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U.S. National Leasing, LLC v. Northern California Construction and Training


November 30, 2011


(Super. Ct. No. 34200800029412CUBCGDS)

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

U.S. National Leasing v. No. Cal. Construction



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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

Defendant Northern California Construction and Training, Inc. (NCCT) leased space from U.S. National Leasing, LLC (USNL) and operated a charter school in that space. When the charter school closed, NCCT gave notice of termination of the lease and eventually abandoned the space and stopped paying rent. USNL sued NCCT for breach of contract.

After a court trial, the court declined to decide the issue of whether there was a breach. Instead, it found there were no damages as USNL failed to mitigate its damages because it unreasonably rejected an offer to rent the space from a woman formerly affiliated with NCCT who was starting her own business. Judgment, including attorney fees and costs, was entered in favor of NCCT.

USNL appeals, contending substantial evidence does not support a finding that USNL failed to mitigate all its damages. Specifically, USNL contends the testimony of NCCT's one witness on mitigation of damages was too vague and speculative to constitute substantial evidence. We agree and shall reverse.



The Parties and the Lease

The Depot Park is a mixed use industrial business park of over 300 acres containing more than three million square feet of improved properties. Among these properties is Building 300, which contains about 12,000 square feet. The building has ten to twelve-foot ceilings and concrete walls, some two-feet thick. There is only one set of bathrooms in the building.

Effective April 1, 2005, NCCT leased Building 300, as well as Building 215, from USNL.*fn1 The lease was for three years. The base rent was $8,479 a month. With additional rent for common expenses, known as CAMS, the total rent was $10,330.36 a month.

NCCT is a nonprofit corporation that provides programs for teaching at-risk youths the construction trades and work skills. William Meehan is its president. Shortly after the lease took effect, Meehan wrote Richard Fischer, the owner of USNL, indicating that NCCT's Board of Directors had approved the lease "with a stipulation that in the event we lost all our funding that you would be willing to accept a 90 [day] notice to vacate the premises." The Board's concern was personal liability. Meehan attached a list of current funding and indicated NCCT was pursuing additional funding. The funding list noted: "We have been in business for over 10 years and have never [de]faulted on any bill or debt." Dennis Wertz, the project manager for USNL, wrote Meehan, agreeing to accept a 90-day notice to vacate if NCCT lost all its funding.

NCCT decided to start a charter school for high school students, the Northern California Polytechnic Academy, and to use Building 300 for the school. As required under the lease and by the Sacramento County Office of Education (SCOE), NCCT obtained written consent to use Building 300 for the school. The school opened in July 2005, although at that time there were no students in the school--only recruitment and interviewing were occurring.

The school had a difficult relationship with SCOE, failed to obtain a loan from the state, and closed after one year. In mid-March 2006, NCCT sent USNL notice that it would vacate Building 300 by the end of June. This notice was pursuant to the letter agreement permitting NCCT to vacate upon 90-days notice if it lost its funding. Fischer did not accept the notice because there was no evidence NCCT had lost its funding and would cease to operate. When NCCT did not pay June rent, USNL sent a three-day notice to quit. NCCT vacated Building 300 around the middle of June.


The Lawsuit and Trial

USNL sued NCCT for breach of contract. USNL claimed $284,930.97 in damages, plus interest, attorney fees and costs. The complaint alleged USNL undertook reasonable, but unsuccessful, steps to re-let the premises and mitigate its damages.

After two unsuccessful motions by USNL for summary judgment, a court trial was held. The issues before the court were (1) the interpretation of the letters permitting NCCT to vacate the premises upon 90 days notice if it lost its funding; (2) the term of the lease (whether it ended in March of 2006 or November of 2008); and (3) the adequacy of USNL's attempt to mitigate damages. Only mitigation of damages is at issue on appeal.

