Filed 9/8/16 Goldmex v. Glendale I Mall Assoc. CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication 

or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

GOLDMEX, INC.,

Plaintiff and Respondent,

v.

GLENDALE I MALL ASSOCIATES, 

LLC et al.,

Defendants and Appellants.

 B265076

 (Los Angeles County

 Super. Ct. No. BC490458)

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

Kendig, Judge. Affirmed.

The ByrneLaw Office, John P. Byrne and Sherin Hackman, for Defendants and 

Appellants. 

Ablon, Lewis, Bass & Gale, Jerald E. Gale and Lawrence J. Poteet, for Plaintiff

and Respondent.
2

Glendale I Mall Associates, LLC (defendant)

1

leased space in the Glendale 

Galleria food court to Goldmex, Inc. (plaintiff), which operated a La Salsa Fresh Mexican 

Grill pursuant to a franchise agreement. The 10-year lease entitled plaintiff to a rent 

reduction if its “Net Sales” fell below $800,000 for a continuous 12-month period. 

Midway through the lease, plaintiff notified defendant it was exercising its right to pay 

reduced rent because its Net Sales failed to meet the $800,000 threshold when plaintiff 

subtracted the advertising and license fees it paid to its franchisor. Plaintiff had not 

previously subtracted such fees in calculating its Net Sales, and defendant maintained the 

lease did not allow plaintiff to do so. Litigation between the parties ensued, and the trial 

court entered judgment in plaintiff’s favor after a bench trial. We consider whether the 

court correctly interpreted the lease to permit plaintiff to deduct the franchise fees. 

I. BACKGROUND

A. The Lease Agreement

Plaintiff began operating its restaurant in the Glendale Galleria in 1989, pursuant 

to a franchise agreement with La Salsa Franchise, Inc. (La Salsa). The agreement 

required plaintiff to pay La Salsa a fixed percentage of its gross sales at regular intervals, 

specifically, a five percent “royalty fee” for use of La Salsa’s operational system and 

proprietary marks plus a one percent “advertising fee” (hereafter, the “franchise fees”). 

Defendant’s affiliate, General Growth Properties (General Growth), owned and managed 

the Glendale Galleria as well as another local mall, the Northridge Fashion Center 

(Northridge), in which plaintiff’s affiliate, Goldmex LLC, also operated a La Salsa Fresh 

Mexican Grill pursuant to a franchise agreement. 

In the summer of 2004, David Grossman (Grossman), General Growth’s leasing 

agent and a representative of defendant, began negotiations with plaintiff’s president, 

Andy Goldman (Goldman), to renew plaintiff’s lease in the Glendale Galleria. That fall, 

 

1

In 2012, Glendale I Mall Associates, LLC was converted to a limited partnership, 

Glendale I Mall Associates, LP, which the trial court added as a defendant in these 

proceedings. For convenience, we refer to both parties as the “defendant.” 
3

the parties signed a new lease for a 10-year term that would run through September 2014. 

The lease agreement in the record appears to be a form document with deletions to 

standard provisions represented by strikeouts and additions set forth in a different font.

Plaintiff agreed in the lease to pay monthly rent based on a “Minimum Annual 

Rental” amount plus “additional rent” for plaintiff’s share of utilities, taxes, and other 

joint expenses. Plaintiff’s rent was also subject to an additional increase or reduction if 

its “Net Sales” exceeded or fell below certain thresholds. Most relevant here, if Net Sales 

fell below a specified amount, plaintiff became eligible to pay reduced rent under the 

terms of Article 1.35. Article 1.35 of the agreement provides (emphasis added): 

Commencing on October 1, 2008, in the event Tenant’s Net Sales drop 

below $800,000.00 for an entire 12 month period, then Tenant’s sole and 

exclusive remedy shall be the right to pay Landlord in lieu of Minimum 

Annual Rental and all items of additional rental a sum equivalent to 10% of 

Net Sales for each and every month throughout the remainder of the Term, 

payable monthly in arrears, within 10 days following the end of each 

calendar month. This right shall be exercised upon 30 days prior written 

notice given to Landlord within 30 days after the expiration of said 12 

month period. Notwithstanding the foregoing, in the event Tenant’s Net 

Sales, thereafter for any 12 month period are in excess of $900,000.00 then 

this Lease shall immediately continue upon all of its original terms and 

conditions including, but not limited to, the payment of Minimum Annual 

Rental and all items of additional rent. 

A separate provision of the agreement defined the term Net Sales as used in 

Article 1.35. The definition, as relevant here, included all of the following in the 

calculation of Net Sales:

Net Sales shall include (as of the date of the transaction) the entire amount 

of the sale price of all goods and merchandise sold (including gift and 

merchandise certificates when redeemed), leased, rented or licensed and the 

charges for all services and all other receipts in, upon or from any part of 

the Leased Premises or as a result of Tenant’s agreement, if any, to link its 

website to the Shopping Center’s website, whether (wholly or partially) for 

cash or credit . . . .
4

The definition in Article 5 of the agreement further specified what was to 

be “deducted or excluded” from the calculation of Net Sales. As most pertinent to 

the issue raised on appeal, the definition stated:

The following shall be deducted or excluded, as the case may be, from Net 

Sales, provided such exclusions are specifically itemized: (a) refunds to 

customers to the extent that such refunds relate to (i) a prior inclusion of the 

same transaction or (ii) returns of merchandise purchased from other 

physical store locations of Tenant; (b) sales, use, excise, retailer’s, 

occupation or similar taxes imposed in a specific amount, or percentage 

upon, or determined by, the amount of sales; . . . (e) sales not in the 

ordinary course of Tenant’s business, of machinery or equipment which 

Tenant has the right to remove from the Leased Premises; . . . and (h) the 

proceeds of the sale of any franchise to operate the business on the 

Premises and all fees, charges or charges [sic] from such franchise. 

