Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 06CC00980, Ronald L. Bauer, Judge.
Bewley, Lassleben & Miller and Ernie Zachary Park; Reed Smith LLP and Margaret M. Grignon for Plaintiff and Appellant.
Horwitz, Cron & Jasper and Bernard C. Jasper for Defendant and Respondent.
OPINION
O’LEARY, J.
The Irvine Company (the Company) appeals from entry of judgment in its unlawful detainer action against KST Enterprises (KST). The Company argues the trial court, in a bench trial, erroneously ruled a recapture provision in the Company’s amended lease agreements was unconscionable pursuant to Civil Code section 1670.5. We disagree and affirm the judgment.
All further statutory references are to the Civil Code, unless otherwise indicated.
FACTS
In February 2001, the Company’s predecessor in interest, Irvine Retail Properties Company, leased retail space at the Irvine Spectrum Center (the Center) to KST to operate Maki Maki California Japanese Cuisine (the Restaurant). Katie Hyang-Hee Shinn, KST’s Chief Executive Officer and “managing member,” negotiated the lease with the Company, without the benefit of legal counsel.
The 10-year written lease agreement (the Lease) required KST to pay minimum annual rent based on square footage, the amount increasing in successive years. The Lease included a $565 per day delayed opening penalty. Shinn and her husband, and another married couple, guaranteed the Lease on KST’s behalf. Shinn projected the Restaurant’s first year annual revenue to be approximately $3 million based on observed foot traffic near the site, the Center’s other restaurants’ sales figures, and her experience operating another Maki Maki restaurant.
The Restaurant’s projected opening date was August 1, 2001, but it did not open until December 27, 2001. Shinn attributed the delay in opening to the Company’s delay in approving construction plans. But she also had to fire an incompetent contractor, which contributed to the delay. When the Restaurant finally opened, KST owed the Company approximately $200,000 in rent and delayed opening penalties. After opening, there was construction activity (Phase III construction activity) at the Center that impeded customers’ access to the Restaurant. Shinn observed a 40 percent decrease in foot traffic near the Restaurant. The Restaurant’s first year actual gross sales were less than $1.5 million.
Approximately one month after the Restaurant opened, Shinn met with the Company’s General Manager, Nancy Feightner, to discuss rent relief. Feightner indicated she would draft a proposal for the Company’s approval, and in June 2002, the Company and KST executed a First Amendment to the Lease (the First Amendment). The First Amendment acknowledged KST owed the Company $197,173 in rent and delayed opening penalties, and the First Amendment detailed a lengthy repayment plan. The First Amendment also provided rent relief—for a six-month period KST was to pay six percent of total gross sales instead of the minimum annual rent. KST was relieved from paying the difference between the two sums provided it not default further. KST acknowledged the Company had fully performed and released it from all claims and losses. Shinn agreed to the First Amendment because the rent relief period would last until completion of Phase III construction activity, at which time she anticipated increased foot traffic. Shinn had approximately one week to review the First Amendment, and she did not hire legal counsel, in part because she did not want to pay attorney fees.
Although Phase III construction activity ended in late 2002, foot traffic did not immediately increase. In February 2003, the Company served KST with a three-day notice to pay rent or quit. After Feightner indicated the Company would commence unlawful detainer proceedings unless KST paid $117,943.44, Shinn and her husband mortgaged their home to obtain a loan for that amount. Shinn met with Feightner to discuss the outstanding balance. Feightner again stated she would draft a rent relief proposal for the Company’s approval, which led to the Second Amendment to the Lease (the Second Amendment). The Second Amendment stated that in exchange for the payment of $117,943.44, the Company agreed to extend the rent relief period two months and waive payment of the difference between the rent relief amount and the minimum annual rent. KST again stated the Company fully performed and released the Company from all claims.
The Second Amendment also included a provision entitled, “Landlord’s Recapture Right” (the Recapture Provision). Because the Recapture Provision is the subject of this appeal, we will provide it in its entirety.
