Hunbeach v. Hawk Real Estate Investments
Filed 8/9/12 Hunbeach v. Hawk Real Estate Investments
CA4/3
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH
APPELLATE DISTRICT
DIVISION
THREE
HUNBEACH, LLC,
Plaintiff and Appellant,
v.
HAWK REAL ESTATE INVESTMENTS,
LLC et al.,
Defendants and Respondents.
G045205
(Super. Ct. No. 30-2009-00122771)
O P I N I O N
Appeal from a judgment
of the Superior Court
of
County, Geoffrey T. Glass, Judge. Affirmed.
Law Offices of Saul
Reiss, Saul Reiss; Ferguson Case
Orr Paterson, Wendy C. Lascher and John A. Hribar for Plaintiff and Appellant.
Horizon Law Group,
William C. Hoggard; Endeavor Law Group and David A. Brewster for Defendants and
Respondents Hawk Real Estate Investments, LLC, Weston Carol, LLC, and Douglas
Spedding.
Arent Fox, Aaron H.
Jacoby, Roy Z. Silva and Victor P. Danhi for Defendant and Respondent G.L. Huntington
Beach, LLC.
This appeal by a
would-be landlord against two purported subtenants turns on the lack of any
intention on the part of the two purported subtenants to make the would-be
landlord a third party beneficiary of two subleases which they entered into
between themselves. While that
conclusion might at first seem counterintuitive, it is supported both by the
actual language of the master lease and the two subleases – both of which were
made expressly contingent on the would-be landlord’s giving its express
approval on any sublease, an express approval that was never given – and by the
substantial evidence at trial
affirmatively showing that the two subtenants did not want to establish any landlord-subtenant relationship when they
entered into the two subleases. They had
other purposes in mind. Accordingly, we
affirm the trial court’s judgment denying the would-be landlord any recovery by
way of unpaid lease payments against the two purported subtenants. The landlord’s remedy remains a claim against
the original tenant that entered into the master lease with the landlord.
FACTS
The Parties
This case involves five
parties who were in some way involved in a commercial lease for certain vacant
real property on Beach Boulevard
in Huntington Beach. We briefly identify those parties:
Douglas Spedding
(Spedding) owned almost all (95 percent) of Weston Carol, LLC (WC), which
operated a Nissan dealership on Beach Boulevard. The land under the dealership was owned by
Hawk Real Estate, LLC (Hawk), itself totally owned by Spedding. The trial court refused to find any alter ego
relationship between Spedding, WC, and Hawk, and no issue is raised on appeal
as to the correctness of that decision, so we likewise treat the various
entities separately.
Across the street from
the dealership was a parcel of vacant land, owned by Hunbeach, LLC
(Hunbeach). The Garff Automotive Group
(Garff) has more than 30 dealerships in various western and midwestern states
and wanted to buy the dealership owned by WC.
Garff created G.L. Huntington Beach (GL) as the vehicle to purchase the
dealership.
The Master Lease
In 2007 and 2008 both
Spedding and Garff anticipated that Nissan would soon require the dealership to
expand onto the land across the street owned by Hunbeach. The anticipation was that Nissan would
require a service and parts facility there.
Sometime in the spring
of 2007 Hawk entered into a lease (the “master lease”
with Hunbeach for thevacant land. Base rent of $27,500 per
month was to commence June 1, 2007.
This master lease
prohibited any assignment or subletting without Hunbeach’s prior written
consent. In paragraph 12.1, under the
boldface heading “Lessor’s Consent Required,” the lease provided: “(a) Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage or encumber (collectively, ‘assign
or assignment’
or sublet all or any part of Lessee’s interest in this Lease orin the Premises without Lessor’s prior written consent.”
If there
the Hunbeach’s consent, paragraph 12.1(d) of the master lease gave Hunbeach the
option of treating it as either a “Default curable” or a “noncurable
Breach”: “(d) An assignment or
subletting without consent shall, at Lessor’s option, be a Default curable
after notice per Paragraph 13.1(c), or a noncurable Breach without the
necessity of any notice and grace period.”
If Hunbeach elected to
treat the breach as “noncurable,” it had the further choice of terminating the
master lease or giving notice of increased rent on 30 days written notice. On the other hand, if Hunbeach elected to
treat the breach as a “curable” default, under paragraph 13.1(c) it was
required to furnish three days written notice.
