Bre DDR BR Whittwood Ca LLC v. Farmers & Merchants Bank of Long Beach

• Decision Date: 29 August 2017
• Docket Number: B272168
• Citation: Bre DDR BR Whittwood Ca LLC v. Farmers & Merchants Bank of Long Beach, 14 Cal. App. 5th 992, 222 Cal.Rptr.3d 435 (Cal. App. 2017)
• Court: California Court of Appeals
• Parties: BRE DDR BR WHITTWOOD CA LLC, Plaintiff and Respondent, v. FARMERS & MERCHANTS BANK OF LONG BEACH, Defendant and Appellant.

14 Cal.App.5th 992

222 Cal.Rptr.3d 435

BRE DDR BR WHITTWOOD CA LLC, Plaintiff and Respondent,

v.FARMERS & MERCHANTS BANK OF LONG BEACH, Defendant and Appellant.

B272168

Court of Appeal, Second District, Division 5, California.

Filed August 29, 2017

Law Offices of Michael Leight, Michael Leight, Long Beach, and John Gloger for Defendant and Appellant.

Yocis & Cox, James M. Cox for Plaintiff and Respondent.

KRIEGLER, Acting P.J.

When a shopping center tenant defaulted on a secured loan, the lender took possession of the premises through foreclosure and transferred its interest to a third party. Later, the third party surrendered the premises. The landlord filed this action against the lender to enforce the lease obligations, including payment of rent for the full lease term. The trial court granted summary adjudication in favor of the landlord because the foreclosure documents referred to the lease, and the lease required transferees to assume the lease obligations. On appeal, the lender contends that it was obligated to pay rent only while it was in possession of the premises, because it never expressly assumed the lease obligations. We hold that the purchase of the leasehold estate in this case—identified in the deed of trust by reference to the lease—did not constitute an express agreement to assume the obligations of the lease. The record shows the lender did not expressly assume the lease. We reverse the judgment, with directions.

FACTS

The Lease

On December 13, 2006, the original owner of a shopping center entered into a 15-year lease with the Breckenridge Group (Tenant) for restaurant space. The shopping center was eventually sold to respondent BRE DDR BR Whittwood CA LLC (Landlord).¹

Section 8.1.1 of the lease required Landlord's consent to any transfer, sale, assignment, or other conveyance. The section provided, "Any attempted or purported Transfer without Landlord's written consent shall, at Landlord's election, be void and shall confer no rights upon any third Person." Section 8.1.1 permitted Tenant to encumber its leasehold interest through a mortgage, but presumed that a mortgage lender who succeeded to Tenant's interest assumed Tenant's obligations: "Tenant shall have the right ... to encumber Tenant's leasehold interest under this Lease ... through a Mortgage (‘Leasehold Mortgage’) with an institutional lender.... Landlord agrees that in the event the Leasehold Mortgagee succeeds to Tenant's interest under this Lease (in which event it shall assume all of Tenant's obligations under this Lease), Landlord shall, at the time of such succession, recognize such mortgagee, trustee or lender as the then Tenant under this Lease upon the same terms and conditions contained in this Lease and for the then unexpired portion of the Term." The leasehold mortgagee had the right under the lease to acquire and succeed to the Tenant's interest through a foreclosure sale.

Section 8.1.2 of the lease applied to transfers other than leasehold mortgages. These transfers required Tenant to submit a transfer document providing for "the assumption by the Transferee of all of the obligations and liabilities of Tenant" under the lease.

On January 3, 2007, Tenant recorded a memorandum of lease (memorandum) in the Los Angeles County Recorder's Office, signed by the original owner and Tenant. It gave notice of the lease term of 15 years. The memorandum notified successors of the transfer restrictions set forth in the lease: "All of the rights and obligations of the Parties under the Lease shall bind and inure to the benefit of their respective heirs, successors and assigns; provided, however, that nothing [i]n this Section 9 shall be construed to limit or waive the provisions concerning restrictions on Transfer set forth [i]n Article 8 of the lease."

Construction Deed of Trust, Foreclosure, and Transfer

Appellant Farmers & Merchants Bank of Long Beach (Farmers & Merchants) loaned funds to Tenant and recorded a construction deed of trust securing the loan on January 16, 2007. The deed of trust identified the property as "[a]n unrecorded leasehold estate established by a memorandum of lease ... recorded January 3, 2017." Tenant assigned its right, title, and interest in all present and future leases of the premises to Farmers & Merchants.

Tenant defaulted on the loan. On February 12, 2009, Farmers & Merchants recorded a notice of trustee's sale of the property. One month later, Farmers & Merchants recorded a trustee's deed upon sale identifying itself as the successful bidder of the leasehold estate. Both documents described the property in the same language as the construction deed of trust.

