Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, Los Angeles County Super. Ct. No. VC049683 Raul A. Sahagun, Judge.
Hallstrom, Klein & Ward, Grant J. Hallstrom and Timothy D. Otte for Plaintiffs and Appellants.
Citron & Citron, Thomas H. Citron and Katherine A. Tatikian for Defendant and Respondent.
EPSTEIN, P.J.
The issue in this case is the effect of an exculpatory clause in a commercial lease negotiated by the parties on a claim for water damage. Plaintiffs Westside Oak Furniture, Inc. and Ben Tran appeal from judgment entered after the trial court granted defendant Larwin Group’s motion for summary judgment. We conclude the exculpatory clause applies to this case. As we explain, Westside failed to allege a basis in its complaint to invalidate the clause under Civil Code section 1668. Westside’s claims that the summary judgment should be reversed because there were triable issues of material fact regarding fraud in the inducement, concealment and breach of the covenant of quiet enjoyment were not preserved for appeal because they were not alleged in the complaint. We conclude the exculpatory clause shields Larwin from the simple negligence asserted in the complaint. Westside failed to identify any triable issue of material fact as to damages that are not barred by the exculpatory clause. Without that showing there is no basis to recover damages for either breach of contract or of the covenant of good faith and fair dealing. Summary judgment was proper.
FACTUAL AND PROCEDURAL SUMMARY
We take portions of our factual summary from the undisputed facts presented on summary judgment.
In April 2006, Westside Oak Furniture entered into a lease with Larwin Group for commercial space located in La Mirada for use as a retail furniture store. Appellant Ben Tran was guarantor of the lease for Westside. The form lease, which was modified by the parties, contained provisions assigning the duties of the parties with respect to maintenance of the property. Paragraph 2.2 warranted that the structural elements of the roof were free of “material defects.”
The lease contained risk allocation and indemnity provisions. Paragraph 8.8 is the provision on which Larwin’s motion for summary judgment was based: “Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to... goods, wares, merchandise or other property of Lessee,... whether such damage or injury is caused by or results from... water or rain... leakage.... Instead, it is intended that Lessee’s sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.” (Italics added.)
Paragraph 8.2 required Westside to maintain a commercial general liability insurance policy protecting it and Larwin against claims of property damage based on the occupancy or maintenance of the premises. Paragraph 8.4(a) required lessee to obtain and maintain full replacement cost “insurance coverage on all of Lessee’s personal property, Trade Fixtures,...” Westside also was required to maintain business interruption insurance (“loss of income and extra expense insurance”) in amounts which would reimburse the lessee “for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee....”
Larwin and Westside relieved each other of the right to recover “damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein.” “Except for Lessor’s gross negligence or willful misconduct,” Westside was obligated to indemnify and hold harmless Larwin from any claim, damages or liabilities “arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee.” Westside agreed to defend lessor at its expense.
According to the declaration of Winston Cao, an employee of Westside: “It rained very soon after entering into the lease, and on April 19, 2006, the Landlord was notified that the rain water was leaking into the store space. Subsequently, on several occasions, I and other employees of Plaintiff notified the Landlord that the roof leaked from rain and that it was causing damage to furniture and forcing the store to be closed. On or about November 27, 2006, the Landlord was notified of multiple leaks during the rain storm and it was requested that the Landlord repair the roof to stop leaking. On or about December 9, 2006, the Landlord was notified that the roof was leaking during the rain storm damaging furniture and it was requested that repairs to stop the leaking be made. Again on or about the dates of January 17, 2007, February 11, 2007 and February 12, 2007, the Landlord was notified of many leaks causing damage and a request for repairs to stop the leaking was made.” According to Cao, representatives of Larwin came to the store in November or December 2006 “to personally observe the leaks and the damaged merchandise.” Repair and maintenance on the roof was performed in July 2007 by Larwin, but after a rain storm in late July or early August 2007, leaks occurred again.
Larwin initiated legal proceedings with an unlawful detainer action against Westside for nonpayment of rent, filed in October 2007. (Larwin Group, LLC v. Westside Oak Furniture, Inc., et al. (Super. Ct. L.A. County, 2007, No. VC049576).) Later the same month, Westside brought an action for premises liability, breach of contract, and breach of the implied covenant of good faith and fair dealing against Larwin. (Westside Oak Furniture, Inc. v. Larwin Group, LLC (Super. Ct. L.A. County, 2007, No. VC049683).) It alleged that Larwin “negligently failed to maintain and repair the roof” and that it “knew, or in the exercise of reasonable care should have known, that the roof was leaking water and would cause damage to Plaintiff’s furniture.” Pursuant to a stipulation of the parties, the trial court consolidated the two actions.
