Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-3_14-ap-03056/USCOURTS-canb-3_14-ap-03056-0/pdf.json

Parties Involved:
Michael Gerevich
Plaintiff
Sima Gerevich
Plaintiff
Annie Li Sun
Defendant

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MEMORANDUM DECISION AFTER TRIAL

UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re:

SIMA GEREVICH and 

MICHAEL GEREVICH,

Debtors.

SIMA GEREVICH and 

MICHAEL GEREVICH,

Plaintiffs, v.

ANNIE LI SUN, as Trustee of the 

Annie Li Sun Revocable Trust, and ANNIE LI SUN

Defendants.

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Case No. 13-31018 HLB

Chapter 13

Adv. Proc. No. 14-03056 HLB

MEMORANDUM DECISION AFTER TRIAL

The Court held a trial in this matter on June 10, 2015, 

after which the parties filed supplemental briefs. Upon due 

consideration of all relevant pleadings, evidence, and argument 

of the parties, and for the reasons that follow, the Court 

rules that Defendants’ claim shall be allowed in the reduced 

amount of $27,312.21. The Court further finds and concludes 

that Plaintiffs were in default at the time they attempted to 

exercise the Lease Option and the Lease therefore expired by 

its terms on June 30, 2014.

Signed and Filed: October 19, 2015

________________________________________

HANNAH L. BLUMENSTIEL

U.S. Bankruptcy Judge

Entered on Docket 

October 19, 2015

EDWARD J. EMMONS, CLERK 

U.S. BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

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MEMORANDUM DECISION AFTER TRIAL

JURISDICTION

This is an objection to claim pursuant to 11 U.S.C. § 

502(a) and (b). Jurisdiction exists under 28 U.S.C. § 1334. 

Venue is proper under 28 U.S.C. § 1409(a). The District Court 

has generally referred these matters to the Bankruptcy Court 

for hearing pursuant to 28 U.S.C. § 157(a) and United States 

District Court, Northern District of California General Order

24. This is a core proceeding within the meaning of 28 U.S.C. § 

157(b)(2)(B). Plaintiffs have expressly consented to entry of

final judgment by this Court. Defendants have impliedly 

consented to entry of final judgment by this Court by 

participating through trial and post-trial briefing. Benefits 

Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 

702 F.3d 553, 569 (9th Cir. 2012), aff'd, Exec. Benefits Ins. 

Agency v. Arkison, 134 S.Ct. 2165, 2175 (2014).

BACKGROUND

This matter centers on a dispute between landlordDefendants Annie Li Sun individually and as trustee of the 

Annie Li Sun Revocable Trust and tenants-Plaintiffs Sima and 

Michael Gerevich. Plaintiffs leased commercial property 

located at 554-556 Commercial Street, San Francisco, 

California, 94111 (the “Property”) from Defendants in June 

2006, pursuant to an assignment of the original Lease between 

Defendants and Vena Shotiveyarana. Consistent with the Lease, 

Plaintiffs operated a restaurant/café on the Property. 

On March 23, 2013, the Property suffered damage due to a 

fire. Defendants required Plaintiffs to vacate the Property 

for renovations. Plaintiffs vacated the premises on April 29, 

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MEMORANDUM DECISION AFTER TRIAL

2013, the same day they filed the underlying bankruptcy case. 

Defendants filed a proof of claim on August 23, 2013 claiming 

$36,313.24 for “lease arrears,” which includes property taxes 

and insurance for the years 2009-2012 (with a note indicating 

that Defendants waived such charges for 2008), a water bill, a 

sump pump repair bill, the cost of removal of items abandoned 

by Plaintiffs, and attorney fees. Defendants filed an amended 

proof of claim on November 26, 2015 claiming $33,911.60 for the 

same itemized “lease arrears,” but reflecting a $5,000 credit 

for payments made.

