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Thrifty Payless v. Rajkovich

Thrifty Payless v. Rajkovich
10/30/07



Thrifty Payless v. Rajkovich



Filed 10/26/07 Thrifty Payless v. Rajkovich CA6



NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.



IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



SIXTH APPELLATE DISTRICT



THRIFTY PAYLESS, INC.,



Plaintiff and Respondent,



v.



GARRETT A. RAJKOVICH et al.,



Defendants and Appellants.



H030681



(Santa Clara County



Super.Ct.No. CV034651)



After a bench trial in this case, the court issued declaratory relief and granted a permanent injunction. That latter relief enjoined the current owners of the Hacienda Gardens Shopping Center[1] in San Jose from constructing improvements to the center that violated the terms of a 1986 drug store lease between the prior owners and Payless Drug Stores Northwest, Inc., which, through acquisition, had assigned the lease to Thrifty Payless Inc., doing business as Rite-Aid.[2] The pertinent lease terms concerned the landlords inability to construct buildings in the (defined) common facilities of the center, which included parking areas, without the tenants consent and the landlords obligation to maintain a ratio of two square feet of parking area to one square foot of building area in the shopping center. In late 2004, Hacienda Gardens obtained the City of San Joses approval to go forward with the proposed improvements. It began demolition and planned to go forward with construction of the proposed redevelopment even though Rite-Aid had refused to give its consent as provided in the lease and had expressed its objection to any reduction in the parking area ratio, positions which Hacienda Gardens argued were unreasonable. Rite-Aid sued for injunctive relief to enforce the terms of the lease, a remedy provided for therein, and the trial court issued the permanent injunction enjoining Hacienda Gardens threatened violations of the lease even though the court also found that the proposed improvements would be beneficial to the community and surrounding neighborhood and that Hacienda Gardens had spent significant time and money in pursuing the development as proposed.



Hacienda Gardens appeals from the judgment contending that the trial court abused its discretion by issuing injunctive relief purely on the basis of the contractual provisions, which it does not dispute would be violated by the proposed development, and without balancing the equities and considering the relative hardships to each party that would result from the issuance of injunctive relief. It further contends that the trial court abused its discretion by striking evidence of settlement discussions, which Hacienda Gardens had offered at trial to show that the alternative plan proposed by Rite-Aid to relocate and reduce the size of its store within the center was infeasible and that Hacienda Gardens had acted in good faith in exploring it. Concluding in any event that the contractual lease provisions outweigh any inequities that Hacienda Gardens demonstrated it might suffer as a result of the injunctive relief and that abuse of discretion by the trial court has not been shown, we reject these contentions and affirm the judgment.



STATEMENT OF THE CASE



I. Factual Background



On June 20, 1986, Payless Drug Stores Northwest, Inc., as tenant, entered into a commercial lease with Philip S. Sanfilippo and Martha E. Sanfilippo, as landlord, for the operation of a drug store in an approximately 30,000 square foot portion of the Hacienda Gardens Shopping Center. A memorandum of the lease identifying the parties, the premises, the lease term, and the common areas was recorded in July 1986. In 1996, Thrifty Payless, Inc., which does business as Rite-Aid, acquired Payless and Payless Drug Stores Northwest, Inc. then became a wholly owned subsidiary of Rite-Aid, the current tenant under the lease. In or around 1998, Hacienda Gardens acquired the center, thereby becoming the current landlord to which Rite-Aid attorned.



The lease was for a term of 24 years plus two five-year options, which takes the term, assuming Rite-Aids exercise of the options, to October 31, 2020. The leased premises include not only the improved area for the drug store itself, together with its front sidewalk and rear loading dock, but also the use of those portions of the shopping center designated as Common Facilities, which were defined in the lease to include the parking areas located in all parts of the center. The Common Facilities were also shown as cross-hatched areas on a site plan attached as Exhibit A to the lease. These areas included all the parking lots located around the L-shaped structures of the shopping center extending to the surrounding streets. Open parking areas consumed much of the portion of the center that bordered Meridian and Foxworthy Avenues. This made the front of the drug store, which was not located at the street front but rather set back into the center, visible from surrounding streets, especially Meridian Avenue, a busy street. The record is undisputed that visibility, especially from such a street, is a critical feature to a drug store retailer in a shopping center and one that has been demonstrated to positively result in better sales.



The lease further provided that with respect to Common Facilities, [o]ther than what is shown on Exhibit A (plot plan) excepting Tax Parcels 447-05-002 and 447-05-009 (Lucky [Store]) at the time of execution of this Lease, no buildings or structures of any kind may be constructed or installed on the Common Facilities without the prior written consent of Tenant. In the event of a violation of this provision[,] Tenant, in addition to such other rights and remedies as may be accorded Tenant by law, (including but not limited to an injunction prohibiting such construction or installation), may cancel this Lease by written notice to Landlord. This clause was for the benefit of the tenant and it was designed to maintain parking availability for drug store customers, another very important feature to a drug store retailer, and to protect the stores crucial street visibility.



