Opinion
B228705
12-19-2011
MONTROSE PROPERTY, LLC, Plaintiff and Respondent, v. WONG JU KONG, Defendant and Appellant.
William P. Warden for Defendant and Appellant. Law Offices of Christian S. Molnar, Christian S. Molnar and Neelamba V. Jhala for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC414013)
APPEAL from a judgment of the Superior Court of Los Angeles County. Alan Rosenfeld, Judge. Affirmed.
William P. Warden for Defendant and Appellant.
Law Offices of Christian S. Molnar, Christian S. Molnar and Neelamba V. Jhala for Plaintiff and Respondent.
Defendant Wong Ju Kong challenges a judgment in favor of Montrose Property, LLC, requiring him to pay rent and other charges due under a commercial lease. Kong contends that the trial court erred (1) in determining the date when Montrose's duty to mitigate damages arose, (2) in finding that Montrose made prompt and good-faith efforts to mitigate, and (3) in declining to allow Kong, who did not attend the trial, to introduce his own deposition testimony at trial. We affirm.
BACKGROUND
In May 2009, Montrose filed this action for damages against Kong and other parties, seeking recovery of unpaid rent and other charges, and attorney fees and costs under a commercial lease. Montrose asserted one cause of action against Kong for breach of his written guaranty of the lease.
The matter proceeded to trial against Kong only. The original lessee defendants (Swork Coffee, Inc. and Patricia Neale) defaulted. Montrose did not serve the defendant to whom the original lessees assigned their interest in the lease (Yoonjin Lee), and the trial court dismissed her from the action.
1. Evidence Presented at Trial
A. Montrose's evidence
In April 2008, Yoonjin Lee entered into an assignment and assumption of a commercial lease with lessor Montrose and original lessees Swork Coffee and Patricia Neale. Lee planned to operate a coffee shop. Lee assumed all of the lessees' obligations under the commercial lease, dated July 9, 2004. The original lessees remained jointly and severally liable on the lease.
The five-year term of the lease commenced on February 1, 2005 and was set to expire on January 31, 2010. The base monthly rent was $3,650 for the commercial space located in Montrose, California, which included 1,244 square feet in a larger building, plus 432 square feet of a larger outside patio area (hereafter referred to as the subject premises). The lease also required Lee to pay the lessee's percentage share of the common area operating or maintenance expenses (CAM), which were estimated to be about $547.36 per month at the time the lease was originally signed in July 2004.
Montrose's consent to the assignment of the lease was conditioned on Kong's agreement to guarantee the lessee's performance under the lease. In April 2008, Kong executed a written guaranty of the lease.
Patricia Neale guaranteed Swork Coffee's performance under the lease.
For a period of time, Lee operated a coffee shop at the subject premises. In December 2008, Lee did not pay the rent and Montrose served her with a 3-day notice to pay. Kong paid the rent and charges due under the lease for the period December 2008 through April 2009.
At some point prior to May 5, 2009, but not specifically defined in the record on appeal, Montrose learned from another tenant in the building that Lee had not opened the coffee shop for a few days. According to Robert Gonzalez, one of Montrose's managing members, Lee subsequently reopened the coffee shop "for awhile" and then opened and closed it "sporadically for a period."
Also at some point prior to May 5, 2009, but not specifically defined in the record on appeal, Montrose learned that Kong was interested in selling the coffee business and subleasing the subject premises. Kong asked Montrose if it knew of any potential renters for the space, but Montrose did not. Montrose never represented that it could find a replacement tenant for Lee. Neither Kong nor Lee ever presented Montrose with a written offer by a prospective replacement tenant.
On May 5, 2009, counsel for Lee and Kong sent Montrose a letter, stating in pertinent part: "My clients have vacated the premises. As of May 2009 they will no longer pay rent on the premises." Counsel asserted: "You have made no effort to re let these premises but have sat by and let my clients continue to make payments on the lease."
Prior to May 5, 2009, Montrose had not been informed that Lee had moved out of the subject premises. When Montrose took back possession of the premises in May 2009, the space still looked like a coffee shop. The equipment for running a coffee shop and other items (cups, sugar, napkins) were still in place.
On May 8, 2009, Montrose listed the subject premises for lease on a listing service called loopnet.com. On May 11, 2009, Montrose ordered a sign advertising the availability of the premises. Montrose placed the sign "[d]irectly in front of the available space on the street at a point [Montrose] felt was most visible to cross traffic." On May 13, 2009, Montrose listed the premises for lease on the Glendale Association of Realtors MLS system.