USNL presented testimony about its efforts to re-let Building 300. Mark Demetre was a sales agent for Colliers International, the real estate broker with the listing for Depot Park. He had 25 years experience in the real estate industry and had been awarded commercial real estate broker of the year. He testified about the general marketing plan for Depot Park. The property would be listed on the availability list and a brochure put together. Information would be provided to likely candidates in the surrounding area. Demetre showed the property a few times and spoke with potential tenants and/or brokers. Despite his best efforts, no tenant was obtained. There were other vacancies at Depot Park at that time; there was about a 20 percent vacancy rate.

Manager Wertz testified he tried to find a new tenant. He cleaned up the building, notified the broker, listed the vacancy, and took another potential tenant through the building. In his opinion, it was not economically feasible to carve the building into smaller spaces due the presence of only one bathroom and the structural issues; some interior walls were load bearing. He believed there were possible code compliance issues with dividing the space, but he was not sure exactly what the code required.

Meehan testified he spoke with Fischer about Mary Lyn Kagan continuing as a tenant. Kagan had been the director of the charter school. After the school closed, she began her own nonprofit company, Sierra Innovative Services (SIS), to provide supportive services such as independent study programs, computer and library services, to students. She wanted to stay at Building 300.

Kagan testified she called Fischer, set up an appointment, and met with him in late June or early July of 2006. She explained her business and that the space at Building 300 was actually larger than she needed but she was willing to bring in other partners to use the remainder of the space. She had been talking to partners about a joint location. These partners provided other services for students, such as programs for anger management, conflict resolution, and substance abuse, but were not otherwise identified at trial. Fischer seemed receptive and told Kagan he would have to talk to others about pricing. Kagan had requested a discount in leasing costs. She wanted an initial discount to help with cash flow.

Kagan waited four or five days and then called Fischer. After leaving messages two or three times, she finally reached him. Fischer said he did not have anything that worked; Building 300 was not an option. He said he was sorry, but did not explain why Kagan could not lease Building 300. They had no further contact.

Fischer testified he had met Kagan, but did not recall her approaching him about leasing space. He never told anyone not to lease to her.

Kagan testified she told Fischer she was looking for 4,000-6,000 square feet and was willing to pay up to $5,000 a month, but was "hoping" for rent of $3,500 to $4,000 to start. Although she was aware that NCCT had been paying between $8,000 and $10,000 per month for the entire space, she could not pay that amount.*fn2 She testified that she told Fischer that she could line up partners to fill the entire space and that if she were able to do so, these partners would have contributed to the rent and in her "reasonable estimation" the "potential" rent paid could have "reached [$8,000 to $10,000 per month]."

After Fischer's rejection, Kagan went to Jackson Properties and rented a space about a mile away. She leased 3,750 square feet just for SIS, with no partners. Kagan received discounted rent of $2,635.50 a month for the first nine months; the rent then rose to $4,125.50 per month.

Kagan testified there was a memorandum of understanding with the partners for referrals, but not for leasing space. The partners were located elsewhere with their own leases, some of which were "getting ready to expire and be done" at the time of Kagan's meeting with Fisher, presumably in June or early July. The partners never met with Fischer.

In its statement of decision, the trial court first noted that USNL as plaintiff had the burden to prove its case. It found the only salient issue was whether USNL had made reasonable attempts to mitigate its damages. After summarizing the evidence of USNL's efforts, the court found Kagan's uncontroverted testimony showed USNL did not meet its obligation to make a reasonable effort to mitigate damages. Summarizing Kagan's testimony, the court found the "end result" was that Kagan attempted to rent Building 300 at a time when it would have resulted in no loss of rent as she had the means to see that full rent would continue for the term of the lease. The court found that rejecting this offer was totally unreasonable; the only effort required of USNL was to draft a new lease with Kagan. Since there were no damages, the court declined to decide the other issues.

Judgment was entered in favor of NCCT, with an award of almost $44,000 for attorney fees and costs.