Further with respect to parking, the lease also obligated the landlord to provide a minimum of two square feet of parking area for every one square foot of ground floor building area in the Shopping Center.[3] The purpose of this provision was to maintain adequate parking facilities for customers of not only the drug store but for customers of the other tenants in the center, who might otherwise use parking in front of the drug store if other parking areas in the center were unavailable. Although the lease did not call for parking spaces of a certain size, the site plan attached to it showed a particular configuration of the parking lot in front of the drug store with parallel rows lining it, each row showing parking spaces of standard, i.e., not compact, size angled at 60 degrees on each side. According to Rite-Aid, the existing parking area ratio met the requirement of the lease.



As time passed from the inception of the lease in 1986, the shopping centers condition deteriorated and it suffered from a lack of maintenance. From Rite-Aids point of view, this resulted in declining sales such that the store was considered underperforming in the four years prior to trial in 2006. Further from Rite-Aids perspective, there were myriad ways in which the center could be modernized and improved without violating its lease or causing it to suffer detrimental impacts such as the loss or impairment of its protected visibility.



As the new owner of the shopping center, Hacienda Gardens recognized that the center was in need of redevelopment and it went about formulation of a plan to address this need. The plan involved converting a portion of the shopping center into residential units and adding retail space. This plan necessitated a redesign of the center and the obtaining of development entitlements from the City of San Jose, which was preceded by a general plan amendment to allow for mixed use development, all of which required investment of over $1 million and took several years. The redesign involved, among other things, construction of four building pads in parking areas abutting Meridian and Foxworthy Avenues that were included within the Common Facilities as described in the lease, reducing the common areas of the center and negatively affecting street visibility of the drug store, particularly from Meridian Avenue.[4] To mitigate this effect, the redesign also included architectural improvements to Rite-Aids storefront faade that increased the height of the stores signage. The redesign also reduced the parking area ratio below that which was existing and below that provided in the lease. It further involved construction of 299 residential units, of which some portion were to be built in areas of the centers parking lot behind Rite-Aid with the rest being built off site. The residential units were designed to have their own assigned parking area, which Hacienda Gardens offered to enforce, but the City required as a condition of project approval that the centers commercial parking areas accommodate overflow residential parking, subject to undefined terms and conditions to protect the centers available commercial parking.



With its effects on the centers parking areas, the redesign thus necessitated a parking lot reconfiguration. And, consistently with the modern approach of reducing environmental impacts, the City required the parking lot to be punctuated with landscaping so as to reduce the flow of storm water runoff, which would include auto fluids, into public drainage systems. All of this required changing the angle of the rows of parking spaces in front of Rite-Aid from 60 to 90 degrees and a reduction in the standard size of the parking spaces. Although according to Hacienda Gardens, the actual number of parking spaces proposed to be provided was increased by 10, Rite-Aid perceived these parking changes as detrimental to its customer base that prefers accessibility, convenience, and easy maneuvering in parking lots and the ability to comfortably wheel shopping carts and load shopping bags from carts into a parked car without hitting the door of the adjacent car.



In late 2003, representatives of Hacienda Gardens approached Rite-Aid to present its redevelopment plan for the center and to obtain Rite-Aids approval for it. Rite-Aid objected and refused to give its consent because the particular plan violated the lease provisions concerning building in areas designated as Common Facilities and the minimum parking area ratio. Rite-Aid believed that the centers proposed redesign would negatively impact its available parking, access, visibility, and sales, notwithstanding proposed improvements to signage and the benefits Rite-Aid might enjoy as a result of the general redevelopment and revitalization of the center, including the potential that the proposed residential units would provide new drug store customers. Over the course of discussions into 2004, Rite-Aid did suggest that it would give its consent if the redesign included reducing the size of its drug store and moving it to a street corner of the center. But as of the point that litigation began, Hacienda Gardens viewed this suggestion as infeasible and a non-starter and expressed its intention to go forward with its redevelopment substantially as proposed without Rite-Aids consent. According to Hacienda Gardens, the redesign would, on balance, improve parking for Rite-Aids customers and any loss of visibility it might suffer by reason of the new building pads would be more than offset by the new signage and improved building faade.



In December 2004, through its Planning Commission, the City of San Jose approved the project, rejecting Rite-Aids appeal (and four others) of the Planning Directors earlier approval of the project. One of the Citys findings in approving the project was that the shopping center had become blighted due to poor maintenance and that redevelopment would address this concern. After project approval, Hacienda Gardens made some modifications to its plan but not in any respect that addressed Rite-Aids particular objections and concerns. With some demolition of buildings and the portions of the parking lot having taken place and construction perceived to be imminent, Rite-Aid initiated this action in January 2005, primarily seeking declaratory relief concerning its contractual rights under the lease and to enjoin the aspects of the approved redevelopment that violated the lease.



II. Procedural Background



The case proceeded to a bench trial on Rite-Aids first amended complaint, which pleaded causes of action for declaratory relief concerning particular rights and obligations of the parties under the lease;[5] anticipatory breach of contract for which both injunctive relief and damages were sought; and breach of contract claiming damages for the landlords failure to have maintained the shopping center.