Paragraph 13.1(c) is among several of a list of particular varieties of
defaults in Paragraph 13.1, following (a) “abandonment of the Premises,” and (b)
failure to pay rent. Subdivision (c) is
“commission of waste” [etcetera] “where such actions continue for a period of 3
business days following written notice
to Lessee.” (Italics added.)
The master lease also
had a clause prohibiting any assignment or subletting without the prospective
subtenant’s consent (as well as that of Hunbeach’s). Paragraph 12.2(a) provided: “Regardless of Lessor’s consent, no
assignment or subletting shall: (i) be
effective without the express written assumption by such assignee or sublessee
of the obligations of Lessee under this Lease, (ii) release Lessee of any
obligations hereunder, or (iii) alter the primary liability of Lessee for the
payment of Rent or for the performance of any other obligations to be performed
by Lessee.”
Finally, the master
lease had a clause protecting Hunbeach’s right to exercise its remedies for
Hawk’s default or breach if Hunbeach took some time in deciding whether to
approve or disapprove a proposed assignment.
Paragraph 12.2(b) provided: “Lessor
may accept Rent or performance of Lessee’s obligations from any person other
than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of Rent or performance shall
constitute a waiver or estoppel of Lessor’s right to exercise its remedies for
Lessee’s Default or Breach.”
3. The Sale of the Dealership, and the Four
Possible
or
Purported Subleases or Assignments
Garff wanted to buy the
dealership. By early January 2008 Garff
and WC had written up a memorandum of the terms for the deal. By February 1, 2008 Garff and WC had entered
into an asset purchase agreement. April
28, 2008 was the closing date for both transactions.
Because both Garff and
Spedding believed that Nissan would require expansion onto the vacant land now
leased by Hawk from Hunbeach, the question of the transfer of Hawk’s lease
interest in that land arose.
At this point we must
distinguish between no less than four
subleases or assignments (or in one case a proposed assignment) of the master
lease. The difference is not clear from
the briefing.
First, there was an
the record since Spedding was essentially orally subleasing the vacant land
from one of his entities, Hawk, to another of his entities, WC. However, the record is reasonably clear that
this oral sublease occurred before April 2008, when it was superseded by a
written sublease. According to
Spedding’s attorney, this oral sublease was merely to establish a “placeholder”
required by Nissan to facilitate the transfer of the dealership.
Second, there was the
undated written sublease from Hawk to
WC, in evidence as exhibit 2. Spedding
signed for both Hawk and WC in this document.
Paragraph 8.1 contains a clause requiring the lessor in the master lease
to give its approval for the sublease to be effective: “In the event that the Master Lease requires
that Sublessor obtain the consent of Master Lessor to any subletting by
Sublessor then, this Sublease shall not be effective unless, within 10 days of
the date hereof, Master Lessor signs this Sublease thereby giving its consent
to this Subletting.” While this written
Hawk-to-WC sublease recites that it was to commence April 1, 20
the written sublease was not prepared until March 2008 at the earliest. This Hawk-to-WC sublease was never shown or
communicated to Hunbeach. In fact,
Hunbeach did not learn of its existence until this litigation.
Third, there is the
formal assignment and assumption of sublease entered into April 28, 2008, the
day of the closing of the dealership sale, from WC to GL. This formal
assignment and assumption specifically incorporated the Hawk-to-WC sublease,
including a recital that WC “presently subleases” the premises from Hawk. Language in the document points to its role
as part of the dealership sale, including a reference to the “APA,” or asset
purchase agreement, effectuating that sale.
Section 1 of the document makes it “subject to” all provisions in the
master lease plus the provisions of the Hawk-to-WC sublease: “This assignment shall be effective as of the
time of Closing (as defined in the APA [the dealership sale]. As of the Effective Time, Assignor hereby
grants . . . all of Assignor’s right, title, and interest in, to and under the
Sublease and Premises, subject, however,
to the provisions of the Sublease, the Lease, the APA (including but not
limited to Section 1.15 thereof) and this Assignment.” (Italics added.) Section 1.15 of the asset purchase agreement
similarly states that the lease assignment was being made “on the same terms
and conditions set forth in Seller’s [WC’s] existing sublease.” The same section also states that Garff
“agrees to provide the landlord such information and guaranties as landlord may
reasonably require to permit the assignment of the sublease to Buyer
. . . .”
