Alameda, LLC v. Shama, LLC

Filed 7/24/07 9901 Alameda, LLC v. Shama, LLC CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

APPEAL from a judgment of the Superior Court of Los Angeles County.

Richard L. Fruin, Jr., Judge. Reversed with directions.

Michael A. Abramson for Plaintiff and Appellant.

Frandzel Robins Bloom & Csato, Thomas M. Robins, III, Steven N. Bloom and Ronald L. Gruzen for Defendant and Respondent.

Plaintiff 9901 Alameda, LLC, appeals from a judgment after court trial in favor of defendant Shama, LLC, in an action for specific performance and related claims. The principal issue, which the court determined in defendants favor, was whether defendant legitimately terminated the escrow. The courts holding was based upon a related conclusion, that plaintiff had disapproved an environmental contingency in the contract. We conclude, however, that under the undisputed evidence plaintiff did not disapprove this contingency, and defendants termination of the escrow was unjustified improper.

FACTS

The dispositive facts largely appear in documentary evidence, as to the meaning of which there was no conflicting extrinsic evidence, and which we therefore review independently. (9 Witkin, Cal. Procedure (4th ed. 1997) Appeal,  376-377, pp. 425-427.).

In June of 2004, plaintiff and defendant entered into an agreement respectively to buy and sell a 21-acre industrial property in central Los Angeles, for $25 million cash (the contract). The contract consisted of a multi-page American Industrial Real Estate Association form and a typed Addendum, which stated its provisions would control over the forms in case of conflict. Among other things, the Addendum stated in paragraph 26.c, that [e]xcept as may otherwise expressly be provided in this Agreement, the sale of this Property(s) is being made in its AS-IS Condition as of the Date of Agreement . . . .

In paragraph 26.a, the Addendum also referred to and reaffirmed provisions in paragraph 9 of the contract, regarding contingencies: From the Date of Mutual Agreement . . . , Buyer will have the time periods set forth in paragraph 9 to waive or disapprove all contingencies or conditions that may affect its decision to purchase the Property . . . .

Paragraph 9, in turn, contained basic, detailed provisions regarding contingencies to the purchase and how they operated. Paragraph 9.1 began, The closing of this transaction is contingent upon the satisfaction or waiver of the following contingencies. IF BUYER FAILS TO NOTIFY ESCROW HOLDER, IN WRITING, OF THE DISAPPROVAL OF ANY OF SAID CONTINGENCIES WITHIN THE TIME SPECIFIED THEREIN, IT SHALL BE CONCLUSIVELY PRESUMED THAT BUYER HAS APPROVED SAID ITEM, MATTER OR DOCUMENT. Buyers conditional approval shall constitute disapproval . . . .

Paragraph 9.1 proceeded to list the contingencies, including soil inspection, conditions of title, survey, and truth of sellers warranties. The one that this dispute concerns, subparagraph (hereafter paragraph) 9.1(c), was titled Hazardous Substance Conditions Report.^[1] It gave plaintiff 45 days (from receipt of a property information sheet or inception of the agreement, whichever was later) to satisfy itself with regard to the environmental aspects of the Property. The paragraph continued, Seller recommends that Buyer obtain a Hazardous Substance Conditions Report concerning the Property, to be paid for by plaintiff. The paragraph added the following definitions: A Hazardous Substance for purposes of this agreement is defined as any substance whose nature and/or quantity of existence, use, manufacture, disposal or effect, render it subject to Federal, state or local regulation, investigation, remediation or removal as potentially injurious to public health or welfare. A Hazardous Substance Condition for purposes of this Agreement is defined as the existence on, under or relevantly adjacent to the Property of a Hazardous Substance that would require remediation and/or removal under applicable Federal, state or local law.

