Flagship West Llc v. Partners

• Decision Date: 20 December 2010
• Docket Number: No. CV–F–02–5200 OWW/DLB.,CV–F–02–5200 OWW/DLB.
• Citation: 758 F.Supp.2d 1004
• Parties: FLAGSHIP WEST, LLC, et al., Plaintiffs,v.EXCEL REALTY PARTNERS, L.P., et al., Defendants.
• Court: U.S. District Court — Eastern District of California

758 F.Supp.2d 1004

FLAGSHIP WEST, LLC, et al., Plaintiffs,

v.EXCEL REALTY PARTNERS, L.P., et al., Defendants.

No. CV–F–02–5200 OWW/DLB.

United States District Court, E.D. California.

Dec. 20, 2010.

John D. Fairbrook, Trainor Fairbrook, Sacramento, CA, Whitney F. Washburn, Law Offices of Whitney F. Washburn, Folsom, CA, for Plaintiffs.Christopher N. Jones, Mark E. Kogan, Kogan, Trichon & Wertheimer, P.C., Philadelphia, PA, Stephen E. Carroll, McCormick Barstow Sheppard Wayte and Carruth LLP, Fresno, CA, Mark H. Epstein, Munger Tolles & Olson LLP, Los Angeles, CA, for Defendants.

MEMORANDUM DECISION AND ORDER GRANTING PLAINTIFFS' MOTION FOR INTERPRETATION OF LEASE (Doc. 500) AND DENYING DEFENDANT'S MOTION TO STRIKE AND/OR FOR LEAVE TO FILE SUR–REPLY BRIEF (Doc. 508)

OLIVER W. WANGER, District Judge.

This case is before the Court after remand by the Ninth Circuit Court of Appeal. The Ninth Circuit reversed the Court's granting of Flagship West, LLC's and Marvin and Kathleen Reiche's (“Flagship”) election of rescission of its lease with Excel Realty Partners, L.P. (“Excel”) after a jury found that Excel materially violated an “exclusive use” provision of the lease. The trial court ruling that judicial estoppel precluded Excel from asserting that § 4.5 of the lease bars rescission, was not warranted and the limited remand was “so that the district court may determine in the first instance whether the contract, in its entirety, allows for rescission and whether California law would give effect to the lease's limitations on remedies in these circumstances.” Specifically:

Excel ... appeals the district court's order granting Excel's tenant ..., rescission of its lease based on a determination that Excel materially violated an ‘exclusive use’ provision of that lease. The district court invoked judicial estoppel to prevent Excel from asserting that § 4.5 of the lease bars rescission. Because we find judicial estoppel was not warranted here, we remand for the district court to determine whether rescission is an available remedy under California law and the terms of the contract.

...

First, Excel's litigation positions were not clearly inconsistent. There is no evidence that Excel ever conceded that rescission was available to Flagship. Although the Pretrial Order did not specifically cite § 4.5 of the lease or discuss all of the arguments that might be based on the section, it acknowledged that Excel contested Plaintiffs' entitlement to rescind, at least on both materiality and independent covenant grounds. Other related arguments that rescission was not available, including the contractual limitation on remedies argument at issue, were adequately embraced within the order ....

Second, the district court never relied on a party's inconsistent statements ... Even though the district court may have been under the impression that rescission was being ‘actively litigated,’ judicial estoppel is not appropriate unless the court made rulings in reliance on an admission by Excel that rescission was in fact available. No such reliance is possible here because, throughout the proceedings, Excel actively contested the availability of rescission on a theory-by-theory basis. Excel had no legal obligation to pursue a general legal argument against rescission prior to its more narrow arguments because the argument regarding limitation of remedies available under the contract is not an affirmative defense under Fed.R.Civ.P. 8(c) ....

Third, allowing Excel to raise its contractual remedies limitation argument after the jury had deliberated did not give Excel an unfair advantage or impose an unfair detriment on Flagship. Even if Excel had raised the argument at an earlier stage, the same factual issues would have been put to the jury to determine liability for damages.

Consequently, we vacate the district court's judgment awarding rescission damages to Flagship and remand so that the district court may determine in the first instance whether the contract, in its entirety, allows for rescission and whether California law would give effect to the lease's limitations on remedies in these circumstances. We do not reach either party's claims related to the calculation of rescission damages and express no opinion on those claims.

A supplemental scheduling conference was held. The Supplemental Scheduling Conference Order filed on August 14, 2009 (Doc. 499), states: “Plaintiff shall not raise any new matter in the reply memorandum of law.”

Flagship seeks interpretation of § 4.5 of the lease as not precluding rescission of the lease. Excel opposes Flagship's motion.