Plaintiffs filed this adversary proceeding on May 16, 

2014, asserting ten causes of action: Disallowance of Claim;

Negligence and Negligence Per Se; Negligent Hiring, 

Supervision, and Retention of Unfit Contractor; Breach of 

Contract; Waste; Breach of Fiduciary Duty; Nuisance; 

Accounting; Unfair Business Practices in Violation of Section 

17200 et seq. of the California Business and Professions Code; 

and Declaratory Relief. At a status conference hearing on 

March 5, 2015, the Court ruled that it would only determine the 

Disallowance of Claim cause of action and would abstain from 

the remaining state law causes of action. 

Plaintiffs argue that Defendants’ proof of claim should be 

disallowed in its entirety because: (1) Defendants failed to 

attach supporting documentation to the claim; (2) Defendants

did not make demands for payment of property taxes and 

insurance in accordance with the terms of the Lease; (3) demand 

for payment of property taxes and insurance incurred prior to 

August 23, 2009 is barred by the statute of limitations; (4) 

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MEMORANDUM DECISION AFTER TRIAL

the claim includes amounts which should be abated pursuant to 

the terms of the Lease; (5) Defendants improperly billed for 

property taxes and insurance on a calendar year, rather than 

fiscal year; (6) Defendants waived payment of property taxes 

and insurance for 2008 and 2009 property tax years; (7) the

claim for attorney fees is barred by California Civil Code 

Section 1950.8(b); (8) certain offsets should be applied; and 

(9) Plaintiffs properly exercised their Lease Option.1

Defendants respond that: (1) claimed amounts were 

adequately set forth through evidence and testimony at trial 

(2) all relevant demands for payment were properly made, and 

even if they were not, Plaintiffs actually received the demands 

and made payments accordingly, thereby waiving this argument; 

(3) Plaintiffs waived the statute of limitations defense by not 

raising it in the answer; (4) a fiscal-year accounting was not 

required by the Lease; (5) Defendants did not waive the 

property taxes and insurance billed for 2009 calendar year; (6) 

the attorney fees are allowed pursuant to California Civil Code 

Section 1950.8(e); and (7) Plaintiffs defaulted on the Lease 

 

1 In their trial brief, Plaintiffs challenged the $2,224.94 demand for removal 

of Plaintiff’s abandoned items which was not included in the complaint. The 

Court expressly excluded any argument regarding the charge for removal of 

Plaintiff’s abandoned items at trial. Plaintiffs also argued in their trial 

brief that Defendants billed incorrectly for certain property tax bills; i.e., 

that Defendants’ billing did not match the amounts billed by the tax assessor. 

Plaintiffs, however, introduced no evidence at trial to support this argument 

and did not include any improper billing in their post-trial brief 

calculations. Accordingly, the Court deems this argument waived. Finally, 

Plaintiffs argue that the claim for a plumbing bill should be disallowed 

because the plumbing issue was caused by the fire, whereas Defendants argue 

that the plumbing issue existed prior to the fire. The Court need not address 

these arguments because, as discussed below, the Court finds that regardless 

of the cause of the plumbing issue, the bill should have been abated by the 

terms of the Lease.

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MEMORANDUM DECISION AFTER TRIAL

terms by not paying property taxes and insurance and were 

therefore precluded from exercising the Lease Option.

Defendants did not address the abatement, property tax refund, 

or offset issues. The Court addresses each of Plaintiffs’ 

arguments in turn.

DISCUSSION

A proof of claim that is executed and filed in accordance 

with the Rules “shall constitute prima facie evidence of the 

validity and amount of the claim.” Fed. R. Bankr. P. 3001(f); 

Pierce v. Carson (In re Rader), 488 B.R. 406, 416 (B.A.P. 9th 

Cir. 2013). A proof of claim based on a writing must include a 

copy of the writing. Fed. R. Bankr P. 3001(c)(3).

