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DDR OCEANSIDE LLC v. REGAL CINEMAS

September 8, 2005.

DDR OCEANSIDE LLC, Plaintiff,
v.
REGAL CINEMAS, INC., a Corporation; and DOES 1 through 10, inclusive, Defendant.



The opinion of the court was delivered by: IRMA GONZALEZ, District Judge

ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT; and (2) DENYING PLAINTIFF'S CROSS-MOTION FOR SUMMARY JUDGMENT
Presently before the Court is plaintiff DDR Oceanside, L.L.C.'s ("DDR") and defendant Regal Cinemas, Inc.'s ("Regal") cross-motions for summary judgment. For the reasons stated below, the Court denies DDR's cross-motion for summary judgment, and grants in part and denies in part Regal's cross-motion for summary judgment.

BACKGROUND

  A. Factual Background

  DDR's suit arises out of an agreement whereby DDR's predecessor-in-interest agreed to build out and lease (the "Lease") commercial property, located at Oceanside Entertainment Center, Oceanside, California, to Regal for the operation of a 16-plex movie house (the "premises" or "theater").*fn1 (Pretrial Order at 1:27-2:2:6.) DDR is the current owner and landlord of the theater. Regal is the current lessee of the theater. Id.

  On December 12, 1997, DDR's predecessor-in-interest (sometimes "DDR's predecessor") and Regal entered into a written fifteen year lease agreement. Regal and DDR's predecessor agreed the base rent would be determined by multiplying the gross leasable area ("GLA") by a predetermined dollar amount. (Pretrial Order at 15-24.) The GLA is "the number of square feet of area on all floors available for the exclusive use by the tenants" and "is measured from the exterior face of the exterior walls and the exterior face of service corridor walls." (Regal's Notice of Lodgement ("NOL") ISO Motion Ex. A p. 7.) The Lease estimated the GLA at 60,000 square feet. However, section 1.05 of the Lease provides, "[o]n or before the Rent Commencement Date, Landlord and Tenant shall determine the actual GLA of the floor area of the Theatre in the manner described in Section 1.03(e). Tenant and Landlord shall include the actual GLA of the Premises in the Completion Certificate . . . and the parties agree that the Minimum Rent . . . shall be determined based upon the actual GLA of the Premises as measured." Id. at 8 (sic). The "Rent Commencement Date" is defined as, "[t]he earlier of the Actual Opening Date or the date which is the 91st day from and after the Contingencies Date." Id. at 6.

  Regal opened for business on December 10, 1999. On December 22, 1999, Oliver McMillan, DDR's predecessor's property management company, sent a letter congratulating Regal on its December 10, 1999 opening, and notifying Regal that a monthly minimum rent of $841,078.00 was then due. Oliver McMillan calculated the base rent after concluding that the GLA of the theater was 60,077 square feet. (Regal's NOL Ex. C.) The parties did not complete a "Completion Certificate," as required by section 1.05 of the Lease.

  On May 25, 2000, DDR, now the owner of the theater, notified Regal that its base rent and common area maintenance ("CAM") fees were to be based on 60,856 square feet of GLA, and not 60,077 square feet, as indicated by DDR's predecessor.*fn2 (Regal's NOL Ex. D.) DDR stated that its predecessor's December 12, 1999 statement of GLA was merely an estimate, and was not intended to be used as "the actual gross leasable area of the premises as calculated in accordance with" the Lease. (Regal's NOL Ex. H.)

  On October 2001, Regal filed for bankruptcy in the Middle District of Tennessee. During the course of Regal's bankruptcy proceedings, DDR submitted Claim Numbers 1097 and 1100 in anticipation that Regal would reject the Lease, and for rent and CAM fees based on the larger GLA calculation. (Regal's NOL Ex. E.) Regal objected to DDR's claim on the grounds that it had not rejected the lease and that it had met its rent obligations to DDR. In response, DDR withdrew its claims, but "with the specific reservation of all rights with regard to any outstanding cure amounts." (Regal's NOL Exs. L and M.) Accordingly, on May 7, 2002, the bankruptcy court ordered DDR's claim expunged. (Regal's NOL Ex. N.) The bankruptcy court approved Regal's reorganization plan on December 7, 2001, effective January 29, 2002. (Regal's NOL Ex. K.)

  Since December 1999, Regal has paid rent and CAM fees based on 60,077 square feet of GLA. (Regal's NOL. Ex. I.) DDR now seeks more than $86,081.76, plus nine percent interest, for DDR's alleged short payment of rents from February 1, 2002 through the date of the filing of this civil action.*fn3

  B. Procedural Background

  DDR filed suit against Regal in San Diego Superior Court on May 7, 2004. Regal answered and removed to the United States District Court for the Southern District of California pursuant to diversity jurisdiction under 28 U.S.C. § 1441(a) and bankruptcy jurisdiction pursuant to 28 U.S.C. § 1452(a). On October 29, 2004, Regal moved this Court for an order transferring this action to the United States District Court for the Middle District of Tennessee. (Doc. No. 9.) This Court denied Regal's motion to transfer on December 20, 2004. (Doc. No. 20.)