In the listings, Montrose asked for a monthly base rent of $3,640, plus monthly CAM charges of approximately $900, for a total monthly payment of about $4,540. At that time, May 2009, Lee's base monthly rent was $4,061.18 and she also owed monthly CAM charges of $869.28, for a total monthly payment of $4,930.46.
Gonzalez was the person in charge of re-leasing the subject premises for Montrose. At the time of trial, which was held on August 10, 2010, Gonzalez was a real estate broker employed at Dilbeck Real Estate, with close to 20 years of experience specializing in commercial real estate in Montrose, Pasadena and La Canada. In the five years prior to trial, Gonzalez had completed between 50 and 60 commercial lease deals in the Montrose area.
According to Gonzalez, "[t]here wasn't a lot of interest" in the subject premises after Montrose listed it for lease. The commercial real estate market "was eroding quickly at that time." In the Montrose area, the average time to re-lease a commercial space like the subject premises was six to nine months. Montrose received nine calls about the subject premises between May 12, 2009 and August 7, 2009. Gonzalez would not characterize any of these inquiries as a "serious inquiry," and no offers to lease the premises resulted from these inquiries.
In September 2009, Montrose consummated a deal to re-lease the subject premises to Vision Foods dba New Moon, an existing restaurant tenant which already was leasing adjacent space in the same building. New Moon was not interested in expanding its business into the subject premises in May 2009, when Montrose first listed the subject premises after Lee vacated.
The members of Montrose, including Gonzalez, were "passive investors" in New Moon, who were not involved in day-to-day operations of New Moon and did not have decision making authority for New Moon. The members of Montrose did not play a role in New Moon's decision to lease the subject premises. According to Gonzalez, Montrose did not give New Moon a better rental rate for the subject premises than it would have given another tenant.
On September 3, 2009, Montrose and New Moon entered into an amendment to New Moon's existing lease, which required New Moon to pay monthly base rent of $3,470 for the subject premises, plus CAM charges. The base rent on the building portion of the subject premises was abated until January 1, 2010. The base rent on the patio portion of the premises was abated until March 1, 2010.
According to Gonzalez, the amount New Moon was required to pay in rent for the subject premises reflected "current market conditions" in September 2009. Moreover, rent abatements of three to six months were common in that market at that time, especially for a tenant like New Moon who spent about $100,000 of its own money to make improvements to the premises.
New Moon began paying CAM charges for the subject premises in September 2009, and began paying base rent for the building portion of the premises ($3,038 per month) in January 2010. As set forth above, Lee was obligated to perform under the assignment and assumption of lease she executed, and Kong was obligated to perform under the guaranty of lease he executed, until January 31, 2010.
B. Kong's evidence
Robert Jung testified on behalf of Kong. He stated that he had had his real estate license since 2004. In 2009, Kong asked Jung to assist him in selling "his store" (the coffee shop), and in finding a new tenant for the subject premises. From February to March 2009, Jung advertised the subject premises in a Korean newspaper. He received about 20 calls regarding the premises in one month. Jung testified that the callers stated that the amount Kong wanted for the sale of the business (fixtures and equipment), combined with the amount Montrose wanted in rent, was too high. Based on information he received from the callers, as well as his own market survey of rentals in the area, Jung believed that the business could have been sold and the property rented in March 2009 if the total monthly charges to Montrose were between $3,000 and $3,500, including base rent and CAM charges. Jung did not assist Kong with this matter (the potential sale of the business and the lease of the subject premises) after May 2009.
Kong presented and the trial court admitted into evidence Montrose's response to a request for admission propounded by Kong. The request for admission states: "Between December of 2008 and April of 2009 Montrose refused offers to lease the premises for less than the rate owed by Yoonjin Lee." Montrose's response states: "Defendant Kong presented one prospective tenant, but that person wanted responding party to reduce the rent to a low figure that responding party was not willing to accept it [sic] or the prospective tenant at that rate."
2. Proceedings Related to Kong's Request to Introduce Deposition Testimony
On July 6, 2010, Kong filed an ex parte application to continue the July 12, 2010 trial date for 30 days because witness Jung was not available to appear due to work, and Kong had to fly to Korea on July 14, 2010 to testify in another legal matter. It is not clear from the record how the trial court ruled on the ex parte application (whether it continued the trial date to August 10, 2010 or whether the matter trailed for some period of time).
A one-day trial was held in this matter on August 10, 2010. Kong appeared through his counsel but did not attend in-person. His counsel sought to introduce excerpts from Kong's deposition. The particular excerpts that Kong's counsel wanted to use are not part of the record on appeal, and counsel did not make an offer of proof at trial regarding the information contained in the deposition excerpts. Counsel represented that Kong was "in Korea and ha[d] been unable to return." Counsel requested that he be permitted to testify about his conversations and correspondence with Kong to demonstrate that Kong was unavailable for trial. The trial court declined to allow counsel to testify.
