Malcom Carter Enterprises v. Microsemi Real Estate

Filed 9/26/07 Malcom Carter Enterprises v. Microsemi Real Estate CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Clay M. Smith, Judge. Reversed and remanded with directions.

Grant, Genovese & Baratta, David C. Grant and Cindy M. Chon, for Plaintiff and Appellant.

Davis Graham & Stubbs, Pamela S. Sbar, Roger L. Freedman, and Damian J. Arguello, for Defendant and Respondent.

Plaintiff Malcolm Carter Enterprises appeals from a summary judgment on its complaint for declaratory relief in favor of defendant Microsemi Real Estate, Inc.

Plaintiff sought a declaration that defendants option to purchase some real property had terminated. The parties written agreement provided the option would terminate 90 days after plaintiff obtained a letter stating no further action was required to remediate environmental conditions on the Property as set forth in certain documents. Plaintiff contended it triggered the 90-day expiration period by obtaining a letter addressing the only significant environmental condition set forth in those documents: the possible migration of groundwater contamination from an adjacent property.

The court ruled plaintiff had failed to trigger the 90-day expiration period because no reasonable optionee would rely upon the letter plaintiff had obtained. The letter was a year old when plaintiff obtained it, referenced the adjacent property, and did not identify the optioned property.

The court wrongly interpreted the parties agreement. While a reasonable optionee may have preferred a different letter, defendant did not bargain for a different letter. Defendant bargained for a letter stating no further action was needed to remediate environmental conditions set forth in certain documents. A triable issue of fact exists as to whether the letter plaintiff obtained addressed those environmental conditions. Defendant thus was not entitled to summary judgment. We reverse and remand.

FACTS

The Option Agreement

Parcel 17 is a two-acre parcel of real property located at 3101 West Segerstrom Avenue in Santa Ana. It was originally part of a 6.9 acre parcel located at 3131 West Segerstrom Avenue, sometimes known as the RBC property. Parcel 17 was subdivided from 3131 West Segerstrom Avenue in 1996. Parcel 17 lies immediately east of 3131 West Segerstrom Avenue, between that property and the Greenville Banning flood control channel.

When plaintiff leased parcel 17 to defendant in 1996, the parties also entered into a written agreement giving defendant the option to purchase parcel 17 (the option agreement).[1] The option commenced upon the execution of the agreement and remains effective until the lease terminates or ninety (90) days after [plaintiff] obtains a No Action Letter (as defined below) . . . .

The option agreement briefly describes the letter that would trigger the options 90-day expiration period. It provides, [plaintiff] shall obtain a no further action or other similar letter from the appropriate governmental agency (No Action Letter) upon [plaintiffs] completion of the remediation of the environmental conditions on the Property as set forth in this Agreement or in the Lease. The parties concede on appeal the appropriate agency is the California Regional Water Quality Control Board (the Board).[2] The option agreement and the lease, however, do not directly set forth any environmental conditions on parcel 17.

Instead, the option agreement references an environmental report. The agreement provides, [plaintiff] has received that certain environmental report dated as of December 13, 1996, concerning the environmental condition of the Property (Environmental Report) issued by GeoRemediation, Inc. . . .  [Plaintiff] has assumed the duty and obligation at its sole cost and expense to remediate the conditions revealed by the Environmental Report. Similarly, other provisions of the option agreement reference the conditions described in the Environmental Report, the conditions set forth in the Environmental Report, and material disclosed in the Environmental Report.

The Environmental Report

Before the parties entered into the lease/option transaction, plaintiff had retained an environmental consultant to determine whether significant contamination exists on parcel 17. The consultant prepared a report entitled, Phase I Environmental Site Assessment of Parcel 17, Block 121, a lot subdivided from 3131 West Segerstrom Avenue, Santa Ana, Orange County, California, dated December 13, 1996 (the environmental report). Plaintiff disclosed the environmental report to defendant as part of their transaction.

