Campagna v. Gatley Properties

Filed 8/19/09 Campagna v. Gatley Properties 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

JAMES CAMPAGNA,

Plaintiff, Cross-Defendant

and Respondent, H033518

(Santa Clara County

v. Super.Ct.No. CV769000)

GATLEY PROPERTIES, LLC,

Defendant, Cross-Complainant

and Appellant,

KENNETH ARUTUNIAN, et al.,

Defendants, Cross-Defendants

and Respondents.

__________________________________/

Appellant Gatley Properties, LLC. (Gatley) and respondent James Campagna were engaged in a dispute over the terms of a commercial lease originally negotiated between Campagna's assignor, respondent Kenneth Arutunian, and the predecessor owner of the property, The Board of Trustees of the Leland Stanford Junior University (Stanford). In a prior appeal (H022749) this court held, inter alia, that the lease called for base rent and overage rent throughout the 19-year term of the lease. Upon remand, the superior court made various rulings that included the determination of overage rent payable by Campagna to Gatley. Gatley again appeals, contending that (1) the trial court used an incorrect formula in calculating overage and (2) the court should have awarded prejudgment interest. We find merit in these arguments and therefore must reverse.

Background

The transaction and procedural history giving rise to the prior appeal are summarized in our opinion in H022749, with which the parties are completely familiar. To avoid unnecessary repetition, we relate the proceedings that took place after remand to the superior court, together with reference to the contractual provisions relevant to the issues in this appeal. The original 1984 lease between Stanford and Arutunian called for base rent and overage rent. As to the latter, paragraph 16.3 provided the following: "In addition to the Base Rent and adjusted Base Rent in section[s] 16.1 and 16.2, Tenant shall pay to Landlord thirty-five percent (35%) of any gross rental income over $1.50 per square foot, excluding any recoveries for expenses, but including rental adjustments for cost of living, etc. received from subtenants. Annually, within twenty (20) days after the close of each calendar year, Tenant will furnish Landlord with a written statement certified as true and accurate by Tenant setting forth by calendar month the total amount of gross rental income received by Tenant from subtenants during the preceding calendar year with a calculation of the overage rent due Landlord and accompanied by the annual overage rental payment."

In 1986 the contracting parties amended the lease, recognizing forgiveness of certain past rental payments and specifying a new overage start date of April 1, 1986. The amendment also deleted paragraph 16.2 and references to its subject matter, "adjusted base rent." In 1987 Arutunian and Stanford again amended the lease, extending its term from 15 to 19 years. In H022749 this court held that the four-year extension encompassed overage as well as base rent.

Upon remand, the superior court took on the task of redetermining both the fair rental value of the shell building and the amount of overage rent attributable to years 16 through 19 of the lease term. The court modified its prior finding of the base rental from $7,620 to $9,600 per month. As to the overage, the court calculated the rent as follows: "At $9,600 per month base rent . . . the per-square[-]foot amount is $1.60 ($9,600 per month divided by 6000 [sq.] ft.) Per the lease, overage rent is 35% of the amount over the base rent. The overage rent, over $1.60 per [square] foot, for the years 16 through 19, is $197,412.19. This sum represents 35% of rent from subtenant's [sic] in excess of $1.60 per square foot." Because Campagna had overpaid Gatley in base rent, however, Campagna was entitled to a credit of $44,968.89, leaving a balance of $152,444.30 due to Gatley.

Gatley again appeals, taking license through multiple sentence fragments to challenge both the computation of overage rent and the court's failure to award him prejudgment interest.

Discussion

1. Overage Calculation

On appeal, Gatley contends that the court applied the wrong formula in calculating overage rent based on $1.60 per square foot. Campagna maintains that the superior court adopted a reasonable interpretation of the lease, or alternatively, that the court properly reformed the overage provision to conform to the parties' contractual intent.

"The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." (Civ. Code, 1638; see Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264 ["If contractual language is clear and explicit, it governs"]; see also Hicks v. Whelan Drug Co. (1955) 131 Cal.App.2d 110, 114 [where lease terms are "clear, definite and certain, the language of the instrument governed" and extrinsic evidence of meaning was properly not considered].)

The lease identifies overage rent as a separate obligation from base rent, consisting of a percentage of the income the tenant receives from subtenantsi.e., "thirty-five percent (35%) of any gross rental income over $1.50 per square foot," with specified exceptions. This provision distinctly prescribes a calculation based on $1.50 per square foot, not $1.60 per square foot.

