Opinion
B314718 B319707
11-07-2022
AAS DESIGN, LLC, Plaintiff and Appellant, v. CRENSHAW INVESTORS, LLC, Defendant and Respondent.
Ross and Charles Avrith for Plaintiff and Appellant. Goodkin Law Group, Daniel L. Goodkin and Gregory J. Maestri for Defendant and Respondent.
NOT TO BE PUBLISHED
APPEALS from a judgment and order of the Superior Court of Los Angeles County No. 19STCV31322, Richard J. Burdge, Jr., Judge. Affirmed.
Ross and Charles Avrith for Plaintiff and Appellant.
Goodkin Law Group, Daniel L. Goodkin and Gregory J. Maestri for Defendant and Respondent.
GRIMES, J.
Plaintiff and appellant AAS Design, LLC entered into a commercial lease with defendant and respondent Crenshaw Investors, LLC. Plaintiff rented space to operate an interior design firm and showroom. The space suffered water leaks from the faulty roof. Plaintiff brought this action against defendant alleging property damage and loss of income as a result of the leaks and defendant's delay in performing adequate repairs to the roof. Defendant moved for summary judgment on the grounds the lease contained an exculpatory provision that barred plaintiff's claims for damages and that plaintiff otherwise could not establish any of its claims on the merits. The trial court granted defendant's motion and awarded attorney fees to defendant as the prevailing party.
Plaintiff appealed the entry of judgment and separately appealed the fee award. We consolidated the appeals for purposes of oral argument and decision. We now affirm both the judgment and the award of fees.
FACTUAL AND PROCEDURAL BACKGROUND
The following facts are undisputed.
Azadeh Shaladovsky is an interior designer and an artist who designs furniture and "functional art." Plaintiff is the design firm Ms. Shaladovsky owns and operates as a sole proprietor.
In 2017, plaintiff was a tenant at a multi-tenant commercial property on 10th Avenue in Los Angeles which defendant had recently purchased. Ms. Shaladovsky, who had been a tenant at the property since 2013, was looking to expand into a larger space to use as a workspace, showroom and "sales hub." She was interested in moving her design firm into a large warehouse space on the property referred to as the "364110th Avenue" property (hereafter the premises). She began discussions with defendant about a possible long-term lease of the premises.
During those discussions, Ms. Shaladovsky had several conversations with Jeffrey Goldberger who represented himself to be defendant's primary decisionmaker. Ms. Shaladovsky told him she would need the security of a long-term lease in order to justify the expensive and substantial tenant improvements that were necessary to make the premises suitable as a showroom. Mr. Goldberger told her he intended to hold onto the property and not sell it.
On March 22, 2018, before signing the lease, Ms. Shaladovsky was doing a walk-through inspection of the premises and noticed water leaks in the two back rooms and some spots on the ceiling. The leaks were significant enough to be causing water to pool on the floor. She notified defendant immediately by e-mail and advised that she would not be able to move in until that was taken care of, as she planned to use the back rooms to store expensive inventory. Defendant assured plaintiff the leaks would be repaired and she believed defendant would take care of it. Plaintiff acknowledged in a later e-mail that the area suspected of causing the problem had been "sealed."
About a week later, plaintiff signed the lease with defendant. The lease provided plaintiff with a five-year initial term for the premises beginning in April 2018, and an option for an additional five-year term. The parties used a standard form agreement for a "net" lease for industrial and commercial properties. The parties struck some of the standard provisions and included an addendum with additional negotiated terms. Ms. Shaladovsky signed the last page and initialed each page of the lease after having reviewed the lease with her husband who is a lawyer.
The lease required plaintiff, as lessee, to obtain several types of insurance, including coverage for both property damage and business interruptions. In relevant part, paragraph 8.4 provides that plaintiff "shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations" and "shall obtain and maintain loss of income and extra expense Insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils."
Paragraph 8.8 of the lease is the exculpatory provision, titled "Exemption of Lessor and its Agents from Liability." (Boldface omitted.) It provides in relevant part: "Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable to Lessee under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee . . . whether such damage or injury is caused by or results from . . . water or rain . . . or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, . . . plumbing, . . . or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places . . . or . . . injury to Lessee's business or for any loss of income or profit therefrom. Instead, it is intended that Lessee's sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8."
The lease also includes an "AS-IS" provision at paragraph 2.2, and a more specific provision at paragraph 53 of the addendum which states that plaintiff accepts the premises in its as-is condition and that defendant "has not made any representations or warranties with respect to the condition of the Premises or the Project with respect to the suitability or fitness thereof" for the agreed-upon use of the premises as a workspace and showroom "or for any other purpose."
