Court Opinion

ID: 3219069
Source: CourtListenerOpinion
Date Created: 2016-06-30 19:02:51.600871+00
Date Added: 2024-06-11T13:02:38.228638
License: Public Domain

Filed 6/30/16 Radioshack Corp. v. Azusa Pacific University CA2/3
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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 THREE

RADIOSHACK CORPORATION,                                               B262107

         Plaintiff and Respondent,                                    (Los Angeles County
                                                                      Super. Ct. No. KC 066135)
         v.

AZUSA PACIFIC UNIVERSITY,

         Defendant and Appellant.

         APPEAL from a judgment of the Superior Court of Los Angeles County,
Robert Dukes, Judge. Reversed and remanded.

         Manatt Phelps & Phillip, David Elson and Benjamin G. Shatz for Defendant and
Appellant.

         Booth Mitchel & Strange, Daniel M. Crowley and Christopher C. Lewi for
Plaintiff and Respondent.

                                            _____________________
                                   INTRODUCTION
       Defendant and landlord Azusa Pacific University appeals the trial court’s granting
of summary judgment in favor of Plaintiff and tenant RadioShack, arguing that the court
erroneously found Defendant breached its lease agreement with RadioShack. The sole
issue on summary judgment was the interpretation of an excessive vacancy provision
involving the replacement of a “Major Tenant” (an anchor tenant) with a “Similar
Tenant.” The court interpreted the lease agreement to allow RadioShack to pay reduced
rent because the Similar Tenant did not sell the same goods as the Major Tenant. We
reverse, concluding that RadioShack is not entitled to a reduction in rent. Under the plain
language of the lease, a replacement tenant that sells the same quality of goods is a
Similar Tenant. We conclude that Defendant did not breach the lease agreement by
demanding payment of full rent. We reverse and remand for entry of judgment in
Defendant’s favor.
                     FACTS AND PROCEDURAL BACKGROUND
       In July 2000, RadioShack entered into a lease with Golden Mountain Investments,
Inc. (Defendant’s predecessor) for retail space in an Azusa shopping center containing a
Big Lots. Defendant subsequently became the successor in interest to Golden Mountain
Investments, Inc. and extended RadioShack’s lease through January 2013.
       The lease agreement, written by RadioShack, contained an excessive vacancy
provision allowing the tenant to end the lease early or pay reduced rent when:
              “a Major Tenant, defined as any tenant that occupies more than fifteen
              percent (15%) of the Gross Leasable Area of the Shopping Center, as now
              or hereafter constituted, discontinues operations and a Similar Tenant, as
              defined below, does not replace it and open for business within a period of
              six (6) months. A ‘Similar Tenant’ is a tenant which occupies all of the
              leasable area of the space previously occupied by the Major Tenant that has
              discontinued operations and which has the same or higher quality of goods
              to be sold and equal or better customer traffic.” (Italics added.)

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        In 2011, Big Lots, a Major Tenant, vacated the premises, and RadioShack began
paying reduced rent later that year. In September 2012, Triad Fitness, a fully equipped
work-out facility that provides physical fitness instruction and sells ancillary items,
moved into and occupied all of Big Lot’s leasable area. Defendant asked RadioShack to
return to paying Fixed Minimum Rent because the excessive vacancy had been filled.
RadioShack asserted that Triad Fitness did not fulfill the Similar Tenant definition, but
resumed paying Fixed Minimum Rent under protest. In October 2012, RadioShack
exercised the first of two 5-year options, extending the term of its lease until January
2018.
        Shortly thereafter, RadioShack sued Defendant for breach of contract and
declaratory relief, asserting that Triad Fitness was not a Similar Tenant. RadioShack then
moved for summary judgment, arguing that Triad Fitness did not sell the same goods as
Big Lots and thus an excessive vacancy continued to exist at the shopping center.
RadioShack stipulated that RadioShack sales were not adversely impacted by the new
tenant, that Triad Fitness occupied all of Big Lot’s leasable area, and that Triad Fitness
had customer traffic equal to Big Lots. RadioShack also did “not contend that the limited
types of goods sold by Triad Fitness . . . [were] of a lessor quality than the comparable
goods sold by Big Lots.” Defendant opposed RadioShack’s motion and brought its own
motion for summary judgment, asserting that Triad Fitness was a Similar Tenant because
it sold water bottles, t-shirts, and energy bars of the same quality as the products sold by
Big Lots.
        The court granted RadioShack’s motion for summary judgment and denied
Defendant’s motion, finding that Triad Fitness was not a Similar Tenant. The court held:
“When RadioShack contracted the Lease, it bargained for a specific clientele, due in part
to the nature of the Major Tenant that occupied the premises at that time, i.e. Big Lots.
The Lease specifically provided that if the Major Tenant were to vacate the premises,
Lessor would rent the space to ‘Similar Tenants’ who sell the ‘same’ goods as the Major
Tenant.” The court granted judgment in favor of RadioShack and awarded RadioShack