And, fourth and finally,
there was a proposed assignment and
assumption of lease, undated, from Hawk to GL.
This proposed assignment and assumption tracked the form used for the
WC-to-GL assignment and assumption just discussed, but was undated, and
included a provision for lessor consent with a blank left for a recitation of
the date rent had been paid through, plus a signature line for the appropriate
officer of Hunbeach. This particular
assignment and assumption document was sent as an e-mail attachment in an
e-mail from Garff’s general counsel to Hunbeach’s counsel on the day of closing
of the dealership sale, April 28, 2008.
Negotiations After Sale of the Dealership
In the weeks after the
April 28, 2008 close of sale of the dealership from WC to the Garff entity GL,
Spedding’s attorney had a number of “communications” with Hunbeach’s attorney
on the subject of “what would be sufficient to allow the owner to
. . . accept an assignment and assumption of sublease of the
new entity.” They discussed a security
deposit, a letter of credit and having guarantors and the financial stability
of the guarantors. Garff was, in fact,
willing to have three Garff entities be guarantors of both Hawk and WC’s
obligations, and prepared a written guarantee to that effect.
A deal was almost
arrived at in a telephone conference between Garff’s general counsel and
attorneys for Hunbeach and Spedding on June 3, 2008. Spedding’s attorney had hoped that the
presence of three guarantors would be enough to obtain Hunbeach’s
approval. However, as Garff’s general
counsel later testified, Hunbeach’s attorney “indicated that, in addition, we
[Garff] needed to have a security deposit” worth nine months payments “or a
letter of credit on top of the guarantors.”
Garff was, however, unwilling to supply a security deposit, if only
because there was no security deposit in the master lease, and the idea of a
letter of credit “fell away,” rejected (as Spedding’s lawyer would testify) by
either Hunbeach’s attorney or Garff’s general counsel because “it wouldn’t
work.”
Hunbeach never did
approve the proposed Hawk-to-GL assignment.
At trial, Hunbeach’s manager answered yes to the questions whether it
was “accurate to say” that he had “never consented to the assignment of the
lease.”
5. The Litigation
Hawk paid the rent on
the master lease in May 2008, then, beginning in June, GL started making the
rent payments. GL expected that it would
“eventually work through the lease assignment issues with Hunbeach.” GL, now operating as Surf City Nissan, did
not want the lease to be “in default” at such time as it would assume Hawk’s
obligation under it.
February 2009 was the
last rent payment made by GL. There were
“a number of reasons” GL stopped.
Disagreements had arisen between GL and Spedding. GL thought Spedding
had failed to disclose certain facts about the property, and GL “found out that
Nissan didn’t really want us to build across the street.” Rather “their [Nissan’s] preference was to
further develop the existing dealership property.” And, since GL thought it “never had been
approved as the tenant on the master lease,” from GL’s point of view, all it
was doing was gratuitously just “helping Hawk” on its obligation.
In May 2009, Hunbeach
filed an unlawful detainer action
against Hawk, WC, Spedding, and GL. The
case progressed to a third amended complaint for damages by Hunbeach filed in
March 2010. Trial to the court began in
February 2011. The trial judge provided
the parties with a thorough statement of decision. The judge rejected alter ego claims against
Spedding, but gave judgment against Hawk for $769,902, based on expert
testimony that the land could have been rented in two years in any event. The judge specifically noted that Hunbeach
did not mitigate its losses, thus limiting its recovery against Hawk to that time
period.
However, the court
rejected Hunbeach’s third cause of action against WC for breach of the
Hawk-to-WC sublease, because Hunbeach was not a third party beneficiary of that
sublease. The judge first noted that the
master lease required Hunbeach to approve the sublease in writing, and Hunbeach
never did so. The judge further reasoned
that Hunbeach did not know of that sublease until Hawk requested permission to
sublease to GL, and Hunbeach was in
effect trying to approve the Hawk-to-WC
sublease retroactively.