The subsection (h) provision, which we have italicized above, was (along with another

provision) set forth in a different font than the other text in Article 5, signifying an 

addition that had been made to the standard form agreement.

Elsewhere in the agreement, plaintiff agreed to remodel its restaurant by

September 1, 2007. Plaintiff further agreed that all amendments, modifications, and 

supplements to the lease would be ineffective unless made in a writing signed by the 

parties, that defendant had “made no representations, inducements or promises” about the 

lease apart from those stated in the lease, and that defendant would “not be liable because 

of[ ] the breach of any representations, inducements or promises not expressly in [the]

Lease.” Plaintiff signed an affidavit attesting to a similar representation: that no 

“representative, agent or employee of Landlord made any representations, inducements or 

promises about the Leased Premises or the entry into the Lease, unless expressly in the 

Lease” and that plaintiff had “not relied upon any representations, inducements or 

promises by Landlord’s representatives, agents or employees, other than those contained 

in the Lease.”

2

 

2

Goldmex LLC’s Northridge lease, which ran from May 2002 through January 

2014, was based on the same form as plaintiff’s Glendale lease. The Northridge lease 
5

In January 2012, Goldman notified Larry Martin (Martin), the General Manager of 

the Glendale Galleria, that plaintiff was exercising its right to pay reduced rent under 

Article 1.35 because its Net Sales for the period July 1, 2010, through June 30, 2011, 

totaled $788,566. Defendant denied plaintiff’s request because the records plaintiff had 

previously supplied to defendant showed sales of $838,905 for the period at issue. After 

plaintiff provided new sales numbers, defendant audited plaintiff’s records and 

discovered the discrepancy: when plaintiff recalculated its Net Sales, it subtracted the six 

percent in franchise fees it paid to La Salsa, which it had not done before. Defendant’s

auditor concluded that without this deduction, plaintiff’s Net Sales would have been 

“approximately $848,465 and $844,627” for the years 2011 and 2010, respectively.3

Defendant informed plaintiff it disagreed plaintiff could deduct fees paid to La 

Salsa from its Net Sales. In defendant’s view, plaintiff’s “original reporting” accurately 

showed sales above the $800,000 threshold, and if plaintiff did not immediately pay past 

due rent, plaintiff would be in default. Goldman (for plaintiff) and Martin (for defendant) 

thereafter discussed resolving the parties’ dispute by negotiating an extension to the 

existing lease that would provide new terms regarding rent and other issues, but they

failed to reach an agreement. Defendant again requested that plaintiff pay the nonreduced rent due, which plaintiff did under protest.

B. Procedural History

1. Pretrial proceedings

Plaintiff sued defendant in August 2012 for breach of contract and declaratory 

relief.

4

 Plaintiff sought a judicial determination that Article 5 of the lease allowed it to 

 

included the identical (apart from one immaterial word) Article 5 Net Sales provision as 

the Glendale lease, but it did not include Article 1.35 or any comparable provision 

allowing the tenant to pay reduced rent if its Net Sales fell below a certain threshold.

3

Plaintiff admitted that but for subtracting the franchise fees it paid to La Salsa, its 

Net Sales had not dropped below $800,000 for an entire 12-month period.
6

exclude from Net Sales the franchise fees it paid to La Salsa and that Article 1.35 entitled 

it to pay reduced rent with those fees deducted.

Defendant moved for summary judgment, contending that Article 5(h) (the 

provision authorizing plaintiff to deduct or exclude from Net Sales “the proceeds of the 

sale of any franchise to operate the business on the Premises and all fees, charge[ ] or 

charges from such franchise”) could not reasonably be interpreted to allow plaintiff to 

exclude its payment of franchise fees to La Salsa. Defendant asserted Article 5 could 

only be read to exclude certain “sales transacted by Goldmex” after October 2008 and 

that subsection (h), consistent with the other excludable items in Article 5, necessarily 

referred to proceeds plaintiff might receive if it, not its franchisor, sold a franchise after 

October 2008. Subsection (h) could not be interpreted, defendant contended, to apply to 

plaintiff’s 1989 purchase of a franchise and the expenses associated with that purchase.

While conceding the lease was fully integrated, plaintiff opposed summary 

judgment on the grounds that (1) during lease negotiations, Grossman assured Goldman

plaintiff could exclude from Net Sales the franchise fees it paid to La Salsa, (2) Article 

5(h) was specifically negotiated and added to the lease in order to effectuate that intent, 

and (3) plaintiff’s interpretation of 5(h) was consistent with the text of Article 5, which 

did not refer to proceeds of a franchise sold “by” plaintiff. 

