Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, Ct. No. BC389760 Coleman Swart, Judge.
Klapach & Klapach and Joseph S. Klapach for Plaintiff and Appellant.
Carmen A. Trutanich, City Attorney, Laurie Rittenberg, Assistant City Attorney and John A. Carvalho, Deputy City Attorney for Defendant and Respondent.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
I. INTRODUCTION
Plaintiff Concerned Citizens of South Central Los Angeles (Concerned Citizens) appeals from a December 22, 2009 judgment in favor of defendant the City of Los Angeles (the city) after a bench trial. The trial court ruled that Concerned Citizens could not exercise its option to buy the City’s interest in certain property under a November 20, 2001 agreement with the City for the following reasons: (1) the option was contingent on Concerned Citizen’s completion of a youth recreation facility and provision of services to very low and low income individuals; (2) Concerned Citizens’ failure to complete the youth recreation facility was a breach of the contract; and (3) under the agreement’s reversion of assets provision, the property reverted back to the city because Concerned Citizen’s use of the property did not meet any of the objectives required by the United States Department of Housing and Urban Development (HUD) for community development block grants. Concerned Citizens contends the trial court’s ruling was erroneous and also appeals the award of $127,600 in attorneys’ fees to the city.
We apply principles of contract interpretation to construe the reversion of assets and service payback provisions contained in the agreement. Our independent review of the language of the agreement leads us to conclude that Concerned Citizens is entitled to exercise its option to purchase the city’s interest. The reversion of assets provision does not require Concerned Citizens to reimburse the city the fair market of the property after disposition because that provision itself provides that such reimbursement is not required five years after the January 31, 2002 expiration date of the agreement. Accordingly, we reverse and vacate the trial court’s judgment.
II. BACKGROUND
A. Concerned Citizens’ Agreement with the City
On November 20, 2001, the parties entered into a contract entitled “Agreement … between the City of Los Angeles and Concerned Citizens of South Central Los Angeles Relating to the Antes Columbus Football Club Youth Center Acquisition.” The city agreed to provide $2.4 million in community development block grant funds to Concerned Citizens, with the city’s interest to be secured by a promissory note and deed of trust. The agreement identified the project as eligible for a HUD community development block grant under 24 Code of Federal Regulations, part 570 because it met the HUD national objective of “[a]ctivities benefiting very low and low income persons” and “[l]imited-[c]lientele activities” under 24 Code of Federal Regulations, part 570.208, subdivision (a). Concerned Citizen agreed to use $2.4 million to acquire an abandoned three-acre industrial site in Los Angeles and transform it into a youth recreation facility. Concerned Citizens agreed to “comply with all applicable statutes, rules, regulations and orders” including but not limited to “[t]he federal regulations and the Code of Federal Regulations and the Federal Register provisions applicable to the Community Development Block Grant programs.”
Under section 203E of the agreement, Concerned Citizens was to complete the following after acquisition of the property: (1) a soccer field constructed on a structural deck over 226 parking spaces that would include 800 permanent spectator seats, fencing, lighting, gating, an electric scoreboard and public restrooms; (2) a park with fencing, lighting, sculptures, outdoor fireplace and children’s play equipment; (3) a youth center that would include a preschool daycare facility, a fully digital audio/video productions studio, a commercially equipped culinary arts center, a multi-media computer center, and a locker room with aquatic and weight training equipment; (4) architectural and engineering services; (5) soils reports; (6) environmental reports; (7) environmental remediation; and (8) other related services. Under section 203L(1) and (2), Concerned Citizens agreed to provide the following youth service services to primarily low and moderate income city residents for a minimum of sixty years from the date that it is issued a certificate of occupancy or notice of completion: “(a) Soccer training services; (b) Weight and aquatic training services; (c) Literacy and skills training programs; (d) Multi-media computer center; (e) Fully digital audio/video production studio; (f) Fully equipped commercial kitchen; and (g) Preschool daycare services.”