At trial, evidence of the above facts was proffered. But due to the asserted presence of too many variables, Rite Aid was not able to calculate actual damages it would suffer as a result of Hacienda Gardens threatened breaches of the lease respecting building in the Common Facilities and reduction of the parking area ratio. There was, however, demonstrative evidence in the form of an animated mock-up that Rite-Aids visibility from cars proceeding southbound on Meridian Avenue would be impaired by the construction of buildings on the building pads located along Meridian Avenue. And Rite-Aid proffered testimony that [t]he reduction of visibility, the additional competition for the parking, the reduction in the size of the [parking] stalls, the increase in the amount of traffic[] making it more difficult to get in and out would all be negative factors[. T]o some extent those factors would be offset by the fact that [the redeveloped center] would be nice and new and properly maintained at least for some period of time, but we believe that [Hacienda Gardens] could reach that same result by properly maintaining [the center] in the layout that it is today. Expert opinion further supported the conclusion that the proposed redevelopment would have a net negative impact on Rite-Aid and that its refusal to give its consent was therefore commercially reasonable.



In addition to the substantial evidence elicited at trial that the overall effect of the proposed redesign of the shopping center would be detrimental to Rite-Aids interests, Rite-Aid also offered that there were countless other ways that the center could be redeveloped that would avoid these negative effects and that would be beneficial to both Rite-Aid and Hacienda Gardens. These alternatives included re-fac[ing] and re-leas[ing] the shopping center, installing a residential component that did not reduce the commercial space by putting it on a second story above some of the existing retail or new retail, or relocating the Rite-Aid store to a street corner of the center. Rite-Aid also offered its belief that notwithstanding its underperforming store, it would be better off without the proposed redevelopment if the shopping center were only maintained properly.



After trial, the court issued its tentative decision, which generally determined that Rite-Aid was entitled to injunctive and declaratory relief on the threatened lease violations but that it had not proven entitlement to money damages.



Hacienda Gardens objected to the tentative decision in four respects. These were in essence that: the decision (1) fails to indicate that the Court has balanced the equities and examined whether greater injury will result to [Hacienda Gardens] from the granting of the injunction than would be caused to [Rite-Aid] by refusing it; (2) fails to find that [Rite-Aid] will suffer any substantial and positive injury were the redevelopment of the Shopping Center to go forward as planned; (3) fails to find that [Rite-Aid] will suffer any injury if the residential portion of the proposed development is constructed on the common areas as proposed given the finding . . . that the residential development does not impact visibility of [Rite-Aids] store or parking for [its] customers; and (4) grants injunctive relief from constructing any buildings on the common areas of Hacienda Gardens, even though [Rite-Aids] lease rights concerning prior consent expressly do not apply to the common areas and tax parcels for 44-705002 and 44-705009. Hacienda Gardens further requested the court to issue a statement of decision concerning these four controverted issues.



Rite-Aid responded to Hacienda Gardens objections and request and the court directed Rite-Aids counsel to prepare a proposed statement of decision. Rite-Aids counsel complied with this directive and Hacienda Gardens then objected to the proposed statement of decision asserting that it: (1) grants injunctive relief from constructing any buildings on the common area of Hacienda Gardens, even though [Rite-Aids] lease rights concerning prior consent expressly do not apply to the [two excluded assessors parcel numbers]; (2) fails to find that [Rite-Aid] will suffer any injury if the residential portion of the proposed development is constructed on the common areas as proposed; (3) fails to find that [Rite-Aid] will suffer any injury if [Hacienda Gardens] fail[s] to maintain a 2:1 ratio of parking area to commercial space; (4) makes a finding that Rite-Aid will suffer irreparable harm, which is not supported by any evidence of a loss of revenue due to decreased visibility and/or diminished parking area; (5) improperly states it need not balance the equities and examine whether greater injury will result to [Hacienda Gardens] from the granting of the injunction than would be caused to [Rite-Aid] by refusing it; and (6) improperly balances the proposed development with an alternative development plan that was never presented to the Court, rather than balancing the harm to [Rite-Aid] in allowing the development to go forward with the harm to [Hacienda Gardens] by stopping the project.



The court held a hearing on the proposed statement of decision and then filed its statement of decision, which reflected some modifications from the proposed document that were responsive to Hacienda Gardens objections. As pertinent here, the statement of decision determined several things. First, it found that the proposed redevelopment involved construction in areas designated as Common Facilities in the lease. These areas included the parking area in front of Rite-Aids entrance where two of the building pads (numbers one and two) would be placed along Meridian Avenue and behind Rite-Aid in the portion of the center where some of the residential units were slated to be built. The statement of decision also found that Rite-Aid had not given its consent for building in these common areas. It further found that declaratory relief was appropriate and determined that under the lease, Hacienda Gardens did not have the right to go forward with construction in the Common Facilities areas of the center without Rite-Aids consent, where that consent was required. The statement of decision also determined that Hacienda Gardens did not have the right to reduce the parking area ratio below that provided in the lease.



Concerning injunctive relief, the statement of decision found that Rite-Aid had met its burden under Civil Code section 3422, subdivision (2), which provides for an injunction to prevent the breach of an obligation upon a showing that it would be extremely difficult to ascertain an amount of damages to afford adequate relief. The court cited evidence that the proposed redevelopment would reduce Rite-Aids visibility from Meridian Avenue, notwithstanding a raised building faade and improved signage, and that visibility was indisputably an important factor, even though money damages could not be ascertained with certainty for its loss. The statement of decision also determined that even though the overall number of parking spaces at the center might be increased by the proposed development, there would be a reduction in the parking area, particularly next to Rite-Aid, where a drive-through restaurant requiring its own parking area was proposed to be built, and that even though parking might be improved in the area directly in front of Rite-Aids entrance, the development as planned would negatively impact the parking available for [Rite-Aids] customers and employees, especially [in] the area adjacent to [Rite-Aids] store. The statement of decision further concluded that the proposed redevelopment would cause the parking area ratio to go below that required by the lease, thus violating it.