The trial court denied defendant’s motion for summary judgment, reasoning that 

under Wolf v. Superior Court (2004) 114 Cal.App.4th 1343 (Wolf), it could consider 

plaintiff’s extrinsic evidence of the parties’ intent when negotiating the lease and that 

such evidence revealed a “latent ambiguity” in Article 5(h) that rendered the provision 

“reasonably susceptible of the meaning advanced by [plaintiff].” The court ruled such

evidence precluded it from rendering a decision as a matter of law. Defendant petitioned 

this court for a writ of mandate, which we summarily denied, finding “a triable 

controversy as to whether the Lease allows plaintiff to deduct its franchise fees from its 

 

4

Plaintiff later withdrew a cause of action for an accounting that was also included 

in its complaint. (2RT 1214-1215)
7

net sales for calculation of its annual rent to petitioner. (Wolf v. Superior Court (2004) 

114 Cal.App.4th 1343, 1350-1352.[)]”

Prior to trial, defendant moved in limine to exclude Goldman’s anticipated 

testimony that Grossman agreed plaintiff could deduct or exclude franchise fees paid to 

La Salsa when calculating Net Sales and such agreement was manifested by the terms of 

Article 5(h). Defendant argued such testimony was inadmissible parol evidence because 

it contradicted the text of the lease. The court denied defendant’s motion, opining that it 

was a “motion for reconsideration” of the court’s previous summary judgment ruling as 

opposed to a motion in limine and that our summary denial of defendant’s writ petition

“means it’s law of the case.” The court elaborated: “[It] doesn’t mean we have a final 

decision on it. [It] just means that this evidence comes in. . . . [¶] And, you know, 

whether the evidence is going to support or not support or how it’s going to come out has 

yet to be decided. . . . [¶] It’s law in the case that this evidence can come in because that 

issue was taken up and it was decided by them and they sit above me.”

2. Trial

The court held a bench trial over three days in November 2014. Goldman was 

plaintiff’s principal witness.

According to Goldman, even though plaintiff’s Glendale lease did not expire until 

2007 or 2008, defendant sought to negotiate a new lease in 2004 because a competing 

mall was being developed nearby and defendant worried existing tenants would “jump 

ship.” As part of the deal, defendant wanted plaintiff to remodel its restaurant, which 

plaintiff would agree to do only if it was assured “some type of a safety net that would 

allow [it] to survive if [it was] going to spend $100,000, $200,000 on redressing [its] 

restaurant.” Plaintiff determined that its “break even point” was “$800,000 in sales,”

annually, which it then surpassed by $150,000 to $200,000, and the parties agreed the 

deadline to remodel and the availability of the safety net would occur “in concert” in 

2008. If plaintiff’s sales dropped below $800,000 for any 12-month period beginning in 
8

September 2007, when the remodel was required to be completed, its total rent would be 

equal to 10 percent of sales, which was less than plaintiff’s existing obligation.

Goldman also testified Grossman had agreed—with respect to both the Northridge 

and Glendale leases—that plaintiff (or its affiliate Goldmex LLC) would have the right to 

subtract its franchise fees to La Salsa when calculating Net Sales. Goldman said he had 

asked Grossman what specific provision in the Glendale lease allowed him to deduct 

franchise fees, and Grossman had told him “5-H.” Goldman further explained plaintiff 

was at a disadvantage because “most, if not all” of the other food court restaurants were 

“company owned or . . . private,” and plaintiff’s franchise fees were therefore an 

“additional expense” other tenants did not have. Goldman likened such fees to sales 

taxes—funds plaintiff collected for another party to which it had no rights. The 

Northridge lease required plaintiff to pay additional rent, that is, a percentage of sales, if 

sales exceeded $900,000, but the Northridge lease did not allow plaintiff to pay less rent, 

as in the Glendale lease, if sales fell below a certain amount. Goldman told his 

bookkeeper, therefore, to deduct franchise fees from sales at the Northridge restaurant 

only if such sales exceeded $900,000. With respect to the Glendale restaurant, however, 

Goldman told the bookkeeper to deduct franchise fees whenever gross sales “reached 

both the bottom and the top,” meaning sales that were “overages” or “were below the 

safety net.”

Goldman also addressed why franchise fees had not previously been deducted 

from Net Sales under the Glendale lease: he explained his bookkeeper had failed to 

deduct the fees contrary to Goldman’s instructions and without his knowledge. Goldman 

additionally described how it was that he came to discover franchise fees were not being 

deducted. His Glendale restaurant was suffering in late 2011 because his sales “stunk”

and his rent had gone up pursuant to a predetermined increase set forth in the lease. 

Because Goldman did not understand why his business was struggling, Goldman asked 

his accountant to review the restaurant’s expenses. After doing so, the accountant 

informed Goldman plaintiff was not breaking even because it had not been deducting its 

franchise fees; if it did so, sales would be less than $800,000 annually and plaintiff would 
9

be entitled to lower rent. Once Goldman recalculated Net Sales excluding franchise fees, 

he learned he could have exercised his right to reduced rent beginning in July 2011. 

Thus, in late 2011 or early 2012, Goldman told Martin that plaintiff had been overreporting its sales because it had failed to deduct its franchise fees as set forth in the 

lease.

James Dix, a regional director of restaurants for General Growth with 35 years 

experience in the shopping center industry, testified for defendant. Dix negotiated 

restaurant transactions for General Growth but had not participated in negotiating

plaintiff’s lease. He testified that the term “net sales” has a specific meaning in the 

shopping center business: it described all sources of income the retailer received minus 

“[t]hings like excise taxes, sales taxes, taxes to the government, you know, employee 

sales up-capped at a certain amount of money, exchanges, refunds, things of that sort.”

Dix said the word “net” in the term “net sales” did not refer to expenses. Dix was not 

asked to explain what he meant by the term “expenses.”

Grossman, who had actually negotiated the lease with Goldman, was identified as 

a defense witness prior to trial. Defendant did not call Grossman to testify, however.