Under section 203M of the agreement, the city’s interest terminates when Concerned Citizens completes the required service payback stipulated in the agreement. The service payback provision under section 203H allowed Concerned Citizens to repay the promissory note as follows: “[¶1] ($2,400,000) shall be repaid with services. Said services and reporting requirement relating thereto are detailed in §203 and §601, respectively, of this Agreement. The services shall be amortized at the rate of $40,000 per year for a total of Sixty (60) years. Said amortization shall commence when the Contractor obtains a Certificate of Occupancy or Notice of Completion and begins utilizing the additional space to fulfill its service obligations as identified in this Agreement. [¶ 2] The Contractor may, at its option, purchase the City’s interest at anytime, for an amount equal to the current value as determined in the preceding paragraph.”
The agreement also contains a reversion of assets provision. Under section 609A, Concerned Citizens was required “within 45 days of the expiration of this Agreement” to transfer to the city “any, and all, grant funds on hand at the time of expiration and any, and all, accounts receivable attributable to the use of grant funds provided under this Agreement.” Under section 609B, “[a]ny real property under the Contractor’s control that was acquired or improved in whole or in part with grant funds provided under this Agreement in excess of $25,000 shall either be: 1. [u]sed to meet one of the national objectives set forth in 24 CFR 570.208 until five (5) years after the expiration of this Agreement, or such longer period of time as determined appropriate by the city; or 2. [d]isposed of in a manner which results in the city being reimbursed in the amount of the current fair market value of the property less any portion thereof attributable to expenditures of non-grant funds for acquisition of, or improvement to, the property. Such reimbursement is not required after the period of time specified in accordance with 1) above.”
Because the purchase price for the property was only $2.1 million, Concerned Citizens returned the remaining $300,000 in community development block grant funds to the city after the agreement expired pursuant to section 609A.
In addition, the agreement allows the city to terminate the agreement at any time during the term of the agreement under section 506. The term of the agreement is defined under section 103 as commencing upon execution of the agreement and ending on January 31, 2002. The agreement also permits the city to terminate the agreement under section 503 if Concerned Citizens defaults by failing for any reason to comply with the contractual obligations of the agreement within the time specified by the agreement.
B. Promissory Note
On November 29, 2001, Concerned Citizens signed a promissory note in favor of the city. The promissory note permits Concerned Citizens to “at its option, purchase the [city’s] interest at any time for an amount equal to the current value as determined in the preceding paragraph. Any amount owed under the Note may be prepaid, in whole or in part, without premium or penalty.” The promissory note also allows the city to recover attorneys’ fees if Concerned Citizens defaults on the promissory note: “If action is instituted on this Note upon default by Borrower, the Borrower promises to pay reasonable attorney’s fees and other related costs as the court may see fit.”
C. Concerned Citizens’ Development and Use of Property
After acquiring the property, Concerned Citizens removed concrete and debris from the property and graded the site. In mid-2002, Concerned Citizens built a clay soccer field, erected fencing, installed lights and contracted for port-a-potties. Between 2002 and 2008, Concerned Citizens spent almost $1.4 million on the property for environmental remediation, removal of dilapidated buildings, underground storage tanks, trash and vegetation, installation of a clay soccer field, lightning and fencing, architectural and engineering services, and property taxes and insurance.
Several soccer leagues used the clay soccer field including the North Central American Youth Soccer League, which served about 1, 800 children from South Central Los Angeles. Concerned Citizens did not charge the soccer leagues for use of the soccer field. Besides allowing soccer leagues to use the clay soccer field, Concerned Citizens at times fundraised by leasing the property for used car sales, circuses and carnivals charging the vendors $4,500 to $5,000 a week.
D. Concerned Citizens’ Attempt to Exercise Option to Purchase City’s Interest and Subsequent Lawsuit
On March 6, 2006, Mark Williams from Concerned Citizens sent an email to Geraldo Ruvalcaba, a city employee, inquiring about Concerned Citizen’s option to purchase the city’s interest: “Our contract also allows our agency to ‘buy out’ the city’s interest for ‘fair market value.’ Please start the process to determine the fair market value, or tell me what we need to do.” In response, Mr. Ruvalcaba wrote, “In order to access ‘Fair Market Value’ we would need a recent appraisal report on the property. The appraisal should be no more than 6 months old. When we receive the report, it will need to be reviewed by the City’s asset management group. If you’ve made any improvements on the property, we also need a summary of those improvements, including costs. If you decide to proceed with the sale of the property, we will need to see a copy of the sale agreement with LAUSD; Title Report and Escrow Instructions.”