After signing the lease, plaintiff began the process of remodeling the interior of the premises so it could function as a studio and showroom.
In December 2018, Ms. Shaladovsky had not yet moved into the premises as she and her contractor were still completing the tenant improvements. Plaintiff had, at that time, spent almost $200,000 for the interior improvements. Plaintiff had not experienced any further leaks between April and the beginning of December. However, during a rainstorm on December 6, 2018, Ms. Shaladovsky noticed new leaks coming from the roof in the same general area as the leaks she noticed in March 2018. She notified defendant of the problem immediately by e-mail.
Between December 6, 2018 and June 2019, plaintiff and defendant had numerous communications regarding repeated instances of water intrusion affecting the premises and defendant's efforts to repair them. After some temporary patching and sealing, a two-phase roof replacement was undertaken in May 2019 and completed in June 2019. Defendant sold the property in the fall of 2019.
Some of plaintiff's inventory was damaged by the water leaks, and the opening of the showroom was delayed. Plaintiff submitted a claim to its insurance carrier and received payments totaling $96,502.57, representing a portion of the total amount of damages for which plaintiff had sought reimbursement.
In September 2019, plaintiff filed this action seeking damages caused by the water leaks and the alleged delay in completing repairs. Plaintiff's operative second amended complaint asserted claims for breach of contract, breach of the covenant of quiet enjoyment, negligent interference with prospective economic relations, and negligent misrepresentation.
Defendant moved for summary judgment. After briefing and an unreported oral argument, the trial court granted defendant's motion and entered judgment in its favor. Defendant sought attorney fees as the prevailing party based on paragraph 31 of the lease. The court granted defendant's request for fees, in part, awarding fees in the amount of $72,490.
Plaintiff timely appealed the judgment in defendant's favor (case No. B314718), and separately appealed from the order awarding fees (case No. B319707). We consolidated the appeals for argument and decision.
DISCUSSION
1. Summary Judgment
A defendant moving for summary judgment must show either that an essential element of the plaintiff's cause of action cannot be established, or that there is a complete defense. (Code Civ. Proc., § 437c, subd. (o).) "Summary judgment is appropriate where 'all the papers submitted show that there is no triable issue as to any material fact.'" (Garcia v. D/AQ Corp. (2020) 57 Cal.App.5th 902, 906 (Garcia); see also § 437c, subd. (c).) Summary judgment is no longer considered a disfavored remedy. (Garcia, at p. 907, citing Perry v. Bakewell Hawthorne, LLC (2017) 2 Cal.5th 536, 542.)
We independently review the trial court's decision granting summary judgment, considering all of the evidence presented in the moving and opposing papers, except that to which objections were made and sustained. (Gonzalez v. Mathis (2021) 12 Cal.5th 29, 39; Garcia, supra, 57 Cal.App.5th at p. 907.)
a. Causes of action one through three
Plaintiff's claims for breach of the lease, breach of the covenant of quiet enjoyment, and negligent interference with prospective economic relations are all based on the contention that the water leaks at the premises and the alleged delay by defendant in making adequate roof repairs caused not only property damage but loss of income and disruption of its business.
While there is no dispute the subject lease contains an exculpatory provision at paragraph 8.8, the parties dispute the scope of the provision and its applicability to plaintiff's claims. The trial court found that paragraph 8.8 barred plaintiff's first three causes of action as a matter of law. We agree.
It is well established the parties to a commercial lease may agree to limit liability for breaches of covenants in the lease. (Frittelli, Inc. v. 350 North Canon Drive, LP (2011) 202 Cal.App.4th 35, 43 (Frittelli).) To the extent an exculpatory provision also attempts to shield a party from tort liability, it is subject to the public policy expressed in Civil Code section 1668 which provides that "[a]ll contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law."
Civil Code section 1668 has been construed to invalidate contractual provisions that purport to exempt liability for future intentional wrongs and gross negligence. (Frittelli, supra, 202 Cal.App.4th at p. 43.) The statute also prohibits provisions exempting ordinary negligence when the public interest is involved or a statute expressly forbids it (Fritelli, at p. 43), neither of which applies here.
Whether paragraph 8.8 applies to plaintiff's claims turns on contractual interpretation, and the intent of the parties as expressed in their agreement ordinarily controls. (Frittelli, supra, 202 Cal.App.4th at p. 44.)" 'When the parties knowingly bargain for the protection at issue, the protection should be afforded. This requires an inquiry into the circumstances of the damage or injury and the language of the contract; of necessity, each case will turn on its own facts.'" (Ibid., quoting Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 633.)