The parties submitted their closing arguments in writing and later appeared in 

court to argue the matter further. Plaintiff contended Goldman’s uncontroverted 

testimony established the parties mutually intended to allow plaintiff to exclude its

franchise fees to La Salsa when calculating Net Sales and that such intent was consistent 

with the language of the lease when viewed as whole. Plaintiff asserted that in order for 

defendant to rebut Goldman’s testimony, it would have had to offer testimony from 

Grossman. Plaintiff also argued that its failure to exclude franchise fees from Net Sales 

earlier during the lease term did not estop it from doing so later because the lease did not 

require plaintiff to exclude such fees, Goldman was unaware before late 2011 that it had

not been excluding such fees, and defendant was not injured by plaintiff’s failure to do 

so.

Defendant argued Article 5(h) could not be interpreted to allow plaintiff to deduct 

franchise fees to La Salsa because (1) plaintiff had included such fees when it initially set
10

the $800,000 “break even” amount and it would therefore be “double dipping” to then 

remove such fees from Net Sales;5(2) plaintiff’s failure (presumably known to its 

bookkeeper, who did not testify at trial) to deduct such fees for seven years under the 

Glendale lease and for more than 10 years under the Northridge lease established a course 

of conduct indicating the parties never intended that such fees would be deductible; and 

(3) both the language of Article 5 and the industry usage of “net sales” indicated 5(h)

applied only to items of income received from sales by plaintiff, not expenses plaintiff 

paid out. 

The trial court returned a verdict for plaintiff on both the declaratory judgment and 

breach of contract causes of action. In its statement of decision, the court described

Goldman as “a highly credible witness for plaintiff” who was “the only percipient 

witness for either party” to testify as to “what transpired in the negotiations, revisions, 

and signing of the Lease.” In contrast, “[d]efendant did not present any evidence to rebut 

Mr. Goldman’s testimony concerning the Lease negotiations or the representations made 

 

5

Defendant’s argument that plaintiff accounted for its franchise fee expense when 

initially calculating the $800,000 break even number was based on the following 

testimony of Goldman during defendant’s cross-examination: 

Q. But you say you discussed one particular expense, your most 

predictable, your most reliable expense, the fee for the La Salsa name, with 

Mr. Grossman?

A. Yeah . . . . 

Q. You raised this particular expense in conversations with Mr. 

Grossman to explain you had this particular expense?

A. Yes.

Q. And you explained that you wanted to include it in your safety net; 

correct?

A. Yes.

Q. Okay. And Mr. Grossman had no objection to that concept?

A. Eventually, yes. Yes, he did not. It was—negotiations went 

smoothly, yes.

Q. Okay. And he actually, according to your testimony, explicitly 

agreed to it. Is that what your testimony is?

A. He agreed to it, yes.
11

to Mr. Goldman by Mr. Grossman.” Goldman’s “uncontradicted” testimony established 

the parties mutually intended to allow plaintiff to deduct its franchise fees to La Salsa

when calculating Net Sales under the lease. Defense witness Dix testified only to a 

“generalized opinion” on the meaning of “net sales” and his testimony “did not 

controvert or overcome in any way” Goldman’s testimony.6 The court declared Article 5 

of the lease entitled plaintiff to deduct the franchise fees it paid to La Salsa when 

calculating Net Sales and Article 1.35 entitled it to pay reduced rent if the calculation fell 

below the applicable threshold. The court found plaintiff had established its Net Sales 

fell below the $800,000 threshold so as to trigger its right to pay reduced rent, and it 

awarded plaintiff $246,171.74 in damages plus prejudgment interest for breach of 

contract.

Defendant moved for a new trial, which the court denied on the ground that 

defendant merely sought to “reargue[ ] the merits of [the] case.” The court explained that 

after reviewing “all of the briefs and all of the elements of this case, reflect[ing] on the 

Court’s ruling, [and] reweigh[ing] the evidence,” it found plaintiff’s interpretation of 

Article 5(h) “more reasonable” than defendant’s interpretation under the circumstances. 

In response to defendant’s argument that the trial court erroneously treated our summary 

denial of its writ petition as “law of the case,” the court stated it “never treated any [issue] 

as law of the case because [it] didn’t treat anything as res judicata.” Its “use of the term 

‘law of the case’ during the trial . . . was a misnomer, and a shorthand reference to the 

concept of deference to the Court of Appeal,” which “reaffirm[ed]” Wolf, a case that 

required the trial court to consider extrinsic evidence.

 

6

The court noted defendant never explained why it did not produce Grossman as a 

witness despite apparently having the power to do so, citing Evidence Code section 412 

(“[i]f weaker and less satisfactory evidence is offered when it was within the power of the 

party to produce stronger and more satisfactory evidence, the evidence offered should be 

viewed with distrust”).
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II. DISCUSSION

The answer to the question of whether the trial court correctly interpreted the lease 

agreement primarily hinges on whether the agreement’s Net Sales definition is

ambiguous, i.e., whether it is reasonably susceptible to an interpretation that would 

permit deducting or excluding franchise fees. We conclude that it is, and we reject

defendant’s argument that such a conclusion does not accord sufficient weight to the 

plain text of Article 5. We further hold substantial evidence supports the trial court’s 

determination, after weighing extrinsic evidence, that the parties intended to permit 

plaintiff to deduct franchise fees under the lease agreement.