A claim “is deemed allowed, unless a party in interest ... 

objects.” § 502(a). Section 502(b)(1) disallows any claim that

is “unenforceable against the debtor and property of the 

debtor, under any agreement or applicable law for a reason 

other than because such claim is contingent or unmatured.” 

Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 

U.S. 443, 450 (2007). State law governs the substance and 

validity of claims. Id. Although the creditor bears the 

ultimate burden of persuasion, the debtor must come forward 

with evidence to rebut the presumption of validity. Id. at 

1248. If the debtor rebuts the presumption, the creditor bears 

the burden of showing the claim should be allowed. Litton Loan 

Servicing v. Garvida (In re Garvida), 347 B.R. 697, 707 (B.A.P. 

9th Cir. 2006). The burdens must be met by a preponderance of 

the evidence. Id. at 708

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MEMORANDUM DECISION AFTER TRIAL

Documentation to Support Claim

Plaintiffs assert that Defendants’ claim should be 

disallowed because it failed to attach the Lease and invoices 

which form the basis for the claim. Defendants argue, and the 

Court agrees, that all relevant documents have been introduced 

into evidence. While failure to attach documents may preclude 

a claim from earning the presumption of validity under Rule 

3001(f), noncompliance with Rule 3001(c) is not one of the 

statutory grounds for disallowance. (Heath v. Am. Express 

Travel Related Services Co.) In re Heath, 331 B.R. 424, 435 

(B.A.P. 9th Cir. 2005). Accordingly, the Court OVERRULES the 

objection to claim on the grounds of inadequate documentation.

Form and Manner of Demand for Payments

Plaintiffs argue generally in their trial brief that 

Defendants’ demands for property taxes and insurance did not 

comport with the express terms of the lease. In their posttrial brief, Plaintiffs make for the first time specific 

assertions that the demands were not timely, did not include 

required invoices, and were not properly served by certified 

mail. Defendants assert that the demands were timely and 

properly made.

When a bankruptcy court adjudicates a contract claim, the 

court applies state law to the contract dispute unless the 

Bankruptcy Code2 requires otherwise. Merced Production Credit 

Ass’n v. Sparkman (Matter of Sparkman), 703 F.2d 1097, 1099 

(9th Cir. 1983). A lease agreement establishing a landlord-

 

2 Title 11 of the United States Code, 11 U.S.C. § 101, et seq.

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MEMORANDUM DECISION AFTER TRIAL

tenant relationship is a contract and is subject to the general 

rules governing the formation and interpretation of contracts. 

ASP Properties Grp. v. Fard, Inc., 35 Cal. Rptr. 3d 343, 350 

(Ct. App. 2005). Under California law, the clear and explicit 

meaning of contract provisions, interpreted in their ordinary 

and popular sense, controls judicial interpretation. Id. at 

351.

Both parties agree that the Lease and Assignment of Lease 

provide the terms by which Defendants were required to make 

demands for payment of property taxes and insurance. The Lease 

and Assignment of Lease contain the following relevant 

language:

Lease, Paragraph 6:

Said taxes and insurance shall be paid to Lessor by Lessee 

not later than thirty (30) days after Lessor has made 

written demand therefor, which demand shall be accompanied 

by the applicable tax bill or insurance premium invoice, 

which documents shall indicate that such amounts have been 

paid or are payable by Lessor with sixty (60) days. Any 

taxes and insurance for the Lease years in which this 

Lease commences and terminates shall be prorated between 

Lessor and Lessee to the end that Lessee shall only pay 

such portion of such taxes and insurance as are included 

within the terms of this Lease.

Lease, Paragraph 7: 

Notices: All notices, consents, waivers or other 

communications which this Lease requires or permits either 

party to give to the other shall be in writing and shall 

be served personally, by facsimile, or forwarded via 

registered or certified United States Mail, return receipt 

requested, responsible overnight courier, made upon or 

addressed to the respective parties as follows [addresses 

listed] or to such other addresses as a party may 

designate by written notice to the other party in the 

manner herein provided.

