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Filed 6/ 29 /23 Elq are Enterprises v. Red Whale CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or or dered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT DIVISION THREE

ELQARE ENTERPRISES, INC., Plaintiff and Respondent,

v. RED WHALE, LLC, Defendant and Appellant. A166085
(Marin County Super. Ct. No. CIV 2200151)

In 2019, Red Whale , LLC (Red Whale or the company ) leased commercial space from Elqare Enterprises, Inc. (Elqare) . During the COVID

19 pandemic, the company failed to pay all rent due , prompting Elqare to file

a n unlawful detainer complaint against the company and its manager , Sean Boyd

. After a n unreported bench trial, the court entered judgment against the company , concluding it failed to prove the affirmative defense of frustration of purpose

. W e affirm. BACKGROUND In May 2019, Elqare leased space in a commercial building in Mill Valley to Red Whale, a coffee company

. 1 Red Whale intended to remodel the

1 In lieu of a reporter’s transcript , Red Whale file d a modified settled statement containing the parties’ respective summaries of the evidence2

prem ises before opening , so Elqare offered it a six

- month grace period

. T he five

- year lease

— which began in October 2019 and had two five

- year options
to renew

— g ave the company the right to use the premises to operate a coffee shop “ and for no other purpose” without Elqare’s “ prior written
consent. ” An addendum to the lease permitted the company to use the premises for “other products typically sold in a majority of [ the company ]’s stores, subject to exclusive uses granted ” to the building’s other tenants , and it allowed the company to sell certain company apparel and food items

. The lease does not contain a force majeure provision. Red Whale was unable to acquire permits and o pen for business before
the pandemic began in early March 2020

. In November, the company opened for takeo ut. Over the next year , the company intermittently paid partial rent or no rent at all

. By March 2022, the company owed nearly $180,000 in unpaid rent. After serving a notice to pay or quit , Elqare filed an unlawful
detainer action and sought possession of the premises, past

- due rent, and damages

. Red Whale ’s answer raised several affirmative defenses, including frustration of purpose. The matter proceeded to trial. In its trial brief, Red Whale r elied on the frustration of purpose defense

— it asserted an emergency proclamation issued by Governor Newsom in March 2020 precluded it from using the “premises for any purpose, specifically the intended use in the Lease as a coffee shop” and, as a resul t, its obligation to pay rent was excused for periods of time “ when no use of the premises was allowed

. ” The company urged the trial court to take judicial notice of Governor Newsom’s Executive Order No. N

- 33

- 20, known

adduced at trial

. ( See Cal. Rules of Court, rule 8.137 ; all rule references are to the Rules of Court .) Our factual summary is drawn in part from t he modified settl ed statement , with quotations of the parties’ testimony taken from t hat document

.3

colloquially as the March 2020 “stay

- at

- home order,” and of a November 2020 Marin County news release closing indoor dining (collectively, temporary closure orders)

. The court judicially noticed the existence of the documents, but not their meaning. At a one
- day bench trial, Elqare ’s manager testified Elqare gave Red Whale a six

- month grace period to get its “business up and running,” but the company “had an issue with [its] builder” and spent more than six months preparing to open. The manager further testified the lack of “proper pe rmits” prevented the company from partially opening during the pandemic. Boyd testified he paid rent on the company ’s behalf “ until May 2020, when he was prohibited by the state and county governments from utilizing the premises at all due to the emergenc y created by” the pandemic. He admitted , however, that t he company failed to obtain “ proper permits to open ” before the temporary closure orders were issued

. The company offered evidence it opened for take

- out service in November 2020 , and that it served takeout fo r periods of time in 2020 and 2021. Boyd acknowledged the company’s second location in Marin County operated continuously throughout the pandemic. Thereafter , the trial court issued a minute order with its findings. The
court determined judgment “shall enter” for Elqare and against Red Whale for possession of the premises , $153,119 in unpaid rent, and $46,246.62 in damages

. As relevant here, it concluded the company had not p roven the affirmative defense of “ frustration of purpose by a preponderance of the evidence. That defense requires an [ unforeseen ] law or regulation that renders performance under the lease impossible.” ( All cap ital s omitted.) A s
t he court observed , the company had not explained the “ meaning or impact ” of the temporary closure orders on its “ operations at any particular period of time.” ( All cap ital s omitted.) The court, however , declined to find Boyd4

individually liable under an alter ego theory ; it later denied Elqare’s motion
to reconsider that ruling . I n June 2022, the cour t entered judgment for Elqare

. DISCUSSION Red Whale contends the trial court erred by concluding it failed to

prove frustration of purpose. Before reaching that issue, we must address Elqare’s assertion that the appeal is untimely. ( Santa Clarita Organization for Planning & Environment v. Castaic Lake Water Agency (2016) 1 Cal.App.5th 1084, 1095 [timeliness of appeal is a “threshold procedural question”] .) Generally, a notice of appeal must be filed on or before the earliest of 60 days after the superior court clerk or a party serves a file

- endorsed copy of the judgment or notice of entry of judgment showing the date either was served or

— if no such notice is given

— w ithin 180 days after entry of judgment. ( Rule 8.104 (a)(1)(A)