The parties did not submit any extrinsic evidence regarding the meaning of paragraph 8.8. We therefore "determine the parties' intentions as disclosed by the lease itself, looking at the plain language of paragraph 8.8, viewed within the lease as a whole." (Frittelli, supra, 202 Cal.App.4th at p. 44; accord, Garcia, supra, 57 Cal.App.5th at p. 908.)
We quoted the relevant parts of paragraph 8.8 of the parties' standard form commercial lease agreement at pages 4 through 5, ante. Paragraph 8.8 exempts defendant from liability for damages "under any circumstances," "[n]otwithstanding the negligence or breach of this Lease by Lessor or its agents." Frittelli involved the identical exculpatory provision in a standard form commercial lease agreement. (Frittelli, supra, 202 Cal.App.4th at p. 45.) Frittelli concluded the language unambiguously expressed the parties' intent "to exempt the lessor from liability for breach of the lease and ordinary negligence." (Ibid.)
We agree with Frittelli. The language of paragraph 8.8 is clear and unambiguous. The parties intended to broadly shield defendant from liability for damages to property or loss of income occasioned by acts of ordinary negligence or breach of the lease and intended that insurance would be plaintiff's sole recourse for damages caused by such acts. The parties knowingly bargained for this protection and the protection should be afforded. (Frittelli, supra, 202 Cal.App.4th at p. 44.)
We also reject any contention that paragraph 8.8 only relieves defendant of liability for damages caused by nonfeasance or passive negligence. In Garcia, the plaintiff claimed only passive negligence by the landlord in failing to inspect the premises and failing to discover building code violations. We found the exculpatory clause applied. (Garcia, supra, 57 Cal.App.5th at pp. 908-909.) We found Civil Code section 1668, which invalidates contractual provisions that purport to exempt liability for future intentional wrongs and gross negligence, did not apply in Garcia. "The public interest is not involved. Plaintiff has not alleged or presented evidence of an intentional wrong, gross negligence, or active negligence." (Garcia, supra, 57 Cal.App.5th at pp. 908-909.) But we did not find the exculpatory clause would not have exempted active negligence. To the contrary, following Frittelli, we held, "The exculpatory clause shields the lessor from liability for ordinary negligence." (Garcia, at p. 910.)
We reasoned in Garcia that "[a]n exculpatory clause that does not specifically mention negligence" would ordinarily be construed as only shielding a landlord for passive negligence. (Garcia, supra, 57 Cal.App.5th at p. 907, italics added.) The clause here expressly included the word "negligence" and is properly construed to shield defendant from acts of both passive and active negligence. (Frittelli, supra, 202 Cal.App.4th at p. 49.)
Plaintiff contends the trial court erred by relying on paragraph 8.8 because acts of gross negligence are not exempted, and plaintiff says it produced evidence raising a triable issue of gross negligence on the part of defendant.
But, as a matter of law, neither plaintiff's allegations, nor its evidence raise any claim of gross negligence." 'Gross negligence' long has been defined in California and other jurisdictions as either a '" 'want of even scant care'"' or '" 'an extreme departure from the ordinary standard of conduct.'" '" (City of Santa Barbara v. Superior Court (2007) 41 Cal.4th 747, 754.)
Defendant offered evidence that it endeavored to timely repair the roof leaks in good faith despite a period of heavy rain. Ms. Shaladovsky offered her own testimony describing repeated correspondence with defendant about continued problems with water intrusion and her growing frustration that the leaks were not being timely addressed. Plaintiff said that after the roof replacement had been completed in mid-2019, plaintiff experienced another leak almost immediately. The project manager for the roofing company hired by defendant to replace the roof testified that additional repairs were made when another contractor installed new gutters that damaged the new roof. Plaintiff admitted in her deposition, however, that she had no reason to believe defendant's property manager was not being honest about her efforts to address the problem over a period of several months, dealing with multiple contractors and an unusual period of rainy weather.
Plaintiff also offered the declaration of Bradley Hughes, a roofing contractor, who stated various opinions about the condition of the roof and defendant's repair work. Mr. Hughes said defendant should have undertaken various "temporary, industry standard remediation measures" to minimize damage to plaintiff pending the ability to schedule a contractor to perform a full roof replacement. He also opined that the repair work performed by defendant was inadequate and "well below" the standard of care. Mr. Hughes also opined that the roof showed evidence of poor condition and deferred maintenance of which defendant was aware from a report it obtained at the time it purchased the property in 2017.