A. Principles of Contract Interpretation and Standard of Review

“A contract must be so interpreted as to give effect to the mutual intention of the 

parties as it existed at the time of contracting, so far as the same is ascertainable and 

lawful.” (Civ. Code, § 1636.) When parties settle an agreement in writing, their intent 

“is to be ascertained from the writing alone, if possible . . . .” (Civ. Code, § 1639.) 

However, the fact that the language of an agreement might at first blush appear clear 

“does not preclude the possibility that the parties chose the language of the instrument to 

express different terms.” (Pacific Gas and Electric Co. v. G. W. Thomas Drayage & 

Rigging Co., Inc. (1968) 69 Cal.2d 33, 39 (Pacific Gas); accord, Wolf, supra, 114 

Cal.App.4th at p.1351 [“Even if a contract appears unambiguous on its face, a latent 

ambiguity may be exposed by extrinsic evidence which reveals more than one possible 

meaning to which the language of the contract is yet reasonably susceptible”].) 

Interpreting a contract is therefore a two-step process. In the first step, a court 

provisionally receives, without admitting, all credible evidence relevant to determining 

whether the contract language is “reasonably susceptible” to a party’s proposed 

interpretation. (Pacific Gas, supra, 69 Cal.2d at pp. 37, 39-40 & fn. 7; Wolf, supra, 114 

Cal.App.4th at p. 1351.) While “extrinsic evidence is not admissible to add to, detract 

from, or vary the terms of a written contract, these terms must first be determined before 

it can be decided whether or not extrinsic evidence is being offered for a prohibited 
13

purpose.” (Pacific Gas, supra, at p. 39.) The court may consider “the circumstances 

surrounding the making of the agreement [citations], including the object, nature and 

subject matter of the writing [citations], and the preliminary negotiations between the 

parties.” (Universal Sales Corporation, Ltd. v. California Press Manufacturing Co.

(1942) 20 Cal.2d 751, 761 (Universal Sales); see also Civ. Code, § 1647 [“A contract 

may be explained by reference to the circumstances under which it was made, and the 

matter to which it relates”].) “The court may also look to the acts of the parties that show 

what they believed the contract to mean. [Citation.]” (DVD Copy Control Assn., Inc. v. 

Kaleidescape, Inc. (2009) 176 Cal.App.4th 697, 712; see also Universal Sales, supra, at 

p. 761 [“the acts and conduct of the parties with knowledge of [the contract’s] terms, 

before any controversy has arisen as to its meaning, is entitled to great weight, and will, 

when reasonable, be adopted and enforced by the court”].) The court’s determination

that a contract is susceptible to multiple interpretations is a question of law, subject to de 

novo review on appeal. (Wolf, supra, at p. 1351.) 

In step two, assuming the language of the contract is reasonably susceptible to two 

different readings, a court resolves the ambiguity by interpreting the contract (Wolf, 

supra, 114 Cal.App.4th at p. 1351), and the court may admit “extrinsic evidence relevant 

to prove either of such meanings” (Pacific Gas, supra, 69 Cal.2d at p. 40). If a trial court 

interprets a contract without consideration of extrinsic evidence, or if the extrinsic

evidence it considers is not conflicting, its determination is a question of law that we

review independently. (Wolf, supra, at p. 1351; see also Parsons v. Bristol Development 

Co. (1965) 62 Cal.2d 861, 866, fn. 2 (Parsons) [de novo review where undisputed 

evidence leads to conflicting inferences].) But if the court’s resolution of the ambiguity 

turns on assessing the credibility of extrinsic evidence or otherwise resolving conflicts in 

the evidence, we review the trial court’s decision under the substantial evidence standard 

of review. (Parsons, supra, at p. 865; see also Lugosi v. Universal Pictures (1979) 25 

Cal.3d 813, 852; Taylor v. Nu Digital Marketing, Inc. (2016) 245 Cal.App.4th 283, 288; 

Wolf, supra, at pp. 1351, 1359.)
14

Here, the parties agree we must independently consider whether the Glendale lease

is reasonably susceptible to more than one interpretation. The parties disagree, however, 

on what standard of review applies if we believe it is. Defendant argues for the de novo

standard, notwithstanding the trial court’s consideration of extrinsic evidence, because 

defendant asserts the evidence was uncontroverted at trial. But that cannot be what 

defendant means because if it were, defendant fails to appreciate the logical conclusion 

we would draw. Goldman testified to facts demonstrating the parties intended to permit 

plaintiff to deduct franchise fees from Net Sales.

7

 If defendant truly concedes that 

testimony is uncontroverted, that would be the end of its case on appeal regardless of 

what standard of review applies. The “the mutual intention of the parties as it existed at 

the time of contracting” (Civ. Code, § 1636) would be clear, there would be no 

conflicting inference we could draw from that testimony, and we would simply affirm.

Instead, portions of defendant’s briefs separate from their discussion of the 

standard of review do attempt to identify conflicts in the extrinsic evidence. Defendant 

points in particular to the testimony of defense witness Dix and plaintiff’s “course of 

performance” (i.e., its failure to deduct franchise fees in prior years). The trial court 

weighed this evidence, expressly finding Goldman was a credible witness, and ultimately

concluded the lease agreement was best interpreted to permit plaintiff to deduct franchise 

fees. The substantial evidence standard of review applies to this sort of step-two 

determination in a contract interpretation case. (See, e.g., Wolf, supra, 11 Cal.App.4th at 

pp. 1359-1360 [extrinsic evidence showing parties’ “competing interpretations” of their 

agreement were issues of fact, as were the parties’ “objectively reasonable expectations”

about the meaning of a particular lease term during negotiations]; see also Parsons, 

supra, 62 Cal.2d at p. 865 [“It is therefore solely a judicial function to interpret a written 

instrument unless the interpretation turns upon the credibility of extrinsic evidence”], 