A. BACKGROUND.

Excel is the owner of the Briggsmore Plaza in Modesto. On July 16, 1998, Excel executed a 15 year ground lease (“Lease”) with Flagship, whose only members are the Reiches, for a stand–alone 10,000 square foot lot (the “Property”) in the Briggsmore Plaza for the purpose of constructing and operating a buffet style restaurant under the Golden Corral franchise (the “Restaurant”). The Lease provides that Flagship has the “exclusive right to operate a self service buffet style family restaurant within the Shopping Center.” (Lease § 6.3).

To construct the Restaurant, Flagship borrowed a 25 year, $2 million loan from The Money Store, which was secured by a deed of trust on Flagship's leasehold interest in the Property. The Reiches also executed written personal guarantees of the loan. The Restaurant opened on June 10, 1999. Approximately a year later, the Four Seasons, a buffet restaurant serving Chinese food, opened in the Briggsmore Plaza in a location directly across from the Restaurant. Based on an express lease provision, Flagship contended that the operation of the Four Seasons breached their exclusive right to run a buffet style restaurant in the shopping center and caused the Restaurant to become unprofitable, leading to its closure on April 1, 2001.

Flagship filed suit against Excel, alleging breach of contract, fraud, and negligent misrepresentation, seeking contract damages and rescission. In the Pretrial Order, Flagship requested a jury trial on all issues, while Excel relied on Flagship's jury demand instead of making one themselves. The case was tried to a jury. The trial commenced on November 12, 2003 and verdicts were returned on December 3, 2003. The general verdict with interrogatories found in favor of Flagship and awarded Flagship $1,502,000.00 in contract damages. Specifically, the jury found that Flagship proved “by a preponderance of the evidence, that Defendant Excel Realty Partners, L.P., breached the lease by leasing space in the Briggsmore Plaza to Bi Wen Liu for the operation of the Four Seasons Buffet” and Excel's “breach of paragraph 6.3 of the lease agreement [was] material.” (Doc. 280). Entry of judgment was deferred to allow Flagship to elect the remedy of rescission and any rescission damages or damages for breach of contract.

The “Order Re: Post Trial Election of Remedies; Defendants' Claimed Rescission Waiver Clause; Defendants' Claimed Damage Limitation Clause” filed on November 19, 2004 (November 19, 2004 Memorandum Decision; Doc. 353), notes the parties' extensive post-trial briefing, addressing a number of issues. Rescission was elected and rescission damages awarded. A remedies lease provision barring rescission was found unenforceable.

B. FLAGSHIP'S MOTION FOR INTERPRETATION OF LEASE.

The primary issue before the Court is the proper interpretation of § 4.5 of the lease.¹ Section 4.5 provides:

4.5 Triple Net Lease. Tenant's Basic Rent and Additional Rent shall be absolutely net to Landlord, so that this Lease shall yield to Landlord the full amount of the installments of Basic Rent and Additional Rent throughout the Term, and shall be paid without assertion of any counterclaim, set off, deduction or defense and without abatement, suspension, deferment, diminution, reduction or refund of any kind, except as expressly set forth herein. Under no circumstances whether now existing or hereafter arising, or whether beyond the present contemplation of the parties, shall Landlord be required to make any payment or refund of any kind whatsoever or be under any obligation or liability hereunder, except as expressly set forth herein. Except as otherwise expressly set forth in this Lease, this Lease shall continue in full force and effect, and the obligations of Tenant hereunder shall not be released, discharged or otherwise affected, by reason of any of the following: (a) any damage to or destruction of the Premises or any portion of either or any Taking of the Premises or any portion of either; (b) any restriction or prevention of or interference with any use of the Premises or any portion of either; or (c) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, in each case, whether or not Tenant shall have notice or knowledge of any of the foregoing. The obligations of Tenant in this Lease shall be separate and independent covenants and agreements. Tenant hereby waives, to the fullest extent permitted by the applicable law, any and all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease or the Premises or any portion thereof, or to any abatement, suspension, deferment, diminution, reduction or refund of Basic Rent or Additional Rent, except as otherwise expressly set forth herein.

1. Independent and Separate Covenants.

Excel argues that rescission is barred because Flagship's obligations under the Lease are explicitly made separate and independent covenants by Section 4.5. Excel refers to the “Order Re: Post Trial Election of Remedies; Defendants' Claimed Rescission Waiver Clause; Defendants' Claimed Damages Limitation Clause,” filed on November 19, 2004, (November 19, 2004 Memorandum Decision, Doc. 353), and specifically to 49:2–3 and 51:8–15:

Plaintiffs were experienced and sophisticated restaurant operators. ...

With respect to § 4.5, the Lease...