Likewise, the court
rejected Hunbeach’s fourth cause of action against GL on the WC-to-GL
assignment. “Again, the main lease says
that subleases and assignments without written permission of Hunbeach are
ineffective. Hunbeach never gave permission,
so it cannot now claim that it can enforce the agreement.”
The statement of
decision also ruled that Hunbeach had unreasonably withheld permission to
assign the master lease to GL, because GL’s offer was “commercially
reasonable,” and GL was “clearly qualified” to run a car dealership.
Hunbeach subsequently
filed a timely appeal from the ensuing judgment. The only issues raised by the opening brief
concern the exoneration of WC and GL.
DISCUSSION
The Civil Code Section 1995.330 Issue
Hunbeach acknowledges
that it did not present a claim under Civil Code section 1995.330 to the trial
court. (All further statutory references
are to the Civil Code.) Nevertheless, it
asks this court to consider its section 1995.330 claim on the theory that the
claim “raises a pure issue of law on undisputed facts.”
We decline. Section 1995.330 is a statute which involves
the liability of an assignee for a transfer “in violation of a restriction on
transfer of a tenant’s interest in a lease.”
(Subdivision (a) of the statute provides in its entirety: “An assignee who receives or makes a transfer
in violation of a restriction on transfer of a tenant’s interest in a lease is
jointly and severally liable with the tenant for contract damages under Section
1995.320. For this purpose, the
provisions of Section 1951.2 applicable to a lessee apply to an
assignee.”
Had a section 1995.330 claimbeen raised in the pleadings, it would certainly have affected the trial
strategies of WC and GL, and might have implicated additional factual issues as
well. (See In re Marriage of Moschetta (1994) 25 Cal.App.4th 1218, 1227 [“One
of the reasons parties are not normally allowed to raise new issues on appeal
is that it is unfair to their opponents who did not have the opportunity to
attack that theory factually or legally in the trial court, and to the trial
court itself, which may be required to retry issues that might have been
handled more efficiently the first time around”].) And this case certainly implicates no “matter
of intense public and legal concern,” otherwise justifying relaxation of the
need to raise issues in the trial court.
(Cf. id. at pp. 1227-1228.)
2. The Third Party Beneficiary Issue
A. General Principles
Hunbeach argues,
beneficiary of “the sublease and assignment” – meaning presumably either the
Hawk-to-WC sublease, the WC-to-GL assignment, or both. (Hunbeach is apparently not referring to the
the evidence is clear that Hunbeach turned that assignment down.)
We disagree. The applicable texts and substantial evidence compel the conclusion that neither WC nor
GL intended to create a third party beneficiary contract enforceable by
Hunbeach.
No third party beneficiary
contract is created without the parties to the contract actually intending to
create one. (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524 (
personal injury plaintiff with tortfeasor did not extend to automobile manufacturer
despite broad, literal language of release releasing all potential tortfeasors
because the plaintiff never intended to release the manufacturer];
Cal.App.4th 337, 348 [“The contracting parties must have intended to
confer a benefit on the third party.”]; Sessions
Payroll Management, Inc. v. Noble Construction Co. (2000) 84
Cal.App.4th 671, 674 (Sessions
Payroll) [a “third party beneficiary can only claim benefits that
contracting parties intended it to receive”]; Kalmanovitz v. Bitting (1996) 43 Cal.App.4th 311, 314 [“While it is not necessary that a third
party be specifically named, the contracting parties must clearly manifest
their intent to benefit the third party.”].)
Sometimes the requisite
intent to give a third party enforceable rights under a contract is obvious on
the face of a written contract – certain kinds of insurance contracts being a
clear example of this category. (See
(1994) 26 Cal.App.4th 1717, 1724 (Jones)
[“A third party may qualify as a beneficiary under a contract where the
contracting parties must have intended to benefit that third party and such
intent appears on the terms of the contract.”].)
However, more often the
issue of intent to give a third party enforceable rights requires examination
of the circumstances surrounding the creation of the written contract. (Garcia
v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 437 [“In determining the
meaning of a written contract allegedly made, in part, for the benefit of a
third party, evidence of the circumstances and negotiations of the parties in
making the contract is both relevant and admissible.”]; Jones, supra, 26 Cal.App.4th at p. 1725.)