 

7

“Q. . . . In your conversation with Mr. Grossman before you signed the lease, did 

Mr. Grossman specifically point you to a particular provision in the lease that he said 

would allow you to deduct your franchise fees? [¶] A. Yes. . . . [¶] Q. . . . [W]hat 

provision was that? [¶] [Goldman]: Provision 5-H.” 
15

italics added; Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 847

[“Where, as here, the interpretation of a contract turns on the credibility of conflicting 

extrinsic evidence, the trier of fact must determine the meaning of language in the 

contract. . . . If substantial evidence supports that interpretation, we will not overturn it on 

appeal”] (Benach).) 

B. Plaintiff Proved It Was Entitled to Exclude Its Franchise Fees from 

Net Sales and Therefore to Pay Reduced Rent

1. Article 5(h) is reasonably susceptible to plaintiff’s interpretation

Article 5(h)—which allows plaintiff to exclude or deduct from its Net Sales “the 

proceeds of the sale of any franchise to operate the business on the Premises and all fees, 

charge[ ] or charges from such franchise”—is reasonably susceptible to the interpretation 

advanced by defendant, but also to the interpretation advanced by plaintiff. Put more 

succinctly, it’s ambiguous. (Benach, supra, 149 Cal.App.4th at p. 847 [“Ambiguity 

exists when a contractual provision is susceptible of two or more reasonable 

constructions”].)

a. textual analysis

Considering first just the plain text of the provision, it is ambiguous because of 

what is missing: an actor, and perhaps also a verb. As stated, the provision is made up 

almost entirely of nouns and descriptive prepositional phrases (e.g., “proceeds from the 

sale of any franchise”). The agreement does not specify who is receiving or paying the 

fees, charges, or proceeds associated with a franchise operating in the Glendale Galleria 

food court, and the absence of this key information leaves the meaning susceptible to 

differing interpretations. Defendant contends Article 5(h) only permits deduction of 

proceeds or associated fees and charges from a franchise sold by plaintiff, and that is 

reasonable looking at the text alone. But there is no logical or syntactical reason why the 

provision cannot also reasonably be read to permit deduction of proceeds or fees and 
16

charges from a franchise sold to plaintiff. The reasonableness of either reading is 

reinforced by Article 5(h)’s use of the term “any” before “franchise.”

Moreover, reading subsection (h) along with the other subsections in Article 5

makes plaintiff’s interpretation of the provision appear all the more reasonable. The 

noscitur a sociis interpretive canon is often used to discern the meaning of a word or 

phrase in a longer listing of items by looking to the neighboring words or phrases and 

interpreting the terms similarly. (McDonnell v. United States (2016) ___ U.S. ___ [136 

S.Ct. 2355, 2368] [“Under the familiar interpretive canon noscitur a sociis, ‘a word is 

known by the company it keeps’”]; Blue Shield of California Life & Health Ins. Co. v. 

Superior Court (2011) 192 Cal.App.4th 727, 740 [discussing canon in interpreting a 

phrase in an insurance policy].) Here, subsection (b) of the same Article 5 Net Sales 

definition permits plaintiff to deduct “sales, use, excise, retailer’s, occupation or similar 

taxes imposed in a specific amount, or percentage upon, or determined by, the amount of 

sales.” These deductible taxes resemble the franchise fees plaintiff sought to deduct; both 

are payments plaintiff must make on income received, calculated as a percentage of its 

sales. While subsection (b) by no means conclusively resolves the meaning of the 

franchise fees provision in subsection (h), the parties’ agreement to permit deduction of 

amounts similar to the franchise fees plaintiff paid is further textual evidence that the Net 

Sales definition does not unambiguously preclude plaintiff from deducting those fees in 

its sales calculations.

8

Article 21 of the lease agreement, concerning assignment and ownership of the 

lease rights, is additional textual evidence supporting the reasonableness of plaintiff’s 

interpretation of Article 5(h). Under that provision, plaintiff could not “transfer, assign, 

 

8

Defendant contends on appeal that the taxes referenced in Article 5(b) are 

dissimilar to franchise fees because merchants generally include such taxes in the price of 

a product whereas they do not for franchise fees. Of course, that is not a textual 

argument, and there was no extrinsic evidence even provisionally admitted on the custom 

and practice of merchants concerning the payment of sales taxes. Indeed, the only 

supporting authority defendant musters for this assertion is an unconvincing citation to 

the United States Internal Revenue Service website.
17

sublet, enter into license or concession agreements, change ownership, or hypothecate 

this Lease” without defendant’s prior written approval, unless to “a bona fide merged, 

consolidated, parent or successor corporation,” a or a wholly owned subsidiary or affiliate

of plaintiff. This fairly strict limitation on transferring ownership of, or issuing licenses 

for, plaintiff’s interest in the lease creates no tension with the Net Sales exclusion 

specified in Article 5(h) if that provision is understood to permit deduction of the 

franchise fees plaintiff paid to a third party. On the other hand, the terms of Article 21 

are in tension with defendant’s interpretation of Article 5(h)—that it allows plaintiff to 

deduct fees, charges, or proceeds only for a franchise sold by plaintiff—because Article 

21 makes it more difficult for plaintiff to do just that, sell a franchise in its Glendale 

restaurant to a third party. Again, this is not to say Article 21 is dispositive as to the 

meaning of Article 5(h); rather, it is simply another textual feature that tends to show

Article 5(h) is reasonably susceptible to more than one interpretation.

b. extrinsic evidence 

When we provisionally consider the extrinsic evidence offered by the parties in the 

trial court, it only confirms what we have already concluded: Article 5(h) is ambiguous.