Lease, Paragraph 7.1:

Any notice sent pursuant to this Section shall be deemed 

given on the date received. If any notice is transmitted 

by facsimile transmission or similar means, the same shall 

be deemed served or delivered upon telephone confirmation 

of receipt of the transmission thereof, provided a copy is 

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MEMORANDUM DECISION AFTER TRIAL

also delivered via delivery or mail. If notice is 

received on a Saturday, Sunday or legal holiday, it shall 

be deemed received on the next business day.

Assignment of Lease, paragraph 15: 

Notices shall be delivered either by hand delivery or 

certified mail with return receipt to the following 

addresses unless otherwise notified of a change by written 

notice to the Lessor.

Lease, paragraph 29:

(c) The language in all parts of this Lease shall in all 

cases be simply construed according to its fair, meaning 

and not strictly for or against Lessor or Lessee.

(d) [T]his Lease shall be construed and enforced in 

accordance with the laws of the State of California.

Timeliness of Demands

Plaintiffs argue that Defendants’ written demands for 

payment of property taxes and insurance were not timely because 

they included demands for payment of invoices which had been 

paid by Defendants more than sixty days prior to the demand. 

Plaintiffs rely on language in paragraph six of the Lease which 

requires that a demand for payment “shall be accompanied by the 

applicable tax bill or insurance premium invoice, which 

documents shall indicate that such amounts have been paid or 

are payable by Lessor with sixty (60) days.” In response, 

Defendants simply express their bafflement with Plaintiffs’ 

argument and assert that it is incorrect. 

The Court finds that the most ordinary and logical reading 

of the Lease is that Defendants could only demand payment of 

invoices that Defendants had actually paid, or invoices that 

would come due within sixty days of the demand. This 

interpretation is consistent with Defendants’ billing 

practices: Defendants billed for the property tax and 

insurance invoices they had actually paid during the prior 

calendar year. The fact that Plaintiffs did not explicitly 

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MEMORANDUM DECISION AFTER TRIAL

raise the timeliness of the demands until their post-trial 

briefing suggests to the Court that their argument is based on 

legal strategy rather than Plaintiffs’ understanding at the 

time they entered into the Lease. Regardless, Plaintiffs 

presented no evidence that at any time they understood that the 

Lease required Defendants to make a demand for payment within 

sixty days of having paid an invoice, or that they challenged 

this billing practice at any point prior to filing bankruptcy. 

Regardless, the Court finds no language in the Lease or 

Assignment of Lease providing a deadline for Defendants to 

demand payment. Under the terms of the Lease, therefore, 

Defendants could make a demand for payment as late as the time 

of filing the proof of claim in this case. Accordingly, the 

Court OVERRULES the objection to claim based on the timeliness 

of the demand letters.

Form of Demands

Plaintiffs argue that the demands were ineffective because 

they did not attach relevant invoices as required by the terms 

of the Lease. Defendants respond that all amounts due have 

been established through evidence at trial. As to whether the 

original demand letters included the required invoices, Court 

finds the evidence inconclusive. The initial demand letters 

(as opposed to those requesting past due amounts) reference 

attached invoices. Ms. Gerevich testified that some demand 

letters had invoices attached and some did not. Accordingly, 

the Court finds that Plaintiffs have not proven by a 

preponderance of the evidence that the demand letters did not 

attach the required invoices. Regardless, the Court finds that 

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MEMORANDUM DECISION AFTER TRIAL

all relevant invoices are now in evidence in support of 

Defendants’ proof of claim and OVERRULES the objection to claim 

as to the form of the demand letters.

Service of Demands

Plaintiffs argue that the payment demands were not proper 

because they were not served by certified mail as required by 

the Lease and the Assignment of the Lease. Defendants respond

that the certified mail requirement only applied to legal 

notices, and that Plaintiffs actually received the demands for 

payment and responded to them, which moots the argument of 

improper service.

