Hardage Hotels v. Crimi Mae Services
Filed 3/20/07 Hardage Hotels v. Crimi Mae Services CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
HARDAGE HOTELS I, LLC, Plaintiff and Appellant, v. CRIIMI MAE SERVICES LIMITED PARTNERSHIP, Defendant and Respondent. | D047870 (Super. Ct. No. GIC829102) |
APPEAL from a judgment of the Superior Court of San Diego County, Kevin A. Enright, Judge. Affirmed.
Hardage Hotels I, LLC (Hardage) sued Criimi Mae Services Limited Partnership (Criimi Mae), a special servicer under a $91 million loan agreement with Nomura Asset Capital Corporation (Nomura), for breach of contract, breach of fiduciary duty and conversion, alleging Criimi Mae wrongfully withdrew $73,000 of Hardage's funds from a third-party-controlled account established under the agreement for reimbursement of loan fees and expenses. The funds received by Criimi Mae were reimbursement for the cost of loan collateral appraisal, necessitated by a subsequent modification of the loan agreement. Hardage asserted it was not responsible for the appraisal costs under the terms of the loan modification agreement. On cross-motions for summary judgment, the trial court granted judgment in favor of Criimi Mae. It ruled that Hardage's claims failed as a matter of law because Hardage was contractually obligated to pay for the appraisals. Hardage appeals, contending that the trial court misinterpreted the applicable contractual language and that, in any event, extrinsic evidence submitted to the trial court created a triable issue of material fact, precluding summary judgment. We disagree and, for the reasons stated hereafter, affirm the judgment.
I
FACTS
Hardage owns and operates hotel properties throughout the United States. In 1995, Hardage obtained a loan of approximately $91 million from Nomura, pledging certain of its hotel properties as loan collateral. The terms of the loan were memorialized in an Amended and Restated Loan Agreement dated October 30, 1995 (the Loan Agreement).
The Loan Agreement required Hardage to pay a number of costs, fees and expenses related to the loan, including "all of the fees, costs and expenses incurred in connection with or otherwise relating to the issuance, sale and delivery of the Note," and "all fees, costs and expenses . . . on an initial and ongoing basis [of] any special servicer [and for] (vii) . . . appraisals." (Loan Agreement, 8.01, subd. (a)(vi).)
Nomura securitized and sold Hardage's loan to an issuer of mortgage pass-through certificates, which then assigned the loan to LaSalle Bank, N.A. (LaSalle Bank) as trustee for the holders of the subsequently issued pass-through certificates.
In the fall of 2002, Hardage informed LaSalle Bank that it would not be able to meet its obligations under the Loan Agreement, and requested renegotiation of the loan terms. On March 11, 2003, LaSalle Bank, through the loan's "special servicer" Criimi Mae, entered into a modification agreement with Hardage (the Modification Agreement).
The Modification Agreement contains three major articles: the first lists "Conditions Precedent" to the agreed-upon modifications; the second contains a "Reaffirmation and Modification" of the prior loan terms; and the third, entitled "Certain Specific Modifications to the Loan Documents," specifically amends certain terms of the Loan Agreement.
Article 1, paragraph (ii) (article 1(ii)) of the Modification Agreement states:
"Conditions Precedent. . . . [] (ii) On or before 2:00 p.m. (Eastern time) on the Effective Date, Borrower shall pay to Lender in immediately available funds, and Lender shall have confirmed its receipt of, an amount equal to all costs, fees and expenses (including attorneys' fees and expenses) of Lender incurred or to be incurred in connection with this Agreement and the transactions contemplated by this Agreement, not to exceed $15,000 inclusive of legal fees related to opinions of counsel related to REMIC issues."
Both the Loan Agreement and the Modification Agreement contain language stating that the written terms of the agreements constitute the entirety of the parties' agreement, and that "THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES."
After the Modification Agreement was signed, Criimi Mae obtained appraisals of the hotel properties that served as loan collateral. It then requested that the company that controlled Hardage's "cash collateral account" an account established by the loan agreements to process Hardage's payment of various fees and expenses relating to the loan disburse the costs of the appraisals to Criimi Mae. Approximately $73,000 was disbursed to Criimi Mae.