USNL contends there is no substantial evidence that it could have reasonably avoided all its rental loss. It contends there was no evidence that Kagan would have rented Building 300 beginning in July, noting that even assuming her account of her dealings with Fischer were accurate, her first meeting with him was not even until late June or early July, and her subsequent lease began August 1. It further contends Kagan's testimony is too vague and speculative to carry NCCT's burden to show USNL could have avoided all loss because she sought below market rent, subsequently leased less than half the square footage of Building 300, and gave no details about her purported "partners." Further, even when she speculated about the additional rent money they could provide, her speculation never reached the amount of the original lease.


The Law

Except as otherwise provided by statute, the measure of damages for breach of contract is "the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom" (Civ. Code, § 3300), provided the damages are "clearly ascertainable in both their nature and origin." (Civ. Code, § 3301.)

In the context of breach of a lease, Civil Code section 1951.2 provides a lessor may recover damages only to the extent unpaid rent exceeds "the amount of such rental loss that the lessee proves could have been reasonably avoided." (Civ. Code, § 1951.2, subds. (a)(2), (a)(3) and (c)(1).) "The burden of proof rests with the lessee: 'In determining the amount recoverable under paragraphs (2) and (3) of subdivision (a), the lessee is entitled to have offset against the unpaid rent not merely all sums the lessor has received or will receive by virtue of a reletting of the property which has actually been accomplished but also all sums that the lessee can prove the lessor could have obtained or could obtain by acting reasonably in reletting the property. The duty to mitigate the damages will often require that the property be relet at a rent that is more or less than the rent provided in the original lease. The test in each case is whether the lessor acted reasonably and in good faith in reletting the property.' [Citation.]" (Lu v. Grewal (2005) 130 Cal.App.4th 841, 849-850.)

The nature of the duty to mitigate damages is explained in Green v. Smith (1968) 261 Cal.App.2d 392. The court explained: "The doctrine does not require the injured party to take measures which are unreasonable or impractical or which could involve expenditures disproportionate to the loss sought to be avoided or which may be beyond his financial means. [Citations.] The reasonableness of the efforts of the injured party must be judged in the light of the situation confronting him at the time the loss was threatened and not by the judgment of hindsight. [Citations.] The fact that reasonable measures other than the one taken would have avoided damage is not, in and of itself, proof of the fact that the one taken, though unsuccessful, was unreasonable. [Citations.] . . . The standard by which the reasonableness of the injured party's efforts is to be measured is not as high as the standard required in other areas of law. [Citation.] It is sufficient if he acts reasonably and with due diligence, in good faith. [Citations.]" (Green v. Smith, supra, 261 Cal.App.2d at pp. 396-397.)


Substantial Evidence

The trial court found USNL failed to take reasonable measures to mitigate its damages because it failed to enter into a lease with Kagan which would have resulted in no loss of rent. We consider whether substantial evidence supports this finding.

"There are two aspects to a review of the legal sufficiency of the evidence. First, one must resolve all explicit conflicts in the evidence in favor of the respondent and presume in favor of the judgment all reasonable inferences. [Citation.] Second, one must determine whether the evidence thus marshaled is substantial. While it is commonly stated that our 'power' begins and ends with a determination that there is substantial evidence [citation], this does not mean we must blindly seize any evidence in support of the respondent in order to affirm the judgment. The Court of Appeal 'was not created . . . merely to echo the determinations of the trial court. A decision supported by a mere scintilla of evidence need not be affirmed on review.' [Citation.] '[I]f the word "substantial" [is to mean] anything at all, it clearly implies that such evidence must be of ponderable legal significance. Obviously the word cannot be deemed synonymous with "any" evidence. It must be reasonable . . ., credible, and of solid value. . . ." [Citation.] The ultimate determination is whether a reasonable trier of fact could have found for the respondent based on the whole record. [Citation.] While substantial evidence may consist of inferences, such inferences must be 'a product of logic and reason' and 'must rest on the evidence' [citation]; inferences that are the result of mere speculation or conjecture cannot support a finding [citations]." (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1632-1633, original italics.)