In fact, to ascertain
intent, courts may not only have to examine the circumstances of the contract’s
formation, but examine the subsequent conduct of the parties as well. (See Spinks
v. Equity Residential Briarwood Apartments (2009) 171
Cal.App.4th 1004, 1029-1030 (Spinks).)
Accordingly, as a
general rule, the question of whether contracting parties intended to give a
third party enforceable rights is considered a question of fact. (Prouty
v. Gores Technology Group (2004) 121 Cal.App.4th 1225, 1233
[“Generally, it is a question of fact whether a particular third person is an
intended beneficiary of a contract.”]; Spinks,
supra, 171 Cal.App.4th at p. 1015 [whether tenant was third party
beneficiary of lease entered into between her employer and landlord was
question of fact, precluding summary judgment].)
Moreover, a third party
claiming enforceable rights under a contract “bears the burden of proving that
the contracting parties actually promised the performance which the third party
beneficiary seeks.” (
proof was on Hunbeach to prove WC and GL actually intended to bestow on
Hunbeach enforceable rights under either the Hawk-to-WC sublease or the
WC-to-GL assignment and assumption.
And even just looking at
the documents alone, any such examination must be tempered by the rule that
contracting parties cannot create third party beneficiary rights by accident or
sloppy drafting, a point made by our state Supreme Court in
in fact, is a vivid example of how far courts will look beyond the bare text of
a written agreement to the underlying circumstances of the creation of that
agreement.
In Hess, a passenger in a pickup truck who had been injured when a car
hit the truck at an intersection made a written agreement with the car driver
to “‘forever discharge’” the car driver, his insurer, and “all other persons,
firms, corporations . . . from any and all claims” that the passenger might
“have due to the accident.” (
the pickup truck. A literal application
of the release language would have made the manufacturer a third party beneficiary
of the contract, but of course the passenger never intended to release the
manufacturer from liability. (See
release was “hardly conclusive” because it “arguably” supported a finding the
contracting parties did not intend to release the manufacturer from liability. (Id.
at p. 527.) The court noted the small
amount of the settlement, the severity of the injuries, the failure of the
release to specifically name the manufacturer, and the awareness of the
passenger’s claims against the company.
(Ibid.) In specific response to the manufacturer’s
third party beneficiary argument, the court said that under ordinary contract
rules of interpretation established that the parties did not intend the release
to “benefit Ford”, which had acquired “no rights for value and could therefore
suffer no prejudice from any reformation” of the release based on mutual
mistake. (Id. at p. 528.) Justice
Kennard, joined by Chief Justice George and Justice Werdeger, wrote in a
concurring opinion that the admitted evidence “overwhelmingly refute[d]” any
claim by Ford that it was intended to give the manufacturer third party
beneficiary rights. (
J.).)
B. Application
In this case, the bare
texts of the applicable written contracts are less indicative than the language of the release in
party enforceable rights. First, the
master lease contained numerous provisions which required Hunbeach’s actual
consent before any sublease would be effective.
Those provisions include paragraph 12.1’s prohibition on subleasing
without Hunbeach’s consent, paragraph 12.1(d) giving Hunbeach the further
contravention of the prohibition as either a “Default curable” or a “noncurable
Breach,” and if Hunbeach elected to treat the sublease as curable, it was still required to furnish written notice under
paragraph 13.1(c). Together, these
provisions establish that no subletting could be effective without some sort of
affirmative act on Hunbeach’s part. The
very structure of the master lease precluded any effective sublease created by
accident. Indeed, the master lease’s own
terms provided that no sublease would be effective without the matter first
coming to Hunbeach’s attention and Hunbeach making a conscious decision to
either accept or reject the sublease.
Beyond the master lease,
Hawk, WC and GL were all careful, in the sublease agreements they made, to
insure that each document was contingent on Hunbeach’s approval. Paragraph 8.1 of the Hawk-to-WC sublease
required Hunbeach’s approval before the sublease would become effective, and
sections 1 and 1.15 of the WC-to-GL assignment and assumption made it
contingent on both the master lease (with its requirement of Hunbeach’s express
approval) and “subject to” the provisions of the Hawk-to-WC sublease,
necessarily including paragraph 8.1 of that sublease, which again included the
necessity of Hunbeach’s approval.
