Fuji Food Prods., Inc. v. Occidental, LLC

• Decision Date: 03 December 2018
• Docket Number: No. 76152-8-I,76152-8-I
• Parties: FUJI FOOD PRODUCTS, INC., a California corporation, Respondent, v. OCCIDENTAL, LLC, a Washington limited liability company, Appellant.
• Court: Washington Court of Appeals

FUJI FOOD PRODUCTS, INC., a California corporation, Respondent, v. OCCIDENTAL, LLC, a Washington limited liability company, Appellant.

No. 76152-8-I

COURT OF APPEALS FOR THE STATE OF WASHINGTON DIVISION ONE

December 3, 2018

UNPUBLISHED OPINION

ANDRUS, J. — Occidental LLC, a commercial landlord to Fuji Food Products Inc., appeals from an adverse jury verdict for conversion and an attorney fee award in Fuji's favor. Fuji cross appeals an adverse jury verdict on its claim for the return of a security deposit. We affirm the jury verdicts but reverse the award of attorney fees to Fuji and remand for rehearing on the attorney fee award under Marassi v. Lau, 71 Wn. App. 912, 859 P.2d 605, 606-07 (1993).

FACTS

Fuji, a producer of prepackaged sushi, edamame, and salads, entered into a commercial lease with Occidental for 20,000 square feet of warehouse space in Seattle's SODO neighborhood (the Premises). The original lease ran for five years, from December 1, 2008, to November 30, 2013. Fuji paid Occidental a security deposit of $42,000 when it took occupancy of the Premises.

Paragraph 56 of the lease specified that upon vacating the Premises, Fuji "shall remove all cooler rooms and HVAC systems on the roof." Fuji understood this provision to require the removal of three modular cooler rooms—one referred to as "the cooler," designed to keep food at 36 to 38 degrees, one identified as a "blast cooler," which had high velocity fans designed to quickly reduce temperature to meet FDA regulations, and one used as a freezer (collectively, "the cooler rooms"). Fuji purchased the cooler rooms, among other miscellaneous items, from the previous tenant, Monterey Gourmet Foods (Monterey), for $135,000. The leased space also included a temperature-controlled production area, but Fuji did not consider this space or any other areas of the Premises to fall within the definition of "cooler rooms." The modular cooler rooms were physically located in the southern portion of the Premises.

In early September 2013, Fuji asked Occidental's representative, Dr. Hokwai Woo, if Occidental would be interested in extending the lease on a month-to-month basis. Dr. Woo indicated that the lease permitted Fuji to remain as a month-to-month tenant but Fuji, as a holdover tenant, would have to pay rent of 175 percent of the base monthly rent. Dr. Woo also stated if Fuji chose to leave, it must "remove all equipment such as cooler, refrigerator, cooling system on the roof, heating system on the east loading dock, the Y-loading dock on the east, and plug all floor drains." On October 10, 2013, Fuji notified Occidental it would vacate the Premises by November 30 to avoid any holdover rent.

Throughout October 2013, Fuji and Occidental discussed the scope of Fuji's contractual obligations to remove cooler rooms from the facility. Fuji agreed it was contractually obligated to remove the three modular cooler rooms located in the southern portion of the Premises. Occidental contended Fuji had to remove structures in the middle and north end of the warehouse, actions Fuji did not believe it was required to undertake.

Before the parties resolved this issue, Occidental learned that another tenant, Vinum Wine Importing & Distribution was interested in taking over a portion of Fuji's space with the cooler rooms left in place. At Occidental's request, the parties extended the lease to December 13, 2013, while Occidental negotiated with Vinum. Fuji was willing to leave the cooler rooms in place for Vinum's use if Occidental would agree to release it from any responsibility for removing them from the Premises.

Occidental and Fuji signed an extension agreement on November 8, 2013, relieving Fuji of the obligation to pay any rent between November 30, 2013, the original lease expiration date, and December 13, 2013, the new lease expiration date, as long as Fuji vacated the premises by the latter date. The extension agreement provided that Fuji would refrain from removing the cooler rooms until November 21, 2013. It also directed Fuji to "begin removing the Cooler Rooms . . . from the Premises on the Removal Extension Date unless prior to that date Landlord expressly releases Fuji from its obligations to remove them and any other improvements."

Fuji, Occidental, and Vinum spoke by conference call on November 21, 2013. Fuji understood from this call that Occidental agreed to release it from the obligation to remove the cooler rooms. On December 6, 2013, Joseph Marchica, Fuji's Chief Executive Officer (CEO), sent Dr. Woo a draft release agreement to sign. Dr. Woo disputed the accuracy of the draft on December 9, 2013, sending a revised version of the release to Marchica on December 10, 2013. The following morning, Marchica made what he thought were minor changes to Dr. Woo's draft and asked to finalize the document that day. No release was ever executed.

