SVAP III Poway Crossings, LLC v. Fitness Int'l, LLC

87 Cal.App.5th 882

303 Cal.Rptr.3d 863

SVAP III POWAY CROSSINGS, LLC, Plaintiff, Cross-defendant and Respondent,

v.FITNESS INTERNATIONAL, LLC, Defendant, Cross-complainant and Appellant.

D079903

Court of Appeal, Fourth District, Division 1, California.

Filed January 20, 2023

Schwartz Semerdjian Cauley & Evans, Dick A. Semerdjian, John A. Schena, San Diego; Klehr Harrison Harvey Branzburg and A. Grant Phelan for Defendant, Cross-complainant and Appellant.

Pryor Cashman, Benjamin S. Akley, Los Angeles, Todd E. Soloway and Rachel E. Shaw for Plaintiff, Cross-defendant and Respondent.

Hodel Wilks, Fred L. Wilks, Irvine, for DDRM Hilltop Plaza L.P. as Amicus Curiae on behalf of Plaintiff, Cross-defendant, and Respondent.

BUCHANAN, J.

Defendant and cross-complainant Fitness International, LLC (Fitness) appeals from a judgment entered in favor of plaintiff and cross-defendant SVAP III Poway Crossings, LLC (SVAP) on SVAP's breach of contract claim for Fitness's non-payment of rent under the parties' lease. Fitness contends that the trial court erred in granting summary judgment because its obligation to pay rent was excused due to the COVID-19 pandemic and resulting government orders prohibiting it from operating its fitness facility for several months. Specifically, Fitness contends that the court should have found that the obligation to pay rent was excused based on: (1) SVAP's own material breach of the lease; (2) the force majeure provision in the lease; (3) Civil Code section 1511 ;¹ (4) the doctrines of impossibility and impracticability; and (5) the doctrine of frustration of purpose. We conclude that these contentions lack merit and affirm the judgment in favor of SVAP.

FACTUAL AND PROCEDURAL BACKGROUND

A. Lease for Premises at Poway Shopping Center

SVAP is the owner and landlord of the building commonly known as the Poway Shopping Center. Fitness is a California limited liability company renting certain space in the shopping center pursuant to a retail lease between the parties. The lease is dated as of June 12, 2002, as amended, and provides Fitness the right to occupy the premises for a period of fifteen years, subject to three five-year renewals. The parties later extended the initial term of the lease to October 31, 2025.

B. COVID-19 Pandemic and Resulting Government Orders and Closures

In March 2020, California Governor Gavin Newsom proclaimed a State of Emergency in California due to the threat of COVID-19. Soon after, he issued an executive order placing limitations on residential and commercial evictions for non-payment of rent. The order also stated, however, that it did not relieve a tenant of the obligation to pay rent, nor restrict a landlord's ability to recover rent due. Governor Newsom also issued an executive order directing all California residents to follow the State public health directive to stay home or at their place of residence, with certain exceptions, and directing all non-essential businesses to immediately cease operating to prevent further spread of COVID-19. Gyms and fitness centers were included in the category of non-essential businesses.

Because the government orders made it temporarily illegal for Fitness to operate its health club and fitness center at the premises, it ceased doing so in March 2020. Fitness was intermittently unable to operate its health club and fitness facility for certain periods from March 2020 through March 2021 due to government closure orders.

C. Complaint and Cross-Complaint

In May 2020, SVAP sued Fitness for breach of contract based on defendant's non-payment of rent. The complaint alleged that Fitness had defaulted on its obligations pursuant to the lease by failing to pay rent for April and May 2020, Fitness remained in occupancy of the premises, and SVAP had not terminated the lease. SVAP further alleged that it had performed or was excused from performing all its obligations under the lease. The complaint sought damages from Fitness for the outstanding rent payments, late payment service charges, interest, and attorneys' fees and costs. SVAP attached the parties' lease and its three amendments to the complaint.

Fitness filed an answer asserting 37 affirmative defenses to the complaint, including the equitable doctrines of frustration of purpose, impossibility, and impracticability. Fitness also filed a cross-complaint against SVAP for breach of contract, breach of the covenant of good faith and fair dealing, declaratory judgment, specific performance, and promissory estoppel. Fitness alleged that the essential purpose of the lease was for Fitness to operate a full-service health club and fitness facility in the premises, but it was impossible for Fitness to do so for several months because of the COVID-19 pandemic and resulting closure of the premises in response to government orders. According to the cross-complaint, Fitness's inability to use the premises as a full-service health club and fitness facility meant it was not required to pay rent during the closure periods.

