Opinion
B323429
06-25-2024
PACIFICA COMMERCIAL CENTRAL COAST, INC. et al., Plaintiffs and Respondents, v. 1599 WEST, LLC, et al., Defendants and Appellants.
Law Offices of Mark Henry Shafron and Mark Henry Shafron, for Defendants and Appellants. Kirk & Simas and Anthony J. Principe, Diana H. Alcala and Kelly A. Stone, for Plaintiffs and Respondents.
NOT TO BE PUBLISHED
Santa Barbara County, Super. Ct. No. 18CV05405 James F. Rigali, Judge
Law Offices of Mark Henry Shafron and Mark Henry Shafron, for Defendants and Appellants.
Kirk & Simas and Anthony J. Principe, Diana H. Alcala and Kelly A. Stone, for Plaintiffs and Respondents.
YEGAN, Acting P. J.
1599 West, LLC and its managing member, Steven Zaritsky, appeal the judgment entered after a non-jury trial, awarding damages of $139,023 for breach of a commission agreement and attorneys fees of $112,000 to respondents Pacifica Commercial Central Coast, Inc. ("Pacifica") and Rincon Corporation ("Rincon"). Appellants contend the parties' contract was ambiguous and did not require them to pay the commission at issue here. They further contend respondents were professionally negligent because they advised appellants to enter into an ambiguous contract. Finally, appellants contend there has never been a contract allowing appellants to recover their attorney fees. We affirm.
Facts
Appellants own a commercial building in Santa Maria. In 2012, appellants leased the building to SA Recycling LLC ("lessee"). Rincon served as the realtor for appellants in negotiating the lease. Pacifica represented the lessee.
Appellants and the lessee agreed to a term of 20 years at a base rent of $14,000 per month. The lessee prepaid rent of $300,000. It was entitled to terminate the lease for any reason during a contingency period. After the contingency period, the lessee was "locked in" for 60 months. In the sixtieth month, the lessee could terminate the lease by paying appellants a termination fee of $250,000. Alternatively, the lessee could continue the lease for 15 more years (e.g., the remainder of the initial 20-year term). The lessee had an option to extend the lease for another 20-year term and also had an option to purchase the building.
At the same time, appellants signed a "Letter of Agreement/ Commission Agreement" with respondents. This agreement provided that respondents would be owed no commission at all if the lessee terminated the lease during the contingency period. Respondents would be paid a commission of $39,900 immediately after the contingency period expired and the lessee commenced paying rent. Respondents would also be paid "only one of the following: [¶] . . . a) $0 if the Lease is terminated [in month 60]; OR b) $139,023 ($2,780,460 x 5.0%) immediately payable at the beginning of the 61st month if the Lease is not terminated . . .; OR c) $100,000 through Escrow at Closing if Lessee exercises its Option to Purchase ...."
The Commission Agreement further provides, "Except in the event that Lessee exercises its option to renew, no other commissions are due [respondents]. However, in the event that Lessee exercises its Option to Extend . . . a real estate commission equal to 5% of the Scheduled Base Rent shall be paid to Brokers by Lessor & all due and payable at the Commencement of the Term specified in the Lease Extension."
The lessee took possession of the premises and remained in the building after the contingency period ended. Appellants paid respondents the $39,900 commission. In early 2018, as the lease neared its 60th month, the lessee and appellants amended it for the fifth time. This amendment gave the lessee the option to terminate every three years and established a new, graduated termination fee schedule. The lessee also waived its option to purchase the property. In addition, the amendment further provided, "Except as amended in this letter, the Lease shall remain unmodified."
Respondents did not participate in negotiating or documenting the amendment. They were not notified of the amendment before it was executed.
March 1, 2018 was the beginning of the 61st month of the lease. Appellants did not pay respondents the $139,023 commission referred to in the Commission Agreement. When respondents sent an invoice demanding payment, appellants refused.