In the environmental report, the consultant states it observed no significant indications of contamination at parcel 17. Government files showed no significant sources of contamination exist on the site. Inspection and investigation revealed no underground storage tanks, aboveground storage tanks, drums, sumps, clarifiers, pools, pits, unnaturally stressed vegetation, significantly stained soil or pavement, significant volumes of known potentially hazardous solid waste, potentially hazardous waste water, significant volumes of known potentially hazardous petroleum products, radon exceeding action levels, PCBs, asbestos, lead, oil wells, or landfills. Any pesticides, herbicides, and fertilizers that were used on the site between 1959 and 1967 are not now likely to exist in concentrations considered hazardous to humans and the environment. Grading activity already removed or would likely remove any DDT from the soil; [i]n any event, it is unlikely that a government regulatory agency would require remediation activities.

The only significant environmental condition mentioned in the environmental report concerned the adjacent parcel at 3131 West Segerstrom Avenue. The report noted, [a] soil and ground water contamination problem at 3131 West Segerstrom Avenue was discovered in 1989. The contamination problem has now been mitigated to the satisfaction of the governmental regulatory agencies. Nonetheless, the Board has a continued concern regarding the migration of a residual contaminant plume from the source to beneath Parcel 17 and possibly to the flood control channel bordering Parcel 17 to the east. But the environmental consultant remediating 3131 West Segerstrom Avenue has shown with subsurface investigations that no significant contaminants exist on Parcel 17. Accordingly, [t]he [Board] is not requiring additional ground water mitigation at this time, but the ground water beneath the site is still being monitored by [an environmental consultant] under the direction of the [Board].

The Board Letter

In mid-July 2004, plaintiffs environmental consultant obtained a copy of a letter issued by the Board to the environmental consultant for the owners of 3131 West Segerstrom Avenue (the Board letter). The letter was entitled, NO FURTHER ACTION AT RBC TRANSPORT DYNAMICS CORPORATION, 3131 WEST SEGERSTROM AVENUE. It was dated just over a year earlier July 9, 2003.

The Board letter chronicled the discovery and successful remediation of the soil and groundwater contamination at 3131 West Segerstrom Avenue. It noted, Subsurface soil contamination was discovered at this site in 1989, most notably petroleum hydrocarbons and volatile organic compounds (VOCs). The site was remediated by removing 1,200 cubic yards of contaminated soil, lining the excavation with 450 tons of crushed rock, and backfilling the excavation with clean soil. Groundwater monitoring wells were installed. One year later, Board staff approved a groundwater remediation system composed of extraction and injection wells. The Board shut down the wells in 1995, as the remediation seemed to have reached a point of diminishing returns.

The letter also described the Boards concern over the possible migration of the groundwater contamination to the east the direction of parcel 17 and the flood control channel. It stated, Further investigation also indicated that the groundwater flows towards the Greenville Banning Channel, which is located adjacent to the east side of the facility. But [l]ow concentrations of VOCs have been detected in groundwater from the on-site wells for the past five years. The letter noted recent samples from the flood control channel showed no signs of contamination. It reported, [a] total of three surface water samples were collected from the Greenville Banning Channel: one sample upstream of the RBC site, one adjacent to, and one downstream of the RBC site. VOCs were not detected in any of these samples.

According to its letter, the Board found 3131 West Segerstrom Avenue posed no significant environmental threat and required no further remediation or monitoring. The letter stated, Based on the low concentrations and mass of VOCs that remain in the groundwater at the RBC site, the contribution of VOCs from a off-site, upgradient source, and that the VOCs are only present in the shallow portion of the perched groundwater, VOCs at the site do not appear to be a significant threat to the beneficial uses of the Santa Ana Pressure Groundwater Subbasin. Further, no VOCs have been detected in samples from the Greenville Banning Channel in the vicinity of the RBC site. It concluded, On the condition that the information provided to us was accurate and representative of existing conditions at the site, no further action is necessary for soil or groundwater investigation, cleanup or monitoring at RBC Transport Dynamics Corporation, 3131 West Segerstrom Avenue, Santa Ana, CA.

