Opinion
D057781 Super. Ct. No. 37-2009-00095658
08-29-2011
ANDY HANNA et al., Plaintiffs and Appellants, v. ENS MANAGEMENT, LLC, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
APPEAL from a judgment of the Superior Court of San Diego County, Steven R. Denton, Judge. Affirmed.
Plaintiffs Andy and Maysoun Hanna (together the Hannas) operate a convenience grocery store at the Highland View Shopping Center in space they occupy pursuant to a written lease agreement. The owner-lessor of the center, defendant ENS Management (ENS), entered into a lease with another tenant that sold some products also sold by the Hannas. Because the Hannas believed the lease with the other tenant violated a clause (the exclusive use clause) in their lease, the Hannas filed this action seeking damages for ENS's breach of their lease. The trial court interpreted the exclusive use clause to prohibit ENS from leasing to another convenience or grocery store, rather than to prohibit leases to new tenants that might carry some of the products also stocked by the Hannas, and therefore found in favor of ENS. This appeal followed.
The Hannas contend the court, when it construed the intent of the exclusive use clause, misapplied the parol evidence rule because it excluded their parol evidence showing the exclusive use clause was intended to bar ENS from leasing to new tenants that might carry some of the products also stocked by the Hannas.
I
FACTUAL BACKGROUND
A. The Prior Lease
In 1992, the Hannas acquired a small grocery and convenience store in the Highland View Shopping Center, and signed a lease with the then-owner of the shopping center. Although there was no written exclusivity clause in the lease, there was an informal oral agreement that the owner would protect the Hannas from other tenants selling "name brand" grocery goods. Over the next 10 years, the Hannas complained to the owner concerning another tenant selling specific goods in competition with them.
For example, the shopping center included a Laundromat. Customers would come to the Hannas' store to buy bleach, softeners and detergent to use to wash their clothes and, while there, would also buy other products. Because the Hannas deemed the sale of those laundry products to be important, a 1997 lease with another tenant (the Bargain City store lease) included language barring Bargain City from selling "name brand items such as 'Ajax-Clorox-Ariel-Downey-Suvacel,' which would conflict with convenience market." However, the restriction on other tenants' sales was largely informal and was not used to bar other tenants from selling any specific type of product.
B. The 2002 Written Lease
In early 2002 a tenant of the shopping center vacated a space that provided the Hannas with the opportunity to expand their store. The Hannas and the then-owner negotiated a new lease, signed in late March of 2002, pursuant to which the Hannas expanded their convenience and grocery store. During this same time frame, the owner was seeking to sell the shopping center.
During the negotiations over the terms of the new lease, the Hannas asked that an exclusive use clause be inserted into the new lease. Although the then-owner was reluctant to add any exclusive use clause into the lease, the owner ultimately agreed to limited protections being placed into the lease. The addendum to the new lease contained the disputed exclusive use clause. The clause provided:
"53. PROHIBITION AGAINST COMPETING BUSINESS. With the exception of tenants presently occupying units within the commercial complex of which the herein Premises are a part, Lessor agrees to not lease space to any other convenience or grocery market selling the same products."The new lease also contained clauses terminating the prior lease and specifying that there were no collateral agreements not reflected in the written lease.
Shortly after the new lease was signed, the then-owner sold the shopping center to ENS. As part of the sale, the Hannas signed an "estoppel certificate" that stated there have been "no promises or representations made to [the Hannas] by Landlord concerning the Lease of the Premises not contained in the Lease."
C. Subsequent Conduct
In late 2002 the Hannas complained to ENS that another tenant (the Bargain City store) was improperly selling brand name products. ENS responded it would take no action because the exclusive use clause did not bar existing tenants from selling any product. The Hannas were aware they could take legal action but elected to do nothing.
In 2009, ENS leased a store in the shopping center to "No. 1 Saldos," a bargain reseller of odd lots purchased from high volume retailers. The lease allowed No. 1 Saldos to use the space for "Total Clothing/General Merchandise only," and No. 1 Saldos sold a large number of products of the type also sold by the Hannas. However, No. 1 Saldos generally did not sell food items.