– (C) .) Here, judgment was entered on June 13, 2022 , but the record contains no evidence the superior court clerk or a party served a file

- endorsed copy of the judgment or notice of entry of judgment. Thus, the time to appeal did not expire until 180 days after judgment was entered, and the notice of appeal

— filed on September 8

— is timely. ( Thiara v. Pacific Coast Khalsa Diwan Society (2010) 1 82 Cal.App.4th 51, 56

– 58.) The company’s service of notice of entry of the order denying Elqare’s reconsideration motion did not trigger the deadline to appeal the judgment. (See Reynolds v. City of Calistoga (2014) 223 Cal.App.4th 865, 871.)
We now turn to the merits. If proven, the frustration of purpose
doctrine “ is a defense to an unlawful detainer action. ” ( Underwood v. Corsino (2005) 133 Cal.App.4th 132, 135 ; SVAP III Poway Crossings, LLC v. Fitness
Internat

. , LLC (2023) 87 Cal.App.5th 882, 895 ( Fitness Internat

. ) The5

doctrine is rooted in Restatement Second of Contracts , which provides t hat whe n , “ after a contract is made, a party ’ s principal purpose is substantially frustrated without [their] fault by the occurrence of an event the non

occurren ce of which was a basic assumption on which the contract was made, [their] remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.” ( Rest.2d Contracts , § 26 5 ; see also 1 Witkin, Summary of Cal. Law (11th ed. 2023) Contracts, § § 868

– 869 , p p

. 914

– 915 .) Put another way , the doctrine “ excuses contractual obligations where performance remains entirely possible, but the whole value of the performance to one of the parties at least, and the basic reason recognized as such by both parties, for entering into the contract has been destroyed by a supervening and unforeseen event. ” ( Fitness Internat.
, at

p. 895 , internal quotation marks and brackets omitted

. )

“ A party seeking to escape the obligations of its lease under the doctrine of frustration must show: (1) the purpose of the contract that has been frustrated was contemplated by both parties in entering the contract; (2) the risk of the event was not reason ably foreseeable and the party claiming frustration did not assume the risk under the contract; and (3) the value of counterperformance is totally or nearly totally destroyed. ” ( Fitness
Internat. , supra , 87 Cal.App.5th at p. 895.) When commercial frustra tion of

purpose applies , “ ‘ the legal effect . . . is the immediate termination ’ ” of the
lease. ( Id

. at p. 896.) For this reason, California law does not recognize

a “ ‘ temporary ’ frustration defense .” ( Ibid. )

“ G overnmental acts that merely make performance unprofitable or more difficult or expensive do not suffice to excuse a contractual obligation .” ( Fitness Internat. , supra , 87 Cal.App.5th at p. 89 5.) An d f rustration of

purpose is not available when “ counterperformance has been and remains6

valuable .” ( Id. at pp. 895

– 896.) Applying these principles , Fitness Internat. recently held a “temporary government closure of a fitness facility for a period of months ” during the pandemic when the premises were leased for

“ more than 19 years . . . [did] not amount to the kind of complete frustration required for the doctrine to apply.” ( Id

. at p. 895

. ) At trial, Red Whale ha d the burden to prove frustration of purpose by a preponderance of the evidence. ( Aguilar v. Atlan tic Richfield Co. (2001)
25 Cal.4th 826, 861; Wong v. Markarian (2022) 82 Cal.App.5th Supp. 24 , 34 .)
The trial court concluded the company failed to satisfy its burden. Thus

— t o prevail on appeal

— the company must show the evidence at trial compelled a finding in its favor “ as a matter of law, ” i.e., that its “evidence was uncontradicted and unimpeached and of such character and weight that there is no room for a trial court determination that it was insufficient to support a finding in [ it s ] favor.” ( In re D.C. (2021) 60 Cal.App.5th 915, 92 1.) We presume the “judgment is correct, indulge all intendments and presumptions in favor of the trial court, and only reverse if [the company] meets its burden of establishing prejudicial error.” ( 6 5283 Two Bunch Palms Building LLC v. Coastal Harvest II, LLC (2023) 91 Cal.App.5th 162 , 168 .) We review the result reached by the court , not its reasons , and we affirm if the judgment is “ correct on any legal basis. ” ( Id. at p. 169. ) Red Whale cannot meet this demanding standard

. At trial, Elqare established it leased the premises to the company in May 2019 for five years with an option to renew the lease for an additional 10 years. The lease authorized the company to operate a coffe e shop and to sell certain clothing and food items

. Elqare gave the company a six

- month grace period to complete renovations and prepare to open , but t he company was unable to do

so before March 2020 due to construction

- and permit

- related delays. Elqare7

offered evidence that th e absence of permits

— not the te m porary closure orders issued during the pandemic

— delayed the company’s opening. Although Boyd testified the orders prohibit ed the company from using the premises during the pandemic , he ac knowledged the company served takeout for periods of time , and that its other Marin County location continued to operate during the pandemic

. He also conceded the company’s failure to obtain permits before the pandemic began contributed to his inability to use the premises