Respondents filed their complaint for breach of the Commission Agreement and breach of the implied covenant of good faith and fair dealing. Appellants filed a cross-complaint in which they alleged respondent Rincon breached its fiduciary duty to them by advising them to enter into an ambiguous Commission Agreement that exposed them to liability for unearned commissions.
Following a non-jury trial, the trial court found in favor of respondents. Its statement of decision rejected appellants' argument that the parties terminated the lease when they signed the fifth amendment. The tenant was still occupying the property, never paid a termination fee and never provided written notice of an intent to terminate the original lease. The trial court concluded the Commission Agreement unambiguously required payment of the commission if the tenant did not terminate the lease in its 61st month. Because the tenant did not terminate the lease, and the terms of the Commission Agreement never changed, respondents were owed their commission.
The trial court further found appellant Zitarsky "entered into the 5th Amendment in an attempt to evade commissions that were due [respondents]." Appellants breached the implied covenant of good faith and fair dealing when they "tried to deprive [respondents] of their rights under the Commission Agreement via unilateral negotiations with [the tenant] that culminated in the 5th Amendment."
Finally, the trial court awarded respondents attorney's fees of $112,000 based on a fee provision in the lease. The Commission Agreement does not include an attorney's fees provision.
Contentions
Appellants contend the Commission Agreement is ambiguous because it is not clear whether the commission is owed when the lessee continues the lease for a three-year term rather than the original 15-year term. Appellants contend the agreement is unenforceable because it is unconscionable and that Rincon breached its fiduciary duty to appellants when it encouraged them to enter into an ambiguous contract. They further contend the trial court erred when it awarded respondents their attorney fees because the Commission Agreement does not include an attorney fees provision. Even if Rincon is entitled to claim fees as a party to the lease, appellants contend, Pacifica cannot recover fees because it was not a party to that agreement. Appellants contend the fee award should be reduced to remove fees attributable to Pacifica.
Standard of Review
"The trial court's threshold finding of ambiguity is a question of law subject to our independent review. The court's ultimate construction of ambiguous language is subject to our independent review if the extrinsic evidence is not in conflict, even when the parties draw different inferences from the evidence. If the extrinsic evidence conflicts, we uphold any reasonable construction supported by substantial evidence." (Bill Signs Trucking, LLC v. Signs Family Limited Partnership (2007) 157 Cal.App.4th 1515, 1521; See also Brown v. Goldstein (2019) 34 Cal.App.5th 418, 432-433.)
The question of whether a contract has been breached is one of fact. We review the trial court's determination that a breach has occurred for substantial evidence. (Ash v. North American Title Co. (2014) 223 Cal.App.4th 1258, 1268.)
We independently review the question whether the parties' agreement permits respondents to recover their attorneys' fees. We review the decision to award fees for abuse of discretion. (Cardinal Care Management, LLC v. Afable (2020) 47 Cal.App.5th 1011, 1024; Jones v. Union Bank of California (2005) 127 Cal.App.4th 542, 549-550.)
Discussion
Breach of Contract
Appellants contend the Commission Agreement is ambiguous because it does not expressly address whether respondents are entitled to a commission where, as here, the parties renegotiate the lease to allow the lessee to terminate every three years rather than at the end of 15 years, as originally contemplated. They contend paragraph B(3) of the Commission Agreement is inconsistent with paragraph B(4), creating the ambiguity. Paragraph B(3) provides for payment of a commission of "$139,023 ($2,780,460 x 5.0%) immediately payable at the beginning of the 61st month if the Lease is not terminated . . .;" while paragraph B(4) provides, "Except in the event that Lessee exercises its option to renew, no other commissions are due [respondents]."
Like the trial court, we conclude the Commission Agreement is not ambiguous. A contract is ambiguous "'when it is capable of two or more constructions, both of which are reasonable....'" (Blasiar, Inc. v. Fireman's Fund Ins. Co. (1999) 76 Cal.App.4th 748, 754, quoting Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18-19.) Here, the Commission Agreement states appellants will pay respondents a commission "at the beginning of the 61st month if the Lease is not terminated ...." The only express condition to the commission payment is that the lease is not terminated at the beginning of the 61st month. It was not terminated. Thus, the commission was owed.