The Litigation

Plaintiff sent the Board letter to defendant the day after plaintiff obtained it, on July 16, 2004. Plaintiff informed defendant that the letter triggered the 90-day expiration period. Defendant waited more than 90 days until mid-November 2004 to inform plaintiff it disagreed.

Plaintiff filed a complaint in January 2005, asserting one cause of action for declaratory relief against defendant. Plaintiff sought a declaration that the letter triggered the 90-day expiration period, and that the option had terminated.

Defendant moved for summary judgment, which the court granted. The court held the letter failed to trigger the expiration period because it was already a year old when plaintiff gave it to defendant, it did not identify parcel 17, and did not mention the environmental report. The court stated at the hearing, I ask myself, would any reasonable buyer rely on this letter. It continued, Would any reasonable buyer look at this letter . . . and consider this to be the triggering event for this option? I have a real serious question about that.

DISCUSSION

To obtain summary judgment, defendant must show no triable issue exists as to any material fact and that it is entitled to judgment as a matter of law. (Code Civ. Proc.,  437c, subd. (c).) Plaintiffs declaratory relief cause of action turns on whether the Board letter constitutes the no action letter specified in the option agreement. If so, plaintiffs delivery of the Board letter to defendant triggered the 90-day expiration period, and the option terminated pursuant to the terms of the option agreement. If not, the option is still in effect. Thus, defendant had the burden on its motion for summary judgment to demonstrate either: (1) the Board letter did not satisfy the requirements of the option agreement as a matter of law; or (2) plaintiff cannot reasonably obtain needed evidence to demonstrate the Board letter did satisfy the requirements of the option agreement. (See Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853 [[a]lthough he remains free to do so, the defendant need not himself conclusively negate an element of plaintiffs cause of action]; (Id. at p. 854 [The defendant must show that the plaintiff does not possess needed evidence [and] the defendant must also show that the plaintiff cannot reasonably obtain needed evidence].)

In attempting to meet its burden, defendant asserted four reasons why the Board letter does not constitute the no action letter as a matter of law: (1) Plaintiff did not obtain it directly from the Board, but instead obtained it indirectly through two environmental consultants; (2) plaintiff gave it to defendant a year after the Board issued it; (3) the letter did not explicitly reference parcel 17 or the environmental report; and (4) it did not address all environmental conditions at parcel 17.

To determine whether the Board letter constitutes the no action letter, we must construe three documents: the option agreement, the environmental report, and the Board letter. In the absence of admissible, conflicting extrinsic evidence, the courts interpretation of these written instruments is subject to our independent review. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) To the extent an interpretation of the documents would depend on admissible, conflicting extrinsic evidence, the summary judgment must be reversed.

The Option Agreement Contemplated a No Action Letter Addressing the Environmental Conditions Set Forth in the Environmental Report

We start with the option agreement. We apply its plain language when possible. (Civ. Code, 1638.)[3] It provides, [Plaintiff] shall obtain a no further action or other similar letter from the appropriate governmental agency (No Action Letter) upon [plaintiffs] completion of the remediation of the environmental conditions on the Property as set forth in this Agreement or in the Lease. Defendant fails to meet its summary judgment burden on each of four disputed points concerning the no action letter.

First, the no action letter must be from the appropriate governmental agency. Defendant unpersuasively contends the word from describes how plaintiff must obtain the letter: plaintiff must obtain it directlyfrom the Board, not indirectly through an agent like its environmental consultant. Defendants reading is strained. As a matter of grammar, modifiers are normally placed next to the words they modify. (E.g., Strunk & White, The Elements of Style (4th ed. 2000) p. 30.) The prepositional phrase from the appropriate governmental agency modifies the word letter, not the word obtain which precedes the phrase by nine words. And as a legal matter, if we presume the authors of the option agreement were not careful grammarians, the language of the option agreement is at least ambiguous on this point. To sustain its burden on summary judgment, defendant needed to demonstrate that plaintiff would be unable to offer extrinsic parole evidence to support a meaning to which the language is clearly susceptible, i.e., the language describes who must author the no action letter, not the means by which the letter is obtained. Thus defendant failed to demonstrate as a matter of law that the Board letter did not satisfy the requirement that it come from the appropriate governmental agency.