The statement of decision also found that while the proposed revitalization of the center would be of benefit to the community and the surrounding neighborhood and Hacienda Gardens had spent five years and significant funds in pursuing the development, the court was not required to consider these factors where there is a clear violation of the Lease. But the statement of decision went on to say that [e]ven if the Court were to balance equities, it is not persuaded by [Hacienda Gardens] claim that redevelopment is not feasible unless it goes forward as proposed, citing the countless ways Rite-Aid had offered that the center could be redeveloped without the significant negative impacts on [Rite-Aid] and without violation of the Lease. The statement of decision further noted on this point that the mere fact that [Hacienda Gardens] may stand to make less of a profit on the redevelopment of the shopping center as planned without [Rite-Aids] consent than it may on a different development plan would not tip the balance of equities in [Hacienda Gardens] favor.



Finally, the statement of decision concluded that in assessing whether the anticipatory breach of the lease [had] cause[d] ascertainable damages, the court is faced with the . . . difficulty [of] isolating factors of visibility and lack of parking and attributing a dollar amount of lost retail sales [to these factors]. The Court finds that [Rite-Aid] would suffer irreparable harm were the development of the Shopping Center to go forward as planned in that the visibility of [its] store would be significantly impaired, and the parking area available for [its] customers and employees would be diminished. Although it seems intuitive that the revitalization of the shopping center will increase the potential for retail sales for the store, there is no way to measure what sales would be lost due to customers being unable to see the store or customers choosing a different store due to lack of parking at this location. In order to enforce the contract rights of [Rite-Aid], the court grants the request for injunction . . . .



The later judgment confirmed that Rite-Aid was not entitled to damages but declared that Hacienda Gardens did not have the right to construct new buildings in the common area of the [shopping center] where [Rite-Aids] consent is required and not obtained or the right to take any action that would result in reducing the ratio of parking space area to ground floor building area available in the Shopping Center below the Lease Parking Area Ratio, as defined in the Statement of Decision. Consistently with this declaratory relief, the judgment also enjoined Hacienda Gardens from constructing any buildings in the common area of the [shopping center] for which [Rite-Aids] consent is required and not obtained or from undertaking any actions to decrease the ratio of parking space area to ground floor building area in the Shopping Center below the Lease Parking Area Ratio.[6] The judgment awarded Rite-Aid costs of suit and reserved jurisdiction over the issue of contractual attorney fees under Civil Code section 1717.[7]



ANALYSIS



Hacienda Gardens raises three issues on appeal, which we resolve in turn. We address the applicable standard of review in connection with each respective issue.



I. The Trial Court Did Not Abuse Its Discretion in Issuing Injunctive Relief



We review the trial courts grant of injunctive relief for abuse of discretion and its decision will not be overturned absent a clear showing of abuse. (Horsford v. Board of Trustees California State University (2005) 132 Cal.App.4th 359, 390.) The exercise of discretion must be supported by the evidence and, to the extent the trial court had to review the evidence to resolve disputed factual issues, and draw inferences from the presented facts, [we] review such factual findings under a substantial evidence standard. [Citation.] We resolve all factual conflicts and questions of credibility in favor of the prevailing party and indulge all reasonable inferences to support the trial courts [judgment]. [Citation.] (Ibid.)



Hacienda Gardens primarily contends that in granting injunctive relief, the trial court erred by failing to balance the equities or examine the relative hardships between the parties, instead exercising its discretion to afford relief based purely on the lease provisions. In effect, Hacienda Gardens asserts that the trial court should have ignored the lease terms in the exercise of its discretion. But it specifically claims that the court did not consider whether Rite-Aid would suffer greater harm from the denial of injunctive relief than Hacienda Gardens might suffer from its grant. We conclude that the court did not abuse its discretion in granting relief to enforce the contractual lease terms and further, contrary to Hacienda Gardens claims, the court exercised its discretion with respective equities in mind. Moreover, from our review of the record, Hacienda Gardens presented no specific evidence of any harm it would suffer from the grant of injunctive relief as requested, instead focusing on the asserted benefits of the proposed redevelopmentto Rite-Aid in particular and to the shopping center as a whole. And it did not refute that beneficial redevelopment could occur in ways alternative to the approved design.



After its determination that Rite-Aid was entitled to declaratory relief under the contract on its first cause of action, the courts statement of decision said that its analysis of the question whether Rite-Aid was entitled to injunctive relief began with Civil Code section 3422. As relevant here, this section provides that [e]xcept where otherwise provided by this title, a final injunction may be granted to prevent the breach of an obligation existing in favor of the applicant: [] . . . [] 2. Where it would be extremely difficult to ascertain the amount of compensation which would afford adequate relief. The court then refined its focus in evaluating the evidence in this circumstancewhere damages affording adequate relief are extremely difficult to ascertain.