In short, the textual
language here affirmatively showed that the relevant parties all desired to
effective by the timing of any
notification to Hunbeach.
But even assuming the
texts of the master lease, Hawk-to-WC and WC-to-GL subleases are not enough,
there can be no doubt when we examine the extrinsic evidence bearing on the
circumstances of the making of those contracts.
Since the question of
intent to create third party rights is a question of fact, and the court
received extrinsic evidence bearing on that intent, we must employ a
substantial evidence standard of review.
If substantial evidence supports the trial court’s finding that neither
Hawk, WC nor GL intended to confer on Hunbeach enforceable rights in making the
Hawk-to-WC sublease or the WC-to-GL assignment and assumption, that is the end
of the matter. (Shoyoye v. County of Los Angeles (2012) 203 Cal.App.4th 947,
954; US Ecology, Inc. v. State of
California (2005) 129 Cal.App.4th 887, 908; Caldwell v. Paramount Unified School Dist. (1995) 41 Cal.App.4th
189, 207.)
Moreover we are required
to draw all reasonable factual inferences and uphold all express or implied
findings in favor of the trial court’s judgment where supported by substantial
evidence. (Jaramillo v. County of Orange (2011) 200 Cal.App.4th 811, 815.)
Substantial evidence
does indeed support the court’s finding.
The underlying circumstances behind the Hawk-to-WC and WC-to-GL
documents was the need of both the two Spedding entities, Hawk and WC, and the
Garff entity, GL, to establish a “placeholder” in the process of the sale of
the dealership in order to satisfy Nissan, not
to establish any rights enforceable by Hunbeach. It is also significant, to reference
Hunbeach incurred no prejudice from the Hawk-to-WC and WC-to-GL contracts. Hawk, WC, and GL, in fact, took pains to seal
off Hunbeach from those transactions, and Hunbeach throughout these
transactions always had what it had in the beginning – a lease with Hawk as
tenant.
The subsequent conduct
of the parties further demonstrates the lack of intent to confer third party
rights on Hunbeach. (See
pp. 1029-1030.) Rather than put the
Hawk-to-WC and WC-to-GL contracts before Hunbeach and request Hunbeach’s express
approval of those contracts – as might be expected if the parties had actually
intended to create effective subleases from Hawk to WC and then from WC to GL –
the two Spedding entities, and the one Garff entity, GL, proffered
Hawk-to-GL contract, an act which was thoroughly consistent with the absence of
any intent to create effective
subleases by way of the Hawk-to-WC or WC-to-GL contracts.
Ironically, Hunbeach’s
core arguments on appeal is not directly based on the text of the Hawk-to-WC or
WC-to-GL contracts, but on a swath of testimony from Spedding’s attorney which
Hunbeach contends establishes as a matter of law that the Spedding and Garff
parties did not intend paragraph 8.1 of the Hawk-to-WC contract to be effective,
and therefore supposedly shows an intent on their part to confer third party
rights on Hunbeach. An examination of
that testimony shows Hunbeach’s characterization of the testimony to be
incorrect. We now review that testimony
in detail:
Spedding’s attorney,
Michael Connor, had just finished testifying on direct. Hunbeach’s attorney, Saul Reiss, began to
cross-examine him. Reiss immediately
invited Connor’s attention to paragraph 8.1 of the written sublease (exhibit 2)
from Hawk to WC. Then he asked, “At the
time that this document was drafted, was there an intention to ever obtain the
consent of the landlord to it” Connor
answered: “For the sublease No.”
Reiss then asked, “And
at the time that it was assumed by GL Huntington Beach, were there discussions
about whether or not that provision was going to apply to GL Huntington
Beach” And Connor again answered no.
“Why not” asked
Reiss. Connor answered, “I honestly
don’t know.”
Reiss then focused on
the conflict of interest which Connor had put himself into by representing two
ostensibly separate parties in a transaction:
“Was it your intention in drafting this document to leave to GL
Huntington Beach the right to walk away from this sublease and assignment in
the event that the landlord didn’t consent to an assignment of the master
lease” To this question Connor answered
no.
Reiss next asked “What
would the consequences of 8.1 being utilized have been” Connor asked, “To whom” “To Hawk,” Reiss replied.