On August 1, 2006, Noreen McClendon of Concerned Citizens notified the city of Concerned Citizens’ intent to exercise its option: “Concerned Citizens of South Central Los Angeles (CCSCLA) intends to exercise its option to purchase the City’s interest…. Additionally, inasmuch as the city only funded $2.1 million, please advise if CCSCLA can repay only those funds actually received versus the $2.4 million outlined in the contract.” The city replied that Concerned Citizens could purchase the city’s interest for an amount equal to the current market value: “However, should CCSCLA want to purchase the property, the transaction will follow the provisions of Section 203-H.1, which states: ‘The Contractor may at its option, purchase the city’s interest at any time for an amount equal to the current market value as determined in the preceding paragraph.’” In response, Concerned Citizens stated that the city had misquoted the agreement because the option price was not the current market value but the amount of the loan, $2.1 million. The city replied in part that “approximately five years later, Concerned Citizens has not made any progress toward construction of a recreation center, much less obtained a Certificate of Occupancy or Notice of Completion, which would be a necessary prerequisite, before Concerned Citizens can even begin to fulfill its service payback obligation.”
On March 5, 2008, Concerned Citizens sued the city seeking declaratory relief. Concerned Citizens requested that the court declare that the agreement with the city permitted Concerned Citizens to acquire the city’s interest in the property for $2.1 million and that the city’s liens be released upon receipt of that amount. On April 8, 2008, the city filed a cross-complaint against Concerned Citizens for rescission, breach of contract, breach of promissory note, accounting and declaratory relief. The city alleged that Concerned Citizens breached the contract and the promissory note by failing to build the youth recreational facility and the city was entitled to be reimbursed the current fair market value of the property under the reversion of assets provision.
E. Los Angeles Unified School District’s Eminent Domain Action
On March 10, 2008, the Los Angeles Unified School District filed an eminent domain action against Concerned Citizens, the city and the Los Angeles County tax collector to acquire the property. On April 7, 2008, the trial court issued an interlocutory judgment in the eminent domain action fixing the compensation for the property at $5,587,500 based on the parties’ stipulation. Of that amount, $154,177.46 was paid to the tax collector for unpaid taxes and penalties. The remaining amount of $5,433,322.54 remained on deposit with the court pending resolution of the instant case.
F. Trial Court’s Ruling
On November 12, 2009, the trial court issued its statement of decision after a bench trial. The trial court found Concerned Citizens “never completed the project outlined in [paragraph] 203” of the contract. Concerned Citizens “constructed an earthen clay soccer field that was used for youth soccer” but “this construction was not in compliance with [paragraph] 203.” The trial court found “the national objective of this agreement was to benefit low or very low income youth” and rejected Concerned Citizen’s argument that its use of the property met the HUD national objective of eliminating blight. The trial court further found “the activities on the property do not meet the compliance standard required under [paragraph 609(B)(1)] or 24 CFR 570.503(7); as set forth in [paragraph 203L] of the agreement.”
The trial court ruled Concerned Citizens could not exercise its option to purchase the city’s interest: “The court finds that the second paragraph of Section 203H1 is ambiguous and confusing and can understand how plaintiff could interpret the paragraph as it has. However, looking at the agreement as a whole and further finding that plaintiff has breached the agreement by not performing as promised under paragraph 203 of the agreement and also finding that 24 CFR 570.503(7)ii is applicable to this case, the court rules that plaintiffs do not have the right to the proceeds of the sale of the property other than the right to be reimbursed under that 24 CFR 570.503(7)ii.” Regarding the promissory note, the trial court found “[Concerned Citizens’] claim on the promissory note is derivative of the substantially identical terms at paragraph 203H1 of the agreement…. The note is merely reflective of the right of the city to recover the property from plaintiff upon default or breach of agreement.” The trial court found Concerned Citizens was entitled to $538,329.32 as reimbursement for site improvements, taxes and insurance costs under 24 CFR § 570.503(7)ii.