  The Court held a pre-trial conference on July 11, 2005. (Doc. No. 30.) The parties indicated that the issues involved had been winnowed down, and that those that were left could be disposed of on summary judgment. While the parties' motion cut-off date was May 6, 2005, the Court granted the parties leave to file cross-motions for summary judgment. (Doc. No. 32.) On August 1, 2005, the parties filed their respective cross-motions for summary judgment. (Doc. Nos. 33 and 41.) The parties have fully briefed the issues, and, pursuant to Civil Local Rule 7.1(d)(1), the Court finds their cross-motions for summary judgment appropriate for disposition without oral argument.

  DISCUSSION

  A. Legal Standards

  1. Res Judicata

  The doctrine of res judicata bars relitigation of claims that were or could have been asserted in an earlier proceeding. Levinson v. United States, 969 F.2d 260, 262 (7th Cir. 1992). A defendant relying on res judicata as a defense must plead it as an affirmative defense in his or her answer to the complaint. Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 212, 350 (1971).

  A federal action may be barred by res judicata where an earlier lawsuit (1) involved the same claim sued upon in the instant civil action; (2) involved the same parties or persons in privity of interest with them; and (3) resulted in a final judgment on the merits. Nordhorn v. Ladish, 9 F.3d 1402, 1404 (9th Cir. 1993). However, res judicata does not apply when a cause of action has been expressly reserved for later adjudication. "Under a generally accepted exception to the res judicata doctrine, a litigant's claims are not precluded if the court in an earlier action expressly reserves the litigant's right to bring those claims in a later action." Apparel Art Intern. v. Amertex Enters., 48 F.3d 576, 586 (1st Cir. 1995); see also In re Matter of Energy Co-op., Inc., 814 F.2d 1226 at 1233 (7th Cir. 1987) ("If a court reserves for later resolution an issue that might otherwise have been adjudicated in the initial proceeding, res judicata will not operate to bar the subsequent suit.").

  Bankruptcy judgments may have a res judicata effect. Donegal Steel Foundry Co. v. Accurate Prod. Co., 516 F.2d 583, 588 n 12 (citing Stoll v. Gottlieb, 305 U.S. 165 (1938)); In re Justice Oaks II. Ltd., 898 F.2d 1544, 1550 (11th Cir. 1990) ("This issue has been settled for some time: a bankruptcy court's order confirming a plan of reorganization is given the same effect as any district court's final judgment on the merits."). 2. Contract Interpretation and Modification

  Contracts are to be interpreted so as to give effect to the mutual intention of the parties at the time of contracting, to the extent the mutual intent is ascertainable and lawful. Cal. Civ. Code § 1636. The mutual intent of the parties is to be ascertained solely from the contract that is reduced to writing, if possible. Cal. Civ. Code § 1639. The contract language controls if clear and explicit. Cal. Civ. Code § 1638. Words are to be given their ordinary and popular meaning, unless used in a special or technical way by the parties. Cal. Civ. Code § 1644. Technical words are interpreted as used by persons in the profession or business to which they relate, unless clearly used differently. Cal. Civ. Code § 1644. The contract is to be interpreted as a whole so as to give effect to every part, if practicable. Cal. Civ. Code 1641. A contract may be interpreted by reference to the circumstances under which it was made, and the matter to which it relates. Cal. Civ. Code § 1647.

  In California, modification of written contracts is also controlled by statute. Pursuant to California Civil Code § 1698:
(a) A contract in writing may be modified by a contract in writing.
(b) A contract in writing may be modified by an oral agreement to the extent that the oral agreement is executed by the parties.
(c) Unless the contract otherwise expressly provides, a contract in writing may be modified by an oral agreement supported by new consideration. The statute of frauds (Section 1624) is required to be satisfied if the contract as modified is within its provisions.
  Section 1698(b) allows modification of a written contract by an oral agreement to the extent the oral agreement is executed. "Executed" in section 1698(b) has the normal meaning of that term in contract law. That is, the agreement must have been fully performed. Lockheed Missiles & Space Co. v. Gilmore Indus., 135 Cal. App. 3d 556, 559 (Ct. App. 1982) (relying on Black's Law Dictionary to define "executed" as "completed; carried into full effect.") (internal quotations omitted).

  Section 1698(c) allows oral modification of a written contract only if the written contract does not provide otherwise. See also Marani v. Jackson, 183 Cal. App. 3d 695, 704 (Ct. App. 1986) (noting that oral modification of a written contract is allowed only if "the written contract does not contain an express provision requiring that modification be in writing."). "An agreement to modify a written contract will be implied if the conduct of the parties is inconsistent with the written contract so as to warrant the conclusion that the parties intended to modify it." Daugherty Co. v. Kimberly-Clark Corp., 14 Cal. App. 3d 151, 158 (Cal. Ct. Appl. 1971); Garrison v. Edward Brown & Sons, 25 Cal. 2d 473, 479 (Cal. Ct. Appl. 1944) ("Before a contract modifying a written contract can be implied, the ...


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