This circumstance raises the concept of irreparable injury. This concept is not limited to injury beyond the possibility of repair or beyond possible compensation in money damages. (Wind v. Herbert (1960) 186 Cal.App.2d 276, 285.) Irreparable injury also includes that species of damages, whether great or small, that ought not to be submitted to on the one hand or inflicted on the other. . . . [Citations.] . . . The argument that there is no irreparable damage, would not be so often used by wrongdoers if they would take the trouble to observe that the word irreparable is a very unhappily chosen one, used in expressing the rule that an injunction may issue to prevent wrongs . . . which occasion damages estimable only by conjecture and not by any accurate standard. . . . Besides this, where the right invaded is secured by . . . contract there is generally no question of the amount of damages, but simply of the right. (Ibid.; see also 6 Witkin, Cal. Procedure (4th ed. 1997) Provisional Remedies, 298, p. 238 [ground of irreparable injury as alternate basis for injunctive relief as found in Code Civ. Proc.,  526 adds nothing to broader concept of inadequacy of legal remedy as grounds for injunctive relief provided at Civ. Code,  3422].) In other words, irreparable injury is established where there is the fact of damage, including by reason of a contractual violation, but the inability to ascertain the amount thereof.



Here, in its resolution of the question whether to grant injunctive relief, the court specifically found based on the evidence adduced at trial that the proposed development would violate the lease and that Rite-Aid would suffer damage as a result of the proposed development in reduced visibility and parkingthe very interests the contractual limitation on building in the common areas was designed to protect. The court also found that such damage constituted irreparable harm in that it was not measurable or ascertainable. These findings were supported by substantial evidence and they satisfied the express grounds for the issuance of injunctive relief to prevent the breach of an obligation under Civil Code section 3422, subdivision (2). Hacienda Gardens has not shown otherwise. With these findings, the statement of decision was thus sufficient to satisfy the courts legal obligation to explain the factual and legal basis for its decision on the principle controverted issue surrounding the granting of injunctive reliefthe ultimate issue in the caseunder Code of Civil Procedure section 632 governing statements of decision. No further finding on subsidiary issues or specification of particular evidence considered by the court was required. (Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1124-1125.)



While the court acknowledged that the development as proposed would be beneficial to the community and surrounding neighborhood and that Hacienda Gardens had spent time and money pursuing it, the court nevertheless concluded that it was not required to consider this because the proposed development would clearly violate the lease. In reaching this conclusionthe one principally challenged on appealthe court expressly cited Morgan v. Veach (1943) 59 Cal.App.2d 682, 690-[691 (Morgan)] (When clearly expressed, covenants of this description [contractual restrictions on construction] will be strictly enforced, and a court of equity will decree an injunction, and this without any showing of actual damage or substantial injury . . . .) [and] Smith v. Mendonsa (1952) 108 Cal.App.2d 540, 543-[544 (Smith)] (upholding injunction and rejecting appellants argument that the court did not balance hardships, noting, It is not the business of courts, either of law or of equity, to remake contracts fairly entered into by persons who are capable of contracting. On the contrary, it is the duty of courts to encourage the keeping of agreements so made and to give adequate remedy for the breach thereof when it occurs). Hacienda Gardens contends that these assertions in the courts statement of decision reflected that it refused to balance equities and that Morgan and Smith actually compelled the court to consider the relative hardships between the parties in the course of determining whether injunctive relief was warranted.



These contentions suffer several flaws. First, even though the court stated that in view of the clear violations of the lease, it was not required to consider that the development was beneficial to the community and surrounding neighborhood or that Hacienda Gardens had spent time and money in pursuit of it, the court went on to find that even if it were to balance equities, it was not convinced that development was infeasible unless pursued as proposed. The court further found that the possibility that Hacienda Gardens might make less profit on a different design than the one proposed would not tip the balance of equities in its favor, citing Mullaly v. Ojai Hotel Co. (1968) 266 Cal.App.2d 9, 12 (It is a matter of common knowledge that restrictive covenants quite frequently forbid land uses which, if permitted, would make the property far more valuable.)



Based on these findings, which are supported in the record, it is clear that the court did indeed engage in a balancing of equities in determining whether to grant injunctive relief. And again, Hacienda Gardens offered no evidence of specific harm it would suffer if not permitted to go forward with its plan exactly as proposed, other than that it had already spent in excess of $1 million dollars. But Hacienda Gardens did not show that its investment would be entirely wasted if it were forced to pursue a design that did not violate the lease or that other designs would be economically out of reach. Indeed, it is clear from the record that once the court issued its tentative decision, Hacienda Gardens intended to pursue its building plan except as enjoined and that it sought to protect this intention in its efforts to tailor the contents of the statement of decision. Accordingly, even though the court stated that it was not required to consider certain facts that favored development as proposed, it is apparent from the record that it did nonetheless consider available evidence of competing equities or relative hardship in the exercise of its discretion to grant relief.