Paragraph B(4) does not undermine this construction because it applies to renewal of the lease, not its continuation after the 60th month. The lease originally gave the lessee an option to renew for a second 20-year term after the first 20-year term was completed. Paragraph B(4) states that respondents would be entitled to a commission if the lessee renewed for the second term. It does not apply to the lessee's continued tenancy during the original term of the lease.
Even if we were to conclude that paragraph B(4) created an ambiguity, we would agree with the trial court that appellants' conduct breached the implied covenant of good faith and fair dealing. This covenant "does not allow a broker to be cheated out of his or her commission by the simple artifice of entering into direct negotiations and making substantially the same bargain, albeit without the commission." (Torelli v. J.P. Enterprises, Inc. (1997) 52 Cal.App.4th 1250, 1252.)
The covenant of good faith and fair dealing is implied in all contracts, including commercial leases. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 372 (Carma Developers).) It requires the contracting parties to refrain from doing anything to injure the right of other parties to receive the benefits of the agreement. (Janney v. CSAA Ins. Exchange (2021) 70 Cal.App.5th 374, 399.) "'In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract....'" (Fraley v. Allstate Ins. Co. (2000) 81 Cal.App.4th 1282, 1292, quoting Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1153.)
If a contract gives one party a discretionary power affecting the rights of the other, that power must be exercised in good faith. (Carma Developers, supra, 2 Cal.4th at p. 372.) It may not be used to retroactively impair rights the other party has already accrued. (Cobb v. Ironwood Country Club (2015) 233 Cal.App.4th 960, 963.) The party with the discretionary power need not act in an intentionally dishonest manner or for the purpose of harming the other. "[T]he covenant of good faith can be breached for objectively unreasonable conduct, regardless of the actor's motive." (Carma Developers, supra, at p. 373.)
As appellants point out, the lease did not expressly require them to include respondents in negotiations with the lessee to modify the lease. But, the Commission Agreement entitled respondents to a commission based on the length of the lessee's tenancy. As we have noted, the lease expressly entitled respondents to a commission when the lessee remained in the premises in the 61st month of the lease. A modification that reduces or eliminates respondents' commission breaches the implied covenant of good faith and fair dealing because it would deprive respondents of the benefit of their contract.
Here, appellants contend respondents are not entitled to collect a commission based on 15 years' of rent because appellants renegotiated the lease to allow the lessee to terminate after three years. But that modification cannot alter respondents' commission without breaching the implied covenant of good faith and fair dealing because it would deprive respondents of the benefit of their agreement.
Appellants contend the Commission Agreement is unenforceable because, "no reasonable person would believe that Respondents were entitled to a commission for 15 years when the lease was extended only three years, to do so would lead to an unconscionable result." They further argue there is no evidence their counsel reviewed the Commission Agreement before it was signed and note that respondent Pacifica's representative, Jerry Schmidt, threatened to "blow up the deal" if appellants did not sign the Commission Agreement he had prepared.
The trial court did not find the Commission Agreement unconscionable, and we agree. "'[U]nconscionability has both a "procedural" and a "substantive" element,' the former focusing on '"oppression"' or '"surprise"' due to unequal bargaining power, the latter on '"overly harsh"' or '"one-sided"' results. [Citation.]" (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114, abrogated in part by AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 340, quoting A&M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 486-487.) The record here contains no substantial evidence supporting a finding of either procedural or substantive unconscionability.
First, there is no indication the parties had unequal bargaining power or refused to negotiate the terms of the lease and the Commission Agreement. Nor can we agree that either contract is "overly harsh" or "one-sided." The Commission Agreement entitles respondents to a commission on the entire term of the lease they negotiated for their clients, rather than only on the first five years of a twenty-year term. Enforcing that agreement is neither one-sided nor harsh. (See, e.g., Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243-1245.)
