007, and no later than February 2008, because Plaintiffs knew by then the Defendants had taken the position the option to extend was not assignable. The statute of limitations for reformation is three years, three years from February 2008 is February 2011, and Plaintiffs filed their complaint in March 2012.
The trial court found the declaratory relief cause of action accrued at the same time as the reformation cause of action—December 2007 and no later than February 2008—and therefore was time-barred by a three- or four-year statute of limitations. The court rejected Plaintiffs' argument the declaratory relief cause of action accrued when Plaintiffs actually attempted an assignment.
The trial court concluded: "[T]he net effect of this determination is that the extension option is no longer and is not assignable. The Plaintiff[s] may not legally assign to any third party, just as a matter of law. [¶] Having failed to timely seek redress, . . . the Plaintiffs here have effectively bound themselves to the terms of the lease agreement as written, irrespective of the terms of the original agreement as between the parties." Plaintiffs timely appealed from the judgment.
A. Standards of Review
Plaintiffs do not challenge the trial court's ruling on their reformation cause of action. Defendants do not challenge the trial court's finding that the option to extend was assignable. The only subject of this appeal is the trial court's ruling that the declaratory relief cause of action was time-barred.
The trial court's conclusion the statute of limitations on a declaratory relief cause of action begins to run at the same time as a cause of action for reformation is a legal issue reviewed de novo. (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 814.) The issue whether an action is barred by the statute of limitations is a question of fact unless the facts are not in dispute, in which case the application of the statute of limitations may be decided as a matter of law. (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1112; Sahadi v. Scheaffer (2007) 155 Cal.App.4th 704, 713.) B. The Declaratory Relief Cause of Action Was Not Time-Barred.
The trial court erred by concluding the statute of limitations on Plaintiffs' declaratory relief cause of action began to run when Plaintiffs first learned Defendants took the position the extension option was not assignable. While the statute of limitations for reformation of contract commences when the aggrieved party discovers the facts constituting the mistake serving as the ground for relief (Code Civ. Proc., § 338, subd. (d); see Butcher v. Truck Ins. Exchange (2000) 77 Cal.App.4th 1442, 1470), the same is not true for a declaratory relief cause of action.
The statute of limitations on a cause of action for declaratory relief concerning the parties' rights and obligations founded on an instrument in writing is four years. (Ginsberg v. Gamson (2012) 205 Cal.App.4th 873, 883.) The statute of limitations does not begin to run until a breach occurs (ibid.), and no breach can occur until the time specified for performance has arrived (Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 488). "A party may seek declaratory relief before there has been an actual breach of an obligation; in such cases the limitations period still does not begin to run until the breach occurs." (Ginsberg v. Gamson, supra, 205 Cal.App.4th at p. 883.)
The evidence at trial did not support a finding that a breach of the Car Wash transaction occurred when, in December 2007 and continuing into February 2008, Tony Sharifi and Juma communicated with Kalachian and Eadington about the assignability of the extension option. During that time, Plaintiffs never tendered the option to extend for assignment or requested that Defendants agree to a particular assignment. Plaintiffs had received an unsolicited offer to purchase the Car Wash. Without mentioning the prospective buyer, Tony Sharifi asked Kalachian to confirm the extension option was assignable. Tony Sharifi got differing responses: Kalachian said he would honor the assignment of the option once a deal was in place, while Eadington wrote that the landlord would not agree to an assignment of the option.
As of February 2008, Defendants had not committed a breach of contract because the time for performing any provision regarding assignment of the option to extend had not arrived. The prospective buyer walked away for reasons unrelated to the assignability of the option to extend before Defendants did or did not do anything that might be deemed a breach of contract. Plaintiffs had suffered no damages from Defendants' actions because those actions did not cause the buyer to walk away. (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1352 ["'An essential element of a claim for breach of contract are damages resulting from the breach'"].) Plaintiffs could have sought declaratory relief back in February 2008, before there was an actual breach (Ginsberg v. Gamson, supra, 205 Cal.App.4th at p. 883), or they could have treated Defendants' actions as an anticipatory breach and waited for the time for performance before filing suit (Romano v. Rockwell Internat., Inc., supra, 14 Cal.4th at p. 488). But Plaintiffs were not required to do so. In either case, the limitations period would not begin to run until later, in 2012, when a breach actually occurred.
Defendants agree the statute of limitations on the declaratory relief cause of action did not begin to run until the time of actual breach. They argue however that "the record plainly shows that [Plaintiffs] sought an assignment of the Lease and Option from [Defendants] and were rejected, twice." Defendants mischaracterize the evidence from trial. For instance, they assert that, in December 2007, "[Plaintiffs] received an offer from a buyer, contacted Kalachian telling him that [Plaintiffs] had a buyer and wanted to assign the option to the buyer." But in December 2007, Plaintiffs did not tell Kalachian they had a buyer or wanted to assign the option to extend to the buyer. In communications with Kalachian and Eadington, Tony Sharifi and Juma sought confirmation the option to extend was assignable. They neither disclosed they had a potential buyer nor tendered the option to extend for assignment.
The judgment is reversed as to the declaratory relief cause of action and is affirmed as to the reformation of contract cause of action. The matter is remanded for further proceedings. Appellants are entitled to recover costs on appeal.
FYBEL, ACTING P. J. WE CONCUR: THOMPSON, J. GOETHALS, J.