Two preliminary observations are in order before we discuss the evidence. First, 

that the lease contains an integration clause does not preclude us from considering 

extrinsic evidence on the question of ambiguity. (Epic Communications, Inc. v. 

Richwave Technology, Inc. (2015) 237 Cal.App.4th 1342, 1354-1355.) If we determine 

the lease is susceptible to plaintiff’s interpretation, there is no violation of its integration 

clause because there is no alteration of the lease terms. (Rosenfeld v. Abraham Joshua 

Heschel Day School, Inc. (2014) 226 Cal.App.4th 886, 897.) Second, because we have 

considered all the evidence offered by the parties and our review at this point of the 

inquiry is de novo, we have no need to address defendant’s contention the trial court 

erred in purportedly failing to consider certain evidence. 

The evidence offered by plaintiff demonstrates Article 5(h) is susceptible to an 

interpretation that permits deduction of plaintiff’s franchise fees. Goldman testified the 
18

parties negotiated to allow plaintiff to deduct franchise fees from Net Sales, and he 

recounted Grossman’s statement that Article 5(h) was the provision that would allow 

plaintiff to do so. Not only that, plaintiff also introduced evidence indicating defendant’s 

own personnel were unsure about how to interpret Article 5(h), and some in fact thought 

it should be interpreted in the manner plaintiff suggests. For instance, defendant’s 

Director of Tenant Audits was asked to review the lease agreement when defendant was 

deciding whether to allow plaintiff to deduct franchise fees and he agreed the language in 

Article 5(h) permitting deduction of fees and charges “from the franchise” meant fees and 

charges emanating “from” La Salsa to plaintiff. Plaintiff also introduced evidence that 

Martin (the general manager of the Glendale Galleria) advocated reducing plaintiff’s rent 

in accordance with Article 1.35 as plaintiff requested, although Martin was ultimately 

overruled by his superiors.

Defendant argues other extrinsic evidence provisionally admitted instead 

demonstrates the agreement unambiguously requires plaintiff to include, not exclude, 

franchise fees in its Net Sales figures. One of defendant’s arguments, relying on the rent 

reduction provision in Article 1.35, goes as follows. First premise: the $800,000 sales 

threshold chosen as the trigger for paying reduced rent was chosen because it was 

plaintiff’s “breakeven” point, i.e., the amount of sales that would cover all of plaintiff’s 

monthly expenses, including franchise fees. Second premise: if plaintiff had excluded the 

franchise fees it must pay when calculating its “breakeven” point, defendant would have 

demanded the $800,000 trigger allowing payment of reduced rent be set at a lower 

amount. Ergo: fixing the reduced rent trigger at $800,000 in Net Sales means the parties 

cannot have mutually intended to define Net Sales in a manner that would allow plaintiff 

to deduct the franchise fee payments when calculating its sales figures. Both premises of 

defendant’s argument, however, are faulty.

Defendant’s first premise relies on testimony given by Goldman on crossexamination, already reproduced in the margin ante at page 10 footnote 5, that is too 

vague to be persuasive. Goldman’s testimony that Grossman eventually agreed plaintiff 

could include the franchise fees in his “safety net” can be understood, and seems most 
19

naturally understood, to mean that Grossman eventually agreed plaintiff could take such 

fees into consideration—namely, by excluding them—when determining whether the 

safety net was triggered. Defendant’s second premise is faulty because we see no 

evidence in the record that would support it. Grossman did not testify at trial, and there is 

no basis to conclude defendant would have demanded a lower reduced rent threshold if 

plaintiff’s franchise fees were not included in the calculation of its “breakeven” point. 

Moreover, even if both premises were sound, we would still be of the view that the whole 

of the extrinsic evidence provisionally admitted does not make clear the ambiguous text 

of Article 5(h).

Defendant additionally relies on what it terms plaintiff’s “course of conduct,” i.e., 

the failure to deduct franchise fees from Net Sales in prior years, to argue Article 5(h) is 

not ambiguous. Goldman explained at trial why plaintiff had not previously deducted 

franchise fees, but defendant disputes the explanation, arguing it “defies credibility.” 

This is not an argument that calls into question our conclusion, at step one of the 

interpretive inquiry, that Article 5(h) is ambiguous. Rather, it is an argument suited 

instead to step two: a claim that the course of conduct evidence should have led the trial 

court to the opposite conclusion when weighing the extrinsic evidence regarding the 

meaning of Article 5(h). We accordingly discuss defendant’s course of conduct 

argument in the context of our step two interpretive review, to which we now proceed.

2. Substantial evidence supports the trial court’s interpretation of the 

lease

We hold substantial evidence supports the trial court’s determination, based on 

extrinsic evidence, that the contract allows plaintiff to exclude its La Salsa franchise fees 

from Net Sales. We have already described why the text of the Net Sales definition is 

amenable to, and perhaps even more supportive of, plaintiff’s interpretation that 

understands the provision to permit deduction of its franchise fees. The extrinsic 

evidence, which was properly admitted, points decidedly in favor of interpreting the 

agreement to allow deduction of franchise fees. (Pacific Gas, supra, 69 Cal.2d at p. 39
20

[evidence admissible if it does not “add to, detract from, or vary the terms” of a 

contract].)