Paragraph 9.2 explained, All of the contingencies specified in subparagraphs (a) through (p) of paragraph 9.1 are for the benefit of, and may waived by, Buyer, and may be elsewhere herein referred to as Buyer Contingencies. Finally, for present purposes, paragaph 9.3 provided that If any Buyers Contingency or other matter subject to buyers approval is disapproved as provided for herein in a timely manner (Disapproved Item), Seller shall have the right within 10 days following the receipt of notice of Buyers disapproval to elect to cure such Disapproved Item prior to the Expected Closing Date (Sellers Election). Failure to give notice of commitment to cure within 10 days shall be conclusively presumed to be Sellers Election not to cure. If seller elected not to cure a Disapproved Item, either expressly or by not giving notice, buyer would have an election, within 10 days of sellers election, either to accept title subject to the Disapproved Item or to terminate the transaction. Buyers failure to notify seller of intention to accept title subject to the Item would constitute an election to terminate. In this connection, Sellers right to cure shall not apply to the remediation of Hazardous Substance Conditions . . . .

The parties escrow instructions originally allowed plaintiff until July 23, 2004 to waive or disapprove the contracts contingencies, but this date was changed to July 30 in light of the agreement date. On July 30, 2004, plaintiff notified defendant through their respective real estate brokers, as with most other communications herein that plaintiff approve[d] all contingencies except for the Hazardous Substances Conditions and Survey. Plaintiff enclosed a document from its environmental contractor, and requested an extension of the environmental contingency deadline until August 27, 2004. A few days later, the parties amended the escrow instructions to provide for this extension, with a statement that there would be no further ones.

Plaintiff did approve the survey contingency. On August 16 and 17, plaintiff provided defendant with plans for the environmental contractors soil testing, urging that it proceed expeditiously, so that another request for extension would not be necessary. However, on August 23 plaintiff requested such an extension, to September 24, 2004, in light of the monumental upcoming environmental testing. Among other things, containers from the propertys tenant would have to be moved, requiring that some testing be done on a weekend. On August 27, the parties agreed to an extension to September 23, and the escrow instructions were so amended.

At the time of the August 27 extension, plaintiffs environmental contractor estimated that its final report would be completed September 23 or 24. However, as of September 23, work remained to be done. The contractor that day reported that various substances, including PCBs, had been found with the soil samples. It requested time for additional sampling where the compounds had been found, as well as to complete initial sampling in one area. The contractor estimated a further 23 days would be required to complete and finalize the site assessment. On the same day, plaintiff sent defendant the following letter (exhibit 22), accompanied by the contractors letter:

The presence of several hazardous materials was discovered as a result of the recent preliminary soil testing. In order to approve and waive the environmental contingency, additional testing is required to accurately assess the precise quantity, concentration, depth and location of these materials. Therefore, additional time is required pursuant to the attached letter from [the contractor]. Soil boring logs and laboratory results can be provided for your review. [] Time is of the essence, please advise at your earliest opportunity.

This time defendant did not respond, until, on October 6 (15 days later), it wrote to plaintiff and the escrow company that because plaintiff had disapproved the environmental contingency, and had failed to comply with other unspecified obligations under the parties agreements, plaintiffs rights to acquire the property have lapsed. Defendant requested the escrow company to prepare documents to terminate the escrow. On October 14, defendant faxed to escrow the note, This is confirmation of our Oct. 6, 2004 previous communications. Please cancel escrow #04- . . . .

Plaintiff commenced suit on November 3, 2004, filing a complaint for specific performance, injunctive relief, fraud, declaratory relief, and other contractual remedies. Among other things, plaintiff alleged it had spent over $70,000 for environmental assessment of the property.

At trial, the court bifurcated for initial consideration the causes for specific performance and for declaratory relief that the contract remained binding. At the conclusion of trial, the court issued an extensive statement of tentative decision in favor of defendant. The courts reasoning, in brief, was that exhibit 22 had disapproved what the court termed the Hazardous Substance Condition; that this contingency was expressly non-curable by defendant, and therefore neither of paragraph 9.3s 10-day periods, for cure or acceptance of the property without cure, had operated; and accordingly defendant had not breached when it terminated the escrow following plaintiffs rejection of a non-curable contingency. The court stated that its resolution of the two causes of action required judgment for defendant. After entry of judgment, plaintiff moved to vacate it under Code of Civil Procedure section 663; the motion was denied. Plaintiff then instituted this appeal.

