Filed 12/7/05 Hassen Real Estate v. ARG Enterprises CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

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

Conrad R. Aragon, Judge. Affirmed.

Newman & Nelson and Steven J. Nelson for Plaintiff and Appellant.

Sherwood and Hardgrove, Don C. Sherwood and Darlene R. David for Defendant and Respondent.

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Plaintiff Hassen Real Estate Partnership ("Hassen") appeals the judgment entered after a bench trial in its unlawful detainer action against defendant ARG Enterprises, Inc. ("ARG"), as well as a portion of the post-judgment award of $143,184 in attorney fees. Finding no error, we affirm the judgment.

FACTS

Hassen leases to ARG pursuant to a written lease (the "Lease") certain commercial premises located in West Covina, California, at which ARG operates a Black Angus restaurant (the "Restaurant"). The initial 30-year term of the Lease expires in 2013; the Lease contains two five-year options to extend. The minimum rent is fixed at $130,000 per year for years 3 through 30. Instead of annual rent increases, the Lease provides for payment of percentage rent if five percent of gross sales exceed the minimum rent. Thus, additional rent is payable only when the Restaurant's gross annual sales exceed $2.6 million.[1]

Article IV of the Lease provides, in pertinent part, as follows: "Lessee shall have the right to use the leased premises for the operation of a first-class public beef-oriented restaurant. . . . [¶] Subject to the following sentence, Lessee shall conduct its business upon the leased premises in accordance with its discretion as to the normal and customary operation thereof. Lessee agrees to remain open for business to the public seven (7) nights per week for dinner and at least five (5) days per week for lunch, . . ." This lawsuit is based solely on this latter provision, referred to as the "Lunch Covenant."

ARG operates nearly 200 Black Angus restaurants across the United States. In 1996, ARG ceased lunch operations at about a dozen of its restaurants, including the West Covina store, based on poor lunchtime performance. The Restaurant had been closed for lunch for over four years when Hassen first sent a letter to ARG objecting to the closure of the Restaurant's lunch business. ARG responded by explaining why it believed that opening the Restaurant for lunch would actually reduce rather than increase gross sales.

On December 8, 2000, Hassen served ARG with a Notice to Perform Covenant or Quit (the "Notice to Perform"), which stated: "Notice is hereby given that you are in breach of Article IV of the Lease by which you hold possession of the above-described premises in that you are not remaining open for business to the public for at least five (5) days per week for lunch as required by express covenant set forth in Article IV. [¶] Within thirty (30) days after service of this Notice on you, you must comply with the covenant breached by opening for lunch at least five (5) days per week, or deliver possession of the premises to your Lessor, Hassen Real Estate Partnership. Your failure to perform the covenant breached as specified above, or vacate the premises within thirty (30) days, will cause your Lessor to commence legal proceedings against you . . . ."

Prior to the expiration of the 30-day notice period, and after it concluded that it could not dissuade Hassen from requiring ARG to open for lunch, ARG undertook to comply with the Notice to Perform. Specifically, the Restaurant opened for business for one hour, from 12:00 p.m. to 1:00 p.m., on Tuesday, January 2nd, Wednesday, January 3rd, Thursday, January 4th, and Friday, January 5th, 2001. During those weekday noon hours, a one-item lunch menu was served, consisting of Prairie Chicken Strips, French fries and cole slaw. In addition, the Restaurant was open from noon onward on Sunday, January 7, 2001, serving from the dinner menu. Thus, according to ARG, on January 7, 2001, the day the Notice to Perform expired, it was in compliance with the Lunch Covenant contained in Article IV of the Lease.

On January 9, 2001, Hassen served ARG with a Notice of Lease Termination. Thereafter, on January 18, 2001, Hassen filed this action, as a limited civil action, for unlawful detainer to recover possession of the premises from ARG and to declare a forfeiture of the Lease. The unlawful detainer action was based solely on ARG's alleged failure to perform the Lunch Covenant before the expiration of the time period specified in the Notice to Perform.

