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Thrifty Payless, Inc. v. Mariners Mile Gateway

June 21, 2010


Appeal from a judgment and an order of the Superior Court of Orange County, David T. McEachen, Judge. Affirmed. (Super. Ct. No. 06CC11888).

The opinion of the court was delivered by: Moore, J.



This is a dispute about a lease for new commercial property between tenant and plaintiff Thrifty Payless, Inc., doing business as Rite Aid (Rite Aid), and landlord and defendant Mariners Mile Gateway, LLC (Mariners). The lease, negotiated in 2004 and 2005, required a heavy investment of time and money by Mariners to build a new, high-end shopping center, while Rite Aid had few obligations until the lease began. The parties agreed that unless the lease began by June 30, 2008, either party would have the right to terminate "for any reason." One of Mariners' many obligations was obtaining the necessary approvals for a traffic signal.

The years went by with various communications between the parties, including a request by Mariners' to increase Rite Aid's rent and the prospect of a substitute tenant. Eventually, relations deteriorated, leading to this lawsuit. Despite the problems and this litigation, there was clear evidence that Mariners continued to attempt to develop the property, including trying to obtain approvals for the traffic signal. Such approval, however, was never granted, and the center was never built. On July 1, 2008, Mariners exercised its right to terminate the lease "for any reason" by notifying Rite Aid.

During trial, which began a few months later, the court granted Mariners' motion for non-suit. The court concluded that the lease gave Mariners the absolute right to terminate, and therefore, Rite Aid could not recover as a matter of law. The court later granted Mariners expert witness fees pursuant to a provision in the lease over Rite Aid's objection. Rite Aid argued that Mariners had failed to specially plead and prove its entitlement to and the amount of expert witness fees at trial. We reject Rite Aid's arguments and find that granting the non-suit was proper as a matter of law, and we uphold the court's decision to permit Mariners to recover its expert witness fees. The judgment and postjudgment order are affirmed.


In 2004, Mariners, the owner of a parcel of property at the corner of west Pacific Coast Highway (PCH) and Dover Drive in Newport Beach (the site or the property), contacted Rite Aid regarding a potential new drug store at the site. David Goldman, one of Mariners' partners, presented the project as "upscale" and "the nicest thing that any of us had seen in Newport Beach." Mariners' development plan, as presented to the City of Newport Beach (the City), included a number of variances and exemptions. The plan also called for widening PCH and installing a traffic signal at the main entrance.

In February 2004, the parties signed a letter of intent to negotiate a lease, which included such basic terms as proposed rent and the term of the lease. Tracy Verastegui, a real estate manager who signed on Rite Aid's behalf, noted in the letter that the agreement was conditional upon Mariners obtaining a traffic signal.

While such discussions were beginning with Rite Aid, Mariners also began the process of reviewing the proposed development with the City. Notes from a March 2004 meeting of the City's Design Review Committee noted a number of potential issues, and specifically suggested moving forward with an Environmental Impact Report (EIR).*fn1 Mariners submitted its application for entitlements to the City on July 1, 2004. Some of the required technical studies were incomplete, although this was not unusual, because some of the work had to be commissioned by the City, not Mariners.*fn2

Rite Aid and Mariners continued negotiations and went through several drafts before signing a lease on August 4, 2005. The basic provisions included a term of 20 years with several options to extend, and annual rent of $690,000 for the first 10 years and $759,000 for the second half of the lease. The building Mariners agreed to construct for the Rite Aid store was approximately 13,000 square feet.

The lease also included a number of termination provisions of import to this case. Article 53 of the lease gave Mariners an early termination right. "This Lease is expressly contingent upon Landlord satisfying or waiving the following contingencies within the time period set forth below. If Landlord, exercising commercially reasonable efforts and due diligence, is unable to satisfy such contingencies to Landlord's satisfaction, as determined in Landlord's sole discretion by June 1, 2006, then Landlord shall have the right to terminate this Lease upon written notice to Tenant." The contingencies listed were obtaining financing and "all necessary entitlements, permits, approvals and licenses from applicable governmental authorities for the development of the Center and the performance of Landlord's Work."

Article 3 of the lease addressed the commencement of the lease's term, and stated that the lease would begin 90 days after the property was delivered by Mariners, or when Rite Aid opened for business, whichever came first. Article 3 also stated: "If, for any reason (other than delays caused by Tenant) the Lease Term has not commenced by June 30, 2008, Tenant and Landlord shall each have the right to terminate this Lease by giving written notice to the other; provided, however, that if Tenant gives such notice to Landlord and Landlord delivers the leased premises to Tenant and satisfies the conditions of the Lease Term commencement within ninety (90) days after the date of the Termination Notice, then such Termination Notice shall be conclusively deemed to be null and void and not of force and effect." This provision was different from the initial draft proposed by Rite Aid, which gave only Rite Aid the right to terminate in the event the lease could not begin by the designated date.

Article 6(c) of the lease required Mariners to "diligently prosecute to completion the construction [of the center] so that the completion date will occur no later than June 30, 2008," and Article 6(a) stated that all improvements would "comply with all laws (including environmental), ordinances, rules, regulations and orders of any duly constituted authority . . . ." Article 6(a) also included "the installation of the traffic signal" as part of the landlord's required work.

Article 6(b) stated: "Failure by Landlord to complete construction . . . by June 30, 2008, shall be a default by Landlord and in the event of such default, Tenant shall have, the right to terminate this Lease by giving Landlord at least thirty (30) days written notice of such termination during which time Landlord shall have the right to cure its default, and if Landlord does so during such time period, then notice of termination shall be deemed rescinded."

Several other provisions of the lease are also of import here. Article 22 limited Rite Aid's damages in the event of a breach by Mariners, stating that in the event of Mariners' "default on the performance of any covenant or agreement herein . . . Tenant shall be entitled to sue Landlord for damages (but not consequential or punitive damages or loss of profits) sustained by Tenant as a direct result of Landlord's breach." Article 33.1 of the lease states the prevailing party is entitled to "reasonable expenses" including attorney fees, "court costs, witness and expert fees."

After the lease was signed, in October 2005, Mariners' consultant released a draft of the MND. They also continued to take steps to work with Caltrans on traffic issues. In January 2006, the City's planning commission unanimously approved the project. Doug Beiswenger, a Mariners' partner, informed Rite Aid of the approval shortly thereafter, with the caveat that Caltrans was the variable in the construction timeline.

The City issued a notice of final approval in early February. The approval included 93 conditions that had to be met before the City's final certification once construction was complete. Several of these reflected an expectation that Caltrans would approve the application for a traffic signal.

Around mid-2006, Mariners proposed what it refers to as a "lease amendment" and what Rite Aid refers to as a "campaign of deception and threats" to increase the rent. Goldman and Verastegui apparently had a number of conversations in which Goldman informed Verastegui that construction costs had increased. Goldman also referred to a "2-way termination right" if the lease did not begin by June 30, 2008. Rite Aid was neither interested in terminating the lease or in paying more rent at that time. From Rite Aid's perspective, ...

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