Finally, appellants contend the trial court erred in rejecting their causes of action against Rincon for declaratory relief and professional negligence. They contend Rincon breached its fiduciary duty by advising appellants to agree to the ambiguous Commission Agreement. Because the agreement is not ambiguous, the trial court correctly found respondents did not breach a duty owed to appellants when they advised appellants to sign it. (Budd v. Nixen (1971) 6 Cal.3d 195, 200.) For the same reason, appellants were not entitled to a declaratory judgment that the agreement was ambiguous.
Attorney Fees
Appellants contend the trial court abused its discretion when it awarded respondents their attorneys' fees because the Commission Agreement does not include an attorneys fees provision. Respondents contend they are entitled to recover their attorneys' fees because the Commission Agreement incorporates the terms of the lease, which includes an attorneys' fees provision. We agree.
As a general rule, we review an award of attorneys' fees for abuse of discretion. However, we independently review the question whether there is a contractual or statutory basis for the fee award. (Mountain Air Enterprises, LLC v. Sundowner Towers LLC (2017) 3 Cal.5th 744, 751; R.W.L. Enterprises v. Oldcastle, Inc. (2017) 17 Cal.App.5th 1019, 1025 (R.W.L.).)
The Commission Agreement was signed the day after the lease. It specifically identifies the lease and states that it "shall serve as the Broker Commission Agreement between [appellants] and Rincon Corporation and Pacifica Commercial Realty ("Brokers") ...." The lease itself identifies respondents as the Brokers and provides that appellants, ""shall pay to the Brokers for the brokerage services rendered by the Brokers the fee agreed to in the attached separate written agreement ...." It also includes an attorneys' fees provision. Paragraph 31 of the lease provides, "If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees."
"Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together." (Civ. Code, § 1642.) Whether one contract is incorporated into another depends on the intent of the parties at the time of contracting. (Versaci v. Superior Court (2005) 127 Cal.App.4th 805, 814.) For the terms of one document to be incorporated into a contract signed by the parties, "'"the reference must be clear and unequivocal ...."'" (Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 54.) It is not necessary to recite that the contract "incorporates" another document, "so long as it 'guide[s] the reader to the incorporated document.'" (Ibid.; see also R.W.L., supra, 17 Cal.App.5th at pp. 1027-1028.)
The Commission Agreement and the lease demonstrate clearly that they are intended to be construed together as parts of a single contract. (Holguin v. DISH Network LLC (2014) 229 Cal.App.4th 1310, 1321.) First, the Commission Agreement itself recites that it is made with reference to the lease and "shall serve" as the agreement referred to in paragraph 1.9 of the lease. Paragraph 1.9 of the lease identifies respondents as the "Brokers" and notes that appellant "shall pay" the fee "agreed to in the attached separate written agreement[.]" This indicates the parties intended for the Commission Agreement to be treated as part of the lease. Second, paragraph 31 of the lease allows for an award of attorneys' fees, "If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder ...." It also defines the term "prevailing party" to include, "without limitation, a Party or Broker ...." These references demonstrate that the parties to the lease intended the attorneys' fees provision to apply to themselves and to their brokers. The trial court properly awarded respondents their attorneys' fees.
Appellants contend fees attributable to Pacifica should not have been awarded because Pacifica did not sign the lease. A non-signatory to a contract may be entitled to recover attorneys' fees where the signatories clearly express their intent to include third parties in the attorneys' fees clause. (Cargill, Inc. v. Souza (2011) 201 Cal.App.4th 962, 968.) "[The] question is simply whether the language of the attorney's fees provision covers nonsignatories." (Hom v. Petrou (2021) 67 Cal.App.5th 459, 469.)
Here, Pacifica's representative signed the Commission Agreement and the lease identified Pacifica as one of the brokers. The attorneys' fees provision in the lease expressly permits "any [prevailing] Party or Broker" to recover attorneys' fees in "an action or proceeding involving the Premises ...." We conclude the parties adequately expressed their intent to include the brokers, including Pacifica, in the attorneys' fees provision.
Disposition
The judgment is affirmed. Respondents shall recover their costs on appeal.
We concur: BALTODANO, J. CODY, J.