The Court finds that the plain language of paragraph 7 of 

the Lease and paragraph 15 of the Assignment of Lease requires 

service of the demand letters by certified mail, or by other 

means not applicable here. Defendants did in fact serve at 

least two demand letters by certified mail as evidenced by

Defendants’ Exhibit I, a demand letter dated March 7, 2012 with 

certified mail receipt attached, and by Plaintiffs’ concession 

that a February 5, 2013 letter was sent by certified mail. The 

evidence also shows that Plaintiffs actually received some, if 

not all, of Defendants’ demand letters, and in response to 

those letters, made partial payments on the amounts demanded. 

Finally, as noted, the Lease does not set a deadline for 

demanding payment of taxes or insurance. So, even if some of 

the demand letters were not properly served by certified mail, 

Defendants filed a timely proof of claim setting forth their 

demand. The Court finds that Plaintiffs suffered no prejudice 

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MEMORANDUM DECISION AFTER TRIAL

due to any improper service of the demand letters and OVERRULES

Plaintiffs’ objection on that basis.

Statute of Limitations

Plaintiffs argue that demand for payment of any invoice 

prior to August 23, 2009; i.e., four years prior to the date 

Defendants filed their proof of claim, is barred by 

California’s four-year statute of limitations for a contract 

claim. Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 

792 (9th Cir. 2012) (“A four-year limitations period applies to 

"[a]n action upon any contract, obligation or liability founded 

upon an instrument in writing.") (quoting Cal. Civ. P. Code 

337(1).)

Defendants argue that Plaintiffs waived this defense to 

the proof of claim by not raising it until trial. The Court 

agrees with Defendants. Plaintiffs did not affirmatively plead 

the statute of limitation in their complaint, nor did they 

address it in their opening brief, trial evidence, or opening 

argument. The first time Plaintiffs mentioned the statute of 

limitations was in their closing argument. The Court finds 

that raising the statute of limitations in a closing argument 

is prejudicial to Defendants, who had no opportunity to submit 

evidence, or for that matter, conduct any discovery with 

respect to this argument, and that the statute of limitations 

defense to the proof of claim has therefore been waived.

Rivera v. Anaya, 726 F.2d 564, 566 (9th Cir. 1984) (recognizing 

that a defense may be waived if raised for the first time late 

in litigation and if the opposing party would be prejudiced by 

the assertion of such defense).

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MEMORANDUM DECISION AFTER TRIAL

Abatement

Plaintiffs argue that pursuant to the Lease, property tax

and insurance payments were abated as of March 23, 2013 when 

the fire interrupted Plaintiffs’ use and possession of the 

Property. Defendants do not address this argument. 

Paragraph 18.6 of the Lease provides as follows:

18.6 Abatement of Rent: Lessee's Remedies.

(a) In the event of damage described in Paragraphs 18.2 

and 18.3 [insured partial damage and uninsured partial 

damage], whether or not Lessor or Lessee repairs or 

restores the Premises, the rent, Real Property Taxes, 

insurance premiums, and other charges, if any, payable by 

Lessee hereunder for the period during which such damage, 

its repair or the restoration continues (not to exceed the 

period for which rental value insurance is required under 

Paragraph 10(f)), shall be abated unless such damage was 

caused by a willful act of Lessee.

The Court finds that the plain language of the Lease 

provides for abatement of the property taxes and insurance 

premiums from the date of the fire on March 23, 2013 through to 

the petition date, during which time Plaintiffs did not have 

use of the Property. The Court also finds that the water bill 

and plumbing bill were charged to Plaintiffs during the 

abatement period and should therefore be disallowed. 

Accordingly, the Court SUSTAINS the objection to claim with 

respect to the issue of abatement.