ARG moved for summary judgment based on its compliance with the Notice to Perform. The trial court granted the motion, and subsequently awarded ARG over $40,000 in attorney fees. Hassen appealed that ruling, and the Appellate Division of the Superior Court reversed the judgment. Specifically, the Appellate Division ruled that the trial court erred in excluding certain deposition testimony presented by Hassen to undermine ARG's position that it had complied in good faith with the Notice to Perform. Thus there remained a triable issue of fact regarding "whether ARG maintained a lunch business for five days within the terms of the lease, or whether its five-day effort was a perfunctory operation which did not satisfy the lease."

Subsequently, the case was reclassified as an unlimited civil action.

ARG made a second summary judgment motion, this one based on its defense that Hassen had waived its right to declare a forfeiture of the Lease and to maintain the action due to its acceptance of rent. That motion was denied.

After a two-day bench trial, the trial court held that ARG had complied with the Lunch Covenant during the notice period consistent with the exercise of its business discretion, while it also undertook to expand the lunch hours and to introduce a more extensive lunch menu. The court accepted as valid the business reason proffered by ARG for the limited scope of the Restaurant's lunch menu during the notice period: the lead time required to order food stock, hire staff, and advertise the new hours. The trial court also awarded ARG $143,184 in attorney fees and $2,874.45 in costs.

Hassen appeals the judgment and fee award, contending that the trial court misinterpreted the Lunch Covenant and improperly included in its attorney fee award fees for services related to ARG's unsuccessful interim appeals and summary judgment motions, and to the client support services of its in-house counsel.

CONTENTIONS

Hassen frames the issues on appeal thus: "1. A first-class beef-oriented restaurant agrees to rent premises for 30 years, to pay percentage rent on gross sales, and to remain open for business for lunch at least five days per week. The lease requires the restaurant to cure any breach of covenant within 30 days unless it gives the landlord notice that a longer time is needed to complete compliance. To cure a noticed breach of the lunch covenant, the restaurant unlocks its doors from 12:00 p.m. to 1:00 p.m. and offers a one-item menu of Prairie Chicken Strips, but does not give notice that more time is needed to complete compliance. Did the restaurant cure its breach because it planned to establish a customary lunch operation after the expiration of the notice period? [¶] 2. After a two-day court trial, a tenant successfully defends an unlawful detainer action and is awarded $143,184 in attorney fees. Prior to trial, the tenant brought two unsuccessful summary judgment motions, lost an interim appeal, and used in-house counsel to perform client support services. Should the award of attorney fees include $29,000 for the summary judgment motions, $35,000 for the interim appeal and $15,000 for in-house counsel?"

DISCUSSION

1. The Lunch Covenant

The trial court found that ARG, in the exercise of its business discretion, complied with the Lunch Covenant before the expiration of the Notice to Perform. We concur in that assessment.

Initially, we note that the standard of review on this appeal is the substantial evidence test. That is, so long are there is substantial evidence to support the trial court's factual findings, we must affirm even if this court would have ruled differently had we presided over the proceedings below, and even if the evidence presented would have supported a different result. (See, e.g., Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874.) In applying this test, "All of the evidence most favorable to the respondent must be accepted as true, and that unfavorable discarded as not having sufficient verity, to be accepted by the trier of fact. If the evidence so viewed is sufficient as a matter of law, the judgment must be affirmed." (Estate of Teel (1944) 25 Cal.2d 520, 527.)

It is a basic legal axiom that "The law abhors a forfeiture, and therefore will ordinarily be satisfied with a substantial compliance of a condition involving a forfeiture when its literal fulfillment is prevented by uncontrollable circumstances." (Knight v. Black (1912) 19 Cal.App. 518, 526.) Indeed, "A condition involving a forfeiture must be strictly interpreted against the party for whose benefit it is created." (Civ. Code., § 1442.) As stated by the court in Nelson v. Schoettgen (1934) 1 Cal.App.2d 418, 423, "Forfeitures are not favored by the courts and if an agreement can be reasonably interpreted so as to avoid a forfeiture, it is the duty of the court to avoid it."