. Additionally, the re is no indication the company attempt ed to rescind the lease. Red Whale ’s evidence may support an inference the temporary closure orders made the company’s performance und er the lease “ unprofitable or

more difficult ” for a period of time, but the evidence does not compel a finding the value of the five

- year lease was “ totally or substantially destroyed

. ” ( Fitness Internat. , supra , 87 Cal.App.5th at pp. 895

– 896

. ) To the contrary , ample evidence suggests the company’s performance remained valuable. ( Id. at p. 896.) O n this conflicting factual record , we cannot conclude the company established the frustration of purpose defense as a matter of law

. (See In re D.C. , supra , 60 Cal.App.5th at p. 922 ; Fitness Internat. , at pp. 895

– 897 ; see also Lloyd v. Murphy (1944) 25 Cal.2d 48, 56; Grace v. Croninger (1936) 12 Cal.App.2d 603, 605 .) 2 The authority cited by Red Whale do es not compel a contrary conclusion. For example, t he company likens this case to Umnv 205

- 207

2 Having reached this result, we need not determine whether Red Whale established the first two elements of the defense as a matter of law. ( See Fitness Internat.
, supra , 87 Cal.App.5th at p. 895 .) We decline the company’s invitation to conclude Fitness Internat. is wrongly decide d and to create an exception to the rule that commercial frustration of purpose functions to terminate the lease . ( Id. at p. 896.)8

Newbury, LLC v. Caffé Nero Americas Inc. (Mass.Super. Ct. , Feb. 8, 2021 , No.
145768 ) [2021 Mass.Super. Lexis 12] ( Caffé Nero )

. We are not bound by out

of

- state a uthority and, in any event, we find the case distinguishable. The re, the lease permitted the business to operate a “ sit

- down restauran t ‘ and for no other purpose

. ’ ” ( Id. at p. 1 2 .) T he business , however, could offer takeout from its sit

- down menu. ( Id

. at p. 3. )
A Massachusetts trial court concluded the COVID

- 19 orders issued by the g overnor barring business es from serving customers indoors from March
to June 2020 completely frustrated the “entire purpose” of the lease for th at three

- month period

. ( Caffé Nero , supra , 2021 Mass.Super. Lexis 12 at p p

. 5

– 6 , 11 .) The court’s conclusion rested on the fact that the lease allowed the business to us e the premises for “ a s ingle purpose ”

— to “ operate a café with
a sit

- down restaurant menu ‘ and for no other purpose. ’ ” ( Id. at p. 12 .) A s the court observed, a different result might obtain if the lease had permitted the business “to use the leased premises for other purposes not barred by government order

. ” ( Id. at p p

. 12

– 13

. ) Here, the lease was not so restrictive : it allowed Red Whale to serve takeout and sell apparel, and to deviate from the original pu rpose of the lease with Elqare’s prior written permission

. Unlike Caffé Nero , the temporary closure orders did not bar the only possible use of the premises. The other cases upon which Red Whale relies are also distinguishable. ( La Cumbre Golf & Country Club v. Santa Barbara Hotel Co. (1928) 205 Cal. 422, 425

– 426 [frustration of purpose defense established where premises

were destroyed by fire]; Industrial Development & Land Co. v. Goldschmidt (1922) 56 Cal.App. 507, 508

– 509 [lessee excused from p erformance when prohibition amendment took effect and made running a liquor business “unlawful”].) We reject the company’s reliance on In re Hitz Rest

. Grp

.9

(Bankr. N.D.Ill. 2020) 616 B.R. 374 for the reasons expressed in West Pueblo Partners, LLC v. Ston e Brewing Co., LLC (2023) 90 Cal.App.5th 1179 , 1189

. Finally, Red Whale argues reversal is required because the trial court conflated the doctrines of frustration and impossibility

. F rustration of purpose and impossibility are relate d

— but distinct

— legal doctrines

. (See Lloyd v. Murphy , supra , 25 Cal. 2 d at p. 53 .) Briefly, impossibility “ is defined ‘as not only strict impossibility but [also] impracticability because of extreme and unreasonable difficulty, expense, injury, or loss i nvolved

. ’ ” ( Fitness
Internat. , supra , 87 Cal.App.5th at p. 893 .) T he impossibility defense may apply when “a government order makes it unlawful for a party to perform its contractual obligations.” ( Ibid. ) In its minute order, the court stated the frus tration of purpose “defense requires an [ unforeseen ] law or regulation that renders performance under the lease impossible.” Th e court’s brief reference to impossibility does not require reversal ; on appeal, the company has not show n the evidence at trial compelled a finding in its favor “ as a matter of law .” ( In re D.C. , supra , 60 Cal.App.5th at p. 92 1; Fitness Internat. , at pp. 895

– 896 [lessee’s performance not excused where “ value of the lease has not been totally or substantially destroyed ”] .) DISPOSITION
The judgment is affirmed. In the interests of justice, each party is to
bear its own costs. ( Rule 8.278 (a)( 5 ) .)10 _________________________ Rodríguez, J.

WE CONCUR:

_________________________ Tucher, P. J.

_________________________ Petrou, J.

A166085