Larwin moved for summary judgment on Westside’s complaint, arguing that paragraph 8.8 (the exculpatory clause) provided a complete defense to all causes of action. Westside opposed the motion on the ground the exculpatory clause did not provide a basis for summary judgment. It did not dispute any of the facts in Larwin’s separate statement of undisputed facts, which set forth the terms of the lease and the allegations of the complaint. Westside set out additional undisputed material facts regarding the leakage problem and Larwin’s response to notice of the leaks. Citing the declaration of its expert witness, Peter Toghia, Westside stated it was undisputed that the failure of Larwin to perform roof repair work between April 2006 and July 2007 was “an extreme departure from the ordinary standard of care of a commercial business owner.” Westside also asserted: “The repair work performed in July 2007 on the aged and leaking roof, which should have been replaced, was an extreme departure from the ordinary standard of care,” citing Toghia’s declaration. It asserted that the leaking roof violated sections of the 1997 Uniform Building Code. Westside also submitted Larwin’s responses to its special interrogatories and its own responses to Larwin’s interrogatories.
Larwin’s objections to Cao’s declaration in opposition to the motion were overruled. The trial court sustained some of Larwin’s objections to the declaration of Westside’s expert, Toghia, and overruled others. Larwin’s motion was granted. This appeal followed.
We ruled that the order granting summary judgment was not an appealable order and directed the parties to file a conformed judgment. That judgment was filed April 10, 2009.
DISCUSSION
I
Our de novo review of summary judgment “is governed by [Code Civ. Proc.] section 437c, which provides in subdivision (c) that a motion for summary judgment may only be granted when, considering all of the evidence set forth in the papers and all inferences reasonably deducible therefrom, it has been demonstrated that there is no triable issue as to any material fact and the cause of action has no merit. The pleadings govern the issues to be addressed. [Citation.]” (Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga (2009) 175 Cal.App.4th 1306, 1331.) A defendant moving for summary judgment must demonstrate that there is no triable issue of fact by “producing evidence that demonstrates that a cause of action has no merit because one or more of its elements cannot be established to the degree of proof that would be required at trial, or that there is a complete defense to it. Once that has been accomplished, the burden shifts to the plaintiff to show, by producing evidence of specific facts, that a triable issue of material fact exists as to the cause of action or the defense. (Aguilar [v. Atlantic Richfield Co. (2001)] 25 Cal.4th [826,] 849-851, 854-855.)” (Ibid.)
II
The parties dispute the validity and applicability of the exculpatory clause in paragraph 8.8 of the lease, particularly in light of Civil Code section 1668 (section 1668). The trial court granted summary judgment based on this clause.
As we have discussed, the exculpatory clause here, paragraph 8.8 provides: “Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to... goods, wares, merchandise or other property of Lessee,... whether such damage or injury is caused by or results from... water or rain... leakage.... Instead, it is intended that Lessee’s sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.” (Italics added.)
Both sides cite and rely upon Burnett v. Chimney Sweep (2004) 123 Cal.App.4th 1057 (Burnett), an action by commercial tenants against the landlord for personal injury and property damage caused by water leakage and mold. The exculpatory clause in that case provided in relevant part: “Lessor shall not be liable for injury or damage to the person or goods,... whether such damage or injury is caused by or results from... water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,... plumbing,... or from any other cause, whether said injury or damage results from conditions arising upon the Premises or upon other portions of the Building.... Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.” (Id. at p. 1062.)
On appeal from judgment on the pleadings in favor of the landlord, the tenants claimed the exculpatory clause was unenforceable, citing the rule that “[a]n exculpatory clause ‘may stand only if it does not involve “the public interest.”’” (Burnett, supra, 123 Cal.App.4th at p. 1065, quoting Tunkl v. Regents of University of California (1963) 60 Cal.2d 92, 96 (Tunkl).) The Court of Appeal rejected this argument. It examined the characteristics identified in Tunkl to determine whether an exculpatory clause involves a transaction affecting the public interest. It concluded that none was present in the case before the court: “‘“A [commercial] lease is a matter of private contract between the lessor and the lessee with which the general public is not concerned.”’ [Citation.]” (Burnett, supra, at p. 1066.)