Fiscal vs. Calendar Year Billing

Plaintiffs argue that Defendants’ claim for property tax 

and insurance should be barred because Defendants base their

calculation of these amounts on the calendar years, rather than 

the fiscal years, for which property taxes and insurance were 

actually billed. Defendants argue that Plaintiffs have pointed 

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MEMORANDUM DECISION AFTER TRIAL

to no authority or Lease provision that require an accounting 

by fiscal year. 

While the Court agrees with Defendants in principle, the 

Court finds that the calendar year billing resulted in billing 

for time during which the property taxes and insurance should 

have been abated under the terms of the Lease; i.e., between 

the date of the fire (March 23, 2013) to the petition date 

(April 29, 2013). The Court also finds that the calendar year 

billing resulted in a claim for a post-petition portion of the 

property taxes and insurance which should have been prorated 

out of the claim. Specifically, the claim for property tax for 

the tax period July 1, 2012 through June 30, 2013 was based on 

pre-petition invoices paid in November 2011 and February 2012, 

but which covered post-fire and post-petition period through 

June 30, 2013. Similarly, the claim for insurance for the 

period September 29, 2012 through September 28, 2013 was based 

on a pre-petition invoice paid in 2012, but covered post-fire 

and post-petition period through September 28, 2013. 

In addition, because the 2012 demand covers property taxes 

and insurance paid through to the date of the fire, the demand 

on the proof of claim for property taxes and insurance for the 

period of January 1, 2013 through April 28, 2013 is a duplicate 

claim and will be disallowed.

Accordingly, the Court SUSTAINS the objection to the claim 

based on calendar billing, but only with respect to the claims 

for 2012 and 2013 property taxes and insurance as set forth 

above.

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MEMORANDUM DECISION AFTER TRIAL

Waiver of 2008 and 2009 Property Taxes and Insurance

Plaintiffs assert that Defendants expressly waived 

property taxes and insurance billed for 2008 and 2009, citing 

to the testimony of Mr. Casey and Ms. Sun. Defendants agree 

that they waived property taxes and insurance for 2008 but deny

that they waived them for 2009. The Court finds that 

Defendants did not waive the property taxes and insurance that 

were billed in 2009. Mr. Casey, the Property manager,

testified that there was documentation from the previous 

Property manager, Mr. Clark, that property taxes and insurance 

for the 2008-2009 year had been waived. Ms. Sun testified that 

based on Mr. Clark’s notes, it appeared that 2008 and 2009

property taxes and insurance had been waived. On cross 

examination, Ms. Sun testified that she did not waive any 

property taxes or insurance for the year 2009. The January 12, 

2012 demand letter sent by Defendants’ attorney, Ms. Lee 

indicates that the 2008 property taxes and insurance had been 

waived, as does the Defendants’ proof of claim. Neither 

document waives the 2009 property taxes and insurance.

The Court finds that the weight of the evidence 

demonstrates that Defendants waived the property taxes and 

insurance for the 2008-2009 property tax and insurance year to 

the extent that invoices for that period were paid for in 2008, 

but did not waive any invoices that Defendants paid in 2009. 

As Plaintiffs point out, Defendants’ demands for payment were 

based on payments made during a calendar year. Defendants paid 

the 2008-2009 insurance premium when it came due in 2008. 

Defendants paid the 2008-2009 property tax payments when they 

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MEMORANDUM DECISION AFTER TRIAL

came due in 2008. Those payments were waived, as reflected in 

the proof of claim. Accordingly, the Court OVERRULES the 

objection to claim based on waiver of the 2008 property taxes

and insurance as moot, and on waiver of the 2009 property taxes 

and insurance as not supported by the evidence.

Attorney Fees

Plaintiffs argue that the demand for $2,000 attorney’s 

fees is in direct violation of California Civil Code section 

1950.8(b). Defendants argue that the attorney’s fees are 

allowed by California Civil Code section 1950.8(e). The Court 

agrees with Defendants. 