Moreover, in order to protect a tenant's due process rights, the courts have consistently held that a Notice to Perform Covenant or Quit must state the breach precisely to apprise the tenant of what it is specifically required to do to cure the breach. Such notices must be "positive, decisive, and without ambiguity," which means that "[t]he landlord must use language upon which the tenant can safely act." (Horton-Howard v. Payton (1919) 44 Cal.App. 108, 112; see also Julien v. Gossner (1951) 103 Cal.App.2d 338, 344.) "By this action the plaintiff is seeking to have a forfeiture declared because of the alleged default in a condition of the lease, and although the remedy provided by law for the breach of such a condition is summary in principle and process, nevertheless the very nature of the action, involving, as it does, a forfeiture, appeals to the equity side of the court and in turn requires 'a full examination of all of the equities involved to the end that exact justice be done.' [Citation.]" (Knight v. Black, supra, 19 Cal.App. at pp. 525-526.)

Here, it was undisputed that the Restaurant was open during the noon hour and serving lunch five out of the last seven days of the 30-day notice period. Thus, ARG complied with the literal terms of the Notice to Perform, which demanded that "Within thirty (30) days after service of this Notice on you, you must comply with the covenant breached by opening for lunch at least five (5) days per week . . . ." In reversing summary judgment on ARG's cure defense, the Appellate Division ruled that that fact alone did not establish that ARG cured its breach of Lunch Covenant. The Appellate Division framed the issue before it as "whether ARG had cured its breach of the lease provision requiring a lunch operation by opening for five days for one hour, with a one-item, non-beef menu. Central to resolution of this issue is a factual determination of whether ARG maintained a lunch business for five days within the terms of the lease, or whether its five-day effort was a perfunctory operation which did not satisfy the lease." Thus, the Appellate Division ruled that Hassen could prevail at trial by establishing that the "cure" effected by ARG was not consistent with the exercise of its business discretion and thus not "in accord with the provisions of the lease," but was rather was "a sham which did not comply with the terms of the lease."

After presentation of the evidence, the trial court ruled that Hassen failed to prove that ARG's cure was a sham. Rather, the court ruled that ARG's minimal lunch offering during the first week of January 2001 constituted a good faith effort to comply with the Lunch Covenant consistent with the exercise of its business judgment. The conclusion is supported by substantial evidence, including the testimony of the Restaurant's General Manager, Anthony Padilla, ARG's District Manager for the district including the Restaurant, Kenneth Borsuk, and ARG's General Counsel, Patrick Kelvie.

Hassen contends that, because ARG maintained that it could not implement a full-blown lunch operation within the 30-day time period specified in the Notice to Perform, it was in fact invoking the delayed cure provisions of the lease. That language states that "in the case of . . . a default which for cause beyond Lessee's reasonable control . . . cannot with due diligence be cured within such period of thirty (30) days," the Lessee may promptly advise the Lessor of its intention "duly to institute all steps necessary to cure such default [and] shall . . . duly institute and thereafter diligently prosecute to completion all steps . . . necessary to cure the same, . . ." Hassen maintains that because ARG did not advise Hassen of its intention to rely on the delayed cure provision, it did not meet the express terms of the provision. The argument lacks merit.

ARG did not invoke the delayed cure provision and did not rely on it in defending the unlawful detainer action. The provision therefore has no bearing on this case.

In short, the trial court found that ARG substantially complied with the Lunch Covenant, consistent with the terms of the Lease, during the 30-day cure period. That finding is supported by substantial evidence, and will not be disturbed on appeal.[2]

2. Attorney Fees Award

Pursuant to the Lease, ARG filed a motion requesting an award of $170,939.66 in attorney fees. After reviewing the relevant declarations and billing statements submitted in support of the motion, the trial court disallowed $27,755.66. The court found that ARG's reasonable attorney fees for defense of the action amounted to $143,184, and entered a fee award in that amount.

Hassen contends that the trial court erred by including in this fee award $35,222.50 in fees incurred in defending Hassen's appeal of the grant of summary judgment, $14,773 in fees for in-house counsel, and $29,334.50 in fees attributable to ARG's two summary judgment motions which did not result in a final judgment in ARG's favor. Hassen argues that it "should not bear attorney fees exceeding what a similarly situated plaintiff would have paid to a defendant who never filed for summary judgment or resisted an interim appeal." Hassen cites no authority for this unusual proposition. In addition, relying on Bank of Idaho v. Pine Avenue Associates (1982) 137 Cal.App.3d 5, Hassen maintains that the fees which it incurred in successfully prosecuting the appeal of the trial court's grant of summary judgment ($24,592) should be deducted from the fees awarded to ARG.

