Opinion
NOT TO BE PUBLISHED
City & County of San Francisco Super. Ct. No. 450040
Siggins, J.
This appeal challenges an award of prejudgment interest on the amount defendant Haight Ashbury Free Clinics, Inc. (the Clinic) paid to settle a breach of contract action pursuant to an offer of judgment under Code of Civil Procedure section 998. The Clinic contends the interest award constituted an abuse of the trial court’s discretion because plaintiff Happening House Ventures (Happening House) failed to demonstrate a loss of use of money or property that would be compensable by prejudgment interest. Alternatively, the Clinic asserts the court erred by awarding interest at 10, rather than 8 percent per annum. We find neither an abuse of discretion nor legal error, and therefore affirm the judgment.
BACKGROUND
Happening House leased three buildings in the Haight Ashbury neighborhood to the Clinic at below-market rates for approximately 40 years. In the lease, initially executed in January 1980, the Clinic agreed to maintain the properties and to make capital improvements. The Clinic was to “repair, keep and maintain” the leased buildings, to “comply with all of the requirements of all Municipal, State and Federal Authorities,” and to return the property in the same condition as received at the end of the seven year, five-month lease term. Through a series of written agreements, the parties extended the original lease term.
Happening House received a series of notices of violation and orders of abatement pertaining to the premises from the City and County of San Francisco between 2000 and 2005. Happening House notified the Clinic that substantial repairs were required in 2004 and 2005. The cost estimates for the repairs totaled over $250,000.
Apparently the repair work was not performed, and in August 2006, Happening House sued the Clinic for breach of the lease. The complaint alleged that the Clinic “fail[ed] to repair, keep and maintain the premises in good and sanitary order, condition and repair or to comply with all requirements of municipal, state and federal authorities” and refused to make repairs as required under the lease. The complaint prayed for damages of $1 million.
Happening House sold one of the three leased buildings, located at 409 Clayton Street, in November 2007, after approximately six months of work undertaken to clear the notices of violation and an abatement order once the Clinic vacated the building. The building located at 529 Clayton Street also stood vacant for at least a year while Happening House attempted to clear violations and abatement orders.
In February 2008, the Clinic extended a written offer of settlement in which it agreed to entry of judgment against it “in the total amount of $350,000, plus any reasonable attorney’s fees, interest and costs that the Court may finally determine to be properly recoverable by [Happening House]. (Italics added.) Happening House accepted the offer and moved for an award of prejudgment interest under Civil Code section 3287.
Unless otherwise noted, all further statutory references are to the Civil Code.
Following briefing and argument, the court awarded interest at the rate of 10 percent per year from the date Happening House filed its complaint. The court’s order states that the Clinic’s “inclusion of the phrase ‘interest... that the Court may finally determine to be properly recoverable by HHV’ in its California Code of Civil Procedure section 998 Offer refers to prejudgment interest, since postjudgment interest [as] a matter of course, is not normally included in the judgment and requires no determination by the Court. Even if that phrase were ambiguous, the Court would interpret the ambiguity against [the Clinic], the drafter of the 998 offer. [¶] The Court does not award interest under Civil Code section 3287(a), as damages were not ‘certain’ as of March 6, 2006. The Court, however, exercises its discretion to award interest pursuant to Civil Code section 3287(b), as [the Clinic] knew or had reason to know the approximate cost of its obligations to [Happening House] under the parties’ lease. No authority precludes an award of interest.” The Clinic filed this timely appeal.
DISCUSSION
I. Discretionary Interest Under Section 3287, Subdivision (b)
Section 3287, subdivision (b) authorizes the trial court, in its discretion, to award prejudgment interest on unliquidated contractual obligations. “Every person who is entitled under any judgment to receive damages based upon a cause of action in contract where the claim was unliquidated, may also recover interest thereon from a date prior to the entry of judgment as the court may, in its discretion, fix, but in no event earlier than the date the action was filed.” (§ 3287, subd. (b).) This provision provides trial courts flexibility where the exact amount of damage is uncertain and creates “a limited exception to the prevailing general rule that prejudgment interest is not allowed on unliquidated obligations. [Citation.] The usual prohibition against such interest is based upon the rationale that it is unreasonable to expect a defendant to pay a debt before he or she becomes aware of it or is able to compute its amount. [Citations.] By allowing an award of prejudgment interest, but only for a limited time period and only if the trial court finds it reasonable in light of the factual circumstances of a particular case, Civil Code section 3287, subdivision (b), seeks to balance the concern for fairness to the debtor against the concern for full compensation to the wronged party.” (Lewis C. Nelson & Sons, Inc. v. Clovis Unified School Dist. (2001) 90 Cal.App.4th 64, 69; A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 496.)