Kong's counsel asserted that he did not need to establish that Kong was unavailable in order to introduce Kong's deposition testimony at trial. Counsel argued that Kong could use his own deposition testimony at trial for any purpose under Code of Civil Procedure section 2025.620, subdivision (b). The trial court disagreed with counsel's interpretation of this statutory provision, explaining that only an adverse party may use a party's deposition at trial for any purpose regardless of the party's availability to testify. The court declined to allow Kong's counsel to introduce Kong's deposition testimony.
3. Ruling and Judgment
The trial court ruled in favor of Montrose, concluding that Montrose was entitled to recover from Kong rent and other charges and amounts due under the lease pursuant to Civil Code sections 1951.2 and 1951.4. The court found that the subject premises were surrendered on May 5, 2009, the date counsel for Lee and Kong sent the letter to Montrose, informing Montrose that they had vacated the premises. Lee/Kong had paid the rent through April 2009. Upon receipt of the May 5, 2009 letter, Montrose engaged in prompt and good faith efforts to mitigate its damages, and leased the subject premises four months later on September 3, 2009. The court found no "collusion or conflict of interest" in Montrose's decision to lease the subject premises to New Moon.
The trial court awarded Montrose $40,532.33, which includes monthly base rent for May 2009 through December 2009; base rent on the patio portion of the subject premises for January 2010; monthly CAM charges for May 2009 through August 2009;and late charges due under the lease. The court also awarded Montrose $3,950.31 in interest. Kong does not challenge the trial court's calculation of these amounts.
As set forth above, New Moon began paying the monthly base rent for the building portion of the subject premises in January 2010.
As set forth above, New Moon began paying the CAM charges in September 2009.
The trial court subsequently awarded Montrose $38,128.03 in attorney fees and $2,201.16 in costs. Kong does not challenge the award of fees and costs.
The trial court entered judgment for Montrose in the amount of $84,811.83.
DISCUSSION
1. Standard of Review
'"We review the trial court's findings of fact to determine whether they are supported by substantial evidence. [Citation.] To the extent the trial court drew conclusions of law based upon its findings of fact, we review those conclusions of law de novo. [Citation.]' [Citation.]" (ASP Properties Group v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266.) Substantial evidence must be reasonable, credible and of ponderable legal significance. We resolve conflicts in the evidence in favor of the respondent and draw in favor of the judgment all reasonable inferences. (Ibid.)
2. Mitigation of Damages
a. Termination of lease
Kong contends that Montrose's duty to mitigate its damages arose in December 2008, and not five months later in May 2009, as Montrose argues and the trial court concluded. Kong asserts that the "lease was abandoned" in December 2008.
Kong cites Civil Code section 1951.2 which provides, in pertinent part: "Except as otherwise provided in Section 1951.4, if a lessee of real property breaches the lease and abandons the property before the end of the term or his right to possession is terminated by the lessor because of a breach of the lease, the lease terminates. Upon such termination, the lessor may recover from the lessee . . . ." (§ 1951.2, subd. (a).) "Under section 1951.2, a lessor may recover damages only to the extent unpaid rent exceeds 'the amount of such rental loss that the lessee proves could have been reasonably avoided.' [Citation.]" (Lu v. Grewal (2005) 130 Cal.App.4th 841, 849, citing § 1951.2, subds. (a)(2), (a)(3) & (c)(1).)
Further statutory references are to the Civil Code unless otherwise indicated.
The record does not support Kong's assertion that the subject premises were abandoned in December 2008. As Kong acknowledges, "An abandonment takes place when 'the lessee leaves the premises vacant with the avowed intention not to be bound by the lease.' [Citation.]" (Kassan v. Stout (1973) 9 Cal.3d 39, 43.) Although Lee might have stopped running the coffee shop in December 2008, she did not clear out the property for running the coffee shop. She left the fixtures, equipment and other items (cups, sugar, napkins) in place. When Lee missed a rent payment in December 2008, Kong stepped in and paid the rent from December 2008 through April 2009. Kong tried to sell the coffee business and find a replacement tenant for the subject premises. When these efforts failed, Lee and Kong notified Montrose on May 5, 2009 that they had "vacated the premises" and would "no longer pay rent on the premises."
As set forth above, Gonzalez, one of Montrose's managing members, testified that Lee opened and closed the coffee shop sporadically for a period of time. It is not clear from his testimony whether this was before December 2008, or after.