Fitness also alleged that SVAP breached the contract by failing to provide Fitness a credit for rent paid, failing to comply with the lease's provisions regarding rent abatement, and violating various other representations, warranties, and covenants by SVAP to Fitness in the lease. The cross-complaint further alleged that SVAP acted in bad faith by demanding payment under the lease and filing its lawsuit against Fitness. Fitness sought a judgment declaring, among other things, that it was not required to pay rent for the closure periods. It also sought specific performance of the lease's rent abatement provisions and the enforcement of certain promises alleged to have been made by SVAP.

D. Summary Judgment Motion

SVAP filed a motion for summary judgment seeking judgment in its favor on its breach of contract claim and dismissing Fitness's cross-complaint.² SVAP contended that it was undisputed that the parties had entered into the retail lease, Fitness had withheld more than eight months' worth of rent, and its failure to pay was not due to lack of funds. SVAP argued that this failure to pay constituted a breach of the lease, the lease (including its force majeure provision) allocated the risk associated with the pandemic to Fitness and precluded Fitness's asserted defenses, and none of the other statutes or doctrines invoked by Fitness excused the breach.

Regarding Fitness's cross-claims, SVAP argued that Fitness's breach of contract claim based on abatement of rent failed because the obligation to pay rent under the lease was absolute and the lease provision regarding abatement of rent was intentionally omitted. SVAP argued that it was entitled to summary judgment on Fitness's remaining cross-claims because the good faith and fair dealing and declaratory relief claims were duplicative of the breach of contract claim, Fitness was not permitted to seek both specific performance and damages under the contract, and promissory estoppel did not apply because SVAP gave Fitness actual consideration in the form of possession of the premises.

E. Summary Judgment Opposition

Fitness opposed summary judgment, arguing that because its business operations were restricted intermittently during the pandemic, its obligation to pay rent was temporarily excused under Section 1511, the force majeure provision of the lease, and the equitable doctrines of impossibility, impracticability, and frustration of purpose. Fitness further argued that SVAP had materially breached the lease because during the closure periods: (1) Fitness did not have the right to use the premises as a health club or to quietly enjoy the premises without interruption and disturbance as warranted by SVAP; and (2) SVAP failed to abate rent as required. According to Fitness, SVAP was therefore not entitled to summary judgment.

F. Trial Court's Ruling and Judgment

The trial court disagreed with Fitness and granted SVAP's summary judgment motion. The court found that the following facts were "essentially undisputed": (1) the parties entered into a valid and binding contract for the lease of commercial premises in the Poway Shopping Center; (2) SVAP had performed its obligations under the lease, allowing Fitness to occupy the premises for more than 19 years; (3) beginning in April 2020, Fitness had intermittently failed to pay rent for the premises; and (4) as of October 2021, Fitness owed SVAP $520,361.29 in unpaid rent. Rejecting Fitness's various defenses, the court concluded that Fitness's performance under the contract was not excused. Specifically, the court found that Sections 1511(1) and 1511(2) did not apply, the force majeure provision of the lease did not apply, Fitness's performance was not impracticable or impossible, and the purpose of contract had not been frustrated such that there was a failure of consideration.

The court's decision rested in large part on its conclusion that the purpose of the contract was not, as Fitness argued, for Fitness to provide rent in exchange for SVAP providing the premises for a particular use. Rather, as the court explained: "[T]he contractual performance owed here by the tenant is payment of rent. The Landlord's obligation was to provide possession of the premises. The tenant's particular use of the premises was not the obligation under the contract. Covid did not prevent performance of the obligation to pay rent." Based on this reasoning, the court rejected each of Fitness's defenses.

First, the court found, Section 1511(1) did not apply because it excuses contractual performance only where the performance is prevented or delayed by the operation of law, and no law had been enacted that prevented Fitness from paying rent. The court noted that one of the executive orders explicitly stated that commercial tenants remained obligated to pay their rent despite a moratorium on commercial tenant evictions. Second, Section 1511(2) did not apply because it excuses performance of contractual obligations...