Secondly, we do not read Morgan and Smith as contrary to the courts decision. Morgan involved the issuance of a mandatory rather than prohibitive injunction, a more drastic situation requiring a stronger showing in order to justify relief. The court there acknowledged that even then, an injunction will not be denied on the ground that the loss caused by [such relief] will be disproportionate to the good accomplished, where it appears that the defendant acted with a full knowledge of the complainants rights and with an understanding of the consequences which might ensue . . . . (Morgan, supra, 59 Cal.App.2d at p. 690.) Those are exactly the circumstances under which Hacienda Gardens threatened to go forward herewith knowledge that its plan would violate the Rite-Aid lease and that the lease specifically provided for injunctive relief in order to prevent such violations. And as observed by the trial court here in its statement of decision, Morgan further recognized that restrictive building covenants, when clearly expressed, will be enforced even without a showing of substantial injury. (Id. at pp. 691-692.) But the court here nevertheless found irreparable harm in the threatened loss of Rite-Aids visibility and available parking and it accordingly did not grant injunctive relief in the absence of this showing.



In Smith, as here, the defendant-appellant asserted that the trial court had failed to balance hardships in enforcing an agreed-upon land use restriction and that the threatened harm to plaintiff was moderate whereas the harm to be suffered by defendant as a result of injunctive relief would be great. (Smith, supra, 108 Cal.App.2d at p. 543.) In rejecting this claim, the court discussed that factors other than the inadequacy of the damage remedy bear on the question whether to afford injunctive relief and that the harm to a defendant that may follow the issuance of an injunction may be entirely disproportionate to the benefit resulting to the plaintiff. (Id. at p. 544.) The court then emphasized the policy that persons should be required to live up their promises, though improvidently given, and that courts have a duty to encourage that policy rather than to remake contracts, which duty includes providing an adequate injunctive remedy, especially where the violation is deliberate and the wrong is willful. (Ibid.) The Smith court finally rejected the appellants claim there that the trial court had failed to balance equities, concluding instead that the court had indeed considered relative hardships, coming down on the weighty side of appellants contractual promise in the decision to grant relief. (Id. at pp. 544-545.) We believe the record here demonstrates a comparable equitable weighing by the trial court to a parallel and proper result, and not an abuse of discretion. (See Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 380-381 [Like any promise given in exchange for consideration, an agreement to refrain from a particular use of land is subject to contract principles, under which courts try to effectuate the legitimate desires of the contracting parties. [Citation.]].)



We accordingly conclude that Hacienda Gardens has not shown an abuse of discretion in the trial courts granting of injunctive relief.



II. The Trial Court Did Not Abuse its Discretion in Enjoining the Proposed Residential Construction in an Area Included Within the Common Facilities



While it is generally subsumed within our analysis of the preceding issue, Hacienda Gardens separately contends that the trial court abused its discretionagain the proper standard of reviewin enjoining residential construction in the parking area located behind Rite-Aid. This area is indisputably included within the Common Facilities as defined in the lease and building there thus requires Rite-Aids consent. Hacienda Gardens claims error because there was no evidence, the argument goes, that building residential units in this area would negatively impact Rite-Aids visibility or available parking, and thus Rite Aid demonstrated no irreparable harm justifying injunctive relief enjoining construction with respect to this specific location.



While it is true that there was no evidence that building in this area would affect Rite-Aids visibility, the same cannot be said regarding parking impacts. There was testimony that residential parking even behind Rite-Aid would, by trickle-down effect, ultimately impact customer parking in front of Rite-Aid. Rite-Aids representative further testified that convenient parking for its customers was crucial since people were not willing to walk very far to go to a drug store and that in a shopping center, the convenience of the parking can be dependent upon other competing uses in the center. For example, where there is a movie theater, a gym, a bowling alley, a popular restaurant, office, or other commercial uses, drivers will be parked in the same spaces for a longer period of time, thus restricting the availability of parking for Rite-Aid customers. Rite-Aid accordingly requires clauses in its leases that restrict use where there is potential for nearby building use to impact Rite-Aids available parking. The same is true for nearby residential use, which may be inconsistent with retail use. According to Rite-Aid, what is necessary for the success of a mixed-use project is complete segregation between residential and retail parking and Rite-Aid has rejected locations where this could not be achieved. And Rite-Aid typically uses clauses in its leases, such as the one here, that restrict building in common areas in order to protect its available parking from just this sort of use.



There was further testimony that although the designated site for residential construction within the shopping center was not located in front of Rite-Aids store, other retail tenants currently used that area for employee parking, loading, and trash collection such that if this space were to become unavailable due to residential building or use, those other uses and activities would relocate within the center, ultimately directly impacting Rite-Aids parking.



Thus, even though the court found in its statement of decision that damage to drug-store sales as a direct result of residential overflow parking was speculative, the court still found that the proposed development, in its entirety, would generally diminish available parking for Rite-Aid customers and that this damage was not ascertainable. With respect to the shopping center area where residential building was proposed, this general finding is supported by substantial evidence as outlined above, notwithstanding Hacienda Gardens characterization of this testimony as speculative in character. The court also generally found, without breaking it down by specific location, that the entire development as planned would cause the parking area ratio to fall below the minimum required by the lease. It was also undisputed that the relevant location where residential construction was proposed was included within the Common Facilities of the center and was thus subject to the provision limiting building without Rite-Aids consent. Injunctive relief that included this area was accordingly granted and Hacienda Gardens has shown no abuse of discretion.