In Campagna's view, the $1.50 benchmark was intended to correspond to the measure of base rent and therefore must increase when base rent increases. He cites Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co. (1968) 69 Cal.2d 33 to support his reliance on the precept that extrinsic evidence may reveal a meaning of which a contract is reasonably susceptible. Accordingly, " '[e]ven if a contract appears unambiguous on its face, a latent ambiguity may be exposed by extrinsic evidence which reveals more than one possible meaning [of] which the language of the contract is yet reasonably susceptible.' [Citation.]" (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391.)

In these circumstances, however, the extrinsic evidence does not assist Campagna. He submitted an exhibit showing his calculations of overage rent derived from base rent of $9,600 per month6,000 square feet at $1.60 per square foot. No evidence was submitted demonstrating the contracting parties' intent to adjust the overage rent to corresponding increases in the base rental rate.

According to Campagna, if the overage rate did not track the adjustments of base rental to market rate, he would be forced to pay "rent on rent," an "absurd result." That absurdity, however, is rooted in its perceived unfairness to Campagna. There can be no dispute over the meaning of "$1.50 per square foot." Neither latent nor patent ambiguity inheres in that term, nor is it linguistically absurd or imprecise. Had either Arutunian or Stanford considered it unfair, there was ample opportunity to renegotiate this term when the lease was amended in 1986 and 1987. Instead, the contracting parties chose to keep it "in full force and effect," and their successors adhered to the 1987 version thereafter.[1] There was no showing of mistake, or even any assertion of that excuse below, so we cannot follow Campagna's brief suggestion on appeal that we find mutual mistake as a reason for reformation.[2]

" 'When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is "reasonably susceptible" [of] the interpretation urged by the party. If it is not, the case is over.' [Citation.]" (Dore v. Arnold Worldwide, Inc.supra, 39 Cal.4th at p. 393.) We have concluded that paragraph 16.3 is not reasonably susceptible of a meaning that differs from that conveyed by its plain language. As Campagna did not assert any other basis for changing the express language of the lease from $1.50 to $1.60 (or to any other figure based on a formula not defined in the parties' agreement), he is bound by its terms.

Gatley urges this court simply to modify the judgment to award it the amount it has claimed in overage. We decline to do so. The proper amount of overage depends on the rental income received from subtenants as well as any applicable adjustments. Those amounts are not for this court to determine in the first instance, but present factual questions that the superior court is fully capable of determining in its sound judgment based on the evidence before it. Contrary to Gatley's representation, the evidence on this question is not undisputed.

2. Prejudgment Interest

Although Gatley requested prejudgment interest, the trial court did not award any. Gatley contends that this was error, while Campagna maintains that Gatley waived such interest by failing to request a "specific dollar amount" or basis for calculating the award. Because prejudgment interest is an element of damages, Campagna argues, the opposing party is entitled to notice of the claimed amount and the basis for the claim. Alternatively, Campagna asserts that Gatley is not entitled to prejudgment interest because damages were not reasonably certain or capable of being calculated until the trial court was able to determine how much base rent was due; and that amount, as well as the resulting overage, could be determined only by a trial on disputed facts.

As to Campagna's first point, we find no waiver or forfeiture. Gatley was not required to specify the amount of prejudgment interest claimed in his repeated requests. "It has long been settled that, in a contested action, prejudgment interest may be awarded even though the complaint contains no prayer for interest." (Newby v. Vroman (1992) 11 Cal.App.4th 283, 286.) Where, as here, there is a general request for "such other and further relief as the Court may deem just and proper," such prayer "is sufficient for the court, on its own, to invoke its power to levy such prejudgment interest as it deems just and equitable." (Segura v. McBride (1992) 5 Cal.App.4th 1028, 1041; but see North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 829 [general prayer in complaint is adequate to support award of prejudgment interest, but request should be made before judgment or in motion for new trial].)

Neither Civil Code section 3287 nor the Rules of Court prescribe a noticed-motion procedure for recovery of prejudgment interest. We further note that Campagna anticipated the issue and submitted his own formula for determining the amount of prejudgment interest the court should award each party, consistent with his overpayments. Gatley in turn conceded that "Campagna is entitled to an offset  . . . plus prejudgment interest, against its obligation to pay overage rent to Gatley Properties in the amount of $244,299.69 . . . ." In our view, these acknowledgements were sufficient to avoid waiver of the statutory right to prejudgment interest.