Goldman testified that, with the prospect of a competing mall opening nearby, the 

parties bargained to allow plaintiff to receive a rent reduction if its Net Sales fell below 

$800,000 in exchange for plaintiff committing to stay at the Glendale Galleria until 2014 

and to remodel its restaurant. Goldman also testified that Grossman agreed Article 5(h) 

allowed plaintiff to exclude its franchise fees to La Salsa when calculating Net Sales.

That the parties agreed to a “safety net” from which plaintiff could deduct franchise fees 

is understandable considering Goldman’s testimony that he agreed to a lease extension in 

the face of a competing mall opening nearby, he agreed to remodel the restaurant, and his 

franchise fee obligations put him at a competitive disadvantage vis-à-vis other food court 

tenants. Goldman’s testimony was also consistent with the text of the lease for the 

reasons we set forth in our discussion of Article 5(h)’s susceptibility to plaintiff’s 

interpretation. 

This is substantial evidence supporting the verdict, and we do not reweigh the 

evidence or parse other testimony or exhibits to see if the trial court might have reached a 

contrary conclusion. (Hasson v. Ford Motor Co. (1982) 32 Cal.3d 388, 398 [when 

reviewing for substantial evidence court does not reweigh the evidence on appeal]; 

Picerne Construction Corp. v. Villas (2016) 244 Cal.App.4th 1201, 1209 [“If substantial 

evidence exists, it is of no consequence that the trial court believing other evidence or 

drawing other reasonable inferences might have reached a contrary conclusion”].) But 

we briefly highlight why the extrinsic evidence supporting defendant’s interpretation of 

the lease is comparatively weaker.

Defendant points to plaintiff’s prior failure to deduct franchise fees as evidence the 

parties never intended to permit such a deduction, but Goldman testified he incorrectly 

believed plaintiff had been deducting franchise fees from Net Sales all along. Goldman 

explained plaintiff did not deduct franchise fees while its sales were strong—so strong, in 

fact, that plaintiff at times paid defendant additional rent. According to Goldman, it was 

not until plaintiff’s sales plummeted that Goldman looked into the reduced rent provision 
21

in the lease and discovered plaintiff was not excluding franchise fees from Net Sales. 

The trial court noted that Goldman was the “only percipient witness for either party” to 

testify about lease negotiations, his testimony in that regard was “uncontradicted,” and 

the court found it “highly credible.” That credibility finding is entitled to deference on 

appeal (People v. Williams (2015) 61 Cal.4th 1244, 1262), and we agree in any event that 

Goldman’s testimony was internally consistent and a reasonable explanation for the 

absence of deductions in prior years.

The testimony of Dix, defendant’s retail leasing custom and practice expert, does 

not convince us the parties intended to require plaintiff to calculate Net Sales with 

franchise fees included. Indeed, Dix conceded he was not a part of the lease negotiations 

between the parties, so his testimony is of limited relevance. Moreover, what he did 

testify to—that industry custom permits exclusion of taxes but not expenses from Net 

Sales—is not particularly helpful to defendant in any event. As we have already 

explained, we see significant similarities between sales taxes and the franchise fees 

plaintiff was compelled to pay.

Defendant further argues the trial court’s weighing of the evidence accorded too 

much weight to defendant’s unexplained decision not to produce Grossman as a witness, 

but we find the argument unpersuasive. Substantial evidence supports the trial court’s

verdict regardless of whether it considered defendant’s evidence “with distrust” under 

Evidence Code section 412. We also reject defendant’s argument that the trial court 

improperly allowed plaintiff to testify concerning statements made by Grossman that in 

its view were “lay opinion as to [the] meaning and effect of a contract.” What the trial 

court properly did, and what we have done, is consider Grossman’s statements to 

determine the mutual intent of the parties.

C. Plaintiff Adequately Proved Damages

Defendant argues plaintiff should have provided cancelled checks or a check 

registry to show the amounts it paid to La Salsa rather than relying at trial upon a 

summary of such records. Plaintiff points out, in response, that it had given the 
22

underlying records to defendant, offered to bring them into court, explained the 

significance and provenance of the amounts provided, and established, through 

Goldman’s testimony, how the summary had been prepared.

The trial court ruled that plaintiff’s summary—which included not just the 

amounts it paid in franchise fees but also its gross sales, Net Sales, the difference 

between the rent plaintiff actually paid and how much it owed under Article 1.35’s 

reduced rent provision, and interest calculations—was admissible as a compilation of 

voluminous business records. (Evid. Code, § 1523, subd. (d).) That ruling is sound. 

(See, e.g., Heaps v. Heaps (2004) 124 Cal.App.4th 286, 293-294 [schedule comprising 

“general compilation of documents that could not be examined individually by the court 

without great loss of time” admissible]; Vanguard Recording Society, Inc. v. Fantasy 

Records, Inc. (1972) 24 Cal.App.3d 410, 418-419 [under predecessor to Evidence Code 

section 1523, “a summary of business records consisting of numerous accounts or other 

writings that cannot be examined in court without great loss of time, is admissible in 

evidence upon a showing that the actual business records are entitled to admission” and 

the person who prepared or oversaw the preparation of such summary may testify to its 

contents].)
23

DISPOSITION

The judgment is affirmed. Plaintiff is to recover its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

BAKER, J.

We concur:

TURNER, P.J.

RAPHAEL, J.



 



Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to 

article VI, section 6 of the California Constitution.