Second, defendant contends the letter was stale. But it does not tie its staleness concern to any contract language other than the word upon, in the phrase [Plaintiff] shall obtain a no further action or other similar letter . . . upon [plaintiffs] completion of the remediation of the environmental conditions. Defendant asserts the most applicable definition of upon in this case is immediately following on; very soon after. But defendants unilateral choice of what it considers the most applicable definition is suspect. The source consulted by defendant for its definition, Websters Third New International Dictionary (2002) pages 2517-2518, also defines the word upon as a function word to indicate . . . a beginning course of action or an action or condition that is beginning. (Ibid.) Thus, the word upon may just as easily be read to mark completion of the remediation as the beginning of the time, after which the no action letter must be issued. The word is at least ambiguous in context of the agreement. Its meaning is not fixed as a matter of law. Moreover, the agreement does not provide that the letter must be obtained within any specified time after completion of remediation or after the Board issues it. The agreement provides only that plaintiff is required to obtain the no action letter in order to trigger the option period. If no time is specified for the performance of an act required to be performed, a reasonable time is allowed. ( 1657.) What constitutes such a reasonable time ordinarily presents a question of fact, dependent upon the circumstances of the case. (Kotler v. PacifiCare of California (2005) 126 Cal.App.4th 950, 956.) Thus the claimed staleness of the letter does not provide the basis for summary judgment.

Third, defendants contention that the no action letter must identify parcel 17 and reference the environmental report finds no support in the language of the option agreement. The agreement requires that the no action letter address the environmental conditions on parcel 17 as set forth in the environmental report. There is no language in the contract which requires the no action letter to expressly identify parcel 17 or reference the environmental report. We cannot construe the agreement to say something as a matter of law which the agreement does not expressly say. If parole evidence is available to support the inclusion of such a requirement, that is a matter for trial, not summary judgment.

Fourth, the no action letter has to address only those environmental conditions set forth in the environmental report. The option agreement requires the letter to address the environmental conditions on the Property as set forth in this Agreement or in the Lease. These documents do not directly set forth any such environmental conditions. The option agreement, however, repeatedly refers to the environmental report and the environmental conditions set forth, described, or disclosed therein. While the no action letter must address the environmental conditions set forth in the environmental report, it does not have to address any other environmental conditions that might exist on the property.

Defendant misplaces its reliance on extrinsic evidence offered to show the parties intended the no action letter to address otherenvironmental conditions on parcel 17. Extrinsic evidence is admissible only if offered to show a meaning to which the contract language is reasonably susceptible. (Code Civ. Proc.,  1856, subd. (a); Pacific Gas & E. Co. v. G.W. Thomas Drayage Etc. Co. (1968) 69 Cal.2d 33, 39-40 [extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, but may be offered to show a meaning to which the contract language is reasonably susceptible].) Thus, defendant impliedly suggests the phrase, environmental conditions on the Property as set forth in this Agreement or in the Lease, is reasonably susceptible to the meaning, any environmental conditions on the Property whatsoever, whether set forth in this Agreement or Lease or not.

But defendants extrinsic evidence does not substantially support its reading of the contract language, at least to a summary judgment standard. (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1351 (Wolf) [contract interpretation based on extrinsic evidence reviewed for substantial evidence].) Defendant relies on deposition testimony from plaintiffs president, who testified he understood why [defendant] wanted to structure the deal the way they did, because they didnt want to take on a piece of property that had any environmental issue whatsoever because they were a publicly traded company. Defendant contends this testimony shows the parties intended the no action letter to address all environmental conditions on parcel 17, even if not mentioned in the environmental report. But read in context, the testimony shows only that plaintiffs president understood why defendant wanted to structure the deal as a lease with a purchase option. Plaintiffs president was not testifying about the parties mutual understanding of any contract language at all, let alone the specific phrase, environmental conditions on the Property as set forth in this Agreement or in the Lease.