Connor then said, “To
the extent that 8.1 invalidated the sublease, Hawk would have been exposed, I
suppose.”
Reiss refocused on the
exposure to Hawk, Connor’s client: “Did
you, in fact, intend in drafting this document to expose Hawk to the potential
of being solely liable under the master lease if no consent were
obtained” Connor answered no.
“And, in fact,” Reiss
continued, “that wasn’t the intention of any of the parties to the assignment
and assumption, was it”
At that point counsel
for GL objected, arguing that the question called for speculation as to “other
parties other than his own,” obviously referring to GL.
The trial judge then
voiced (as he would again soon) the point that the documents spoke for
themselves unless ambiguous. He added,
however, that if Connor had “specific conversations” about GL’s intent, Reiss
could “ask about that.”
Reiss asked “were there
conversations on the issue of whether or not GL Huntington Beach and the
guarantors could walk away from the sublease and leave your client exposed” The trial judge immediately interjected by
reiterating the thought that the documents spoke for themselves. “To the extent that there is a difference
between what he [Connor] says and what the documents says, I go with the
document . . . unless you can convince me there is an ambiguity
in there in some fashion. So it really
doesn’t matter.” That said, the judge
told Connor he could “go ahead and answer the question.”
By that time
Connor needed to be reminded one more time what the question was, and the judge
summarized: “It wasn’t the intention of
the parties that GL and its guarantors could walk away from the assignment of
the sublease, right That’s what we’re
talking about” Connor answered, “Yes,
your honor.”
The judge recapitulated
again: “Yeah. Walk away from the assignment of the sublease
in the event the landlord didn’t give permission.”
Connor then
responded: “It wasn’t the intent. Nor was it the intent to ever ask the
landlord for permission.”
“Got it,” replied the
judge.
Reiss then asked this
question: “So that provision, then, was
never supposed to apply” Connor
answered “True.” Reiss then turned to
the subject of the date of the sublease and continued with a line of questions
establishing that the Hawk-to-WC sublease “was for the purposes of Nissan.”
Hunbeach’s argument that
the parties never intended paragraph 8.1 to be effective, ergo Hunbeach never
had to give its consent for the subleases to be effective,
fails
because of the standard of review. We
must resolve the conflicts in the evidence and draw reasonable inferences from
the evidence in favor of the judgment, not against it.
Connor’s acquiescence,
under cross-examination, to the “never supposed to apply” question could mean
two things: One, it might mean, as
Hunbeach now argues, that the parties were dispensing with the need for
Hunbeach’s approval as otherwise provided in the contract. But it could also mean that the Hawk-to-WC
sublease was itself never intended to be an effective
sublease as far as Hunbeach was
concerned.
The latter
interpretation is the better one for at least three reasons. First, it better accords with Connor’s
earlier testimony about the Hawk-to-WC sublease, where he said there was no
intention to ever obtain Hunbeach’s consent to it. Second, it is consistent with the overall
circumstances of the transaction, which was focused on the need to obtain
Nissan’s consent. And third, the
interpretation fits with the trial court’s finding of no intent. We therefore adopt that interpretation: Paragraph 8.1 was never meant to be
“applicable” in the sense that the Hawk-to-WC sublease was never meant to
create a sublease enforceable by
Hunbeach. As such, we may conclude that
neither the text of the relevant contracts nor the extrinsic evidence
established third party rights in Hunbeach.
iii. waiver of consent
argues the fact it did not approve the Hawk-to-WC sublease and the WC-to-GL
assignment does not defeat its third party beneficiary claims because it may
waive the master lease provisions requiring its approval for a valid sublease
or assignment. As explained above,
however, Hunbeach’s third party beneficiary theories fail not only based on the
terms of the master lease but also the Hawk-to-WC sublease and the WC-to-GL
assignment. Indeed, the fact Hawk, WC,
and GL never intended to confer any enforceable rights on Hunbeach when they
made the Hawk-to-WC sublease and the WC-to-GL assignment alone is sufficient to
defeat Hunbeach’s third party beneficiary claims regardless of whether Hunbeach
waived the master lease’s consent requirements.