On December 22, 2009, the trial court entered judgment in favor of the city on its claims for breach of contract and breach of promissory note, awarding the city an amount of $4,684,843.22. The trial court also awarded $127,600 in attorneys’ fees and $4,492.29 in costs to the city. Concerned Citizens filed a timely notice of appeal on February 18, 2010.
III. DISCUSSION
The issue in this case is whether the trial court correctly interpreted the agreement so as to condition Concerned Citizen’s exercise of its option to purchase the city’s interest in the property on the completion of the youth recreational facility and provision of services to low and low income youth. We apply principles of contract interpretation to determine the parties’ intent.
A. Standard of Review
Contract interpretation presents a question of law which this court reviews de novo. (P&D Consultants, Inc. v. City of Carlsbad (2010) 190 Cal.App.4th 1332, 1340, quoting Ben-Zvi v. Edmar Co. (1995) 40 Cal.App.4th 468, 472.) “When no extrinsic evidence is introduced, or when the competent extrinsic evidence is not in conflict, the appellate court independently construes the contract. When the competent extrinsic evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld if it is supported by substantial evidence.” (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955-956; Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.)
When findings of fact are challenged on appeal, we apply the highly deferential substantial evidence standard of review, which calls for review of the entire record to determine whether there is any substantial evidence, contradicted or not contradicted, to support the findings below. (Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114, 1128-1129; People ex rel. Brown v. Tri-Union Seafoods, Inc. (2009) 171 Cal.App.4th 1549, 1567.) “The presumption on appellate review favors the correctness of the judgment, and where there is a conflict in the evidence and the inferences to be drawn therefrom, an appellate court is bound to accept as true the evidence and inferences in accordance with the findings of the lower court.” (Estate of Falco (1987) 188 Cal.App.3d 1004, 1018; Denham v. Superior Court (1970) 2 Cal.3d 557, 564.)
B. Principles of Contract Interpretation
““The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.” “Such intent is to be inferred, if possible, solely from the written provisions of the contract.”” Civ. Code, § 1639 [“When a contract is reduced to writing, the intention of the parties is to be ascertained from the wring alone, if possible; subject, however, to the other provisions of this Title”]; Powerine Oil Co. v. Superior Court (2005) 37 Cal.4th 377, 390; In re Tobacco Cases I (2010) 186 Cal.App.4th 42, 47; August Entertainment, Inc. v. Philadelphia Indemnity Insurance Co. (2007) 146 Cal.App.4th 565, 573.) “‘California recognizes the objective theory of contracts, [citation], under which “[i]t is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation.”’” “‘The parties’ undisclosed intent or understanding is irrelevant to contract interpretation.’” (Cedars-Sinai Medical Center v. Shewry (2006) 137 Cal.App.4th 964, 980, quoting Founding Members, supra, 109 Cal.App.4th at p. 956.) “‘If contractual language is clear and explicit, it governs.’” (P& D Consultants, Inc., supra, 190 Cal.App.4th at p. 1340, quoting Powerine Oil Co., supra, 37 Cal.4th at p. 390; see Civ. Code § 1638 [“The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity”].)
C. Breach of Contract
The trial court ruled Concerned Citizens breached the agreement by not performing as promised under paragraph 203 of the agreement. But the agreement did not require Concerned Citizens to complete the project by a specified date. The agreement provided that Concerned Citizens’ service obligations began when Concerned Citizens was issued a “Certificate of Occupancy or Notice of Completion.” It is true that the trial court could infer that Concerned Citizens was required to complete the project within a reasonable time under California Civil Code section 1657 because there was no specific time-frame identified in the contract. But, the court did not find that Concerned Citizens failed to build the project within a reasonable time.