And even if defendants extrinsic evidence did support its interpretation, plaintiff raised a triable issue. Plaintiff offered conflicting extrinsic evidence a declaration from its president explaining he understood the no action letter needed to address only those environmental conditions set forth in the environmental report. Thus, even if extrinsic evidence were relevant to interpret the language of the option agreement, the parties conflicting evidence would preclude summary judgment. (Wolf, supra, 114 Cal.App.4th at p. 1351 [summary judgment improper when parties submit conflicting extrinsic evidence]; Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1522-1524 [deposition testimony is not a judicial admission; glib, easily misunderstood answers and equivocal concessions do not support summary judgment when conflicting declaration raises triable issue].)

In sum, defendant failed to meet its burden on summary judgment to show as a matter of law that the Board letter failed to satisfy the requirements of the option agreement.

Defendant Failed to Show the Board Letter Did Not Trigger the Option Expiration Period as a Matter of Law

We turn now to the environmental report and the Board letter to determine whether defendant met its burden to show the letter failed to address the environmental conditions set forth in the environmental report. We construe the environmental report independently, applying its plain language where possible and giving its technical terms the meanings understood by environmental professionals. ( 1638, 1645.) According to the plain language of the environmental report, parcel 17 suffers from only one potential environmental condition. That is the Boards concern for a residual plume of contaminated ground water extending beneath the site from 3131 West Segerstrom Avenue . . . . Otherwise, no significant sources of contamination exist on the site and no significant indications of contamination were observed at parcel 17.

Plaintiff offers extrinsic evidence supporting this reasonable interpretation of the environmental reports plain language. The environmental consultant who prepared the report submitted a declaration stating, At the time I prepared this Environmental Report, the only environmental condition affecting [parcel 17] I described therein was the northwest to southeast migration of a residual contaminant plume from the source located on the adjacent property . . . to the west [i.e., 3131 West Segerstrom Avenue]. Plaintiffs expert witness the consultant who originally obtained the Board letter for the owner of 3131 West Segerstrom Avenue submitted a declaration stating, it is my expert opinion that the only environmental condition affecting [parcel 17] as revealed [in the environmental report] involved the northwest to southeast migration of a residual contaminant plume from a source on an adjacent western property identified (Parcel 16 and now commonly known as 3131 West Segerstrom Avenue) to beneath [parcel 17].

Defendant offers no contrary expert opinion. Defendant instead relies on the parties lay opinions of what environmental conditions may have existed at parcel 17. For example, plaintiffs president testified at deposition that he saw what he assumed was illegal trash dumping on the site, and defendants executive vice-president saw drums and debris there. But as noted above, defendant has not met its burden to show the option agreement requires the no action letter to address environmental conditions not set forth in the environmental report. Defendant also relies upon conditions the report mentioned, but concluded were insignificant. For example, the report noted oil stains on a parking lot at parcel 17. Also, old photographs showed small, temporary structures on parcel 17, and records showed contamination problems existed on other sites near parcel 17. But the report dismissed the oil stains as minor [and] surficial, assigned no nefarious purpose to the temporary structures, and noted the other sites were either determined by governmental regulatory agencies to be minor or to have been sufficiently mitigated requiring only periodic sampling and testing to verify the mitigation. The environmental report did not indicate these insignificant conditions required any remediation at all.