This conclusion did not end the analysis. The Burnett court observed that the law does not look with favor on attempts to avoid liability for one’s own negligence, and that exculpatory clauses are strictly construed against the party relying upon them. (Burnett, supra, 123 Cal.App.4th at p. 1066.) It stated the general rule: “‘For an agreement to be construed as precluding liability for “active” or “affirmative” negligence, there must be express and unequivocal language in the agreement which precludes such liability. [Citations.] An agreement which seeks to limit liability generally without specifically mentioning negligence is construed to shield a party only for passive negligence, not for active negligence. [Citations.]’” [Citation.] But the “‘active-passive dichotomy’ is not ‘wholly dispositive’ of the issue. [Citation.] Whether an exculpatory clause ‘covers a given case turns primarily on contractual interpretation, and it is the intent of the parties as expressed in the agreement that should control. When the parties knowingly bargain for the protection at issue, the protection should be afforded. This requires an inquiry into the circumstances of the damage or injury and the language of the contract; of necessity, each case will turn on its own facts.’ [Citations.]” (Ibid.)
Applying these principles, the Burnett court examined the two provisions of the exculpatory clause. The first shielded the landlord from liability for property damage or personal injury without expressly mentioning negligence. The second, which dealt with loss of profits, stated, “‘Notwithstanding Lessor’s negligence....’” (Burnett v. Chimney Sweep, supra, 123 Cal.App.4th at p. 1067.) Because the first provision did not expressly mention negligence, the Court of Appeal reversed the judgment on the pleadings because the exculpatory clause did not shield the landlord from liability. (Id. at p. 1068.)
Unlike Burnett, the clause at issue here, paragraph 8.8 expressly shields Larwin from negligent injury to Westside’s property and expressly states that Westside’s sole recourse for property damages is the insurance it was required to maintain under the terms of the lease: “Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to... goods, wares, merchandise or other property of Lessee,... whether such damage or injury is caused by or results from... water or rain... leakage.... Instead, it is intended that Lessee’s sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.” (Italics added.)
The language in the clause before us which limits Westside’s recourse to its insurance policy is a significant distinction from Burnett, supra, 123 Cal.App.4th 1057. In that case, as we have noted, the exculpatory clause did not expressly limit recourse to insurance. A different provision of the lease in that case, which required the tenants to maintain insurance coverage on personal property, was invoked by them on appeal. The Burnett court rejected the argument: “The scope of the exculpatory clause is not affected by paragraph 8.4 of the lease, which required appellants to maintain insurance coverage on their personal property. Nothing in the lease suggests that, if Chimney Sweep’s active negligence caused damage to appellants’ personal property, their sole recourse would be to file a claim with their insurance company.” (Id. at p. 1068, italics added.) Here, in contrast to Burnett, supra, 123 Cal.App.4th 1057, the parties bargained for an exculpatory clause which expressly shielded Larwin from damages resulting from negligence and expressly limited Westside’s remedy to its own insurance policy for property damage.
Our opinion in CAZA Drilling (California), Inc. v. TEG Oil & Gas U.S.A., Inc. (2006) 142 Cal.App.4th 453 (CAZA) also is instructive. In that case, a blowout occurred at an oil drilling site, causing property damage. CAZA, the drilling company, and TEG, the oil producing entity (and its parent company), sued each other for damages. CAZA moved for summary judgment, arguing that the agreement allocated all liability for the damages claimed in the cross-complaint to TEG. On appeal from the grant of summary judgment, the focus of the briefing was the following exculpatory provision: “‘[e]xcept for such obligations and liabilities specifically assumed by [CAZA], [TEG] shall be solely responsible and assume liability for all consequences of operations by both parties....’” (Id. at p. 459.) Another provision of the agreement provided that all releases and indemnity provisions were without limit and “‘without regard to the cause or causes thereof... strict liability, regulatory or statutory liability, breach of warranty..., any theory of tort, breach of contract or the negligence of any party or parties, whether such negligence be sole, joint or concurrent, active or passive.’” (Id. at p. 461, italics added.)