Occidental and Vinum were unable to reach agreement on lease terms, and on the afternoon of December 11, 2013, Occidental notified Fuji that it had to remove the cooler rooms by December 13. On December 12, Fuji informed Occidental it was not possible to remove the cooler rooms on such short notice, and it would not pay holdover rent. It informed Dr. Woo that it would surrender the Premises on December 13, 2013, with the understanding that Occidental would provide Fuji with access to the building to remove the cooler rooms at a later date.

Fuji returned the keys to Dr. Woo on December 13, 2013. On December 17, 2013, Occidental sent Fuji a letter notifying it that it was in default of the lease because it had left the Premises without removing the cooler rooms, removing doors, and closing certain openings in partition walls. The letter provided "[t]his is your written notice to cure this default," referring to Section 16 of the lease.¹

Although Occidental's December 17, 2013, letter did not mention Vinum, the evidence at trial established that Occidental and Vinum had agreed on lease terms for Fuji's space with the modular cooler rooms in place the very same day. Dr. Woo sent a draft lease addendum to Vinum on December 17, but asked it to hold off on executing the lease until January 3, 2014.

Fuji replied on December 23, 2013, stating it had no obligation to remove the cooler rooms based on Occidental's representation that it had an agreement with Vinum to lease the Premises with the cooler rooms in place. Fuji also stated that if Occidental and Vinum did not have an agreement, it would remove the cooler rooms but needed Occidental to provide it access to do so. Fuji demanded the return of its security deposit. Occidental refused.

Fuji commenced this action in April 2014. It alleged five claims against Occidental: (1) breach of contract, (2) unjust enrichment, (3) conversion, (4) negligent misrepresentation, and (5) violations of the Consumer Protection Act (CPA). Occidental counterclaimed for breach of contract, claiming it had incurred monetary damages to pay utilities and to remove tenant improvements Fuji was obligated to remove. The trial court dismissed the CPA claim on summary judgment, and dismissed Fuji's negligent misrepresentation claim during pretrial motions.²

At the conclusion of Fuji's case-in-chief, Occidental sought judgment as a matter of law under CR 50 on Fuji's conversion claim, which the trial court denied.Occidental renewed its motion post-trial, and the trial court again denied Occidental's motion.

On its counterclaim for breach of lease, Occidental claimed that Fuji had (1) failed to repair a frozen pipe, (2) failed to pay final utility charges and Fuji's share of common area maintenance for 2013; (3) failed to pay holdover rent for the period of time after Fuji surrendered the Premises and the date Occidental could make it useable for another tenant; (4) failed to repair and replace a door in the northern portion of its space, and (5) refused to reimburse Occidental $67,873 it paid to Allegiance Trucking to demolish structures in the north portion of Fuji's leased space that Occidental contended were "cooler rooms" within Paragraph 56 of the lease. It claimed damages of approximately $81,000, after the security deposit offset of $42,000.

During trial, the parties prepared a proposed Special Verdict Form for the jury to answer a series of questions regarding Fuji's breach of contract and conversion claims and Occidental's counterclaims. The jury found that Occidental breached its duty of good faith and fair dealing but did not otherwise breach the lease. It also found that Fuji had incurred no damages as the result of Occidental's breach. On the conversion claim, the jury found Occidental had converted Fuji's cooler rooms and awarded damages of $60,000.

On Occidental's counterclaim, the jury found Occidental had not fulfilled all conditions precedent to give rise to its contract counterclaim. It also found Fuji surrendered possession on December 13, 2013, and breached the lease by failing to fulfill certain conditions prior to surrendering the Premises, but it did not abandonthe cooler rooms when it left. The jury awarded Occidental $42,000 in damages, but it was instructed to reduce the award by Fuji's $42,000 security deposit. Its net award to Occidental was $0.

The trial court found Fuji to be the prevailing party and awarded $263,462 in attorney fees and costs of $22,507.

Occidental appeals, contending the trial court erred in denying its motion for a directed verdict or judgment as a matter of law on the conversion claim and in finding Fuji to be the prevailing party. Fuji cross appeals, claiming the trial court erred in accepting an inconsistent verdict that found Fuji had breached the lease after finding Occidental had not fulfilled the conditions precedent to bring the contract claim.³

ANALYSIS

A. Fuji's Conversion Claim

Occidental claims the trial court erred by denying its motions to dismiss Fuji's conversion claim before, during, and after trial. Occidental contends Fuji voluntarily...