The Recapture Provision states: “At any time during the Term, in the event Landlord is able to locate another tenant for the premises which would be a suitable replacement tenant or otherwise at Landlord’s option, Landlord shall notify Tenant in writing of same. Landlord must be assured that the Premises will be available within ninety (90) [sic] after such written notice is given to Tenant. [¶] Tenant agrees that, in the event Landlord does locate a suitable replacement tenant or Landlord determines, in its sole discretion, to terminate the Lease at any time during the Term, Tenant will vacate the Premises within ninety (90) days after it is notified in writing by Landlord that a suitable replacement tenant has been located or of Landlord’s intent to terminate the Lease. The exact date upon which Tenant will be expected to turn over the Premises will be specified in the notice. Tenant also agrees to leave the Premises in good condition and repair, broom clean, with any trade fixtures, equipment or improvements removed in accordance with the applicable terms of the Lease. Tenant also agrees that in the event it fails to vacate the Premises on the date specified in the notice, it will be liable to Landlord and/or the new tenant for all damages which may be incurred, including rents, any other charges payable by Tenant under the Lease, lost profits, attorneys’ fees, costs and expense of litigation, and any other damages arising out of Tenant’s failure to vacate the Premises on or before the date specified in the notice. [¶] As conditions precedent to the termination of the Lease: (i) Tenant agrees to remain bound by all of the terms and conditions of the Lease and agrees to pay all rents and other charges payable by Tenant under the Lease up to the Commencement Date of the Lease with the replacement [t]enant, or, if there is no replacement tenant, until a date specified by Landlord and such date in no event to be later than five (5) days after the date Tenant vacates the Premises pursuant to Landlord’s notice[,] (ii) Tenant agrees to promptly pay to Landlord all amounts billed subsequent to the date upon which Tenant vacates the Premises which are attributable to the period during which Tenant occupied the Premises, (iii) Tenant agrees to forfeit to Landlord its Security Deposit, and (iv) Tenant agrees to reimburse to Landlord the unamortized portion of any brokers’ commission or finders’ fee paid by Landlord for the leasing of the Premises to Tenant, such amount to be determined by multiplying such brokers’ commission or finders’ fee by a fraction, the numerator of which is the number of months remaining in the initial term of the Lease as of the date of termination and the denominator of which is the total number of months in the initial term of the Lease. [¶] In the event a suitable tenant is not located, Tenant will continue to be bound by all of the items and provisions of the Lease and nothing contained in this Amendment shall alter Tenant’s obligations under the Lease nor shall the foregoing create or imply any rights on the part of Tenant to terminate the Lease.”
After reviewing the Recapture Provision, Shinn asked Feightner what it meant. She said, “[I]t is a standard clause used by the . . . Company; that it’s not negotiable.” Shinn responded, “‘[T]his clause sounds very scary.’” Feightner said, “‘This is a serious provision.’” Shinn told her that she did not want the Second Amendment to include the Recapture Provision. Feightner said the Recapture Provision “[was] not negotiable and, if [she did] not sign [it], the Landlord will take the next step of evicting KST.” Preferring the Second Amendment and Recapture Provision to lease termination or borrowing additional money from family or friends, in February 2003, Shinn agreed to the Second Amendment.
In spring 2003, KST was still having difficulty paying its rent, and Shinn again met with Feightner. The parties executed a Third Amendment to the Lease (the Third Amendment). The Third Amendment provided for an additional six months of rent relief, deferred payment of all rent differential, and release of the Company from all claims. The Third Amendment included the Recapture Provision, which they again discussed being “serious,” and a provision requiring KST to hire a restaurant consultant. Over the next two years, KST implemented many of the consultant’s recommendations at a cost of approximately $102,500.
In August 2003, Shinn contacted Feightner seeking further rent relief. Feightner prepared another rent relief proposal, which resulted in the Fourth Amendment to the Lease (the Fourth Amendment). The Fourth Amendment provided for an additional six months of rent relief, deferred payment of all rent differential, and release of the Company from all claims. The Fourth Amendment included the Recapture Provision, which Feightner told Shinn was a “‘standard clause.’”
In August 2004, the Company began construction of a parking structure at the Center that interfered with customers parking near the Restaurant. After Feightner met with Shinn and prepared another proposal, the parties executed the Fifth Amendment to the Lease (the Fifth Amendment), in September 2004. The Fifth Amendment provided a $13,000 credit to KST for plumbing repairs and loss of business. The Fifth Amendment included the Recapture Provision.
