12400 Stowe Drive, LP v. Cycle Express, LLC

12400 STOWE DRIVE, LP, Plaintiff, Cross-Defendant, and Appellant, v. CYCLE EXPRESS, LLC, Defendant, Cross-Complainant, and Appellant.

D069738

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

September 28, 2018

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super. Ct. No. 37-2014-00023051-CU-MC-CTL)

APPEALS from a judgment of the Superior Court of San Diego County, Timothy B. Taylor and Joel R. Wohlfeil, Judges. Affirmed.

Law Office of Johanna S. Schiavoni and Johanna S. Schiavoni for Plaintiff, Cross-Defendant, and Appellant.

Dentons US, Charles A. Bird; Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo and Antony M. Nash for Defendant, Cross-Complainant, and Appellant.

This appeal involves a dispute between a commercial landlord, 12400 Stowe Drive, LP (Stowe), and its tenant, Cycle Express, LLC (Cycle). The parties' lease granted Cycle an option to renew the lease when it expired, with rent set at a discounted percentage of the property's fair market rental value. Cycle renewed the lease, but the parties disagreed about the property's fair market rental value and Cycle's rent obligations. Thus, Stowe brought this action against Cycle, requesting catch-up rent, accounting, and ejectment. Cycle filed cross-claims against Stowe, alleging that the roof of the property leaked water each time that it rained and, as a result, Stowe breached its obligations under the lease.

After a bench trial, the trial court concluded that the fair market rental value of the property was $106,500 per month or $6.39 million over the course of the five-year lease renewal period, which entitled Stowe to just $338,750 in damages—far less than the $2.9 million Stowe sought. As for Cycle's cross-complaint, the trial court found that Stowe breached the lease by delivering a defective roof and awarded Cycle $32,960 in damages. The court denied both parties' motions for attorney fees and Cycle's request for prejudgment interest.

Stowe appeals the judgment, arguing that (1) the trial court erroneously precluded one of its proposed valuation experts from testifying, and (2) substantial evidence does not support the court's fair market rental value finding. Stowe also challenges the trial court's ruling that it breached the lease, contending that (1) the statute of limitations forecloses Cycle's claim, (2) Cycle is estopped from asserting any breach of the lease, (3) the lease requires Cycle to provide notice about defects within the first 30 days of thelease period and Cycle failed to do so, (4) the lease exculpates Stowe from liability, (5) any breach of the lease was attributable to the prior lessor of the property, and (6) the roof was not defective. Both parties also challenge the trial court's denial of their requests for attorney fees and Cycle appeals the court's denial of its request for prejudgment interest.

We find no error in the trial court's rulings. Accordingly, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

I. The Lease

In 2009, DEI, LLC (DEI) leased a 133,125-square-foot industrial park and an adjacent 112,830-square-foot vacant parcel of land (together, the Premises) to Cycle. The five-year lease (the Lease) began on June 1, 2009 and set a base monthly rent of $106,613, with annual upward adjustments. It also had an addendum granting Cycle an option to extend the Lease for three additional five-year periods at 95 percent of the Premises' fair market rent.

Paragraph 2.2, at the beginning of the Lease¹ (under the heading "Condition"), states that the Premises "shall be in good operating condition" and "the structural elements of the roof . . . shall be free of material defects." It also establishes a 30-day period, during which the lessor (initially DEI, and later Stowe, see post) is required to rectify any defects of which it is notified. Paragraph 58 (under the heading "Condition of Facility") further states that the lessor must "deliver" the Premises to Cycle with the roof "in good working order."

Subject to these provisions, Paragraph 7.1 (under the heading "Lessee's Obligations") requires Cycle to keep the Premises, including its roof, "in good order, condition and repair" at its "sole expense," regardless of the reason(s) why the need for the repair arises. If Cycle fails to perform its duties, the lessor has a right, upon notice, to perform repairs and seek reimbursement from Cycle.

Finally, Paragraph 8.8 (under the heading "Exemption of Lessor and its Agents from Liability") exculpates the lessor from liability as follows: "Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for . . . injury or damage to the persons or goods, wares, merchandise or other property of Lessee . . . whether such damage or injury is caused by or results from . . . water or rain . . . [or] leakage . . . or [for] injury to Lessees' business or for any loss of income or profit therefrom."

