Napolitano Holdings, LLC v. Touchstone Climbing, Inc., 091619 CAAPP2, B284354

Docket Nº:B284354
Opinion Judge:FEUER, J.
Party Name:NAPOLITANO HOLDINGS, LLC, Plaintiff and Appellant, v. TOUCHSTONE CLIMBING, INC., Defendant and Respondent.
Attorney:Horvitz & Levy, David M. Axelrad, Mark A. Kressel, Eric S. Boorstin; Allen Matkins Leck Gamble Mallory & Natsis and Charles D. Jarrell for Plaintiff and Appellant. O'Melveny & Myers, Marc F. Feinstein, Daniel J. Tully; Rankin, Sproat, Mires, Reynolds, Shuey & Mintz and Michael R. Reynolds for Def...
Judge Panel:WE CONCUR: PERLUSS, P. J., SEGAL, J.
Case Date:September 16, 2019
Court:California Court of Appeals
 
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NAPOLITANO HOLDINGS, LLC, Plaintiff and Appellant,

v.

TOUCHSTONE CLIMBING, INC., Defendant and Respondent.

B284354

California Court of Appeals, Second District, Seventh Division

September 16, 2019

NOT TO BE PUBLISHED

APPEAL from judgment of the Superior Court of Los Angeles County, No. BC587493 Robert L. Hess, Judge. Reversed.

Horvitz & Levy, David M. Axelrad, Mark A. Kressel, Eric S. Boorstin; Allen Matkins Leck Gamble Mallory & Natsis and Charles D. Jarrell for Plaintiff and Appellant.

O'Melveny & Myers, Marc F. Feinstein, Daniel J. Tully; Rankin, Sproat, Mires, Reynolds, Shuey & Mintz and Michael R. Reynolds for Defendant and Respondent.

FEUER, J.

Plaintiff Napolitano Holdings, LLC (Napolitano) appeals from the judgment entered after the trial court granted the summary judgment motion filed by defendant Touchstone Climbing, Inc. (Touchstone). Touchstone subleased a commercial space from Napolitano with the intent to use the space as an indoor rock-climbing gym. The sublease was conditioned on the City of Pasadena (Pasadena) approving a conditional use permit (CUP) for Touchstone's gym. Touchstone's agreement with Napolitano provided, “Should, for whatever reason, a CUP or building permit be unattainable with conditions acceptable to [Touchstone, ] Sublease shall be cancelable by [Touchstone]....” During the CUP approval process, Touchstone invoked its right to cancel the sublease. Napolitano sued Touchstone for breach of contract and breach of the covenant of good faith and fair dealing.

In granting summary judgment, the trial court found Touchstone had acted in good faith in canceling the sublease and there were no triable issues of fact to the contrary. Napolitano contends the evidence creates a triable issue of fact as to whether a CUP with conditions acceptable to Touchstone was objectively unattainable within the meaning of the sublease and whether Touchstone acted in good faith. We agree and reverse.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Sublease and First Addendum

Touchstone operates numerous indoor rock-climbing gyms in California. Touchstone's facilities require high ceilings for its tall climbing structures. Touchstone worked with broker Creative Space to find a suitable property. Dan Bernier, Tyler Stonebreaker, and Evan Raabe comprised the Creative Space team.

On February 27, 2014 Touchstone entered into a commercial sublease with Napolitano for an approximately 26, 000-square-foot commercial space located at 1015 South Arroyo Parkway in Pasadena. Touchstone intended to open a climbing gym in the space. The sublease required Touchstone to begin paying a base rent of $27, 950 on the earlier of the date the gym opened for business or June 1, 2014. Once rent payments commenced, Touchstone would pay full rent for the first month and 50 percent abated rent for the following six months. The sublease provided Touchstone with access to 13 on-site parking spaces and the right to use specified additional spaces for customer parking during business off-hours.

Chief executive officer Mark Melvin signed the sublease on behalf of Touchstone, and managing member Timothy Naple signed for Napolitano. Touchstone paid a $45, 000 deposit, of which $20, 000 was nonrefundable.