But Mr. Hughes did not inspect the roof in 2017, and he relied on a report which nowhere says the roof was defective. The report referenced by Mr. Hughes shows the company that inspected the roof for defendant in 2017 found the roof "to be in good to satisfactory condition," that "[p]ortions of the roof were reported to have been replaced approximately four years ago," and they "did not observe any evidence of leakage . . . nor were any reported by property management."
In any event, the testimony of Ms. Shaladovsky and Mr. Hughes shows at most a dispute over ordinary negligence or a contractual breach of the covenant of quiet enjoyment, conduct expressly covered by paragraph 8.8. Plaintiff did not produce any evidence raising a triable issue that defendant engaged in conduct that could be characterized as an" '" 'extreme departure from the ordinary standard of conduct.'" '" (City of Santa Barbara v. Superior Court, supra, 41 Cal.4th at p. 754.)
b. Negligent misrepresentation
Paragraph 8.8 does not apply to plaintiff's fourth cause of action for negligent misrepresentation. Despite its title, the tort of negligent misrepresentation is a species of fraud. (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407; accord, Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, 403-404.) Therefore, Civil Code section 1668 applies and the exculpatory provision does not shield defendant from liability. (Continental Airlines, at p. 404; SI 59 LLC v. Variel Warner Ventures, LLC (2018) 29 Cal.App.5th 146, 154.)
Plaintiff contends the court erred in granting defendant's motion as to the fourth cause of action because defendant failed to address all the alleged misrepresentations pled in the second amended complaint, specifically that the premises were suitable for plaintiff's intended use and that defendant had no intention of selling the property. Plaintiff says defendant did not discharge its movant's burden, and therefore the burden never shifted to plaintiff, so the court erred in granting summary adjudication of this cause of action.
The alleged misrepresentations relate to matters of opinion and are immaterial. Plaintiff makes much of the fact defendant said he intended to hold the building for many years for his children. That is immaterial because nothing in the lease precluded defendant from selling the building, and a landlord does not owe a duty to a tenant to maintain ownership and refrain from selling the property. Whether defendant truthfully said he did not plan to sell the building and later changed his mind; or concealed that he was considering a sale; or intended all along to sell the building at the first opportunity, is simply an immaterial fact.
As for any statement defendant made about the suitability of the premises for plaintiff's intended use, plaintiff has not shown there is a material issue of disputed fact. Plaintiff failed to raise a triable issue that defendant made any actionable misrepresentations about the condition of the roof or general suitability of the premises to plaintiff. Plaintiff knew before signing the lease that the roof needed repairs due to water intrusion and said she could not rent the space unless it were repaired. Yet, after consulting with her lawyer husband, Ms. Shaladovsky voluntarily signed the lease on behalf of plaintiff with provisions stating plaintiff accepted the premises on an as-is basis and that defendant was not making any representations about the suitability of the premises for plaintiff's desired use.
c. Objections to evidence
Plaintiff raises a brief argument that the trial court abused its discretion in sustaining defendant's objections to paragraphs 16 and 19 of Ms. Shaladovsky's declaration. The trial court erred, plaintiff says, because it overruled other objections to, and considered other, similar testimony by Ms. Shaladovsky that is more detailed than the statements to which the court sustained objections. Apparently, plaintiff complains the court's rulings are inconsistent. Assuming that is true, and the court considered evidence in some paragraphs but sustained defendant's objections to similar, abbreviated testimony along the same lines, plaintiff has shown no prejudice or any abuse of discretion. Even if we were to find error, and on that basis, considered paragraphs 16 and 19 of Ms. Shaladovsky's declaration as part of our de novo review, it would not change our analysis or disposition.
2. Award of Attorney Fees
Plaintiff's sole contention challenging the trial court's award of contractual attorney fees to defendant as the prevailing party is that summary judgment was improvidently granted and therefore the fee award must be reversed if the grant of summary judgment is reversed. Plaintiff states no additional claim of error by the trial court in finding a fee award proper or in setting the amount of reasonable fees. Because we conclude summary judgment was properly granted in defendant's favor and affirm entry of that judgment, we therefore also affirm the fee award.
DISPOSITION
The judgment entered in favor of defendant and respondent Crenshaw Investors, LLC (case No. B314718) is affirmed. The order awarding Crenshaw Investors attorney fees as prevailing party (case No. B319707) is affirmed.
Crenshaw Investors shall recover costs of appeal to be determined on remand by the trial court.
WE CONCUR: STRATTON, P. J., HARUTUNIAN, J. [*]
[*] Judge of the San Diego Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.