No. 1 Saldos acquired its inventory by purchasing pallets of returned merchandise originating from Walmart, and ordinarily would not know in advance the content of those pallets. When the pallets arrived, No. 1 Saldos would discount the prices for the merchandise and place it on the shelves. Although No. 1 Saldos occasionally received food items on pallets of "unknown" product received from Walmart, the owner of No. 1 Saldos instructed that these items should not be sold because his lease did not permit the sale of food items. However, there were a few times when his employees placed food items on the shelves of No. 1 Saldos.
The Hannas complained to ENS that No. 1 Saldos was improperly selling competing goods in violation of the exclusive use clause in their lease. ENS responded that it interpreted the exclusive use clause of the lease to permit new tenants to sell nonfood items.
II
THE LAWSUIT AND JUDGMENT
A The Litigation
The Hannas filed this action alleging ENS breached the exclusive use clause of their lease by not preventing No. 1 Saldos from "selling the same products" as the Hannas, including nonfood items. ENS argued the proper construction of the exclusive use clause was to prevent ENS from leasing space to any "other convenience or grocery market" that sold the same products as the Hannas, and that No. 1 Saldos did not operate a convenience or grocery market because it did not sell food or beverages but was instead a discount merchandiser of clothing, electronics and household products.
At the court trial, ENS's expert witness testified the customary meaning of the term "convenience or grocery market," as used in the commercial real estate market, was a store that derived approximately 50 percent or more of its gross revenues from the sale of food and beverages sold for off-premises consumption. The Hannas admitted that No. 1 Saldos did not operate a "convenience or grocery market," but was a competitor because it sold some goods the Hannas also sold. The Hannas also testified that, under their interpretation of the exclusive use clause, ENS could not lease space to any tenant that sold cigarettes, or to a Walgreens or CVS pharmacy because it carried some products sold by the Hannas.
B. The Judgment
The court interpreted the exclusive use clause to bar ENS from leasing to another "convenience or grocery market" but that it was not intended to bar ENS from leasing to another tenant that was not a "convenience or grocery market" merely because the other tenant sold some products the Hannas either sold or might elect to sell. The court found that, because No. 1 Saldos did not operate a "convenience or grocery market," ENS had not violated the exclusive use clause in the Hannas' lease by leasing to No. 1 Saldos.
C. The Appeal
The Hannas assert on appeal that the trial court committed reversible error when it rejected or refused to consider their parol evidence proffered in support of their interpretation of the lease. The Hannas assert that, because the proffered parol evidence was offered to support an interpretation of the exclusive use clause to which the clause was reasonably susceptible, it was error to refuse to consider that evidence. They argue the exclusive use clause was reasonably susceptible to the interpretation that it barred ENS from permitting any sales of competing products by any stores (except for previously existing sales by previously existing tenants), and therefore their parol evidence of the discussions leading to the drafting of the exclusive use clause and of the restrictions placed in the Bargain City lease should have been admitted to support that interpretation.
II
ANALYSIS
A. Applicable Legal Principles
Before addressing the Hannas' claims on appeal, we outline the governing legal principles.
Contract Interpretation and Parol Evidence
A court must interpret a contract to give effect to the mutual intent of the parties at the time the contract was formed. (Civ. Code, § 1636.) "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." (Civ. Code, § 1638.)
However, "parol evidence is properly admitted to construe a written instrument when its language is ambiguous. The test of whether parol evidence is admissible to construe an ambiguity is not whether the language appears to the court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is 'reasonably susceptible.' [Citation.] [¶] The decision whether to admit parol evidence involves a two-step process. First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine 'ambiguity,' i.e., whether the language is 'reasonably susceptible' to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is 'reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the contract." (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.)
When the contract language used is fairly susceptible to multiple constructions, extrinsic evidence may be considered, not to vary or modify the terms of the agreement but to aid the court in ascertaining the true intent of the parties. (Denver D. Darling, Inc. v Controlled Environments Construction, Inc. (2001) 89 Cal.App.4th 1221, 1236.) Thus, the evidence is admitted "not to show that 'the parties meant something other than what they said' but to show 'what they meant by what they said.' " (Barham v. Barham (1949) 33 Cal.2d 416, 423.) The court may consider matters including the negotiations of the parties that produced the language (Heston v Farmers Ins. Group (1984) 160 Cal.App.3d 402, 412), a party's subsequent conduct prior to any dispute arising (id. at p. 413), and the industry custom and usage for specific terms used in the contract (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1356-1357).