II. The Roof Dispute

Shortly before the start of the Lease, DEI paid for the installation of a new roof on the Premises. Because the roof was new, Cycle believed it was in "great condition." However, Cycle noticed water leaking from the roof on September 21, 2009, 112 days after the Lease began.

At Cycle's request, DEI—acting through its property manager, Greene Properties (Greene)—contacted the general contractor that oversaw the roof installation. The general contractor investigated the site and concluded that birds pecking holes in the roof's foam membrane caused the leaks. The general contractor then contacted its subcontractor to attempt a repair. The repair proved unsuccessful and new leaksemerged. As each new leak manifested, Cycle contacted Greene, which coordinated with the subcontractor to attempt a repair. At no time during these repair efforts did Stowe inform Cycle that it bore responsibility for the leaks.

Yet another roof leak emerged in May 2010 and, on this particular occasion, Cycle—rather than asking Greene to coordinate the repair—obtained a repair quote from a new roof contractor. Before engaging the contractor, Cycle asked Greene to approve the repair bid. Greene advised Cycle to "proceed with [the] repair," stated that it would "absorb [the] cost," and reimbursed Cycle when Cycle paid out-of-pocket for the repair.

Stowe acquired ownership of the Premises, as well as DEI's obligations under the Lease, in December 2010. Stowe and DEI share common ownership—specifically, Darrell Issa and Katharine Issa are the members and owners of DEI, DEI is a general partner in Stowe, and the Issas are limited partners and co-owners of Stowe. The Issas are also the founders, owners, and officers of Greene, the property manager. Neither Stowe nor DEI have any employees, and Stowe, DEI, and Greene all use the same office. When DEI transferred the Premises to Stowe, there was no exchange of money between DEI and Stowe. In Darrell Issa's words, the transfer of the Premises to Stowe was a "simple movement of an asset from one entity owned by the same people to another entity owned by the same people."

On January 16, 2012, Cycle notified Greene the roof was still leaking, despite the repair efforts that had been undertaken. Greene offered to contact its roofing subcontractor, as it had in the past, and also referred Cycle to Paragraph 7.1 of the Lease (requiring Cycle to keep the Premises "in good order, condition and repair"). Although itquoted Paragraph 7.1, Greene never advised Cycle that it believed the roof repair constituted a maintenance issue for which Cycle was responsible. In fact, Greene coordinated with the subcontractor to perform the repair and told Cycle the subcontractor would get "the roof squared away."

When leaks persisted in 2013, Greene contacted a different roofing contractor to provide a repair estimate. Due to the extensive damage the roof exhibited, the contractor recommended that Stowe replace the roof. Greene approved a multi-phase roof replacement project, paid for the initial phases of the project (totaling $32,960), and on June 13, 2014, invoiced Cycle for all roof replacement costs. Cycle paid Stowe's invoices under protest.

III. The Estoppel Certificate

In October 2011, as part of an attempt to refinance the Premises, Stowe (through Greene) asked Cycle to execute an estoppel certificate. Greene informed Cycle the estoppel certificate "in no way alter[ed] [the] lease or [Cycle's] relationship" with Stowe, and instead "provide[d] certain rights to [Stowe's] bankers" at Union Bank, N.A. (the Bank) in connection with an anticipated refinancing plan.

In the estoppel certificate, Cycle represents to the Bank as follows: (1) Cycle "accepted the Premises and all construction of improvements required to be performed or paid by [Stowe] under the Lease has been completed"; (2) to the best of Cycle's knowledge, "[n]o default, or any event or condition which with the passing of time or giving of notice, or both, would constitute a default . . . exists under the Lease"; and (3) to the best of Cycle's knowledge, "no claim against [Cycle] or dispute exists between[Cycle] and [Stowe] under the Lease." As requested, Cycle executed the estoppel certificate.

IV. The Valuation Dispute

In 2013, as the Lease neared its expiration, Cycle exercised its option to renew the Lease. As noted, the Lease sets Cycle's rent during the renewal period at 95 percent of the fair market rental value of the Premises. When Cycle exercised its renewal option, it informed Stowe that it had procured an appraisal and believed the monthly rental rate calculated from the fair market rental value was $99,843.75. Stowe disputed this assessment, conducted its own...