The trial court indicated that there was "a de facto abandonment" of the subject premises at some point before the "legal surrender of the premises" on May 5, 2009. The court did not state when it believed this abandonment occurred.
Kong devotes much of his opening brief to a discussion of the trial court's use of the term "surrender," and whether a "surrender" is required under section 1951.2—in addition to an abandonment—before a lessor's duty to mitigate arises. Given our conclusion there was no abandonment in December 2008 (or at any time prior to May 5, 2009), within the meaning of section 1951.2, we need not discuss this issue further.
Kong argues that his performance under the guaranty is irrelevant to the issue of when Montrose's duty to mitigate damages arose. He asserts that once the rent checks stopped coming from Lee, Montrose had a duty to mitigate its damages, regardless of the fact that Montrose was receiving rent checks from Kong. This assertion is without merit. Kong agreed to guarantee Lee's performance under the lease. He paid rent for December 2008 through April 2009. There were no damages for Montrose to mitigate until Kong stopped making payments in May 2009.
In ruling on this matter, the trial court referenced section 1951.4. Montrose discussed this statute in its respondent's brief. Under section 1951.4, a "'lessor may continue a lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign subject only to reasonable limitations,'" so long as "the lease provides for this remedy." (§ 1951.4, subd. (a).) Section 13.2(b) of the lease at issue here provides for this remedy. Kong does not dispute that the form of this lease provision complies with section 1951.4.
Under section 1951.4, even if the lease was breached and the subject premises abandoned in December 2008, Montrose was entitled to continue the lease in effect. There is no evidence in the record that Montrose elected to terminate the lease prior to May 5, 2009.
Under either section 1951.2 or section 1951.4, the lease terminated in May 2009, when Lee/Kong stopped paying rent, stopped looking for a replacement tenant and indicated that they had vacated the subject premises.
In his reply brief, Kong does not dispute that Montrose was entitled to continue the lease in effect until May 5, 2009. But he argues that even if Montrose did so, Montrose still had a duty to mitigate its damages beginning in December 2008 when Lee stopped operating the coffee shop and missed a rent payment. Not so. Kong cites no authority for the proposition that a lessor has a duty to mitigate damages while the lease is in effect and performance is being made. Montrose had no duty to mitigate from December 2008 through April 2009 when the rent and other charges were being paid in full.
The trial court did not err in concluding that Montrose's duty to mitigate its damages under the lease arose on May 5, 2009.
b. Mitigation efforts
Kong contends that Montrose failed to make prompt and good faith efforts to mitigate its damages. The evidence presented at trial does not support Kong's position.
As set forth above, Kong bore the burden of demonstrating that Montrose failed to mitigate its damages. (Lu v. Grewal, supra, 130 Cal.App.4th at p. 849.) To do so, Kong needed to demonstrate that Montrose could have avoided some of its damages through reasonable efforts or expenditures. (Id. at pp. 849-850.)
Montrose began acting to mitigate its damages within three days of notice from Lee and Kong that they had vacated the premises and would no longer be paying rent. There was no delay on Montrose's part. As discussed above, Kong's claim that Montrose was required to begin mitigation efforts in December 2008, five months before Lee/Kong stopped paying rent, is without merit.
Substantial evidence supports the trial court's finding that Montrose made good faith (reasonable) efforts to mitigate its damages. Montrose advertised the availability of the subject premises on two listing services and placed a sign in front of the premises. Montrose re-leased the premises within four months. Montrose presented evidence that comparable properties were sitting on the market for six to nine months before being leased.
In the listings, Montrose asked for a monthly base rent of $3,640, plus monthly CAM charges of approximately $900, for a total monthly payment of about $4,540. At that time, Lee was obligated to pay a monthly base rent of $4,061.18, plus monthly CAM charges of $869.28, for a total monthly payment of $4,930.46. Montrose re-leased the subject premises for a monthly base rent of $3,470, plus CAM charges. Montrose presented evidence that the monthly base rent that New Moon agreed to pay reflected current market conditions in September 2009.
Kong argues that Montrose should have lowered the total asking price to $3,500 per month (which would be the equivalent of $2,600 in monthly base rent, plus $900 in monthly CAM charges). Robert Jung testified on behalf of Kong that he received calls from prospective tenants who were interested in purchasing the coffee business if they could lease the subject premises at that rate.
Kong did not present substantial evidence demonstrating that reasonable mitigation would have required Montrose to lower its total asking price by $1,000 per month. Montrose was able to re-lease the subject premises for close to its asking price ($170 less per month in base rent) within four months of listing it. Kong did not show that Montrose could have reached a deal faster—let alone reached a better deal faster—if it had lowered its asking price.