DISCUSSION

Like that of the trial court, both parties positions hinge on the premise that exhibit 22 constituted or included a disapproval of the environmental contingency, or at least a part of it. Defendant subscribes to the courts analysis, which is premised on the supposed disapproval. Plaintiff asserts that exhibit 22 constituted a disapproval of the existing time limit for the environmental contingency, which disapproval defendant then had 10 days (to October 3) to cure under paragraph 9.3, by granting an extension, and lacking which plaintiff then had another 10 days (including October 6) in which to decide whether to proceed or to terminate. Hence, plaintiff argues, defendants own October 6 termination was not in conformance with, and breached, the contract.

We disagree with both parties, and the trial court, about the significance of exhibit 22. The notion that exhibit 22 disapproved the environmental contingency, in whole or in part, is untenable. The letter did not at all avow or indicate such disapproval; rather, it specifically requested additional time and testing, In order to approve and waive the environmental contingency. In this respect, the exhibit resembled plaintiffs original July 30, 2004 request for additional time. And that is all that exhibit 22 was: a request again to extend time.

Defendant grounds its position that exhibit 22 constituted a disapproval in various remarks by plaintiffs counsel at trial. But these remarks, in context, did not endorse the concept of a wholesale disapproval of the environmental contingency. Instead, they referred to plaintiffs concept of a disapproval of the contingencys time limit. And that concept too is unfounded, both in the contract and in the text of exhibit 22 (and its predecessor extension requests). First, paragraph 9.3 did not provide for approval or disapproval of the time limits for contingencies. The contract specified those times as non-contingent elements, and their alteration required amendments to the escrow instructions. Second, all of the requests that plaintiff after the fact terms disapprovals, including exhibit 22, were couched as requests for additional time, which is what they were. These requests were ineffectual unless agreed to by defendant.

Because the contracts environmental contingency was not disapproved, there was no occasion for operation of paragraph 9.3s provisions, allowing defendant 10 days to elect to cure, and, if not, permitting plaintiff 10 days to accept or terminate. The questions that remain are what was the status of the contract when defendant acted to terminate it, on October 6, 2004, and whether that termination, as presented, was valid.

September 23, 2004, was the last, extended date for plaintiff to approve or disapprove the final, environmental contingency. Plaintiff did not expressly do either, but only requested a further extension. Defendant tacitly denied the extension. Plaintiffs treatment of the contingency remained one of inaction. Under the capitalized terms of paragraph 9.1 (ante, pp. 2-3), plaintiffs failure to disapprove the contingency meant that plaintiff approved it. The contingencies to closing were thus satisfied. Defendants October 6 termination of escrow, primarily because plaintiff had supposedly disapproved the contingency, therefore was unjustified on that basis.

On the record before us, defendants termination would appear to be a breach. However, on remand the trial court will be entitled to take evidence and consider whether additional facts or factors require a different conclusion.

In a supplemental brief, defendant contends that the undisputed facts, including the nature of exhibit 22 as not a disapproval of the environmental contingency, should not call for reversal. Defendant offers number of reasons, including estoppel, waiver, admission, stipulation, theory of trial, and invited error. These theories are unavailing, both because plaintiff did not treat exhibit 22 as a general disapproval of the contingency, and because defendants doctrines operate upon a party who seeks to take a new position, not a reviewing court, particularly when ruling on a question of law.

DISPOSITION

The judgment is reversed, and the matter is remanded for further proceedings consistent with this decision. Plaintiff shall recover costs.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

COOPER, P.J.

We concur:

RUBIN, J.

FLIER, J.

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^[1] Notwithstanding this title, paragraph 25 provided, and the parties agree, that in interpreting the contract, headings and titles appeared for convenience only and were not to be considered part of the contract.