In January 2005, the Company served KST with a notice to pay rent or quit, and eventually initiated an unlawful detainer action. Shinn hired legal counsel. Further discussions occurred between the parties’ counsel, and they negotiated a Sixth Amendment to the lease (the Sixth Amendment), which was executed in March 2005. The Sixth Amendment detailed, among other things, KST’s financial obligations to the Company, including $225,999 in rent and approximately $225,090 in deferred rent, and a payment plan. The Sixth Amendment did not expressly restate the Recapture Provision, but it did include Section 6, which stated: “Affirmation of Agreements. Except as expressly modified hereby, Tenant acknowledges and affirms that the Lease remains in full force and effect.” It also included a provision releasing the Company from any and all claims by KST.
On February 1, 2006, the Company exercised its right pursuant to the Second Amendment to recapture the retail space. When the Company exercised its right, KST was not in default under the Lease; KST did owe the Company for deferred rents. KST remained in the retail space, and the Company filed an unlawful detainer action. KST answered.
KST moved for summary judgment on the ground the Recapture Provision was unconscionable pursuant to section 1670.5. The motion was supported by a declaration from Shinn. The Company opposed the motion, supported by declarations from Feightner, and Robert Sorensen, the Company’s Vice President of Operations. The trial court took the matter under submission.
The parties stipulated to facts establishing the prima facie elements of the Company’s unlawful detainer action and the matter proceeded to trial based only on the issue of KST’s defenses—unconscionability and estoppel. Shinn, Feightner, and Sorensen testified at the bench trial.
Sorensen testified concerning rent relief and recapture provisions. He said a rent relief amendment is one where a “tenant is seeking from the landlord and the landlord is willing to agree to rent forgiveness or rent deferral or some combination . . . .” He said a recapture provision is “a provision whereby the landlord reserves the right to terminate the lease.” He explained there is a correlation between rent relief and recapture provisions because “[w]hen a tenant is requesting rent relief, generally it is because their business model is not successful. And we are looking for successful operators who can provide a secure rent stream in the property and, clearly, the type of merchant the customer will respond to. [¶] The fact that the tenant is requesting rent relief generally means that they’re not providing the goods and services the customer is desirous of or they’re not operating the business capably, and so we want the opportunity to bring in a merchant that can perform the services we’re expecting.” A recapture provision allows the landlord to “find a replacement tenant [who will pay rent at the bargained for price] while you’re collecting reduced rent from the struggling tenant.”
In its statement of decision, the trial court, after reciting the facts that led to the Company’s unlawful detainer action and providing the applicable law, stated: “The [Recapture Provision] in these lease amendments is . . . substantively unconscionable. The package of concessions which [the Company] extracted from KST in exchange for rent relief included several aspects of the [Recapture Provision], including [KST’s] obligations to forfeit its security deposit and to reimburse [the Company] for the unamortized portion of the brokerage commission associated with this original lease. These latter terms plainly can accrue only for the benefit of [the Company] and to the detriment of KST. But, standing alone, they might arguably fall within the scope of those ‘asymmetrical’ lease terms which [the Company] contends can be the permissible result in any deal negotiated by contracting parties. If these terms came into play only in the event of a rent default or other breach of the lease, they might be considered a fair price to pay for the restructuring and concessions granted in these lease amendments. However, the premature recapture of the premises from a tenant that is then fully performing all of its obligations is, by itself, overly harsh and one-sided. There is no similar benefit for [KST], which must endure the entire [10]-year term even in the face of recession, death of the principals, or an FDA ban on sushi. [The Company’s] unfettered right to evict will only be used when [KST] is thriving and meeting all its lease obligations, because the rapid process of a notice to pay rent or quit or a notice of breach, followed by an accelerated eviction suit, is quicker and preferable to [the Company] when [KST] falters. The packaging of the added financial penalties (deposit forfeiture and commission payment) along with the [Recapture Provision] merely serves to aggravate the substantive unconscionability of the [Recapture Provision]. [¶] The [Recapture Provision] is [also] procedurally unconscionable. By universal