Kong introduced Montrose's response to a request for admission, stating that between December 2008 and April 2009 Kong presented one prospective tenant to Montrose, but Montrose was not willing to accept the proposed rent because it was too low. Kong did not present any other evidence about this prospective tenant. For example, Kong did not present evidence demonstrating the amount of rent the prospective tenant purportedly offered to pay, the date Kong presented this prospective tenant to Montrose or the financial condition of the prospective tenant. Montrose's response to this request for admission does not establish that Montrose acted unreasonably in attempting to re-lease the subject premises.
Kong asserts that Montrose showed preferential treatment to New Moon by agreeing to abate the base rent on the building portion of the subject premises for four months until January 1, 2010 (the expiration of Lee's lease term), and the base rent on the patio portion of the premises for six months until March 1, 2010. New Moon paid the CAM charges for the last four months of Lee's lease term. Montrose presented evidence that rent abatements of three to six months were common in the commercial lease market in September 2009, especially for a tenant like New Moon who made substantial improvements to the subject premises using its own money. Kong did not present evidence tending to show that New Moon received a better deal than any other prospective tenant because New Moon was an existing tenant and the managing members of Montrose were investors in New Moon.
The trial court's findings that Montrose made prompt and goof faith efforts to mitigate its damages are supported by substantial evidence.
3. Exclusion of Kong's Deposition Testimony
Kong contends that the trial court erred in declining to allow his counsel to introduce Kong's deposition testimony at trial. We disagree.
Kong argues that he could use his own deposition testimony at trial for any purpose under Code of Civil Procedure section 2025.620, subdivision (b). His interpretation of this provision is incorrect. Section 2025.620, subdivision (b) provides: "An adverse party may use for any purpose, a deposition of a party to the action, or of anyone who at the time of taking the deposition was an officer, director, managing agent, employee, agent, or designee under Section 2025.230 of a party. It is not ground for objection to the use of a deposition of a party under this subdivision by an adverse party that the deponent is available to testify, has testified, or will testify at the trial or other hearing." This means that Montrose could use Kong's deposition, or Kong could use the deposition of a Montrose employee, for any purpose. It does not mean that Kong could use his own deposition against an adverse party.
Kong also argues that he could introduce his own deposition testimony under subdivision (c) of section 2025.620 because (1) he "reside[d] more than 150 miles from the place of the trial" (§ 2025.620, subd. (c)(1)) and (2) "[e]xceptional circumstances exist[ed] that ma[d]e it desirable to allow the use of [the] deposition in the interests of justice with due regard to the importance of presenting the testimony of witnesses orally in open court" (§ 2025.620, subd. (c)(3)).
A trial court has broad discretion in ruling on the admissibility of evidence. (Monroy v. City of Los Angeles (2008) 164 Cal.App.4th 248, 265.) The trial court did not abuse its discretion here in declining to admit excerpts from Kong's deposition under Code of Civil Procedure section 2025.620, subdivision (c).
Kong presented no evidence of his residence or any exceptional circumstances. Kong's counsel asserted that Kong was "in Korea and ha[d] been unable to return." Counsel offered to testify regarding his conversations and e-mails with Kong during the three weeks before trial. The trial court declined to allow counsel to testify. We cannot find that it was unreasonable for the court to refuse to allow the defendant's counsel to testify about the defendant's whereabouts.
In any event, Kong cannot show that the exclusion of his deposition testimony was prejudicial. The excerpts Kong sought to introduce are not part of the record before us and Kong did not make an offer of proof in the trial court about what the excerpts would show. In his reply brief on appeal, Kong represents that his deposition testimony "would have reinforced, among other thing[s], that Yoonjin[] Lee operated the business for eight months, the last month she operated it was December 2007 [sic], and that Mr. Kong paid the rent through April."
It was not disputed at trial that Kong paid the rent through April 2009, and Montrose presented evidence of that fact. As discussed above, assuming Lee ceased operating the coffee business in December 2008, this does not mean that Montrose's duty to mitigate damages arose in December 2008. Given that Lee left the property for running the business at the subject premises, Kong paid the rent from December 2008 through April 2009, and he looked for a tenant to replace Lee, we cannot find that Lee abandoned the premises or her interest in the lease in December 2008. The deposition testimony Kong sought to introduce would not have helped Kong prove that Montrose failed to mitigate its damages.
DISPOSITION
The judgment is affirmed.
NOT TO BE PUBLISHED.
CHANEY, J.
We concur:
ROTHSCHILD, Acting P. J.
JOHNSON, J.