U.S. v. 1.377 Acres of Land

• Decision Date: 17 December 2003
• Docket Number: No. 02-56423.,02-56423.
• Citation: 352 F.3d 1259
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. 1.377 ACRES OF LAND, MORE OR LESS, SITUATED IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA; Western Sun Hotels — Hotel San Diego, Ltd., a California limited partnership; San Diego County; Redevelopment Agency of the City of San Diego; City of San Diego; Citicorp Leasing, Inc.; Mohammed Jelveh Tehrani; Mrith Sriram, dba Pro Color Photo Shop; La Phok, dba Pacific Coast Chinese and Thai Food; Rith Phok, dba Pacific Coast Chinese and Thai Food; N.Y. Long, dba Pacific Coast Chinese and Thai Food, Defendants, and Josephson Management, Josephson Management Company; Sushi Deli Express, Inc.; JS Foods; Defendants-Appellants, SDH Properties, LLC, a California Limited Liability Company, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

352 F.3d 1259

UNITED STATES of America, Plaintiff-Appellee, v. 1.377 ACRES OF LAND, MORE OR LESS, SITUATED IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA; Western Sun Hotels — Hotel San Diego, Ltd., a California limited partnership; San Diego County; Redevelopment Agency of the City of San Diego; City of San Diego; Citicorp Leasing, Inc.; Mohammed Jelveh Tehrani; Mrith Sriram, dba Pro Color Photo Shop; La Phok, dba Pacific Coast Chinese and Thai Food; Rith Phok, dba Pacific Coast Chinese and Thai Food; N.Y. Long, dba Pacific Coast Chinese and Thai Food, Defendants, and Josephson Management, Josephson Management Company; Sushi Deli Express, Inc.; JS Foods; Defendants-Appellants SDH Properties, LLC, a California Limited Liability Company, Defendant-Appellee.

No. 02-56423.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 6, 2003 — Pasadena, California.

Filed December 17, 2003.

COPYRIGHT MATERIAL OMITTED

Charles V. Berwanger and Brian B. Frasch, Gordon & Rees, San Diego, CA, for appellants Josephson Management Company and JS Foods.

Louis E. Goebel, Law Offices of Louis E. Goebel, San Diego, CA, for appellant Sushi Deli Express, Inc.

Todd S. Aagaard, Department of Justice, Environment & Natural Resources Division, Washington, D.C., for appellee United States.

Hodge L. Dolle, Jr., and Thomas M. Garcin, Dolle and Dolle, Los Angeles, CA, for appellee SDH Properties.

Appeal from the United States District Court for the Southern District of California James K. Singleton, District Judge, Presiding. D.C. No. CV-00-01618-JKS.

Before: Robert BOOCHEVER, Cynthia Holcomb HALL, and Diarmuid F. O'SCANNLAIN, Circuit Judges.

OPINION

CYNTHIA HOLCOMB HALL, Circuit Judge.

Appellants Josephson Management Company and Sushi Deli Express, Inc. appeal from a district court decision denying them compensation from Appellee SDH Properties, LLC. Appellants urge this court to find error in the district court's interpretation of the lease agreements between the Appellee and each of the respective Appellants, in which Appellants were deemed to have no independent contractual right to a portion of Appellee's condemnation award from the United States. For the reasons set forth below, we AFFIRM in part, REVERSE in part, and REMAND for further proceedings not inconsistent with this opinion.

We have jurisdiction pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a).

I BACKGROUND

The Hotel San Diego was a weathered octogenarian by August, 2000,¹ a six-story building in the heart of downtown San Diego which was beginning to show signs of its age. What it lacked in aesthetics and upkeep it made up for in location — it abutted San Diego's federal courthouse, and sat just across the street from the municipal courthouse. Its location attracted various restauranteurs, including the appellants, Josephson Management Company ("Josephson") ²and Sushi Deli Express, Inc. ("Sushi Deli").

Josephson operated a chain of some thirty-nine Burger King franchises, nine Bruegger's Bagels shops, five Tony Roma's restaurants, and a Hooligan's restaurant in four states. Josephson thought the Hotel San Diego's location would be prime for a Burger King franchise which catered to the downtown lunchtime traffic, and on March 14, 1988, signed a lease with Western Sun Hotels-Hotel San Diego, Ltd. ("Western Sun"), the predecessor to the current owner, appellee SDH Properties, LLC ("SDH"). The lease provided for a 20-year term, plus four successive five-year options. Josephson agreed to provide all the improvements and furniture, fixtures and equipment ("FF & E") necessary to operate a Burger King restaurant. In exchange, Josephson received a very favorable base rent of $1 per square foot, approximately half that charged in nearby locations.

In addition, the lease dealt with the prospect of an eminent domain condemnation, which was a distinct possibility given the building's prime location near multiple courthouses in the downtown area. Specifically, Paragraph 12.3 provided that Josephson would "be entitled to receive" compensation for the "undepreciated value" of its improvements and FF & E, plus the "loss of goodwill to the extent proven by Tenant." In exchange, Josephson agreed to forgo its right to the bonus value of the "unexpired term of the lease."