NCCT had the burden of proof on the issue of mitigation. (Lu v. Grewal, supra, 130 Cal.App.4th at p. 849; Millikan v. American Spectrum Real Estate Services California, Inc. (2004) 117 Cal.App.4th 1094, 1105.) NCCT's only evidence on this issue was the testimony of Kagan. Her testimony, however, failed to provide substantial evidence that USNL could have avoided all rental loss by renting to her.

Even when viewed in the best possible light for NCCT and assuming the complete credibility of Kagan, the evidence established that a lease with Kagan alone would not have been sufficient to mitigate all damages. Kagan wanted at most 6,000 square feet, while Building 300 was over 12,000 square feet. Its rent was over $10,000 a month, but Kagan could pay only $5,000 and hoped for below market rent the first several months (which she subsequently obtained elsewhere). There was no evidence that she was willing to begin the lease, and paying rent, in July.

Kagan testified that with partners, she "potentially" could have covered the entire rent for Building 300, some "$8,000 to $10,000 per month," although still less than the $10,330.36 owed under the extant lease. NCCT contends this uncontroverted testimony provides substantial evidence. We disagree. Kagan's conclusion as to what potentially could have been is based on speculative assumptions and conjecture about potential partners, with no factual foundation. (Cf. People ex rel. Brown v. Tri-Union Seafoods, LLC (2009) 171 Cal.App.4th 1549, 1567 [an expert's opinion testimony does not achieve the dignity of substantial evidence where the expert bases his or her conclusion on speculative, remote or conjectural factors].) Kagan never identified the partners, and there was no evidence about their space needs or how much rent they were willing and able to pay. NCCT provided no evidence that such partners were interested in relocating to Building 300 or that they could be released from their current lease obligations to rent Building 300 in the foreseeable future, much less in July. While Kagan testified that she had spoken to them about sharing space, they had not reached any agreement as of the time of her meeting with Fischer.

NCCT dismisses concerns about the speculative nature of Kagan's testimony as a mere "rehashing of factual evidence and testimony already weighed by the trial court" and contends the trial court found Kagan a credible witness. USNL does not challenge Kagan's credibility, but only whether her testimony provided substantial evidence. That is a question we independently determine; we do not simply echo the findings of the trial court. (Kuhn v. Department of General Services, supra, 22 Cal.App.4th at p. 1633.) "Substantial evidence is therefore not merely an appellate incantation designed to conjure up an affirmance. To the contrary, it is essential to the integrity of the judicial process that a judgment be supported by evidence that is at least substantial." (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 651-652.) Here we find the evidence was not substantial because it was based on speculation and conjecture about what the unidentified partners might have done; it had no factual basis.

NCCT contends USNL has waived its substantial evidence claim because it failed to provide a complete and accurate rendition of the evidence. This contention is wholly without merit.

In challenging the sufficiency of the evidence, an appellant is "'required to set forth in their brief all the material evidence on the point and not merely their own evidence. Unless this is done the error is deemed to be waived.' [Citations.]" (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.) A "failure to present a full and fair summary of the evidence supporting the judgment effects a 'waive[r]' of any challenge to the sufficiency of the evidence. [Citation.]" (Schmidlin v. City of Palo Alto (2007) 157 Cal.App.4th 728, 739.)

NCCT has not shown USNL failed to provide a fair summary of the evidence; instead, its objection appears to be that USNL forcefully argues its position and challenges Kagan's testimony as not providing substantial evidence that USNL failed to mitigate all its damages. NCCT faults USNL for not stating Kagan's testimony was uncontroverted, but does not point us to any pertinent portion of Kagan's testimony that was omitted or unfairly summarized. We see no significant omissions, nor do we see that Kagan's testimony was mischaracterized.

Similarly, NCCT claims USNL failed to discuss Demetre's testimony, but does not indicate what material fact was omitted. Contrary to NCCT's claim, USNL did summarize Demetre's testimony in its briefing; we see no material omissions.

In any event, substantial evidence does not support the trial court's finding of complete failure to mitigate all damages.


The judgment is reversed. USNL shall recover its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)

We concur: NICHOLSON , Acting P. J. HULL , J.

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