The parties simultaneously executed an addendum attached to the sublease. Paragraph one of the addendum provided, “[Touchstone]'s use of these Premises shall require a Conditional Use Permit and/or Minor Variance (CUP). [Touchstone] shall submit an application for the CUP to the City of Pasadena with assistance from [Napolitano]. [Touchstone] shall provide any required plans, drawings, and studies. [Touchstone] shall pay the fee and process the application. The Sublease is contingent upon receipt of the CUP and building permit. Should, for whatever reason, a CUP or building permit be unattainable with conditions acceptable to [Touchstone, ] Sublease shall be cancelable by [Touchstone] and the non-refundable portion of the deposit shall be kept by [Napolitano].” The addendum further provided, “[Napolitano] shall have the right to build additional parking (at its sole discretion) and provide [Touchstone] their choice of the aforementioned parking spots. [Touchstone] will seek additional parking in neighboring lots.”

B. Touchstone's Application to Pasadena for a CUP and the Parties' Second and Third Addenda to the Sublease

In December 2013 Touchstone initiated discussions with Pasadena's Planning Department to obtain a CUP. The CUP process entails submission of an application, which a planner reviews for completeness under the zoning code. Once deemed complete, a project is analyzed according to the zoning code and the general plan, then is set for a hearing.

On March 28, 2014 Touchstone filed a CUP application, in which it categorized its proposed use of the property as a “personal improvement service.” Pasadena's zoning code did not include a use classification for climbing gyms. On May 1 a zoning administrator evaluated Touchstone's operational plan and agreed Touchstone's use should be categorized as a personal improvement service. Based on this categorization, Pasadena required Touchstone to provide five off-street parking spaces for every 1, 000 square feet of the business property, for a total of 130 parking spaces.

To comply with the parking requirement, Touchstone hired consulting firm Linscott, Law & Greenspan (Linscott) to perform traffic and parking studies. In June 2014 Linscott completed its parking study and submitted a proposed memorandum of understanding to Pasadena, which attempted to address the parking requirements.

Touchstone requested an extension from Napolitano, and on June 6, 2014 the parties executed a second addendum to the sublease, which provided Touchstone would begin paying rent on the earlier of the date Touchstone obtained a CUP or July 1, 2014. By the end of June, Touchstone was awaiting Pasadena's response to Linscott's proposal.

On July 2, 2014 the parties executed a third addendum to the sublease, which provided Touchstone would begin paying rent on July 1, 2014, with a 50 percent abatement for three months. If Pasadena did not approve a CUP before October, the rent for October would also be abated by 50 percent with the rent due at the end of the sublease term. Touchstone then would pay one full month's rent for November, followed by six months of rent abated by 50 percent. The third addendum also provided, “[Touchstone] waives any and all rights to terminate the Sublease, for any reason, on the date [a] CUP [is] approved.” Touchstone began paying rent on the property in July 2014.

In August 2014 city planner Jason Killebrew issued a summary of conditions, in which he concluded Linscott's proposed parking ratio of three parking spaces per 1, 000 square feet was not consistent with Touchstone's use because Pasadena's zoning code required five off-street parking spaces for every 1, 000 square feet of the property. Based on Killebrew's suggestion, Touchstone revised its application to categorize its use as indoor commercial recreation.1

On November 11, 2014 Linscott submitted a revised memorandum of understanding. Based on Linscott's revised proposal, Killebrew adopted a hybrid approach, requiring three or five parking spaces per 1, 000 square feet, depending on the proposed use of those square feet. Using this approach, Killebrew revised the necessary number of off-street parking spaces to 83.2 Pasadena required these spaces to be within 1, 000 feet of the property for use by customers and within 1, 500 feet of the property for use by employees.

Because the sublease provided only 13 on-site parking spaces, 3 Touchstone attempted to locate at least 70 off-site spaces to lease. Pasadena's Economic Development Department (Economic Development) evaluated parking within 1, 000 feet of the property and found the parking options were very limited. Touchstone requested Killebrew approve a shared parking agreement, which would allow Touchstone to share off-site parking spaces with other businesses if their uses of the spaces did not conflict. Touchstone explored off-site parking options, including 37 spaces at 980 South Arroyo Parkway and 40 spaces at 950 South Arroyo Parkway. Touchstone submitted to Killebrew an unexecuted copy of a one-year lease for parking spaces at 980 South Arroyo Parkway.

On December 12, 2014 Bernier e mailed Naple and Napolitano's attorney Craig Stelmach to inform them “the CUP is still moving forward.” Bernier represented Melvin “believe[d] that the application [was] complete.” By January 2015 Killebrew had tentatively scheduled a hearing on Touchstone's CUP application for March 4, 2015. To prepare for the hearing, on February 9, 2015 Killebrew requested Melvin provide an executed copy of the lease for...

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