Josephson fulfilled its obligations under the lease for twelve years. It substantially renovated the premises by strengthening the floor of the restaurant, constructing new restrooms and a new mezzanine, razing and rebuilding the interior, and adding a new heating and cooling system. It built a substantial customer base for its Burger King by capitalizing on the central downtown location, which produced a ready supply of lunch patrons throughout the workweek.

Sushi Deli arrived at the Hotel San Diego a bit later. Sushi Deli's owner and president, Hiroe Otake, was recruited to the Hotel San Diego by Western Sun's principal, Dr. Glass, in mid-1990. Ms. Otake and her husband, Moto, had overseen the maturation of a small, 750 square foot sushi restaurant into a local cultural institution which, by 1990, was prepared to expand. Sushi Deli, like Josephson, was enamored with the location of the Hotel, particularly its proximity to the various downtown courthouses. Ultimately, after some months of negotiations, Sushi Deli entered into a lease with Western Sun on September 27, 1990. Sushi Deli's lease, like Josephson's, contained a provision concerning the effect of an eminent domain proceeding, Article 17. Article 17 reserved to Sushi Deli the right to recover its "ratable percentage" (also known as "bonus value") of any condemnation award or settlement.

Like Josephson, Sushi Deli occupied the premises at the Hotel San Diego without incident. It too built up a loyal customer base, which contributed to its profitability during the years it occupied the Hotel. When Sushi Deli became aware of the imminent eminent domain proceedings, it began its own search for a suitable building in which to relocate. Sushi Deli eventually moved its operations to the Spreckels Theater building, approximately two blocks away from the Hotel San Diego. Unfortunately, the move entailed significant costs. For about half the space it had in the Hotel San Diego, Sushi Deli was now paying twice the rent. Its customer base began to erode, and it has suffered substantial financial losses since the relocation.

On August 11, 2000, the Hotel San Diego was officially condemned by the United States in an eminent domain proceeding. United States v. 1.377 Acres of Land, et al., No. 00-CV-1618 (S.D.Cal. Aug. 11, 2000). No party challenged the condemnation, and none of the parties before this court has any outstanding claims against the government in that regard. Rather, both Josephson and Sushi Deli chose to pursue claims against SDH in the apportionment stage of the condemnation proceedings, pursuant to the terms of their respective leases. Each alleged that they were entitled to share in the $11.5 million settlement obtained by SDH as just compensation for the taking.

On June 19, 2002, Judge James K. Singleton³ issued his decision, which sided with Appellee SDH. The district court concluded that neither Josephson nor Sushi Deli had any basis for a claim against SDH "independent of the condemnation award from the United States." Specifically, it determined that the plain language of the Josephson lease contemplated compensation only to the extent that Josephson's interests were specifically provided for by the condemning authority. Moreover, although it failed to specifically address the language of the Sushi Deli-SDH lease, the district court concluded that no "bonus value" had been proven, and that the fact that rental rates were below market value was merely a reflection of the poor quality of the Hotel San Diego building.

II

A. STANDARD OF REVIEW

In general, interpretation of the language of a contract is a question of law which is reviewed on a de novo basis, with no deference accorded to the decision of the district court. In re Tamen, 22 F.3d 199, 203 (9th Cir.1994); Taylor-Edwards Warehouse & Transfer Co. v. Burlington Northern, Inc., 715 F.2d 1330, 1333 & n. 3 (9th Cir.1983). This is particularly true where the intent of the parties is easily ascertainable from the clear and explicit language of the contract. CAL. CIV. CODE §§ 1638-1639 (2002); Bank of the West v. Superior Court, 833 P.2d 545, 552 (Cal. 1992). Conversely, when the district court renders an opinion on a contract's language which is premised on extrinsic evidence, the court's findings of fact must be upheld unless clearly erroneous. Tamen, 22 F.3d at 203.

The parties to this case have disputed the appropriate standard of review to which the decision of the district court should be subject. Their dispute turns on the issue of whether the district court's decision in the instant matter was a purely legal interpretation of the plain language of the lease agreements, or was arrived at through the consideration of extrinsic facts.

1.

The district court's order regarding the interpretation of the language of the Josephson lease can best be described as a conclusion of law, which must therefore be reviewed de novo. Very little extrinsic evidence was adduced at trial; in fact, the only testimony regarding the appropriate interpretation of the lease was offered by Julian Josephson, the principal of the Josephson Management Company. However, in arriving at its ultimate decision, the district court declined to rely upon that testimony, reasoning that it could not "reconcile [Josephson's] testimony with the plane [sic] language of the lease." Rather, the court concluded that it was "satisfied that this particular lease" did not compel SDH "to compensate [Josephson] for any loss." Thus, because the district court did not rely on any extrinsic evidence in rendering its decision with regard to Josephson's claim under the lease, its decision...