Moreover, the environmental report was prepared utilizing the procedures presented in ASTM E 1527-94 and E 1528-93 titled ASTM Standards on Environmental Site Assessments for Commercial Real Estate.[4] Those standards state that [i]n defining a standard of good commercial and customary practice for conducting an environmental site assessment of a parcel of property, the goal of the processes established by this practice is to identify recognized environmental conditions. The term recognized environmental conditions means the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products, into structures on the property or into the ground, groundwater, or surface water of the property. The term includes hazardous substances or petroleum products even under conditions in compliance with laws. The term is not intended to include de minimis conditions that generally do not present a material risk of harm to public health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies. Thus, because the environmental report was prepared utilizing these definitions, insignificant conditions noted in the report but not requiring any remediation would not constitute environmental conditions as that term is used in the relevant industry. ( 1645 [Technical words are to be interpreted as usually understood by persons in the profession or business to which they relate].)

We turn finally to the Board letter, applying its plain language where possible and giving its technical terms the meanings understood by environmental professionals. ( 1638, 1645.) The letter provides, no further action is necessary for soil or groundwater investigation, cleanup or monitoring at RBC Transport Dynamics Corporation, 3131 West Segerstrom Avenue, Santa Ana, CA. This means what it says the soil and groundwater contamination at 3131 West Segerstrom Avenue requires no further remediation.

Plaintiff offers extrinsic evidence supporting this reasonable interpretation of the Board letter. Plaintiff submitted deposition testimony from the Board representative who drafted the letter. The Board representative testified the letter showed the Board had satisfied its concern about the migration of the contamination at 3131 West Segerstrom Avenue. He explained the Board considered parcel 17 to still be a part of 3131 West Segerstrom Avenue, and that the letter showed no action needed to be taken to remedy any migration of contamination to Parcel 17 He testified, Q: Okay. So 3131 [West Segerstrom Avenue], as referenced in this correspondence, dealt with the entire original 6.9 acres property; is that right? [] A: Thats right. [] Q: And monitoring wells 1, 2, 9, and 10 were located on Parcel 17, which later became 3101 [West Segerstrom Avenue]; is that correct? [] A: Thats right. [] Q: And the Board issued a letter saying the groundwater underneath those wells, as well as the original whole 6.9 acres, had been fully remediated to their satisfaction; is that correct? [] A: The whole site remediated. And yes, those words were included in that remediation, yes. He later clarified, Q: Okay, so could the owner of 3101 [West Segerstrom Avenue] or Parcel 17 rely on this July 9, 2003 letter as evidence that the groundwater underneath its parcel that was coming from a plume on 3131 [West Segerstrom Avenue] in that building . . . that that condition had been remediated? [] A: Yes.

Defendant points to no contrary extrinsic evidence in the record. Defendant attempts to rely on other deposition testimony from the Boards representative, which it attached to its reply brief below, but the court sustained plaintiffs objections to this testimony. Defendant has not challenged the courts evidentiary ruling on appeal. We will not consider the excluded testimony. (Code Civ. Proc.,  437c, subd. (c); Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 139.)

DISPOSITION

The court erred in granting summary judgment to defendant. Defendant failed to meet its burden on summary judgment to show the Board letter did not trigger the expiration period as a matter of law. Defendant also failed to show plaintiffs would be unable to present evidence that the Board letter did trigger the expiration period. And plaintiff did, in fact, present evidence that exposed triable issues of fact.

The judgment is reversed, and the matter is remanded to the trial court with directions to enter a new order denying defendants motion for summary judgment. Plaintiff shall recover its costs on appeal.

IKOLA, J.

WE CONCUR:

OLEARY, ACTING P. J.

ARONSON, J.

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line attorney.

[1] The option agreement described the leased premises parcel 17 as being located at 3131 West Segerstrom Avenue. The parties later amended the agreement to describe parcel 17 as being located at 3010 West Segerstrom Avenue.

[2] Defendant claims to reserve the right to dispute later whether the Board is the appropriate governmental agency.

[3] All further statutory references are to the Civil Code unless otherwise stated.

[4] ASTM is an acronym for American Society for Testing and Materials, a private not-for-profit standards-writing organization that publishes specifications, test methods, and practices concerning engineering materials, manufactured products, and the environment.