With respect to this issue, Hacienda Gardens also contends that it specifically objected to the proposed statement of decision for its failure to have found that Rite-Aid would suffer any injury if the residential portion of the proposed development is constructed on the common areas as proposed and that this deficiency constituted a failure to explain the factual and legal basis for the courts decision under Code of Civil Procedure section 632, requiring reversal. But a courts findings of ultimate fact in a statement of decision, which are present here with respect to the proposed development as a whole, necessarily include findings on all intermediate evidentiary facts necessary to sustain the ultimate facts. (In re Cheryl E. (1984) 161 Cal.App.3d 587, 598.) The court was thus not required to do more in its statement of decision than state the grounds upon which the judgment ultimately rests, a requirement which it satisfied here.



III. The Trial Court Did Not Abuse its Discretion in Striking Evidence of Settlement Discussions



At the conclusion of trial, Hacienda Gardens offered testimony that after litigation had begun, certain events occurred that enabled it to explore relocating Rite-Aid to its desired street corner of the shopping centeran alternative that the evidence had showed was initially considered by Hacienda Gardens as not feasible and a pipe dream that should be kill[ed]. After some of the testimony had been given, Rite-Aid orally moved to strike it on the grounds that it was evidence of post-litigation settlement discussions that had been expressly intended to be privileged and was not admissible under Evidence Code sections 1152 and 1154.



In responding to Rite-Aids motion, Hacienda Gardens agreed that the subject testimony was related to post-litigation settlement discussions but offered only that the testimony was relevant nonetheless to show the developers good faith in trying to reach a solution. The court ruled that the testimony that had been given was inadmissible as evidence of settlement discussions and struck it to the extent it had concerned meetings and communications between the parties that took place after the filing of the complaint. Hacienda Gardens made no offer of proof under Evidence Code section 354 of additional testimony that it had intended to pursue regarding its efforts to relocate Rite-Aid within the center and did not offer any evidence relating to the feasibility or costs of any other design alternatives or specific harm it might suffer if enjoined from going forward with the development as planned.



On appeal, Hacienda Gardens contends that the courts striking of the testimony deprived defendants of the opportunity to present evidence which would have assisted the court in determining the relative benefits and hardships to the parties created by the approved development plan. In particular, by striking [the] testimony concerning alternative proposals, the court deprived defendants of an opportunity to present evidence concerning whether a proposed alternative development plan was even feasible, i.e., whether it would be approved by the City of San Jose, and a planned development permit issued therefor, and if feasible, what the costs to defendants of the alternative development proposal would be, when compared to the approved proposal.



This contention is a recasting of the testimony that was actually given, which concerned only one possible alternative development design. And it goes beyond the record in that it alludes to what further testimony might have established when there was no offer of proof to that effect. (People v. Anderson (2001) 25 Cal.4th 543, 605-606 [substance, purpose, and relevance of excluded evidence must be made known by the questions asked, an offer of proof, or by other means so that reviewing court may know the substance of the excluded evidence in order to assess prejudice].) Moreover, at trial, counsel for Hacienda Gardens did not offer the testimony for the purpose of showing the feasibility or cost of development alternativeswhat it now claims the court should have considered but failed to in the exercise of its discretion to grant injunctive relief. Instead, the testimony was offered for the explicit purpose of showing Hacienda Gardens good faith, a matter that had not even been put in issue.



Under these circumstances, we might consider this issue as framed on appeal to have been forfeited since it was not preserved. We will nevertheless address the substantive question whether the testimony that had been given was properly struck as evidence of settlement discussions under Evidence Code sections 1152 and 1154an issue we review for abuse of discretion. (Caira v. Offner (2005) 126 Cal.App.4th 12, 32.)



In pertinent part, Evidence Code section 1152, subdivision (a), provides that evidence that a person has, in compromise . . . , furnished or offered or promised to furnish money or any other thing, act, or service to another who has sustained or will sustain or claims that he or she has sustained or will sustain loss or damage, as well as any conduct or statements made in negotiation thereof, is inadmissible to prove his or her liability for the loss or damage or any part thereof. Evidence Code section 1154 further provides that [e]vidence that a person has accepted or offered or promised to accept a sum of money or any other thing, act, or service in satisfaction of a claim, as well as any conduct or statements made in negotiation thereof, is inadmissible to prove the invalidity of the claim or any part of it.



The threshold question in our analysis is whether the stricken testimony falls within either or both of these sections. We conclude that it falls within both, and was thus inadmissible. The testimony was post-litigation evidence of negotiations concerning what conditions of development Rite-Aid might accept in compromise of its claims and what Hacienda Gardens was willing to do in order to satisfy Rite-Aid and obtain its approval for redevelopment and its consent for building in the common areas of the shopping center. This sort of evidence falls squarely within the defined parameters of both sections. Exclusion of the evidence also serves the policy underlying both sections, which is to encourage settlement and compromise and to facilitate candid discussion that may lead to settlement. (Law Revision Commission Comments following both sections; Fieldson Associates, Inc. v. Whitecliff Laboratories, Inc. (1969) 276 Cal.App.2d 770, 773.)