As to the applicability of Civil Code section 3287 on these facts, we again disagree with Campagna. This statute provides that "[e]very person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt." This section "mandates an award of prejudgment interest where ' "the amount of the plaintiff's claim" ' can be determined by established market values or by computation." (Wisper Corp. v. California Commerce Bank (1996) 49 Cal.App.4th 948, 958; Levy-Zentner Co. v. Southern Pac. Transportation Co. (1977) 74 Cal.App.3d 762, 798.) " 'The policy underlying authorization of an award of prejudgment interest is to compensate the injured party -- to make that party whole for the accrual of wealth which could have been produced during the period of loss.' [Citation.]" (Great Western Drywall, Inc. v. Roel Const. Co., Inc. (2008) 166 Cal.App.4th 761, 767-768; North Oakland Medical Clinic v. Rogers, supra, 65 Cal.App.4th at p. 828 [purpose of prejudgment interest is to compensate the plaintiff for loss of use of his or her property].)

That the parties disputed the amount of rent due does not compel the inference that they were not certain or calculable; this was not an item of lost profits or emotional distress awaiting determination by a jury upon the evidence at trial, but an item of damages fixed by the terms of a contract. Neither denial of liability nor divergent theories of amounts owed make damages uncertain for purposes of Civil Code section 3287. As the appellate court observed in comparable circumstances, "The amount of the offset allowed to defendant was determined on the basis of conflicting evidence. However, that fact did not preclude allowance of prejudgment interest, for where the amount of a claim is certain, but is reduced by reason of an unliquidated setoff, interest properly is allowed on the balance found to be due from the time it became due. [Citations.] [] Since the requirement of Civil Code section 3287 regarding certainty of damages was met, plaintiffs were entitled, as a matter of right, to recover prejudgment interest on the sum awarded from the time such sum became due." (Leaf v. Phil Rauch, Inc. (1975) 47 Cal.App.3d 371, 376; compare Polster, Inc. v. Swing (1985) 164 Cal.App.3d 427, 435 [no interest award proper where damages depended on cost of repairs to leased property, no evidence of accurate repair estimates within a reasonable time after the loss, and large discrepancy between amount demanded and eventual award].)

We do not agree with Gatley, however, that this court is the appropriate forum for resolving the outstanding question of the appropriate amount of prejudgment interest accrued in this case. The trial court is eminently capable of performing this function after considering all the relevant facts adduced by the parties.

3. Effect of the Judgment on Arutunian

Gatley submits a precautionary argument opposing Arutunian's "contention" that the judgment did not "necessarily" pertain to him. Implicitly conceding the possibility of forfeiture by having failed to raise the issue earlier, Gatley invokes its "broadly-noticed appeal" to challenge the lower court's omission of Arutunian in the remand judgment. Gatley overstates Arutunian's position, however. In his respondent's brief Arutunian did not overtly contend that the judgment did not pertain to him; he merely pointed out that the judgment did not mention him, and stated that to the extent he was affected by the judgment, his position was identical to that of Campagna. To the extent that there is any confusion or disagreement about the applicability of the judgment, the trial court can address that issue on remand.

Disposition

The judgment is reversed, and the matter is remanded for redetermination of the amount of overage rent to which Gatley is entitled, consistent with the express language of paragraph 16.3 of the lease. The court is further directed to determine the appropriate amount of prejudgment interest to be awarded pursuant to Civil Code section 3287. Gatley is entitled to its costs for this appeal.

______________________________

ELIA, J.

WE CONCUR:

___________________________

PREMO, Acting P. J.

___________________________

MIHARA, J.

Publication courtesy of California pro bono lawyer directory.

Analysis and review provided by Chula Vista Property line Lawyers.

San Diego Case Information provided by www.fearnotlaw.com

[1] The March 1986 amendment acknowledged that overage rent had been forgiven through the end of that month but expressly stated that it would begin "on April 1, 1986 to continue through the term of the lease." The March 1987 amendment, in which the lease term was extended from 15 to 19 years, provided for adjustment of the base rent at the end of the 15th year, but otherwise stated that "all the terms, covenants and conditions of the Lease shall remain in full force and effect."

[2] In discussions about the overage issue after remand, Campagna's attorney did make the suggestion that the court "sit in equity and reform the contract to make it right," but he did not base that proposal on a theory of mistake. Instead, the focus of the parties' debate was on which meaning of the overage term was the more reasonable.