The court distinguished the risk allocation and indemnification provisions of the contract from the provisions imposing duties on the parties. (CAZA, supra, 142 Cal.App.4th at p. 466.) It concluded: “There is nothing inherently inconsistent in a party to a contract agreeing to do ‘X,’ but stating that if it does not, the other party may not recover consequential damages or stating that if negligence occurs during the performance of ‘X,’ liability will be limited.” (Ibid.) It cited Tunkl, supra, 60 Cal.2d 92 and explained that TEG’s argument that “a party cannot limit its liability for a duty it has undertaken to perform by contract when that duty is negligently performed does not represent the current state of the law in this area.” (CAZA, supra, at p. 467.)
TEG also argued that the risk allocation provisions of the agreement could not be read to exclude liability for negligence because negligence was not specifically mentioned in every relevant subparagraph. We acknowledged the language in Burnett, supra, 123 Cal.App.4th at page 1066 to the effect that to preclude liability for active or affirmative negligence, an exculpatory clause must have “‘“express and unequivocal language”’” which precludes such liability, and that a clause that does not mention negligence is construed as shielding a party only from passive negligence. (CAZA, supra, 142 Cal.App.4th at p. 467.) “But it is equally true that ‘[w]hether an exculpatory clause “covers a given case turns primarily on contractual interpretation, and it is the intent of the parties as expressed in the agreement that should control. When the parties knowingly bargain for the protection at issue, the protection should be afforded. This requires an inquiry into the circumstances of the damage or injury and the language of the contract; of necessity, each case will turn on its own facts.”’ (Burnett v. Chimney Sweep, supra, 123 Cal.App.4th at p. 1066, quoting Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 632.)” (CAZA, supra, 142 Cal.App.4th at p. 467.)
In CAZA, the agreement specifically stated that the allocation of liability was “‘without limit’ and ‘without regard to the cause or causes thereof,’ including ‘regulatory or statutory liability,’ ‘breach of contract or the negligence of any party or parties, whether such negligence be sole, joint or concurrent, active or passive.’” (CAZA, supra, 142 Cal.App.4th at p. 467.) We interpreted this language as making “clear the parties’ intent to limit ‘[TEG’s] ability to recover for injury resulting from accidents, even those caused by the negligence of [CAZA].” (Ibid.) We concluded: “As a matter of contractual interpretation, there is nothing to hinder ‘voluntary transactions in which one party, for a consideration, agrees to shoulder a risk which the law would otherwise have placed upon the other party.’ (Tunkl, supra, 60 Cal.2d at p. 101.)” (Ibid.) Like the agreement in CAZA, the lease in this case expresses the intent of the parties to shield Larwin from liability for negligence and to limit Westside’s recourse to insurance coverage.
III
Westside also alleged a cause of action for breach of contract, asserting it had performed all duties required by the lease. It alleged Larwin had breached its express contractual duty to keep the roof in good order, condition and repair. Westside claimed damages in excess of $350,000 as a result of this breach, but did not specify the nature of those damages.
As we have discussed, paragraph 8.8, the exculpatory clause, includes damage to Westside’s property. Another provision of that clause covers broader damages: “Notwithstanding the negligence or breach of this Lease by Lessor... neither Lessor nor its agents shall be liable under any circumstances for:... (iii) injury to Lessee’s business or for any loss of income or profit therefrom. Instead, it is intended that Lessee’s sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain....”
In opposition to summary judgment, and in its briefing on appeal, Westside has not identified any damages resulting from breach of contract that are not encompassed within subpart (iii) of the exculpatory clause. Once the exculpatory clause was invoked as an affirmative defense entitling Larwin to summary judgment, the burden was on Westside to raise a triable issue of material fact as to damage it suffered that falls outside the broad scope of the exculpatory clause. It has not done so.
IV
Westside also argues it presented evidence that Larwin’s conduct constituted a breach of the covenant of good faith and fair dealing, and that the summary judgment should be reversed for that reason. “Breach of the covenant of good faith and fair dealing is nothing more than a cause of action for breach of contract.” (Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga, supra, 175 Cal.App.4th 1306, 1344.) Our analysis of Westside’s breach of contract cause of action applies here as well. It failed to identify damages resulting from the alleged breach of the covenant which are not barred by the exculpatory clause.
V
Westside argues the exculpatory clause is unenforceable under section 1668 which states: “All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.”