The award of attorney fees is a matter that lies within the sound discretion of the trial court and will not be disturbed absent a "manifest abuse of discretion." (Bussey v. Afflect (1990) 225 Cal.App.3d 1162, 1165, disapproved on another point in Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141, 1154.) As our Supreme Court has explained, "The 'experienced trial judge is the best judge of the value of professional services rendered in his court, and while his judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong.' [Citation.]" (Serrano v. Priest (1997) 20 Cal.3d 25, 49.) We cannot so conclude based on the facts before us.

Hassen does not challenge the reasonableness of the hourly rates used to calculate the fee award.[3] And as the trial court indicated, this "case was vigorously prosecuted and vigorously defended." Unless Hassen can establish that ARG engaged in frivolous litigation tactics, ARG is entitled to be compensated the reasonable attorney fees it incurred in defense of the action.

"The trial courts, of course, should be allowed the discretion to exclude from a fee award the fees incurred by a prevailing party in making frivolous procedural maneuvers; the primary concern in setting rules for attorney fee awards must be the encouragement of efficient litigation. Where, however, the superior court considers a motion for summary judgment meritorious and the defendant goes on to prevail in the case, the fact the summary judgment is reversed does not show the motion was frivolous. To the contrary, were we to hold a defendant who wins a case and is entitled to fees must pay the fees plaintiff incurred in defeating a motion for summary judgment, we would discourage the use of summary judgment, often an efficient means for disposing of litigation, in actions where the defendant has a strong case. A plaintiff who succeeds in having a summary judgment against him reversed and then goes on to prevail at trial is, of course, entitled to the fees he incurred on appeal. Where, however, the defendant ultimately prevails, he is entitled to his fees on appeal without offset based on the fees plaintiff incurred on appeal." (Presley of Southern California v. Whelan (1983) 146 Cal.App.3d 959, 962.)

Moreover, the award of fees with respect to services provided by ARG's in-house counsel, which amounted to $14,773, was proper. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084; Garfield Bank v. Folb (1994) 25 Cal.App.4th 1804, 1809-1810 ["disallowing fees for in-house counsel would provide a windfall for appellant"], overruled on another point in Trope v. Katz (1995) 11 Cal.4th 274.) Hassen seeks to distinguish the foregoing cases because in those cases, in-house counsel "exclusively litigated the action." Hassen offers no reasons in support of the distinction it requests us to make. Rather, it simply asserts that ARG's in-house counsel did not provide legal services but "services a layperson client would typically perform in support of litigation." However, in his declaration in support of the fee award, Patrick Kelvie, ARG's General Counsel, states that the total time spent by himself and another in-house lawyer, Mr. Handel, in defense of the action amounted to 86.9 hours. The trial court determined that an award of $14,773 on account of the time devoted by ARG's in-house counsel to the defense of the unlawful detainer action was reasonable, and substantial evidence supports that finding.

In sum, "A party who wins an outright victory should recover all his fees without offset for the fees incurred by the other party." (Presley of Southern California v. Whelan, supra, 146 Cal.App.3d at p. 962.) We can find no fault with the fee award.

DISPOSITION

The judgment is affirmed. ARG is to recover its attorney fees and costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

ARMSTRONG, J.

I concur:

TURNER, P.J.

MOSK, J., Dissenting

I respectfully dissent.

I believe the issues in this case concern the interpretation of the lease. There is no parol evidence regarding the interpretation of the lease. Thus, its interpretation is a legal question that we review de novo. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861; ASP Properties Group v. Fard, Inc. (2005) 133 Cal.App.4th 1257.) I interpret the lease not to permit the operation on the lease premises of a restaurant that is not beef-oriented and does not include normal lunch service. There are no facts or reasonable inferences from any facts to the contrary. (See Fieldstone Co. v. Briggs Plumbing Products, Inc. (1997) 54 Cal.App.4th 357, 370 [â€