agreement, this was a take-it-or-leave it proposal by [the Company] to KST. In the language of . . . Discover Bank[v. Superior Court (2005) 36 Cal.4th 148] . . ., this was ‘a contract of adhesion, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ [The Company] suggests that KST had the alternatives of avoiding this problem by never going into default or curing its default and never seeking any rent relief. However, the evidence at this trial showed that KST’s problems were not solely of its own making. Customer access and parking were affected by construction at the [Center], and the approval process for KST’s construction plans delayed the opening of the [R]estaurant. The only evidence about KST’s ability to avoid the [Recapture Provision] by paying the past-due rent was that it had no ability to do so either from its own funds or from any loan source. In fact, it has already borrowed $117,000 from its principals, who gave their home as security for a loan of that amount. In short, the [Company] was not entirely blameless in bringing about the rent deficits, and [KST’s] only alternative to the [Recapture Provision] was the very unpalatable choice of being evicted then and losing its entire investment. This represents a substantial showing of procedural unconscionability. [¶] The law requires a variable combination of procedural and substantive unconscionability for the avoidance of a contract provision. Cases suggest that a strong showing in one area may be coupled with a lesser showing in the other. This court finds no ‘lesser’ showing here in regard to either prong of the test for unconscionability. It has concluded that [KST] has made a strong showing of both substantive and procedural unconscionability in the challenged [Recapture Provision] of these lease amendments. [¶] The release language in the sixth of these amendments is of no aid to the [Company]. If read with the breadth urged by the [Company], paragraph 7(a) would absolve [the Company] from the ‘duty’ to maintain a building for [KST’s] restaurant (‘duties . . . of every kind and nature whatsoever’) and would absolve the [Company] from any damages that might be suffered if the roof fell on a house full of patrons. While paragraph 7(b) may be an attempt to limit the incredible scope of the prior paragraph with a dose of reason, the court has concluded that this language does not deprive [KST] of the right to assert the unconscionability defense to this invocation of the lease’s [Recapture Provision]. [¶] The court does not adopt [KST’s] alternate theory of an estoppel. At best, that argument may be redundant of the unconscionability defense. It is rendered unnecessary by the court’s ruling set forth herein. [¶] This hearing occurred in the midst of motions for summary judgment, for injunctive relief, and to strike the at issue memorandum. These are all now rendered moot by virtue of the full trial conducted on KST’s defense and the court’s ruling thereon. [¶] [The Company] could perhaps have evicted [KST] when early rent defaults occurred. That would have been a speedy, acceptable remedy and likely subject to no reasonable challenge. The [Company] instead tempered its ostensible showing of mercy with a draconian one-way provision to keep [KST] in possession and paying rent. Under the new scheme, the [Company] could still use the quick statutory eviction remedy if the tenant defaulted, but it could also use the [90]-day ouster against a thriving and paying tenant at any time. That time arrived when the [Company] had the opportunity to get $18,512 more rent than it had bargained for every month. The plug was therefore pulled on KST. This is surely the paradigm occasion for the invocation of . . . section 1670.5. [¶] Judgment should be entered for [KST] in accordance with the foregoing order.” (Bold and underscoring omitted.)
The trial court entered judgment for KST on September 29, 2006. The Company timely appealed.
DISCUSSION
Standard of Review
There is a disagreement concerning the standard of review. The Company argues we must review the unconscionability of the Recapture Provision de novo. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 (Gatton); Flores v. Transamerica HomeFirst, Inc. (2001) 93 Cal.App.4th 846, 851 (Flores).) KST contends we must review the unconscionability of the Recapture Provision under what is essentially a mixed review standard, i.e., that we review the unconscionability of the Recapture Provision de novo while reviewing the trial court’s resolutions of conflicting evidence and the implied findings made therefrom under the substantial evidence rule. (Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89.)
In other words, the Company claims the facts were undisputed and we should review the unconscionability of the Recapture Provision as a matter of law. KST asserts, however, there were disputed facts and we must view them in the light most favorable to the judgment to determine whether the Recapture Provision was unconscionable as a matter of law. We agree with the Company on this point.