In April 2004, Hardage filed a complaint in the San Diego County Superior Court for breach of contract, conversion and breach of fiduciary duty, alleging Criimi Mae unlawfully withdrew $73,000 from the cash collateral account. The parties subsequently filed cross-motions for summary judgment, each contending that the Loan Agreement and Modification Agreement should be construed, as a matter of law, in their favor. The trial court granted Criimi Mae's motion.
The trial court ruled that section 8.01 of the Loan Agreement obligated Hardage to pay the ongoing fees and costs incurred by the special servicer of the loan, and that this provision was not altered by article 1(ii) of the Modification Agreement. Ergo, the court reasoned, Hardage was contractually obligated to pay for the appraisals obtained by Criimi Mae, and Hardage's claims for improper withdrawal of the funds failed. Hardage appeals.
II
DISCUSSION
Hardage contends that the trial court's interpretation of the relevant contractual language was erroneous on two separate grounds. First, it contends section 8.01 of the Loan Agreement is inapplicable because it covers only costs and expenses relating to the original (i.e., 1995) loan transaction (including securitization), as opposed to ongoing costs and expenses incurred by the loan servicer. Second, Hardage asserts even if section 8.01 could be interpreted to cover the appraisal costs, the section was implicitly changed by article 1(ii) of the Modification Agreement. According to Hardage, article 1(ii) caps at $15,000 any and all costs associated with modification of the loan.
We evaluate these contentions after setting forth the standard of review and applicable legal principles.
A. Standard of Review and Applicable Legal Principles
"[I]t is fundamental that a contract must be so interpreted as to give effect to the intent of the parties at the time the contract was entered into, and that whenever possible, that intention is to be ascertained from the writing alone." (Oakland-Alameda County Coliseum, Inc. v. Oakland Raiders, Ltd. (1988) 197 Cal.App.3d 1049, 1057 (Oakland-Alameda County Coliseum).) In ascertaining the parties' intent, the language of a contractual provision should not be interpreted in isolation, but rather must be viewed in light of related contractual provisions in the same agreement; an interpretation of contractual language that renders other language in the same agreement meaningless or superfluous is to be avoided. (Civ. Code, 1641 ["The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other"]; 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, 745, 750, pp. 833, 840 [" 'an interpretation [of a contract] which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful or of no effect' "]; Muzak Corp. v. Hotel Taft Corp. (1956) 1 N.Y.2d 42, 46 [133 N.E.2d 688, 690] ["The rules of construction of contracts require us to adopt an interpretation which gives meaning to every provision of a contract or, in the negative, no provision of a contract should be left without force and effect"].)[1]
The proper interpretation of a written contract "is essentially a judicial function," and thus is readily susceptible to resolution on a motion for summary judgment. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) "Where the interpretation of contractual language turns on a question of the credibility of conflicting extrinsic evidence," however, it becomes "the jury's responsibility to resolve any conflict in the extrinsic evidence properly admitted to interpret the language of a contract," precluding summary judgment. (Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912-913; 1 Witkin, Summary of Cal. Law, supra, Contracts, 741, pp. 827-829.)
Our review of the trial court's interpretation of a contract, as well as its grant of summary judgment, is de novo. (Chevron U.S.A., Inc. v. Bragg Crane & Rigging Co. (1986) 180 Cal.App.3d 639, 643, fn. 3 (Chevron).)
B. Section 8.01 of the Loan Agreement Is Most Reasonably Interpreted to Include the Appraisals as Ongoing Costs of the Special Servicer
The trial court ruled "as a matter of law" that Hardage was obligated under section 8.01, subdivision (a)(vi) and (vii) of the Loan Agreement to pay for the appraisals obtained by Criimi Mae. Hardage disputes the trial court's interpretation of section 8.01, arguing that the section does not cover ongoing cost of appraisals, but "is most reasonably read to relate" only "to costs and expenses [of] the issuance, sale and delivery of the Note and the initial securitization." We disagree.