Moreover, there is no evidence the city demanded Concerned Citizens complete the project before Concerned Citizens sought to exercise its option to purchase the city’s interest in 2006. Similarly, the city neglected to make certain material assertions prior to Concerned Citizens’ 2006 efforts to exercise its option to purchase the city’s interest. Specifically, the city did not: exercise its right to terminate the agreement during the term of the agreement (which ended January 31, 2002) as permitted under section 506; notify Concerned Citizens that it was in default under section 503; or notify Concerned Citizens that it had breached the agreement under section 508.
The city’s inactivity was important. “Where no time is specified for performance, a person who has promised to do an act in the future and who has the ability to perform does not violate his agreement unless and until a demand for performance is made and performance is refused ….” (Leonard v. Rose (1967) 65 Cal. 2d 589, 592; Tisdale v. Bryant (1918) 38 Cal.App. 750, 757.)
D. Reversion of Assets Provision
The reversion of assets provision under Section 609B provides: “Any real property under the Contractor’s control that was acquired or improved in whole or in part with grant funds provided under this Agreement in excess of $25,000 shall either be: 1. [u]sed to meet one of the national objectives set forth in 24 CFR 570.208 until five (5) years after the expiration of this Agreement, or such longer period of time as determined appropriate by the city; or 2. [d]isposed of in a manner which results in the City being reimbursed in the amount of the current fair market value of the property less any portion thereof attributable to expenditures of non-grant funds for acquisition of, or improvement to, the property. Such reimbursement is not required after the period of time specified in accordance with 1) above.”
This reversion of assets provision is required under 24 Code of Federal Regulations part 570.503, subdivision (b) by HUD for all community development block grant (CDBG) agreements and implements the language from 24 Code of Federal Regulations part 570.503, subdivision (b)(7). Part 570.503, subdivision (b)(7) provides: “Reversion of assets. The agreement shall specify that upon its expiration the subrecipient shall transfer to the recipient any CDBG funds on hand at the time of expiration and any accounts receivable attributable to the use of CDBG funds. It shall also include provisions designed to ensure that any real property under the subrecipient’s control that was acquired or improved in whole or in part with CDBG funds (including CDBG funds provided to the subrecipient in the form of a loan) in excess of $25,000 is either: (i) Used to meet one of the national objectives in § 570.208 (formerly § 570.901) until five years after expiration of the agreement, or for such longer period of time as determined to be appropriate by the recipient; or (ii) Not used in accordance with paragraph (b)(7)(i) of this section, in which event the subrecipient shall pay to the recipient an amount equal to the current market value of the property less any portion of the value attributable to expenditures of non-CDBG funds for the acquisition of, or improvement to, the property. The payment is program income to the recipient. (No payment is required after the period of time specified in paragraph (b)(7)(i) of this section.)”
Concerned Citizens contends it complied with section 609B of the agreement by satisfying two of the HUD national objectives set forth in 24 Code of Federal Regulations part 570.208. Concerned Citizens asserts that it met the national objectives of providing “activities benefitting low and moderate-income persons” and “activities which aid in the prevention or elimination of slums or blight.” (24 C.F.R. § 570.208(a), (b).) However, the trial court rejected this argument. The trial court found “the national objective of this agreement was to benefit low or very low income youth” and not the elimination of blight. The trial court further found that “the activities on the property do not meet the compliance standard required under Para. 609B1 or 24 CFR 570.503(7)i.”
There was substantial evidence to support the trial court’s factual finding that Concerned Citizen’s activities on the property did not comply with paragraph 609B(1) and 24 Code of Federal Regulations part 507.503(b)(7)(i). It is undisputed that Concerned Citizens never built the youth recreation facility. The clay soccer field that was built on the property was not the soccer field contemplated by the parties under section 203 of the agreement. Moreover, Concerned Citizens leased the property to vendors for carnivals, used car sales and circuses, activities which did not benefit low or very low income residents.