Standards of Appellate Review
On appeal, the judgment is presumed correct, and we indulge all intendments and presumptions to support the judgment. (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 267.) The corollaries to that principle are that we will presume the trial court did not err on matters as to which the record is silent (ibid.), and the burden is on the appellant to demonstrate error by an adequate record that affirmatively proves the error occurred. (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 58; Gee v. American Realty & Construction, Inc. (2002) 99 Cal.App.4th 1412, 1416.)
B. The Hannas Have Not Demonstrated Reversible Error
The Hannas assert on appeal that the court erred by excluding or refusing to consider the parol evidence proffered by them in support of their interpretation of the lease. We conclude the Hannas have not carried their burden of demonstrating reversible error because the record does not affirmatively show that the court excluded any of their parol evidence. To the contrary, the trial transcript showed the court adhered to the procedures for considering parol evidence by provisionally admitting the Hannas' parol evidence to consider the merits of ENS's parol evidence objection. Additionally, during closing argument, the Hannas cited to the parol evidence and argued that it favored their construction of the exclusive use clause, and there was no statement by the court (or objection by opposing counsel) that the evidence had not been admitted.Finally, in the court's statement of decision, the court extensively referred to the evidence proffered by the Hannas (e.g. the prior informal arrangement with the then-owner giving them limited exclusivity, the course of conduct by the owner in inserting restrictions into the lease with the Bargain City store that placed some limits on Bargain City's product lines, and the negotiations between the Hannas and the owner that resulted in the language of the exclusive use clause) without any suggestion this evidence had not been admitted.
The Hannas' identification of the parol evidence allegedly excluded at trial is somewhat oblique. However, we presume they complain that the excluded evidence was (1) the conversations between the Hannas and the then-owner that led to the language of the exclusive use clause, and (2) the course of conduct by the owner in inserting restrictions into the lease with the Bargain City store that placed some limits on Bargain City's product lines.
The record affirmatively demonstrates the opposite for at least one item of the Hannas' parol evidence (the Bargain City lease, see fn. 3, ante), because the record shows that lease was admitted into evidence at trial.
Indulging all presumptions in favor of the judgment, we conclude the record and the statement of decision showed the Hannas' parol evidence was admitted and considered, and therefore they have not carried their burden of affirmatively showing that any evidence was erroneously excluded or stricken by the trial court. The Hannas' contrary argument rests on snippets from the statement of decision in which the court found their proffered construction of the exclusive use clause was "not consistent with the express language of the writing," and the language of the exclusive use clause was "not 'reasonably susceptible' to the meaning claimed by [the Hannas]." However, the trial court's statement of decision as a whole convinces us the court found, after considering the Hannas' parol evidence and weighing it against ENS's contrary evidence, that the proper interpretation of the exclusive use clause was to bar ENS from leasing to another "convenience or grocery market," rather than to bar ENS from leasing to any other tenant that sold some products the Hannas either sold or might elect to sell. Accordingly, the finding that the Hannas' proffered construction of the language was unreasonable was a determination on the merits of the respective arguments by the parties, not a ruling finding the Hannas' parol evidence inadmissible.
The snippets cited by the Hannas were part of the section of the statement of decision in which the court noted that the Hannas' proffered construction, if accepted, would (1) provide the Hannas with a "virtual 'veto authority' over any leasing to any [new business] which might stock any product sold by [the Hannas]" and (2) "preclude[] existing tenants in the center from expanding their product offerings to any new item that would compete with [the Hannas' products]."
There is substantial evidence to support the trial court's holding that the proper interpretation of the exclusive use clause was to preclude ENS from leasing to a class of businesses (e.g. a "convenience or grocery market") rather to prohibit ENS from leasing to any other business selling some products the Hannas either sold or might elect to sell at some future date. Moreover, there is substantial evidence to support the trial court's holding that No. 1 Saldos did not operate a "convenience or grocery market," and therefore the evidence supports the judgment that ENS had not violated the exclusive use clause by leasing to No. 1 Saldos.
We need not detail the evidence that supports the judgment because the Hannas, by failing in their opening brief to recite the evidence most favorably to the judgment, have waived any claim the evidence does not support the judgment. (Myers v. Trendwest Resorts, Inc. (2009) 178 Cal.App.4th 735, 749.)
DISPOSITION
The judgment is affirmed. ENS is entitled to costs on appeal.
McDONALD, Acting P. J. WE CONCUR:
McINTYRE, J.
IRION, J.