“Unconscionability is ultimately a question of law for the court. [Citations.] As we recently explained: ‘It is true that numerous factual inquiries bear upon that question, e.g., the business conditions under which the contract was formed, and to the extent there are conflicts in the evidence or in the factual inferences which may be drawn therefrom, we consider the evidence in the light most favorable to the judgment. [Citation.] In the present case, however, the extrinsic evidence was undisputed. Consequently, we review the contract de novo to determine unconscionability. [Citations.]’ [Citation.]” (Flores, supra, 93 Cal.App.4th at p. 851.)
Here, we conclude there were no disputed facts. The parties stipulated to the elements of the unlawful detainer action. The only issues facing the trial court were the defenses of unconscionability and estoppel. The parties do not argue about the events leading to execution of the Lease or the Lease amendments or what transpired at the Center. The issue is whether those undisputed facts established either defense. As we explain more completely below, we conclude the undisputed facts established the Recapture Provision was unconscionable.
Applicable Law
Section 1670.5, subdivision (a), states: “If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”“Unconscionability is determined as of the time the contract was entered into, not in light of subsequent events.” (Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1324 (Morris).)
“In California, two separate approaches have developed for determining whether a contract or provision thereof is unconscionable. One, based upon the common law doctrine, was outlined by the California Supreme Court in Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807 . . . [(Graham)]. Under Graham, the court first determines whether an allegedly unconscionable contract is one of adhesion. Upon making this finding, the court then must determine whether (a) the contract term was outside of ‘the reasonable expectations of the [weaker] part[y],’ or (b) was ‘unduly oppressive or “unconscionable.”’ [Citation.] [¶] A separate test, based upon cases applying the Uniform Commercial Code unconscionability provision views unconscionability as having ‘procedural’ and ‘substantive’ elements. (A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473 . . . (A & M Produce).) ‘The procedural element requires oppression or surprise. [Citation.] Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form. [Citation.] The substantive element concerns whether a contractual provision reallocates risks in an objectively unreasonable or unexpected manner.’ [Citation.] Under this approach, both the procedural and substantive elements must be met before a contract or term will be deemed unconscionable. Both, however, need not be present to the same degree. A sliding scale is applied so that ‘the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.’ [Citation.] [¶] Our Supreme Court in Perdue[v. Crocker National Bank (1985)] 38 Cal.3d 913, [925, fn. 9] . . . performed its unconscionability analysis exclusively under the Graham approach, but noted the two analytical approaches are not incompatible, declaring: ‘Both pathways should lead to the same result.’ [Citation.] Many years later in Armendariz [v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 113-114], the court approved both approaches without expressing a preference for either one. [Citation.] In the recent case of Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064 . . . our high court employed exclusively the procedural/substantive approach derived from A & M Produce.” (Morris, supra, 128 Cal.App.4th at pp. 1317-1318, fn. omitted.) Because the California Supreme Court has most recently used the procedural/substantive approach, we will do the same. But first, however, we must determine which amendment we will review, the Second Amendment, which was the first to include the Recapture Provision, or the Sixth Amendment, the most recent amendment.
In its opening brief, the Company does not expressly state which amendment we should review. This is important because established law requires that we view the circumstances at the time the Recapture Provision was executed. Throughout its opening brief, the Company discusses all the circumstances preceding execution of the Sixth Amendment, which suggests it views that amendment as the operative one. KST, on the other hand, contends the operative amendment is the Second Amendment, the one where the Recapture Provision was first introduced. In its reply brief, the Company asserts the Sixth Amendment is the operative amendment because it was the operative lease at the time it exercised its recapture rights, and the one where KST was represented by counsel.
In its February 1, 2006, letter exercising its right to recapture the retail space, the Company stated it was exercising that right pursuant to the Second Amendment. Although that does not establish the Second Amendment as the operative amendment, it does highlight the fact the Second Amendment was the first instance where the parties discussed and included the Recapture Provision in an agreement between the parties. Subsequent inclusion of the Recapture Provision in lease amendments were merely restatements of that provision. (Blattman v. Gadd (1931)
Here, the parties first executed the Recapture Provision in the Second Amendment on February 7, 2003. Therefore, we will view the circumstances as they were on that date.