The trial court denied Happening House’s claim for mandatory interest under section 3287, subdivision (a), and Happening House does not challenge that ruling on appeal. Although the Clinic’s opening brief discusses mandatory awards under subdivision (a), the discussion is irrelevant to the discretionary ruling the Clinic challenges in this appeal.
We review the award of prejudgment interest under section 3287, subdivision (b) for an abuse of discretion. “A trial court’s exercise of discretion will be upheld if it is based on a ‘reasoned judgment’ and complies with the ‘... legal principles and policies appropriate to the particular matter at issue.’ ” (Bullis v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801, 815; Esgro Central, Inc. v. General Ins. Co. (1971) 20 Cal.App.3d 1054, 1064-1065.) Since we will not presume an abuse of discretion, we will reverse an order granting interest under section 3287, subdivision (b) only if the record is bare of any factual basis to support it. (Esgro, supra, at p. 1065.)
The award in this case neither lacks factual support nor fails to reflect the trial court’s “reasoned judgment.” Relying on authority that states section 3287, subdivision (b) is intended “to compensate plaintiff for loss of use of his or her property,” (Lewis C. Nelson & Sons, Inc. v. Clovis Unified School Dist., supra, 90 Cal.App.4th at pp. 71-72; North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 828; Rifkin v. Achermann (1996) 43 Cal.App.4th 391, 398), the Clinic argues that Happening House is not entitled to interest because it failed to show that it suffered an uncompensated economic loss. The argument is not persuasive.
The trial court found that Happening House suffered an economic loss, and its finding is supported by the record. There was ample evidence that the Clinic failed over a course of years to maintain the buildings it leased from Happening House and to resolve legal violations as it was required to do. Numerous notices of violations were issued between 2000 and 2005 and Happening House obtained repair estimates. There was also evidence from which the court could infer that the repairs and their consequent costs fell on Happening House, rather than the clinic. In particular, there was testimony that two of the three buildings sat vacant and unused for substantial periods of time after they were vacated by the Clinic. The court could reasonably infer on this record that Happening House was deprived of significant income from the properties while they sat vacant; that it was forced to expend substantial funds to carry out the maintenance, repairs, and legal tasks that the Clinic left undone; and/or that it suffered diminished market value due to the condition of the buildings.
The trial court could also reasonably conclude that an award of interest would serve the concerns for fairness to the debtor and full compensation to the payee underlying section 3287, subdivision (b). (See Lewis C. Nelson & Sons, Inc. v. Clovis Unified School Dist., supra, 90 Cal.App.4th at p. 69.) It hardly seems unfair to allow prejudgment interest where the defendant’s settlement offer expressly contemplated that the court might award it. Moreover, the Clinic presumably benefited from the continued use and possession of the funds it should have, but did not, use over the years to maintain the buildings or pay to Happening House to effectuate repairs, and it was on notice of its unfulfilled obligations long before the complaint was filed even if the amount at stake was not precisely determined.
The authorities cited by the Clinic do not support its contrary position. In Esgro, the trial court’s denial of prejudgment interest was affirmed because the trial court could have concluded that the jury included interest in its calculation of damages. The appellate court, however, also noted that the record would have supported a discretionary award of interest had the trial court chosen to make one. (Esgro Central, Inc. v. General Ins. Co., supra, 20 Cal.App.3d at p. 1065.) In A & M Produce Co. v. FMC Corp., supra, 135 Cal.App.3d at pages 495-496, an interest award under section 3287, subdivision (b) was affirmed. One of several factors that supported the discretionary award was the fact that over seven years passed between the filing of the complaint and the judgment. (A & M Produce Co., supra, at p. 496.) Nothing in the opinion, however, supports the Clinic’s suggestion that a similarly lengthy period of litigation is a necessary prerequisite foran award under section 3287, subdivision (b). To the contrary, no authority we have found imposes such a specific restraint on the trial court’s discretion to award interest under section 3287, subdivision (b).