However, the reversion of assets provision under section 609B of the agreement specifies that if the property is not used to meet one of the national objectives, it must be “disposed of in a manner which results in the City being reimbursed in the amount of the current fair market value of the property less any portion thereof attributable to expenditures of non-grant funds for acquisition of, or improvement to, the property.” Importantly, section 609B(2) further provides that “[s]uch reimbursement is not required after the [five-year] period of time specified in [section 609B(2)].” Likewise, payment to the city is not required after the period of time specified in paragraph (b)(7)(1) under 24 Code of Federal Regulations part 507.503(b)(7)(ii).
Here, the time period specified in section 609B(1) is January 31, 2007, which is five years after the January 31, 2002 expiration date set forth in section 103 of the agreement. Thus, under section 609B(2) and 24 Code of Federal Regulations part 507.503(b)(7)(ii), Concerned Citizens was not required to reimburse the city the fair market value of the property if the property was disposed of after January 31, 2007. Since the property was not disposed of until March 10, 2008 when the Los Angeles Unified School District condemned the property, the reversion of assets provision by its own terms is inapplicable.
E. Payback Service Provision
Under the payback service provision in section 203H, Concerned Citizens can repay the promissory note in the following manner: [¶1] “($2,400,000) shall be repaid with services. Said services and reporting requirement relating thereto are detailed in §203 and §601, respectively, of this Agreement. The services shall be amortized at the rate of $40,000 per year for a total of Sixty (60) years. Said amortization shall commence when the Contractor obtains a Certificate of Occupancy or Notice of Completion and begins utilizing the additional space to fulfill its service obligations as identified in this Agreement. [¶ 2] The Contractor may, at its option, purchase the City’s interest at anytime, for an amount equal to the current value as determined in the preceding paragraph.”
Under section 203H, Concerned Citizens could repay the promissory note through services or purchase of the city’s interest at any time. The option clause does not require Concerned Citizens to perform the services described in section 203 before it could exercise the option to purchase the city’s interest. There is no restriction on the option to purchase the city’s interest. The trial court’s ruling that Concerned Citizens’ exercise of the option is contingent on completion of the youth recreation facility and provision of services reads out of the agreement Concerned Citizen’s right to exercise the option “at anytime.”
The city argues the option did not mature because the option is “determined” by the amortization schedule which does not trigger until Concerned Citizens begins its service payback. But what is “determined” is the option price, not the right to exercise the purchase option. The first paragraph of 203H(1) allowed Concerned Citizens to repay the promissory note through services with an amortization rate of $40,000 per year for a total of sixty years. The second paragraph of 203H(1) allowed Concerned Citizens the right to exercise its option to purchase at anytime “for an amount equal to the current value as determined in the preceding paragraph.” Thus the option price could have been as high as $2.1 million but was subject to reduction based on the years of services performed by Concerned Citizens. For example, if Concerned Citizens had completed the project, and decided to exercise its option one year after providing services, the option price would be $1.7 million because Concerned Citizens would be credited $400,000 for the one year of services it provided. Here, it is undisputed that Concerned Citizens did not provide the services contemplated by the parties under the service payback provision; thus, the option price was $2.1 million.
Under the service payback provision, Concerned Citizens is entitled to exercise its option to purchase the city’s interest for $2.1 million, the amount of community development grant funds that was provided by the city. Our interpretation of the reversion of assets and service payback provisions requires us to reverse and vacate the judgment in favor of the city.
We also reverse and vacate the award of attorney’s fees to the city because Concerned Citizens did not default on the promissory note by failing to build the youth recreation facility and providing the services described in section 203 of the agreement. The promissory note permits Concerned Citizens to “at its option, purchase the [city’s] interest at any time for an amount equal to the current value as determined in the preceding paragraph. Any amount owed under the Note may be prepaid, in whole or in part, without premium or penalty.” Having chosen to exercise its option to purchase the city’s interest, Concerned Citizens did not default on the promissory note. Thus, the city is not entitled to recover attorney’s fees because there was no default on the promissory note.
IV. DISPOSITION
The December 22, 2009 judgment in favor of defendant the City of Los Angeles and award of attorney’s fees to the city is reversed and vacated. The trial court is directed to enter judgment in favor of Concerned Citizens. Concerned Citizens is to recover its costs on appeal.
We concur: ARMSTRONG, Acting P. J.MOSK, J.