Procedural Unconscionability
“‘“Procedural unconscionability” concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] It focuses on factors of oppression and surprise. [Citation.] The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party.’ [Citation.]” (Morris, supra, 128 Cal.App.4th at p. 1319.) To determine whether the Recapture Provision was procedurally unconscionable, we must first ascertain whether it was part of an adhesion contract. “[A]n adhesion contract as ‘“a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.”’ [Citation.]” (Ibid.)
The parties agree Shinn was aware of the Recapture Provision, and therefore, we will not discuss the element of surprise. (Gatton, supra, 152 Cal.App.4th at pp. 581-583 [procedural unconscionability may be based on either oppression or surprise].)
In support of its legal conclusion the Recapture Provision was not part of an “adhesion contract,” the Company argues the lease amendments when viewed in their entirety were not standardized contracts, but instead individually negotiated five separate times with different terms. We disagree.
The Recapture Provision was part of an adhesion contract. The Company was clearly the party with the superior bargaining strength. Although KST was in default at the time of the Second Amendment, the undisputed evidence demonstrated KST was not solely to blame for its weaker bargaining position. (But see Morris, supra, 128 Cal.App.4th at pp. 1317-1318 [oppression self-imposed where plaintiff could obtain merchant credit card services from another source on different terms].) Shinn fired the contractor, but the Company was slow to approve construction plans and the Phase III construction activity resulted in 40 percent less foot traffic near the Restaurant. Contrary to the Company’s claim these facts are inconsistent with KST’s release of all claims against it, there was no claim the Company was in default. KST had the burden of proof on the defense of unconscionability and offered evidence the Company’s conduct was in part responsible for the delay in the Restaurant’s opening and the lower sales. We do not believe a party’s release of claims prevents that party from offering evidence in support of a defense to which it has the burden of proof. (See Evid. Code, § 622 [facts recited in written instrument conclusively presumed true, but not recital of a consideration].) Additionally, KST’s release of claims was in consideration for the debt relief in the Second Amendment and is not presumed to be true.
Additionally, KST’s only choice concerning the Recapture Provision was to accept the Recapture Provision or reject the Second Amendment and be evicted. After reviewing the Second Amendment, Shinn asked Feightner what the Recapture Provision meant. She said it was a “‘standard clause’” that is “not negotiable.” Shinn requested it be deleted, and Feightner responded the Recapture Provision “[was] not negotiable and, if [she did] not sign [it], the Landlord will take the next step of evicting KST.” Clearly, this was a “take it leave it” situation where Shinn did not have the opportunity for meaningful negotiation. Shinn could either accept the Second Amendment with the Recapture Provision or be evicted. And, assuming that you would call Shinn asking Feightner for rent relief and Feightner returning with a proposal that included the Recapture Provision meaningful negotiation, the fact Shinn was able to obtain rent relief to allow her to continue operating the Restaurant does not mean the Recapture Provision was the product of a meaningful negotiation. (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 662 [power to negotiate some aspects of employment no bearing on issue of power to negotiate arbitration provision].) Therefore, because the Company had superior bargaining strength and presented KST with either signing the Second Amendment with the Recapture Provision or rejecting it and being evicted, we conclude the Recapture Provision was part of an adhesion contract.
Our conclusion the Recapture Provision was part of an adhesion contract does not end our inquiry. “‘“To describe a contract as adhesive in character is not to indicate its legal effect. . . . [A] contract of adhesion is fully enforceable according to its terms [citations] unless certain other factors are present which, under established legal rules—legislative or judicial—operate to render it otherwise.”’ [Citation.] [¶] . . . Although adhesion contracts often are procedurally oppressive, this is not always the case. [Citation.] Oppression refers not only to an absence of power to negotiate the terms of a contract, but also to the absence of reasonable market alternatives.” (Morris, supra, 128 Cal.App.4th at pp. 1319-1320.)