Moreover, substantial
evidence shows Hunbeach never in fact waived the consent requirements. Hunbeach points to nothing in the record to
show it made any attempt to waive the consent requirements regarding the
Hawk-to-WC sublease or the WC-to-GL assignment after it learned of those
documents. The trial court also
specifically found that Hunbeach unreasonably withheld its consent to the
Hawk-to-GL proposed assignment. The
whole story of the post April 28, 2008 submission of the Hawk-to-GL contract to
Hunbeach and its attempt to extract concessions additional to those in the
master lease wholly undercuts Hunbeach’s argument.
Hunbeach attacks the
trial court’s finding that it unreasonably withheld consent. But substantial evidence readily supports
that finding as well. Three Garff
entities were willing to guarantee GL’s performance. Yet Hunbeach’s attorney still “indicated
that, in addition, [Garff] needed to
have a security deposit” worth nine months payments “or a letter of credit on
top of the guarantors.” (Italics
added.) The trial court could reasonably
conclude that Hunbeach was trying to obtain a greater advantage from having GL
as a tenant than it had accepted when it undertook Hawk as a tenant. That is, knowing that by withholding its
consent it might be able to throw a monkey wrench into the dealership sale,
Hunbeach tried to “hold up” the Spedding and Graff entities for more than it
had in the original master lease.
Hunbeach also argues WC
and GL waived the argument that the Hawk-to-WC sublease and the WC-to-GL
assignment conferred no rights on Hunbeach because GL acted as though the
documents were enforceable by paying rent to Hunbeach for several months after
it purchased the Nissan dealership.
Hunbeach is mistaken. Substantial
evidence shows that Hawk, WC, and GL never intended to create an effective
sublease enforceable against either WC or GL.
The rent payments GL made were for its own benefit in anticipation of
Nissan requiring GL to eventually occupy the vacant land which was the subject
of the master lease. The parties
continuing discussions regarding the proposed Hawk-to-GL assignment after the
April 28, 2008 closing of the dealership sale demonstrates their belief that an
enforceable assignment was not in place.
Finally, Hunbeach points
to a cryptic comment in the statement of decision that Hawk and WC “had a claim
against [GL] for breach of the agreement” as support for the idea that it could
enforce the Hawk-to-WC sublease and WC-to-GL assignment. In context, however, the trial court’s
comment only underscored its finding that Hunbeach withheld its consent from
any assignment and could not thereafter, in litigation, conveniently change its
mind. We quote the entirety of the trial
court’s statement of decision on the fourth cause of action here, to illustrate
what the trial court was really saying:
“Hunbeach also claims
that Hawk (through [WC] ) assigned all of its rights under the main lease to
[GL] and therefore Hunbeach is entitled to sue as third party beneficiary. Again, the main lease says that subleases and
assignments without written permission of Hunbeach are ineffective. Hunbeach
never gave permission, so it cannot now claim that it can enforce the agreement. [¶]
There was evidence that in June 2008 Hunbeach agreed in principle to the
transfer, but that approval was never reduced to writing or memorialized in any
fashion. Further, the evidence equally
supports the conclusion that Hunbeach wanted to see the guaranties before
agreeing to the transfer. [GL] never
provided the signed guaranties and no one ever followed up on getting Hunbeach
to commit in writing. [¶] While Hawk and Weston-Carol had a claim
against [GL] for breach of the agreement, Hunbeach
never agreed to any sublease. It cannot
decide now that it should have agreed and sue if it had agreed. The court finds that it cannot sue for
breach.” (Italics added.)
There is nothing here
supporting any purported right in Hunbeach to blow hot or cold at its
litigation convenience on the point of waiving – or not waiving – the consent
requirement in the master lease. In
context, the most that can be wrung from the cryptic comment about Hawk and
GL’s “claim” is that they could hold GL responsible for not having tried hard
enough to obtain the required consent from Hunbeach to the proposed Hawk-to-GL
assignment. Furthermore, the court’s
cryptic comment does not address the substantial evidence showing Hawk, WC, and
GL never intended to confer any third party beneficiary rights on Hunbeach.
CONCLUSION
The
judgment is affirmed. WC and GL will
recover their costs on appeal.
RYLAARSDAM,
J.
WE CONCUR:
O’LEARY, P. J.
ARONSON, J.
