KJ-Park, LLC v. Match Grp.

1

KJ-PARK, LLC, Plaintiff, v. MATCH GROUP, LLC, et al., Defendants

No. 23-cv-02346-VKD

United States District Court, N.D. California, San Jose Division

September 3, 2024

ORDER RE PARTIES' MOTIONS FOR SUMMARY JUDGMENT AND DENYING AS MOOT CERTAIN MOTIONS TO EXCLUDE EXPERT TESTIMONY

RE: DKT. NOS. 97, 99, 100, 104

Virginia K. DeMarchi United States Magistrate Judge

This federal diversity action arises out of a commercial lease agreement for a three-story building located at 2555 Park Boulevard in the City of Palo Alto, California (“City”).^[1] Plaintiff KJ-Park, LLC (“KJ-Park”) claims that defendants Match Group LLC and Match Group, Inc. (collectively “defendants” or “Match Group”) breached the lease agreement and a guaranty, and owe KJ-Park at least $6,986,605 in damages, plus additional unpaid rent. See Dkt. No. 72. The key disputed issue is whether Match Group properly terminated the lease agreement.

KJ-Park now moves for partial summary judgment on its claims and on Match Group's affirmative defenses of mistake, fraud in the inducement, illegal purpose, and frustration of purpose. KJ-Park principally contends that it obtained a “vested legal right” to use the entire three-story building as an office well before the parties entered into the lease agreement, regardless of any position to the contrary asserted by the City, and that Match Group therefore had no right to terminate the lease agreement on the basis that KJ-Park failed to deliver premises that complied with the City's retail ordinance. Dkt. Nos. 100, 114. Match Group opposes KJ-Park's motion for partial summary judgment. Dkt. No. 106.

Match Group also moves for summary judgment in its favor on KJ-Park's claims for breach of contract and breach of guaranty, as well as Match Group, LLC's counterclaims for breach of contract and for monies had and received, and Match Group's affirmative defenses of mistake and frustration of purpose. Match Group contends that the City applied its retail ordinance to preclude or delay approval for the lawful occupancy and use of the subject property as office space on all three floors until well after KJ-Park was contractually obliged to deliver the premises to Match Group. Match Group, LLC claims that KJ-Park owes more than $300,000 for rent, expenses, vendor costs, and security regarding the subject property. Dkt. Nos. 97, 113. KJ-Park opposes Match Group's summary judgment motion. Dkt. No. 107.

Upon consideration of the parties' respective moving and responding papers, as well as the oral arguments presented, the Court grants in part and denies in part KJ-Park's motion for partial summary judgment, and grants in part and denies in part Match Group's motion for summary judgment.^[2]

I. BACKGROUND

Unless otherwise indicated, the following facts are undisputed.

In September 2013, a prior property owner submitted an application to the City for permission “to [a]llow the [d]emolition of an [e]xisting 10,800 sq. ft. [t]wo-[s]tory [m]id-[c]entury [m]odern [o]ffice [b]uilding and [c]onstruction of a [n]ew 24,466 sq. ft. [t]hree-[s]tory [o]ffice [b]uilding,” with “[o]ne [l]evel of [b]elow [g]rade [p]arking and a [r]oof [t]errace . . . [l]ocated in the Community Commercial (CC(2)) [z]one [d]istrict at 2555 Park Boulevard.” Dkt. No. 101 ¶ 8, Ex. F at ECF 2, 3, 4, 7, 9, 10, 12-13; Dkt. No. 101 ¶ 5, Ex. C (Reich Dep. at 26:4-11). On October 16, 2014, after reviewing the application, the City's Architectural Review Board recommended that the City Council approve the project. See Dkt. No. 101 ¶ 5, Ex. C (Reich Dep. at 30:1031:24) & Ex. E; see also generally id. ¶ 3, Ex. A (Lait Dep. at 36:18-40:15). An Environmental Impact Report was also prepared and considered. See Dkt. No. 101 ¶ 8, Ex. F at ECF 95-223.

On June 1, 2015, the City Council approved a Record of Land Use Action (“RLUA”) “certify[ying] the Environment Impact Report,” and “approv[ing] the Architectural Review for a three story office building in the Community Commercial (CC(2)) zone district[.]” See Dkt. No. 101 ¶¶ 8-10, Exs. F-H; see also id. ¶ 3, Ex. A (Lait Dep. at 41:3-14, 47:7-49:4, 51:5-15). The RLUA granted a one-year term of approval, or entitlement, with respect to the project through June 1, 2016. Id. ¶ 9, Ex. G at ECF 33. The RLUA stated that “[i]n the event actual construction of the project is not commenced within one year of the date of council approval, the approval shall expire and be of no further force or effect pursuant to the [City Municipal Code].” Id. Jonathan Lait, the City's current Director of Planning and Development Services,^[3] testified in deposition that the RLUA documented the City's findings that the proposed project met applicable standards in the zoning code, “allows offices to be built in this building,” and “authorizes the office to be located at the building,” while “the land uses that go into that building would be subject to the permitted land uses of the zoning code.” Dkt. No. 101 ¶ 3, Ex. A (Lait Dep. at 52:16-23; 53:6-7, 15-16; 53:23-54:9). While Mr. Lait further testified that the RLUA was the last discretionary approval required for “the building shell and design,” the RLUA itself required the property owner to apply for a building permit. Dkt. No. 101 ¶ 3, Ex. A (Lait Dep. at 48:9-12, 16-23); Dkt. No. 101 ¶ 9, Ex. G at 9.