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$162,802.05 in damages for overpayment of rent, $15,056.77 in interest, and $32,036.21
in attorney’s fees and costs. Defendant appeals.
                                       DISCUSSION
       The sole issue on appeal is the interpretation of the lease’s “Similar Tenant”
definition. As it is undisputed that Triad Fitness satisfied the space and foot traffic
characteristics of the Similar Tenant, we only address the meaning of the clause: “has the
same or higher quality of goods to be sold.” We review this issue of law de novo. (ASP
Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal. App. 4th 1257, 1266 [“We generally
apply an independent, or de novo, standard of review to conclusions of law regarding
interpretation of the [l]ease.”]; Wilson v. 21st Century Ins. Co. (2007) 42 Cal. 4th 713, 717
[We review the trial court’s ruling on a motion for summary judgment de novo,
considering all of the evidence in the moving and opposing papers.].)
1.     The Court Erred in its Interpretation of “Same or Higher Quality of Goods”
       The general rules of contract interpretation govern our construction of the lease
agreement. (Bill Signs Trucking, LLC v. Signs Family Limited Partnership (2007) 157
Cal. App. 4th 1515, 1521.) “The language of a contract is to govern its interpretation if the
language is clear and explicit, and does not involve an absurdity.” (Civ. Code,1 § 1638.)
“When a contract is reduced to writing, the intention of the parties is to be ascertained
from the writing alone.” (§ 1639.) We therefore look to the language of specific
provisions in the lease to ascertain the “ ‘clear and explicit’ meaning of these provisions,
interpreted in their ‘ordinary and popular sense.’ ” (ASP Properties Group, L.P. v. Fard,
Inc., supra, 133 Cal.App.4th at p. 1269.) “Interpretation of a contract ‘must be fair and
reasonable, not leading to absurd conclusions. [Citation.]’ ” (Ibid.) When the rules of
interpretation do not resolve an ambiguity or uncertainty, “the language of a contract
should be interpreted most strongly against the party who caused the uncertainty to
exist.” (§ 1654.)

1
       All subsequent statutory references are to the Civil Code.

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         At issue here is how to interpret the adjective clause describing a “Similar Tenant”
as one “which has the same or higher quality of goods to be sold.” The insertion of the
conjunction “or” between the adjectives “same” and “higher” in an adjective clause
signals that “same” and “higher” function as equal and alternative modifiers of the noun
that immediately follows, in this case the noun “quality.”2 (See Garner, The Chicago
Guide to Grammar, Punctuation, and Usage (2016) pp. 187, 403; The Chicago Manual of
Style (15th ed. 2003) p. 170.) Therefore, applying the rules of grammar to the plain
language of the agreement, a Similar Tenant “which has the same or higher quality of
goods” is a business selling goods of a specified degree of excellence–of the same quality
or of higher quality than those sold by Big Lots.
         RadioShack argues that the mutual intention of the parties was to require the
Similar Tenant to be a retailer selling “some reasonable combination or variation of
furniture, appliances, clothing, electronics, packaged food items, sundries, garden
supplies, linens, cookware, auto supplies, home furnishings, seasonal merchandise, and
other consumer items as did Big Lots.” According to RadioShack, a fitness center that
incidentally sells items such as water, snacks, and T-shirts is not a retailer selling the
same type of goods. The problem is that, in drafting the lease, RadioShack did not use
the term “retail” to define Similar Tenant even though it used this term elsewhere in the
lease.
         RadioShack’s assertion that reading the lease as a whole supports its interpretation
does not hold up under scrutiny. The adjective “retail” is defined as “relating to the
business of selling things directly to customers for their own use.” (Merriam–Webster’s
Online Dictionary (2016)  [as of

2
       As used in the lease, “quality” means “a degree of excellence,” in other words,
“how good or bad something is.” (Merriam-Webster’s Online Dictionary (2016)
[as of June 23, 2016].) Although
“quality” can also mean a “peculiar and essential character” (ibid.), that definition is
incompatible with the clause because the modifier “higher” indicates that “quality”
encompasses degrees of value.