Section 8.01 states that Hardage must pay "all of the fees, costs and expenses incurred in connection with or otherwise relating to the issuance, sale and delivery of the Note, . . . and the initial Securitization . . . , and all fees, costs and expenses of[,] on an initial and ongoing basis, . . . any special servicer." (Loan Agreement, 8.01, subd. (a)(vi), italics added.) As the italicized language shows, section 8.01, subdivision (a)(vi) is not limited to the initial loan transactions, but explicitly obligates Hardage to pay the "fees, costs and expenses" of the special servicer "on an initial and ongoing basis." (Loan Agreement, 8.01, subd. (a)(vi), italics added.) As it is not disputed that Criimi Mae is the "special servicer" for Hardage's loan, and that the disputed appraisals were a fee, cost or expense that Criimi Mae incurred in connection with that role,[2]this clear and unambiguous provision obligates Hardage to pay for those appraisals. (Pardee Construction Co. v. Insurance Co. of the West (2000) 77 Cal.App.4th 1340, 1352 [where "the language of the . . . contract is clear and explicit, it governs"].)
C. Article 1(ii) of the Modification Agreement Does Not Modify Section 8.01 of the Loan Agreement
Hardage next contends that even if section 8.01 of the Loan Agreement would have obligated it to pay for the appraisals ordered by Criimi Mae, that section was implicitly modified by article 1(ii) of the Modification Agreement. Hardage argues that article 1(ii) was intended to "limit and liquidate Hardage's costs arising out of forbearance and modification of the loan," and because the Modification Agreement "takes precedence" over the Loan Agreement, article 1(ii) relieves Hardage of any obligation it might otherwise have had to pay for the appraisals under section 8.01.
In rejecting Hardage's argument, the trial court ruled that article 1(ii) of the Modification Agreement "is a condition precedent which only governed whether the Modification Agreement would take effect. It does not alter the terms of the Loan Agreement. That is the function of articles 2 and 3 of the Modification Agreement, neither of which mentions [section] 8 of the Loan Agreement." We agree with the trial court's interpretation of the documents.
Article 1(ii) of the Modification Agreement does not signal any intent to modify section 8.01 of the Loan Agreement and there is likewise no other provision in the Modification Agreement that indicates any such intent. In fact, section 8.01 is not mentioned anywhere in the Modification Agreement. This omission is particularly significant because article 3 of the Modification Agreement, which is titled "Certain Specific Modifications to the Loan Documents," specifically enumerates numerous sections of the Loan Agreement that the parties intended to modify and specifies the precise modifications intended. (See, e.g., Modification Agreement, art. 3, par. (b)(iii) ["Section 3.9(a)(6) of the Loan Agreement is hereby deleted and replaced with the following"].)
In addition, if, as Hardage contends, the parties intended to modify the terms of section 8.01, it would be anomalous for the provision evidencing that intent to appear, as paragraph (ii) does, in article 1 of the Modification Agreement. As the trial court emphasized, article 1 is not the portion of the Modification Agreement that contains modifications to the Loan Agreement, but is instead the location of conditions precedent to loan modification. Article 1 is explicitly titled "Conditions Precedent" and states in unambiguous terms that the provisions, such as article 1(ii), that are included there "shall be Conditions Precedent to the . . . effectiveness of this Agreement." The Modification Agreement further specifies the function of the "Conditions Precedent," stating that "[e]ach Condition Precedent must be fully, timely and properly satisfied . . . for this Agreement to become effective . . . ." (Modification Agreement, art. 6, par. (b); see generallyCiv. Code, 1439 ["Before any party to an obligation can require another party to perform any act under it, he must fulfill all conditions precedent thereto imposed upon himself "].)
Hardage argues that despite the unambiguous language of the Modification Agreement supporting the trial court's interpretation, that interpretation is erroneous because it renders portions of article 1(ii) "meaningless and unenforceable."[3] Hardage contends that the sole "reasonable interpretation of [article] 1(ii)" is that "the only portion that is truly a condition precedent is the payment of the $15,000," and that upon payment of the $15,000, the remainder of article 1(ii) "is activated," resulting in a $15,000 cost cap on Hardage's contractual cost obligations.