The RLUA's “Conditions of Approval” include a requirement by the City's Department of Planning and Community Development that the property owner submit plans for a building permit “in substantial conformance with the plans received on October 16, 2014, except as modified to incorporate the [Conditions of Approval], and any additional conditions placed on the project by the Planning Commission, Architectural Review Board, or City Council.” Dkt. No. 101 ¶ 9, Ex. G at 9. According to Mr. Lait, this section meant that “any substantial changes to the project may require additional discretionary action review,” and that “the project can't change substantially from what was approved.” Dkt. No. 101 ¶ 3, Ex. A (Lait Dep. at 51:19-52:8). The RLUA also contains an “Additional Conditions” provision and a separate “Standard Conditions” section, which both state, “The approved use and/or construction are subject to, and shall comply with, all applicable City ordinances and laws and regulations of other governmental agencies.” Dkt. No. 101 ¶ 9, Ex. G at ECF 32, 34.

Several months later, the City Council passed Ordinance No. 5358 (“Ordinance”), which amended retail zoning regulations for the CC(2) zoning district, where the subject Park Boulevard property is located. See Dkt. No. 97-1 ¶ 4, Ex. 3. The Ordinance went into effect on November 26, 2015 and essentially requires retail use on the ground floor of buildings within the zoning district. See id.; see also Dkt. No. 97-1 ¶ 7, Ex. 6 (Lait Dep. at 121:18-22, 176:8-12). The Ordinance provides that “[l]awful conforming permitted uses or conditional uses operating pursuant to a conditional use permit which were existing on April 26, 1984 may remain as grandfathered uses and shall not require a conditional use permit or be subject to the provisions of [Municipal Code] Chapter 18.70 [concerning “Nonconforming Uses and Noncomplying Facilities”].” Dkt. No. 97-1 ¶ 4, Ex. 3. Otherwise, the Ordinance provides for a request for “waiver or adjustment” of the Ordinance, which would require action by the City Council:

(a) Economic Hardship. An applicant may request that the requirements of this Ordinance be adjusted or waived only upon a showing that applying the requirements of this Ordinance would effectuate an unconstitutional taking of property or otherwise have an unconstitutional application to the property.

(b) Documentation. The applicant shall bear the burden of presenting substantial evidence to support a waiver or modification request under this Section and shall set forth in detail the factual and legal basis for the claim, including all supporting technical documentation. Any request under this section shall be submitted to the Planning and Community Environment Director together with the fee specified in the municipal fee schedule and an economic analysis or other supporting documentation. A request under this section shall be acted upon by the City Council.

Id. at 6.

KJ-Park purchased the subject property in August 2016, more than eight months after the Ordinance went into effect. Dkt. No. 102 ¶ 2. KJ-Park was aware of the Ordinance since at least March 2016, when the prior property owner provided KJ-Park with information about the Ordinance. See Dkt. No. 97-1 ¶ 19, Ex. 18.

On May 27, 2016, about two months prior to KJ-Park's purchase of the property, the City approved a one-year extension of the RLUA for the project, giving KJ-Park until June 1, 2017 to begin construction. See Dkt. No. 102 ¶ 6, Ex. 2; see also id. ¶ 7, Ex. 3. The extension noted that “the original findings and conditions for this project are still applicable, as indicated in the [RLUA].” Dkt. No. 102 ¶ 6, Ex. 2. The record presented does not indicate whether the request for the extension referred to the Ordinance or its potential application to the subject property or project. The City's letters confirming the extension do not contain any such language. See id. ¶¶ 6, 7, Exs. 2, 3.

On November 16, 2016, the City's Planning Department advised that KJ-Park's building permit was in “ready to issue” status. On that same day, KJ-Park paid the City $478,705.17 in development impact fees. Dkt. No. 102 ¶ 8, Exs. 4, 5.

In January 2017, KJ-Park applied for a building permit and paid an additional $149,202.78 in permit fees. Dkt. No. 102 ¶ 9, Ex. 6. On January 19, 2017, the City issued a building permit for a “N[ew] W[arm] S[hell] F[or] T[hree] S[tory] C[ommercial] 23,853 S[quare] F[oot] B[uildin...