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June 23, 2016]).) Although the lease uses the term “retail” to first define “Excessive
Vacancy” as when “(i) the Gross Leasable Area of the Shopping Center . . . is less than
seventy percent (70%) actively occupied by other retail tenants” (italics added), the
provision defining “Excessive Vacancy” arising out of the loss of a Major Tenant, does
not use the term “retail.” Instead, the lease delineates “Excessive Vacancy” as the failure
to replace “any tenant” that occupies 70% or more of the gross leasable area with a
“Similar Tenant,” “which has the same or higher quality of goods to be sold.” Having
omitted the term “retail” from this provision, it must be presumed that the parties
intentionally refrained from limiting Major Tenants and Similar (replacement) Tenants to
retail businesses, leaving room for a successor Major Tenant operating a large restaurant,
theater, fitness center or other service generating comparable customer traffic so long as
its goods sold were of comparable quality.
       RadioShack’s election to specify types of goods elsewhere in the lease is further
evidence that its focus on the Similar Tenant’s quality of goods, rather than types of
goods, was intentional. Under the heading “PRODUCT EXCLUSIVITY,” the Landlord
promised not to accept a tenant selling specified goods in competition with RadioShack,
agreeing that “no space within the Shopping Center, other than the Demised Premises . . .
shall be used for (i) the retail sale or display of electronic equipment and components
including . . . all types of telecommunication and transmitting equipment, computers and
related accessories, [etc.]” Although Radio Shack argues that the language of the lease
required a Similar Tenant to sell “the same goods as did Big Lots, namely, furniture,
appliances, clothing, electronics, snack items, sundries, garden supplies, linens,
cookware, auto supplies, home furnishings, seasonal merchandise such as Christmas trees
and decorations, and other consumer items,” this interpretation is not reasonable because
the lease does not identify these goods and refers, instead, to the quality of the Similar
Tenant’s products.
       RadioShack’s urged interpretation is also unreasonable because the parties
stipulated that Big Lots sold “closeout merchandise that results from production overruns,
packaging changes, discontinuation of products, liquidations, and returns.” As such, the

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Big Lots merchandise available at any given time depended on the serendipity of other
manufacturers’ or retailers’ overruns, discontinuations, liquidations or returns. Although
the parties further stipulated that, as a tenant in the shopping center Big Lots sold a wide
variety of merchandise including “furniture, appliances, clothing, electronics, packaged
food items, sundries, garden supplies, linens, cookware, auto supplies, home furnishings,
seasonal merchandise, and other consumer items,” there was no stipulation that Big Lots
always had items in each category and no stipulation as to the proportion of merchandise
in each category. Without further definition, the requirement that a successor tenant sell
the “same goods” as Big Lots would be fatally uncertain because Big Lots’ inventory
necessarily fluctuated depending on the market for other entities’ closeouts.
       As authority for its position, RadioShack cites an unpublished federal district court
decision out of Oregon involving a lease agreement between a retailer, Old Navy and a
shopping mall landlord. (Old Navy, LLC v. Ctr. Devs. Oreg, LLC (D. Or. June 13, 2012,
No. 3:11-472-KI) 2012 U.S. Dist. LEXIS 82579 (Old Navy).) That case is
distinguishable because the language in the lease is entirely different. Unlike the lease
agreement in the present case, the Old Navy lease required “the use” of the “Key Store”
retail space by the “substitute retailer” to be “substantially the same as that conducted by
the Key Store it is intended to replace.” (Id. at p. *3, boldface and underscoring omitted.)
Based on this language, the Old Navy court found that the substitute retailer (a grocery
store) did not use the space in substantially the same way as the departing Key Store
(Ross, a clothing retailer). (Id. at p. *14.) RadioShack’s reliance on Old Navy is
misplaced because the Old Navy lease expressly required a similar use of the premises by
the replacement tenant. In contrast, the RadioShack lease does not contain requirements
regarding use by the Similar Tenant and instead imposes spacial, foot traffic, and quality
of goods requirements on the Similar Tenant.
       We therefore conclude that the RadioShack lease defined a Similar Tenant as
selling goods of the same quality or of higher quality than Big Lots.

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2.    Defendant Did Not Breach the Lease Agreement
      It is undisputed that Triad Fitness sold water bottles, t-shirts, and energy bars that
were of the same quality of goods sold by Big Lots. Triad Fitness also satisfied the space
and foot traffic requirements for a Similar Tenant. Therefore, Triad Fitness was a Similar
Tenant pursuant to RadioShack’s lease agreement, and Defendant did not breach the
lease agreement when it required RadioShack to resume paying full rent. The court erred
in granting RadioShack’s summary judgment motion and denying Defendant’s motion
for summary judgment.
                                     DISPOSITION
      We reverse the judgment. We remand for the trial court to grant Defendant’s
motion for summary judgment and to enter judgment in favor of Defendant. Defendant
Azusa Pacific University is awarded costs on appeal.

      NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                 HOGUE, J.*

I concur:

                    EDMON, P. J.

                    LAVIN, J.

*
        Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

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