California Civil Code section 1950.8(b) provides:

It shall be unlawful for any person to require, demand, or 

cause to make payable any payment of money, including, but 

not limited to, “key money,” however denominated, or the 

lessor's attorney's fees reasonably incurred in preparing 

the lease or rental agreement, as a condition of 

initiating, continuing, or renewing a lease or rental 

agreement, unless the amount of payment is stated in the 

written lease or rental agreement.

California Civil Code section 1950.8(e) provides:

Nothing in this section shall prohibit any person from 

charging a reasonable amount for the purpose of conducting 

reasonable business activity in connection with 

initiating, continuing, or renewing a lease or rental 

agreement for nonresidential real property, including, but 

not limited to, verifying creditworthiness or 

qualifications of any person seeking to initiate, 

continue, or renew a lease or rental agreement for any use 

other than residential use, or cleaning fees, reasonably 

incurred in connection with the hiring of the real 

property.

There was little evidence or testimony as to the basis for 

the $2,000 attorney fee, but all evidence submitted suggests 

that the $2,000 fee falls within California Civil Code section 

1950.8(e) for reasonable business activity in connection with 

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MEMORANDUM DECISION AFTER TRIAL

initiating a non-residential lease. Ms. Gerevich testified 

that she understood that it was a charge for preparing a new 

lease; i.e., to transfer the Lease to a potential buyer. She 

testified that in connection with Defendants’ consideration of 

the potential buyer, buyer’s broker submitted a full package of 

financial background documents to Defendants or their attorney, 

Ms. Lee for review. Mr. Casey testified that the $2,000 bill 

was for work Ms. Lee did to review potential replacement 

tenants for the Property. The proof of claim states that the 

$2,000 fee was for administrative fees due from Plaintiffs for 

their unsuccessful attempt to sell the business in 2012. 

Plaintiffs make much of the fact that the sale to the new buyer 

did not materialize; however, that does not mean Defendants did 

not incur expenses during the process of reviewing the 

potential buyer’s offer. Plaintiffs offered no evidence or 

argument to suggest that the fees were unreasonable. 

Accordingly, the Court OVERRULES the objection to claim based 

on violation of California Civil Code section 1950.8(b). 

Offsets

Plaintiffs assert that the claim should be offset for: 

(1) property tax refunds; (2) a payment Plaintiffs made for 

post-petition property tax and insurance; and (3) payments made 

to Defendants by the Chapter 13 trustee.

Property Tax Refund

Plaintiffs assert that Defendants received property tax 

refunds which were not credited to Plaintiffs’ account. 

Defendants do not address this argument. The Court finds, 

however, that Plaintiffs failed to establish at trial that the 

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MEMORANDUM DECISION AFTER TRIAL

checks Defendants received from the City and County of San 

Francisco were a tax refund for the Property. The checks do 

not reference the Property; the number on the checks does not 

correspond exactly with the account number on the property tax 

payment vouchers, and Ms. Sun testified that she received the 

checks from her attorney and deposited them, but did not know 

what the checks were for. Accordingly, the Court OVERRULES the 

objection to claim with respect to any alleged property tax 

refund.

Post-Petition Payment

Plaintiffs ask the Court to offset the proof of claim by 

$5,488.34 for a post-petition payment made to Defendants for 

247 post-petition days of property taxes and insurance. The 

Court DENIES the request because Defendants’ claim as it will 

be allowed will encompass only pre-petition debt.

Payments by Chapter 13 Trustee

Plaintiffs also ask the Court to offset the proof of claim 

by the amount the Chapter 13 Trustee has paid to Defendants

through the Plaintiffs’ Chapter 13 plan. The Court DENIES the 

request because Defendants’ claim as it will be allowed will be

based upon pre-petition debt, not post-petition payments which 

the Chapter 13 Trustee will track until the allowed claim is 

paid in full.