Hardage's argument is without merit. Article 1(ii) does not state that Hardage is to pay $15,000 as a condition precedent, but rather that Hardage's condition precedent payment is "not to exceed $15,000." (Italics added.) The article then sets out a formula for determining the exact amount of the payment. The formula (an amount equal to "all costs, fees and expenses . . . of Lender incurred or to be incurred in connection with this Agreement") includes the statement that the identified amount is "not to exceed $15,000," but, as the trial court determined, it is the condition precedent payment, not the reimbursable costs themselves, that is "not to exceed $15,000."[4]Contrary to Hardage's argument, the trial court's interpretation of article 1(ii) gives effect to all of the language of the article and, in light of the surrounding contractual language and the article's placement, is the more reasonable interpretation of the parties' intent.
Finally, any lingering doubt about the intended meaning of article 1(ii) is removed by article 6, paragraph (b) of the Modification Agreement. That paragraph specifies that each of the contractual provisions labeled as " 'conditions precedent' " may be waived by the Lender (i.e., LaSalle Bank/Criimi Mae) "in its sole and absolute discretion" at any time.[5] This unambiguous provision permitting LaSalle Bank/Criimi Mae unlimited discretion to waive article 1(ii) makes no sense if that article is, as Hardage contends, a cost cap inserted into the Modification Agreement for Hardage's benefit.
In sum, by interpreting article 1(ii) as solely a condition precedent, and not as a substantive cost cap, the trial court: (i) gave meaning to all of the terms used in the article; (ii) harmonized the article's language with the surrounding contractual provisions, including the waiver provision in article 6, paragraph (b); (iii) reconciled its conspicuous labeling as a "Condition Precedent" and placement in article 1 (as opposed to articles 2 and 3); and (iv) explained the otherwise incongruous failure to make explicit any purported modification of section 8.01 of the Loan Agreement. By contrast, Hardage's interpretation of the provision as a substantive modification of the Loan Agreement that imposed a $15,000 cost cap creates irreconcilable conflicts and internal inconsistencies on each of these points. Given these circumstances, we are required by the basic tenets of contract construction to adopt the trial court's interpretation of article 1(ii) over the alternative interpretation urged by Hardage.[6]
D. The Extrinsic Evidence Highlighted by Hardage Does Not Create an Issue of Material Fact Precluding Summary Judgment
Although Hardage states that the intent of "the Modification Agreement is clear," and "extrinsic evidence is unnecessary" to its interpretation, Hardage also attempts to support its interpretation of the agreement with extrinsic evidence. Hardage highlights three declarations "provid[ing] factual information concerning the circumstances of the Modification Agreement" that it believes support its interpretation of the agreement, and at the "very least" raise "triable issues of material fact" concerning the "meaning" of article 1(ii).
The declarations highlighted by Hardage contain statements by Hardage executives that "[a]n important part of the negotiations" that resulted in the Modification Agreement was the "costs and expense to Hardage of modifying the loan"; and that Hardage "wanted to make certain that its costs were liquidated so that it could determine precisely the costs of forbearance and modification"; and the parties "agreed that the costs would not exceed $15,000."
Hardage's contention that these declarations precluded summary judgment is without merit. Where a summary judgment ruling depends on the interpretation of a contract, the mere presence of extrinsic evidence does not create a triable issue of fact for the jury. It is only when extrinsic evidence creates a factual conflict that jury resolution of that conflict is required prior to judicial interpretation of the agreement. (Chevron, supra, 180 Cal.App.3d at p. 643, fn. 3 ["conflicting evidence as to the parties' intent" does not create an issue of fact where "[t]he evidentiary facts themselves are not in conflict" and "[t]he parties only disagree about the inferences to be drawn"].)
