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Contra Costa Retail Center v. Bally Total Fitness Corporation

December 22, 2010

CONTRA COSTA RETAIL CENTER, PLAINTIFF AND RESPONDENT,
v.
BALLY TOTAL FITNESS CORPORATION, DEFENDANT AND APPELLANT.



Contra Costa County Super. Ct. No. C070427

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

Contra Costa Retail Center v. Bally Total Fitness

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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

In this unlawful detainer case, defendant Bally Total Fitness Corporation (Bally Fitness) appeals the judgment entered in favor of plaintiff Contra Costa Retail Center (Retail Center), following a bench trial on the issue of whether Bally Fitness breached the terms of its lease agreement with Retail Center. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Retail Center owns commercial property located at 2316 Monument Boulevard in Pleasant Hill (Premises). In May 1998, Bally Fitness entered an agreement with Sherman Properties, Ltd., a prior owner of the Premises, to lease the Premises for a term of 15 years, commencing on October 1, 1998, and has remained in possession of the Premises since the lease commenced. On July 3, 2007, Retail Center filed a complaint for unlawful detainer against Bally Fitness. In the complaint, Retail Center alleged that Bally Fitness participated in a series of financial transactions causing its net worth to fall by more than 25 percent since the inception of the lease, which constitutes an unauthorized assignment in breach of Paragraph 12 of the lease. Retail Center prayed for a declaration that forfeiture and termination of the lease occurred at the expiry of the three-day Notice to Quit issued to Bally Fitness and sought possession of the Premises.

Paragraph 12 of the lease addresses "Assignment and Subletting." Paragraph 12.1(a) states: "Except as otherwise provided in Paragraph 12.2, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, or encumber (collectively "assign" or "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent. Paragraph 12.1(c) provides: "The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out, or otherwise) . . . which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25 percent of such Net Worth . . . , shall be considered as [an] assignment of this Lease to which Lessor may withhold its consent. 'Net Worth of Lessee' shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles." Paragraph 12.1(d) provides that an assignment without consent "shall, at Lessor's option, be a Default curable after notice . . . or a noncurable Breach without the necessity of any notice and grace period."

Paragraph 12.2 (Lessor's Consent to Specific Transactions) provides that the Lessee may enter certain specified transactions without the consent of the Lessor. Paragraph 12.2(c) states: "Notwithstanding the provisions of Paragraphs 12.1(a)-(c) above, Lessee shall have the right, without Lessor's consent, to enter into an assignment or sublease of all or any portion of the Premises with a Lessee Affiliate (defined below). [¶] . . . [¶] As used in this Lease, the term 'Lessee Affiliate' shall mean (i) any corporation with which Lessee has merged or consolidated or to which all or substantially all of Lessee's assets or common stock are transferred; or (ii) any corporation that controls or is controlled by Lessee or is under common control with Lessee."

A bench trial on Retail Center's claim of forfeiture was held before the Honorable Barry Baskin on November 3, 4, and 13, 2009. After presentation of evidence, the parties were instructed to submit closing argument briefs. In its closing brief, Bally Fitness argued that because the transactions complained of were between Bally Fitness and an affiliate, namely, its parent company, Bally Total Fitness Holding Corporation (Holding Corporation), they constituted an assignment that did not require the consent of the lessor, pursuant to Paragraph 12.2(c) of the lease.

On February 26, 2009, the trial court adopted and filed plaintiff Retail Center's statement of decision (SOD). In the SOD, the trial court concluded that Bally Fitness and its assets were involved in a series of financing transactions that precipitated a drop in Bally's Fitness's net worth in excess of 25 percent, constituting an assignment without the consent of Retail Center in breach of paragraph 12.1(c) of the lease. Bally Fitness filed objections to the trial court's SOD and Retail Center filed a response to those objections. Following a hearing on April 2, 2009, the court filed an amended SOD and judgment of the same date. Bally Fitness filed a timely notice of appeal on May 19, 2009.

DISCUSSION

A. Standard of ...


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