The Company contends that the Second Amendment was not oppressive because it was an alternative, Shinn was an experienced business person who chose not to consult counsel on the Second Amendment, and KST’s problems were self-imposed. We have already addressed the Company’s claim KST’s default was solely of its own making, and need not discuss it further. With respect to KST’s alternatives to the Recapture Provision, Shinn testified she had no alternatives. She and her husband had already mortgaged their home to pay down KST’s debt. Shinn also said she had spoken with KST investors who could not loan the Restaurant money, and she chose not to speak with friends and family because she had “already utilized [her] resources.” Moreover, after building and opening the Restaurant, she could not shop for better lease terms somewhere else—the Company was the landlord. She felt the Second Amendment with the Recapture Provision was her only choice. As to her business experience, Shinn was an experienced business person having operated another restaurant, but even large business entities may sometimes have relatively little bargaining power. (Graham, supra, 28 Cal.3d at p. 819 [prominent music promoter reduced to humble role of adherent].) With respect to the benefit of counsel, Shinn was afforded an opportunity to consult with counsel, but she chose not to for financial reasons. This fact does not render the Recapture Provision less unconscionable.
Substantive Unconscionability
“A provision is substantively unconscionable if it ‘involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ [Citation.] The phrases ‘harsh,’ ‘oppressive,’ and ‘shock the conscience’ are not synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis. ‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ [Citations.]” (Morris, supra, 128 Cal.App.4th at pp. 1322-1323.)
The Company contends “the trial court erred by substituting its own paternalistic notion of what was reasonable for the parties’ carefully bargained for and mutual agreement.” Not so.
Initially, we agree with the Company that to determine whether the Recapture Provision was substantively unconscionable, we must look at the circumstances at the time it was entered into by the parties in the Second Amendment. (Morris, supra, 128 Cal.App.4th at p. 1324.) That is where our agreement ends, however.
Although KST was in default and the Company could have terminated the Lease and evicted KST, it chose not to. Instead, the Company offered KST rent relief. But as a condition of rent relief, the Company imposed on KST the Recapture Provision. The Recapture Provision was part of a commercial agreement that gave the Company the right to terminate the Lease at any time during the remainder of the term, approximately eight years, in its sole discretion. (Ilkhchooyi v. Best (1995) 37 Cal.App.4th 395, 411 [commercial profit-shifting provision unconscionable].) KST did not have to be in default, and the Company did not have to give KST a reason for the termination. If the Company chose to exercise its right, it need only give KST 90 days written notice to vacate the retail space.
The Company concedes here, and as it did at trial through Sorensen’s testimony, that the Recapture Provision gave it the right to terminate the Lease once it found a more suitable tenant, i.e., a tenant that could pay higher rent when commercial property values increased. KST, on the other hand, had no similar right. KST was obligated to perform under the Lease both during good times, when the Company was most likely to exercise its recapture right because it could obtain a higher rent from another tenant, and during bad times, when the Company was unlikely to exercise its right because of facilities or economic issues. Parties are free to agree to provisions that meet their needs, and the Second Amendment did provide KST with some benefits, including rent relief. But the Recapture Provision did not meet KST’s needs, and it was a “‘one-sided’” reallocation of risks strictly to the Company’s benefit. (Morris, supra, 128 Cal.App.4th at p. 1324; West v. Henderson (1991) 227 Cal.App.3d 1578, 1588 [lack of mutuality statute of limitations].) And as we explain above, it was not the product of careful bargaining and mutual agreement. The Recapture Provision’s rationale and purpose as testified to by Sorensen in benefiting a landlord do not detract from the harsh and oppressive affect on a tenant. Further, the fact the Company, and the company Sorensen previously worked for, utilized recapture provisions does not make the Recapture Provision here less harsh or oppressive. Moreover, a trial court may reject a witness’s uncontradicted testimony. (Goehring v. Chapman University (2004) 121 Cal.App.4th 353, 368.) The effect of the Recapture Provision conferred no benefit on KST and was unmistakably one-sided. It shocks the conscience.
Finally, Carma Developers (Cal.) v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 367, is inapposite. The Carma court addressed the issue of whether a unilateral recapture provision was an unlawful restraint on alienation, and not whether it was unconscionable. (Id. at pp. 353-354.) Here, we are concerned only with unconscionability. Therefore, we conclude KST satisfied its burden of proof and demonstrated the Recapture Provision was both procedurally and substantively unconscionable in equally strong degrees.
DISPOSITION
The judgment is affirmed. Respondent is awarded its costs on appeal.
WE CONCUR: BEDSWORTH, ACTING P. J., MOORE, J.