The Clinic also contends that the large discrepancy between Happening House’s $1 million prayer for relief and the $350,000 settlement indicates that this was not an appropriate case for prejudgment interest. The case it cites for this proposition, Wisper Corp. v. California Commerce Bank (1996) 49 Cal.App.4th 948, 960-961, is inapposite. The issue in Wisper was whether plaintiff’s damages were sufficiently “certain” or “capable of being made certain” to support an award of prejudgment interest on a liquidated obligation under section 3287, subdivision (a). (Wisper, supra, at pp. 958, 960.) In that specific context, the Court of Appeal observed that the difference between the prayer for relief and the eventual recovery was one indication that the damages were not sufficiently liquidated to support an interest award under section 3287, subdivision (a). But, in contrast to subdivision (a), the purpose of subdivision (b) is to permit the court to award prejudgment interest on unliquidated amounts. Wisper therefore has no bearing on the breadth of the court’s discretion under subdivision (b).
The Clinic argues that there was no direct evidence of the dollar amounts Happening House incurred to clear permit violations or make repairs. But the express purpose of section 3287, subdivision (b) is to allow the trial court to award prejudgment interest on uncertain claims. On this record, we are satisfied that the award of prejudgment interest on an uncertain obligation was the product of a reasoned judgment based on the evidence and was consistent with the policies served by section 3287, subdivision (b).
We therefore do not reach Happening House’s contention that the Clinic was contractually bound by its Code of Civil Procedure section 998 offer to accept the trial court’s award of prejudgment interest regardless of whether the award was within the court’s discretion.
II. The Interest Rate
Section 3289, subdivision (b), provides that when a contract formed after January 1, 1986, does not specify a legal rate of prejudgment interest, the interest rate after a breach of contract is 10 percent per annum. For contracts formed before January 1, 1986, that do not state a rate of interest chargeable after breach, the legal rate of prejudgment interest is 7 percent per annum. (Cal. Const., art. 15, § 1; Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1131-1132; Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1585-1586.) The Clinic contends the court erred when it specified that prejudgment interest would accrue at the rate of 10 percent because the original lease was executed on January 1, 1980, when the applicable rate was 7 percent. Reviewing this contention for legal error (Michelson, supra, at p. 1585), we disagree. The original lease was executed in 1980, and it expired by its own terms in 1987. Thereafter, the legal obligations set forth in the lease were modified and continued by a series of written agreements between the parties. Accordingly, the written instruments that created the parties’ legal obligations from the time the complaint was filed in 2006 until judgment—the period for which prejudgment interest was awarded—were formed after January 1, 1986.
The Clinic’s argument that the date of the original lease should control the interest rate is based on its distinction between the “renewal” of a contract, which the Clinic maintains would (if executed in 1986 or after) trigger the higher interest rate, and a “mere extension,” which would not. But however the agreements to modify and continue the lease are characterized, following the expiration of the original lease the only ongoing contractual obligations between the parties arose from their execution of the subsequent agreements. The Clinic’s reliance on Kaichen’s Metal Mart, Inc. v. Ferro Cast Co. (1995) 33 Cal.App.4th 8 is inapt in this context, as the case holds merely that the acknowledgment of a written debt under Code of Civil Procedure section 360 continues the existing debt into a new limitations period but does not create a new obligation. That holding has nothing to do with the issues presented here. Equally inapposite is County of Humboldt v. McKee (2008) 165 Cal.App.4th 1476, 1496, which addresses the ramifications of automatic renewal provisions contained in, and specific to, a statute enacted to encourage the preservation of agricultural lands. (Id. at pp. 1487-1489, 1496.)
Here, although the later writings incorporated by reference many of the terms of the 1980 lease, the operative contracts for the period during which interest was assessed were written agreements that were formed after January 1, 1986. The trial court correctly imposed interest at the 10 percent per annum rate.
DISPOSITION
The judgment is affirmed.
We concur: Pollak, Acting P.J. Jenkins, J.