Here, the "evidentiary facts" are not in conflict and thus the extrinsic evidence highlighted by Hardage does not create a material issue of fact precluding summary judgment. (Chevron, supra, 180 Cal.App.3d at p. 643, fn. 3.) Instead, to the extent the evidence is admissible at all, it serves only to inform our judicial determination of the meaning of the contract. (Ibid.; Okun v. Morton (1988) 203 Cal.App.3d 805, 816 [where "parol evidence was admitted to explain the context [of the] agreement [that] cast light on the[] original intent and the meaning of Paragraph 9," and the parties "dispute the inferences to be drawn from this evidence, the evidentiary facts themselves are not in substantial conflict," and the court would "therefore review the pertinent provisions of the contract in the context of the extrinsic evidence and make an independent determination of the meaning of the agreement"]; Medical Operations Management, Inc. v. National Health Laboratories, Inc. (1986) 176 Cal.App.3d 886, 892 [same].)
As we have stated, our interpretation of the pertinent contractual language is that the parties' mutual intent as expressed by their integrated writing was that Hardage would be obligated to pay for ongoing costs of a special loan servicer, including the appraisals at issue here. The declarations of Hardage executives attesting that they intended something different from what was expressed in the written agreement cannot alter that conclusion. (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 343, 345 [extrinsic evidence may be introduced " 'to explain the meaning of a written contract . . . [if] the meaning urged is one to which the written contract terms are reasonably susceptible,' " but cannot be used to " 'add to, detract from, or vary the terms of ' " an integrated agreement]; cf. Oakland-Alameda County Coliseum, supra, 197 Cal.App.3d at p. 1057 ["it is fundamental that a contract must be so interpreted as to give effect to the intent of the parties at the time the contract was entered into, and that whenever possible, that intention is to be ascertained from the writing alone"].)[7]
DISPOSITION
Affirmed.
IRION, J.
WE CONCUR:
McCONNELL, P. J.
HALLER, J.
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Analysis and review provided by San Diego County Property line attorney.
[1] The parties also raise an issue as to whether New York or California law should apply. We need not, and do not, resolve this question as the parties rely on California and New York case law interchangeably in making their arguments, reference no dispositive distinction between California and New York law, and agree that the result would be the same regardless of which state's law is applied.
[2] Hardage concedes that Criimi Mae is the loan's special servicer and that the modification of the loan triggered an obligation to perform the appraisals. The fact that the appraisals were not ordered immediately upon modification, does not alter the fact that the appraisals were nonetheless a contractually required duty of Criimi Mae as special servicer.
[3] Specifically, Hardage contends that the portion stating " 'all costs, fees and expenses . . . incurred or to be incurred in connection with this Agreement and the transactions contemplated by this Agreement' " would be rendered meaningless and unenforceable.
[4] The reference in article 1(ii) to "all costs . . . incurred or to be incurred " is not inconsistent with an interpretation of article 1(ii) as a condition precedent. (Italics added.) The reference to costs "to be incurred" is most reasonably interpreted as a benefit for the Lender allowing Lender to include contemplated costs not yet incurred in the upfront reimbursement of costs by Hardage, while not necessarily precluding the reimbursement of additional costs at a later date.
[5] Article 6, paragraph (b) of the Modification Agreement states: "Each and every item referred to herein as a 'condition precedent' or as 'conditions precedent' or words of similar import or meaning shall collectively be defined or as otherwise as used herein, as 'Conditions Precedent.' Each Condition Precedent must be fully, timely and properly satisfied by Borrower for this Agreement to become effective in any respect, however, Lender shall have the right to waive, in its sole and absolute discretion, any Condition Precedent at any time and from time to time."
[6] Although unnecessary to our decision, we note that article 3, paragraph (b)(vi) of the Modification Agreement which explicitly obligates Hardage to pay " '[a]ny special servicing fee' " of Criimi Mae provides additional support for the trial court's interpretation.
[7] As we affirm the trial court's ruling on the ground that it properly interpreted the contract in Criimi Mae's favor, we need not address the alternate ground of affirmance urged by Criimi Mae that Criimi Mae was an agent of a disclosed principal, not a contracting party, and therefore could not be liable for breach of contract.