The argument in CAZA, supra, 142 Cal.App.4th 453, was that the exculpatory clause was unenforceable under section 1668 because the public interest was implicated by the drilling contract. The court rejected that argument: “[I]t is difficult to imagine a situation where a contract [between relatively equal business entities] would meet more than one or two of the requirements discussed in Tunkl.” (CAZA, supra, 142 Cal.App.4th at pp. 468-469.) It found Appalachian Ins. Co. v. McDonnell Douglas Corp. (1989) 214 Cal.App.3d 1 instructive, describing it as a case “where commercial entities similarly tried to undercut contractual limitations on liability....” (CAZA, at p. 469.) The Appalachian court concluded that a negotiated commercial contract involving two large sophisticated corporations with relatively equal bargaining power did not implicate the public interest for purposes of the Tunkl analysis. (214 Cal.App.3d at p. 29.) In CAZA, the court followed this reasoning and concluded that the agreement between the parties did not implicate the public interest in the way required to abrogate exculpatory provisions limiting liability for negligence under Tunkl. (CAZA, supra, 142 Cal.App.4th at p. 470.)
After reviewing the cases on enforcement of exculpatory clauses in a commercial context, we determined: “In the majority of commercial situations, courts have upheld contractual limitations on liability, even against claims that the breaching party violated a law or regulation. [Citation.]” (CAZA, supra, 142 Cal.App.4th at p. 472.) We concluded the exculpatory provisions “represent a valid limitation on liability rather than an improper attempt to exempt a contracting party from responsibility for violation of law within the meaning of section 1668.” (Id. at p. 475.) In CAZA, TEG failed to set forth a specific statute or regulation purportedly violated by CAZA, and hence there was no basis for invalidating the exculpatory provisions under section 1668 on that basis. (Id. at p. 478.)
Here, Westside alleged only simple negligence in its complaint and did not allege a violation of any statute, regulation or ordinance. As in CAZA, supra, 142 Cal.App.4th at page 478, there was no basis for invalidating the exculpatory provision on that basis. This conclusion is compelled by the rules governing summary judgment. Larwin argues that Westside failed to allege any basis to invalidate the exculpatory clause under section 1668 in its complaint. The pleadings in an action govern the issues to be addressed on summary judgment. (Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga, supra, 175 Cal.App.4th at p. 1331.) “[A] party may not, for the first time on appeal, change the theory of the cause of action and may not raise on appeal issues not raised in the trial court.” (Munro v. Regents of University of California (1989) 215 Cal.App.3d 977, 988.) “The rule which forbids raising a new issue for the first time on appeal takes on added significance in summary judgment proceedings because ‘[t]he moving party’s burden on a motion for summary judgment is only to “negate the existence of triable issues of fact in a fashion that [entitles] it to judgment on the issues raised by the pleadings. [Citation.] It [is] not required to refute liability on some theoretical possibility not included in the pleadings.” [Citation.]’ (American Continental Ins. Co. v. C & Z Timber Co. [(1987)] 195 Cal.App.3d 1271, 1281.) Accordingly, it would be unfair to a party who successfully moved for summary judgment to permit the opposing party on appeal to raise a new theory not included in the pleadings.” (Id. at p. 989; see also Jordan-Lyon Productions, Ltd. v. Cineplex Odeon Corp. (1994) 29 Cal.App.4th 1459, 1472; see also Distefano v. Forester (2001) 85 Cal.App.4th 1249, 1264 [similar].)
Westside alleged only simple negligence in its complaint; it did not allege that its damages were the result of intentional misconduct or gross negligence, or violation of statute, regulation, or ordinance which are grounds on which the exculpatory clause could be found unenforceable under section 1668. Nor did it seek leave to continue the motion for summary judgment in order to amend the complaint to add these allegations. It may not raise them for the first time on appeal. For that reason, we decline to consider Westside’s arguments that the exculpatory clause is invalid under section 1668 on these grounds, including the issues regarding the Uniform Building Code and the objections to the declaration of Westside’s expert witness who testified about noncompliance with that code as a basis for his opinion that Larwin had committed gross negligence.
Westside raises several other arguments which also were not pled as a basis for recovery in its complaint, including claims of fraud in the inducement, concealment, and breach of the covenant of quiet enjoyment. We do not consider these claims which were raised for the first time on appeal. (Booth v. Santa Barbara Biplane Tours, LLC (2008) 158 Cal.App.4th 1173, 1177.)
DISPOSITION
The judgment is affirmed. Larwin is to have its costs on appeal.
We concur: WILLHITE, J.MANELLA, J.