Hacienda Gardens contends on appeal that the stricken testimony was offered for a purpose other than to prove the validity or invalidity of a partys claims, and it was therefore admissible under Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 396 [letter offered to prove instrumentality of tort rather than liability not inadmissible under Evidence Code section 1152]; and Fieldson Associates, Inc. v. Whitecliff Laboratories, Inc., supra, 276 Cal.App.2d at pages 771-772 [letter not offered to show liability but nonbinding nature of agreement]. But whether for the sole purpose asserted at trialto show good faithor for the purpose asserted hereto show that an alternative development was infeasible or costly illustrating disproportionate harm if an injunction were to issueboth purposes are targeted by these sections. Accordingly, the court did not abuse its discretion in striking the testimony. Moreover, even if Hacienda Gardens were to have demonstrated an abuse of discretion in the striking of the testimony, we would not conclude that the error resulted in a miscarriage of justice in the circumstances of this case, a requirement for reversal on the basis of excluded evidence under Evidence Code section 354.



DISPOSITION



The judgment is affirmed.



                                



Duffy, J.



WE CONCUR:



                              



Bamattre-Manoukian, Acting P.J.



                               



McAdams, J.



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Analysis and review provided by La Mesa Property line Lawyers.







[1] The current ownership structure of the shopping center is unclear in the record. According to the complaint, the owners of the shopping center are the individual defendants Garrett Alan Rajkovich, the Martha E. Sanfilippo Survivors Trust, Nikette Marie Pujalet, Randall P. Rajkovich, and David Nicholas Rajkovich. The complaint further alleged that the ground lessor, defendant Hacienda Gardens, LLC, functioned as the developer in connection with the proposed renovation of the center and that the individually named defendants each had some ownership interest in this entity. All of the defendants were bound by the trial courts permanent injunction. For ease of reference, we will refer to the defendants collectively as Hacienda Gardens or landlord.



[2] For ease of reference, we will refer to plaintiff and respondent as Rite-Aid.



[3] We note that attached to the first amended complaint is a document affecting the shopping center property entitled Declaration of Restrictions, which appears to have been recorded in 1961, and an amendment to that document recorded in 1965. The document was executed by Philip S. Sanfilippo and Martha E. Sanfilippo and its stated purpose was to establish a uniform plan for the improvement and development of [the shopping center] for commercial and/or business purposes, which will inure to the benefit of and be binding upon [the Sanfilippos] and upon all persons who may hereafter become owners or tenants of owners of [the shopping center] or any part or parcel thereof. As pertinent here, the covenants stated in the Declaration of Restrictions were expressly intended to be enforceable as an equitable servitude for a period of 50 years unless terminated earlier as provided therein. The restrictions included that the shopping center would be used solely for commercial or business purposes and expressed the intention that the aggregate of the Accommodation Areas and Parking Spaces within the Shopping Center shall at all times contain at least three square feet of surface space for each square foot of ground Floor Space. Rite-Aid did not pursue rights arising out of the Declaration of Restrictions at trial and does not do so on appeal. We accordingly do not address how the Declaration of Restrictions might have affected the matters that were determined by the judgment below, which principally concerned or arose from the lease and not independently by virtue of the recorded Declaration of Restrictions.



[4] Consistently with its Commercial Design Guidelines, the City encouraged these pad placements to establish an attractive architectural presence along the street and to reduce the visibility of overly large expanses of parking lots. Three of the pads were placed along Meridian Avenue and one was placed along Foxworthy Avenue.



[5] Specifically, the pleading requested the court to declare whether: (1) under the Lease, [Hacienda Gardens has] the right to construct new buildings in the common area of the Shopping Center, where [Rite-Aid] has not consented to such construction; (2) under the Lease, [Hacienda Gardens has] the right to reduce the ratio of parking space area to ground floor building area available in the Shopping Center below the Lease Parking Area Ratio; and (3) under the Lease, the landlord has the right to permit tenants and invitees of the 235 residential units to be located across the street to use the common areas of the Hacienda Gardens Shopping Center for overflow parking.



[6] The court denied other requested injunctive relief that is not relevant here since Rite-Aid did not cross-appeal from the judgment.



[7] The court later awarded Rite-Aid $127,000 in fees, reducing the requested amount of $143,596.50. That award is the subject of the related appeal H031062, our opinion in which is also filed this day.





Description After a bench trial in this case, the court issued declaratory relief and granted a permanent injunction. That latter relief enjoined the current owners of the Hacienda Gardens Shopping Center in San Jose from constructing improvements to the center that violated the terms of a 1986 drug store lease between the prior owners and Payless Drug Stores Northwest, Inc., which, through acquisition, had assigned the lease to Thrifty Payless Inc., doing business as Rite-Aid. The pertinent lease terms concerned the landlords inability to construct buildings in the (defined) common facilities of the center, which included parking areas, without the tenants consent and the landlords obligation to maintain a ratio of two square feet of parking area to one square foot of building area in the shopping center. In late 2004, Hacienda Gardens obtained the City of San Joses approval to go forward with the proposed improvements. It began demolition and planned to go forward with construction of the proposed redevelopment even though Rite-Aid had refused to give its consent as provided in the lease and had expressed its objection to any reduction in the parking area ratio, positions which Hacienda Gardens argued were unreasonable. Rite-Aid sued for injunctive relief to enforce the terms of the lease, a remedy provided for therein, and the trial court issued the permanent injunction enjoining Hacienda Gardens threatened violations of the lease even though the court also found that the proposed improvements would be beneficial to the community and surrounding neighborhood and that Hacienda Gardens had spent significant time and money in pursuing the development as proposed. The judgment is affirmed.



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