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Geccmc 2005-C1 Plummer Street Office Limited Partnership v. Nrfc Nnn Holdings

March 29, 2012

GECCMC 2005-C1 PLUMMER STREET OFFICE LIMITED PARTNERSHIP, PLAINTIFF AND RESPONDENT,
v.
NRFC NNN HOLDINGS, LLC, DEFENDANT AND APPELLANT.



APPEALS from a judgment and an order of the Superior Court of Los Angeles County. Mary H. Strobel, Judge. (Los Angeles County Super. Ct. No. BC419513)

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

CERTIFIED FOR PUBLICATION

Reversed with directions.

NRFC NNN Holdings, LLC (Northstar) appeals from a judgment holding it liable as a guarantor on a loan in favor of GECCMC 2005-C1 PLUMMER STREET OFFICE LIMITED PARTNERSHIP (Plummer) and a post-judgment order awarding Plummer attorney fees and costs. We conclude that as a matter of law the guaranty was not triggered. Therefore we reverse the judgment and the post-judgment order.

FACTS AND PROCEEDINGS BELOW

Plummer lent $44 million to a borrower.*fn1 Borrower used the money to purchase two commercial properties in Chatsworth. Borrower leased these properties under two leases to Washington Mutual Savings and Loan as the sole tenant. The loan was a non-recourse loan, secured by the properties but not by any other assets of Borrower, subject to exceptions for certain forms of borrower misconduct. In addition, Northstar, an affiliate of Borrower, executed a guaranty that would be triggered by the same forms of borrower misconduct that triggered the exceptions to the non-recourse character of the loan. The guaranty provided in relevant part that "[t]he Loan shall be fully recourse to Guarantor, and Guarantor hereby unconditionally and irrevocably guarantees payment of the entire Loan, if any of the following occurs after the date hereof: . . . (iv) without the prior written consent of [Plummer, either lease] is terminated or canceled."

Washington Mutual went out of business and it and its successors ceased paying rent to Borrower and abandoned the property. In February 2009, Borrower ceased making loan payments to Plummer. In May 2009, Plummer took title to the properties through a non-judicial foreclosure sale in which it bid approximately $11 million. Plummer then brought this suit against Northstar as guarantor for the balance due on the loan--approximately $42 million plus attorney fees and costs.

Plummer and Northstar filed cross-motions for summary judgment. The principal issue was whether Washington Mutual's ceasing to pay rent and abandoning the property terminated the leases triggering Northstar's duty to pay the amount owing on the loan if the leases were "terminated" "without the prior written consent of Lender." The trial court concluded that the leases were terminated without Plummer's consent and, therefore, Northstar was liable on the guaranty. The court awarded Plummer damages of $42,220,349.35 plus prejudgment interest. In a separate order the court awarded Plummer attorney fees and costs in the amount of $760,797.50. Northstar filed timely appeals from the judgment and the post-judgment attorney fees award.

DISCUSSION

The guaranty states in relevant part: "The Loan shall be fully recourse to Guarantor, and Guarantor hereby unconditionally and irrevocably guarantees payment of the entire loan, if any of the following occurs after the date hereof: . . . (iv) without the prior written consent of [Plummer] . . . (2) either [lease] is terminated or canceled . . . or the term of either [lease] is surrendered . . . ." (Italics added.)

It is undisputed that Washington Mutual breached the leases by ceasing to pay rent and abandoning the premises. The lease agreements between Washington Mutual and the Borrower provided: "13.1 Defaults. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: [¶] (a) The abandonment or surrender of the Premises by Lessee. [¶] (b) The failure by Lessee to make any equal monthly payments pursuant to paragraph 5.1 or any other rental payment required to be made by Lessee hereunder, as and when due . . . ."

Plummer argues Washington Mutual's breaches terminated the leases. It quotes the following language from Civil Code section 1951.2, subdivision (a):*fn2 "if a lessee of real property breaches the lease and abandons the property before the end of the term . . . the lease terminates." But section 1951.2, subdivision (a) does not apply to this case, as we explain below.

Plummer ignores paragraph 5.3 of the lease which states in relevant part: "It is the intention of the parties hereto that this Lease shall not be terminable for any reason by Lessee[.] . . . Any present or future law to the contrary shall not alter this agreement of the parties." Thus, under the plain language of the lease, neither the lessee's failure to pay rent nor its abandonment of the property terminates the lease. Furthermore, this lease provision states that it overrides any "law to the contrary."

Plummer also omits the beginning words of section 1951.2, subdivision (a). The first sentence of subdivision (a) states in relevant part: "Except as otherwise provided in Section 1951.4, if a lessee of real property breaches the lease and abandons the property before the end of the term . . . the lease terminates." (Italics added.) Section 1951.4, subdivision (b) states in relevant part: "Even though a lessee of real property has breached the lease and abandoned the property, the lease continues in effect for so long as the lessor does not terminate the lessee's right of possession." In this case the leases state: "No act by Lessor other than ...


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