Lease Option

Plaintiffs object to the statement on the proof of claim 

that “Commercial Lease expires on June 30, 2014” on the grounds 

that the Lease includes a five-year extension option (“Lease 

Option”) which Plaintiffs timely exercised. Plaintiffs assert 

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MEMORANDUM DECISION AFTER TRIAL

that no defaults existed to prevent Plaintiffs from exercising 

the Lease Option and that the parties affirmatively agreed to 

extend the Lease. Defendants argue that Plaintiffs were in 

breach of the Lease when they failed to pay property taxes and 

insurance, and the breach precluded them from validly 

exercising the Lease Option. Defendants assert that they have 

not waived any terms of the Lease, and that the only reason 

Plaintiffs still have possession of the Property is because the 

automatic stay prevents Defendants from evicting them.

The Lease contains the following relevant language:

Lease, Paragraph 1.2

Option. Lessee shall be provided with one (1) five (5) 

year options to renew the lease provided no default under 

this Lease has occurred and is continuing at the time 

notice is given or at the expiration of the then current 

Lease term, Tenant shall have the rights and option, 

exercisable by giving written notice via certified mail 

thereof at least six months/one hundred and twenty (l20) 

days prior to the expiration of the then current lease 

term, to extend the lease as stated in the Option to Renew 

on the cover page. Upon the giving of such notice, this 

Lease shall automatically be extended for such period and 

no instrument of extension need be executed. In the event 

that Tenant fails to give such notice to Landlord as 

herein provided, this Lease shall automatically terminate 

at the end of the then current Lease term and Tenant shall 

have no further light or option to extend this Lease. As 

used in this Lease, the Phrase "Lease term" shall mean the 

original Lease term and any extended term.

Lease, Paragraph 22

Waiver. . . .The subsequent acceptance of rent hereunder 

by Lessor shall not be deemed to be a waiver of any 

preceding breach by Lessee of any term, covenant or 

condition of this Lease, other than the failure of Lessee 

to pay the particular rental so accepted, regardless of 

Lessor's knowledge of such preceding breach at the time of 

acceptance of such rent No covenant, term or condition of 

this Lease shall be deemed to have been waived by Lessor, 

unless such waiver be in writing by Lessor. The mere fact 

that the Lessor after notice of breach did not act, or 

that time has passed after notice of breach before the 

Lessor acted, shall not be any evidence of waiver under 

this Lease.

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MEMORANDUM DECISION AFTER TRIAL

The Court finds that, six months prior to the expiration 

of the Lease (December 30, 2013), Plaintiffs were in default 

under the Lease because they owed pre-petition property taxes 

and insurance and had not cured the default. Plaintiffs still 

have not cured the default. Pursuant to the plain language in 

the Lease, Plaintiffs were precluded from validly exercising 

the Lease Option. Plaintiffs presented no evidence that 

Defendants had waived in writing the no-default requirement to 

exercise the Lease Option. Accordingly, the Court OVERRULES

the objection to the statement in the proof of claim that the 

Lease expires on June 30, 2014.

CONCLUSION

Based on the foregoing, the Court has calculated the amount 

due to Defendants as follows:

Amount due on amended proof of claim: $33,911.60

Disallowed taxes/insurance for 1/1/13-4/28/13 <$2,598.36>

Abated insurance for 3/23/13 – 9/28/13 <$1,646.33>

Abated taxes for 3/23/13 – 6/30/13 <$971.53>

Abated plumbing bill <$895.00>

Abated water bill <$488.17>

TOTAL ALLOWED AMOUNT = $27,312.21

Accordingly, Defendants’ claim will be allowed in the amount of 

$27,312.21 with the language that “Commercial Lease expires June 

30, 2014).”

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MEMORANDUM DECISION AFTER TRIAL

Plaintiffs shall submit a form of judgment consistent with 

this decision within 10 business days following entry of this 

decision.

**END OF ORDER**

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Court Service List

[None]

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