On August 5, 2009, Farmers & Merchants recorded a grant deed transferring the property to Whittier Carino's, LLC.² Whittier Carino's did not meet the requirements in the lease for an appropriate transfer because it had a net worth of less than $3 million and operated fewer than three restaurants. Based on trademark concerns, Farmers & Merchants recorded another grant deed on November 16, 2009, transferring the leasehold interest to Whittier JC, LLC (Whittier). Whittier's managing member is Farmer's & Merchants.

Landlord's Notification of Inappropriate Transfer and Surrender of Premises

The shopping center was sold to a second owner in August 2010. On August 10, 2010, the general manager of the shopping center sent a letter to Farmers & Merchants stating that it was not notified of any transfer, which rendered Farmers & Merchants in default under the lease. Farmers & Merchants replied that its "interest in the subject property continues to be held ... via an LLC in which [Farmers & Merchants] is the majority member."

The general manager requested that Whittier execute a tenant estoppel certificate. The chief executive officer of Farmers & Merchants executed the certificate on behalf of Whittier. The certificate lists Whittier as the successor in interest of Tenant and states that the lease termination date is March 31, 2023.

The second owner received rent payments from Whittier through July 2014. After the second owner sold the property to Landlord in October 2014, Whittier stopped paying rent and surrendered possession of the premises on December 22, 2014, with the intent to terminate the leasehold estate.

PROCEDURAL HISTORY

Landlord filed an amended complaint against Farmers & Merchants and Whittier on January 13, 2015, alleging causes of action for breach of contract and damages under Civil Code section 1951.2. Landlord filed a motion for summary adjudication on the issue of whether Farmers & Merchants had a contractual duty as successor to Tenant to comply with the lease. In opposing the motion, defendants submitted a declaration by the vice president at Farmers & Merchants that defendants neither "intended to, nor did they assume the at issue Lease."

In December 2015, the trial court granted plaintiff's motion for summary adjudication. The court found that the construction deed of trust and notice of sale specifically identified the lease, and the lease provided that Farmers & Merchants was obligated by the lease terms upon foreclosure. Farmers & Merchants elected to purchase the leasehold estate and succeeded to Tenant's rights and obligations. "The language of the underlying documents compels a finding that defendant owes contractual duties under the subject lease."

A bench trial was held on the issue of damages. The vice president of Farmers & Merchants testified that neither defendant executed a document expressly assuming the obligations under the lease. Relying on the summary adjudication ruling, the court found a breach of contract and calculated damages. The trial court entered judgment against Farmers & Merchants in favor of Landlord on March 3, 2016. Farmers & Merchants filed a timely notice of appeal.³

DISCUSSION

Standard of Review

"Motions for summary adjudication are procedurally identical to motions for summary judgment ( [Code Civ. Proc.], § 437c, subd. (f)(2) ), and our review of rulings on those motions is de novo ( Hartline v. Kaiser Foundation Hospitals (2005) 132 Cal.App.4th 458, 464, 33 Cal.Rptr.3d 713 ). Summary adjudication is warranted only if the motion completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty. ( Code Civ. Proc., § 437c, subd. (f)(1).) The motion shall be granted ‘if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. In determining whether the papers show that there is no triable issue as to any material fact the court shall consider all of the evidence set forth in the papers, except that to which objections have been made and sustained by the court, and all inferences reasonably deducible from the evidence....’ (Id., subd. (c).)" ( Dunn v. County of Santa Barbara (2006) 135 Cal.App.4th 1281, 1290, 38 Cal.Rptr.3d 316.) In reviewing the summary adjudication ruling, we view the evidence presented in the light most favorable to the party opposing summary adjudication. ( Seibold v. County of Los Angeles (2015) 240 Cal.App.4th 674, 682, 192 Cal.Rptr.3d 575.)

We apply a de novo standard of review to the interpretation of a lease and subsequent documents. ( ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266, 35 Cal.Rptr.3d 343.) " ‘The precise meaning of any contract, including a lease, depends upon the parties' expressed intent, using an objective standard. [Citations.] When there is ambiguity in the contract language, extrinsic evidence may be considered to ascertain a meaning to which the instrument's language is reasonably susceptible. [Citation.] [¶] ... We review the agreement and the extrinsic evidence de novo, even if the evidence is susceptible to multiple interpretations, unless the interpretation depends upon credibility. [Citation.]’ " ( Id. at pp. 1266-1267, 35 Cal.Rptr.3d 343.)

General Principles Governing Assumption of a Real...