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Esther Ginsberg v. Hanna Gamson

April 30, 2012

ESTHER GINSBERG, PLAINTIFF, CROSS-DEFENDANT AND APPELLANT;
v.
HANNA GAMSON, DEFENDANT, CROSS-COMPLAINANT AND APPELLANT; HARRY EDEN, CROSS-DEFENDANT AND APPELLANT.



(Los Angeles County Super. Ct. No. BC346782) APPEAL from a judgment and orders of the Superior Court of Los Angeles County. Ricardo Torres, Judge. Reversed in part, affirmed in part.

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

CERTIFIED FOR PUBLICATION

This case concerns a dispute over a commercial lease and the landlord's performance under that lease. The parties disagreed on whether the tenant has the right to unlimited extensions of the lease. The trial court concluded the lease grants the tenant the right to unlimited five-year extensions for 99 years. A jury subsequently concluded the landlord breached the lease. In addition to compensatory damages, the jury awarded the tenant over $300,000 in punitive damages, based on a claim for "intentional interference with premises." The trial court issued an injunction ordering the landlord to comply with certain repair obligations under the lease. However, the court struck the punitive damages award.

On appeal, the landlord, Hanna Gamson, contends: (1) the trial court erred in concluding the lease gives the tenants, Esther Ginsberg and Harry Eden, the right to unlimited extensions of the lease; and (2) the trial court abused its discretion in issuing an injunction that exceeds the parties' rights and responsibilities under the lease. Ginsberg and Eden cross-appeal to challenge the trial court's order striking the punitive damages award. We reverse the trial court's ruling on the interpretation of the option to extend the lease. We conclude the lease cannot be construed as allowing unlimited extensions, and instead it afforded Ginsberg the right to only one extension period. We affirm the trial court's order striking punitive damages.

FACTUAL AND PROCEDURAL BACKGROUND

The evidence adduced at trial was as follows. In April 1996, Ginsberg entered into a commercial lease with Isaac and Ingeborg Rubinfeld for a retail space at 134-136 South La Brea Avenue in Los Angeles. The term of the lease was five years. The lease appeared to give Ginsberg the option to extend the lease for five additional five-year periods.*fn1 Soon after signing the lease, Isaac Rubinfeld died, and Ingeborg Rubinfeld was unable to handle their business affairs. Their daughter, Gamson, became Ingeborg Rubinfeld's conservator. In her capacity as conservator, Gamson signed a new lease with Ginsberg and Eden. The new lease was also for a five-year term from April 15, 1996, to April 14, 2001. The tenant was to use the premises for "a retail store selling textiles, clothing, accessories, light furnishings and other similar items and for no other purpose without the Landlord's prior written consent." The landlord was to maintain the foundations, exterior walls, exterior roof, unexposed electrical, plumbing and sewage systems, window frames, gutters and downspouts, sidewalks, landscaping, the parking lot adjacent to the property, and other premises improvements. The landlord was also to pay all real property taxes and general assessments levied against the premises.

The lease included a separately typed addendum which contained a provision entitled "Option to Extend Term," stating:

"Provided tenant is not in default under the lease, Tenant shall have the option to extend the term of the lease for additional five year periods upon the same terms and conditions contained in the lease except as hereafter stated. Tenant shall exercise this option to extend the term of the lease by serving on Landlord the Tenant's written notice of Tenant's exercise of the option to extend not less than ninety (90) days prior to the expiration of each term. The rent payable during each option term shall be increased in direct proportion to changes in the Consumer Price Index as hereafter defined. The adjustments shall be determined by the following formula:

"Option Rent = Consumer Price Index for March, 1996 x $3,000.00 (etc.)

Consumer Price Index for March, 2001

"The term 'Consumer Price Index' means the Consumer Price Index, US Department of Labor, Bureau of Labor Statistics, All Urban Consumers, (1982-84 base year) for the Los Angeles-Long Beach-Anaheim, California area, all items. In the event the index referred to above ceases to be published or any revised or substituted index ceases to be comparable to the index defined above, then the most reasonably comparable figures available shall be substituted in determining the changes to the rent. In no event shall the rent adjustment for the next extended term exceed 10% of the rent during the expiring term of the Lease."

The addendum also included provisions regarding building repairs the tenant agreed to fund, with corresponding reductions in the monthly rent; a provision entitling the landlord to demand a tenant contribution to real property taxes should the premises be sold "during the term of the Lease or any extended term thereof"; and a tenant right of first refusal should the landlord wish to sell the leased premises "during the term of the Lease or any extended term thereof."

The parties signed the lease and addendum in or around July 1996. In March 2001, Ginsberg extended the lease for an additional five years, in accordance with the lease and addendum, and the parties agreed to an increase in rent from $3,000 to $3,300 per month. Ginsberg operated a vintage clothing store from the leased premises. In November 2004, Ginsberg sent Gamson a letter in which she purported to give notice that she would exercise her "second of five" options to extend the lease.

However, beginning in late 2003, there were problems with the leased premises, such as rainwater and waste water leaking into the store, an indentation in the floor, peeling paint, and cockroaches. Ginsberg demanded that Gamson make repairs, or that Ginsberg be allowed to make repairs. According to Ginsberg, the repairs Gamson made were insufficient. Further, although Gamson gave Ginsberg a key to the residential units above the store, at some point the locks were changed and Ginsberg did not receive a new key. This made it impossible for her to address the water intrusion problems in her store. Gamson and her agents also made comments about renegotiating the lease, or suggested it was necessary for Ginsberg to sign a new lease.

In February 2006, Ginsberg filed suit against Gamson for breach of contract, intentional interference with use of premises, intentional infliction of emotional distress, fraud, conversion, and injunctive relief. In a subsequent amended complaint, Ginsberg added a claim for trespass to chattel. Ginsberg alleged Gamson had engaged in a scheme to improperly terminate the lease so as to procure higher rent. Ginsberg alleged that in furtherance of this scheme, Gamson failed to repair or allow Ginsberg to repair plumbing leaks that caused damage to her store and merchandise; refused to repair hazardous floor problems that caused the store to look unsightly; refused to provide Ginsberg with access to a phone terminal; unreasonably withheld consent for Ginsberg to sublease a portion of the store; and repeatedly demanded Ginsberg agree to a new lease. In January 2007, Gamson filed a cross-complaint. After a number of amendments, the cross-complaint sought only declaratory relief in the form of a determination that the lease gave Ginsberg and Eden the right to extend the lease only once, rather than perpetually. The cross-complaint also sought a judicial declaration that Ginsberg and Eden (collectively Ginsberg) were holdover tenants in a month-to-month tenancy because the one permitted extended period had expired.

In 2008, both sides sought summary judgment of Gamson's cross-complaint. Gamson contended the undisputed facts established the lease provided only one option for a single five-year extension of the lease. Ginsberg contended the language of the lease clearly provided for "a series" of renewals under the lease, limited by statute to 99 years. Ginsberg also asserted the statute of limitations barred Gamson's claims for declaratory relief. The trial court denied both motions. The court found neither party established there was no disputed fact concerning the meaning of the lease addendum's "option to extend term" provision. The court concluded that "at best . . . there is ambiguity as to whether an option or options were granted to the tenant."

In August 2009, Gamson moved to bifurcate the trial. The trial court denied the motion, but indicated it would start the trial with a bench proceeding in which it would decide whether the lease was ambiguous. The court then determined the lease was not ambiguous and provided Ginsberg a "series of options of five years," limited to 99 years by Civil Code section 718.*fn2 Following a jury trial of Ginsberg's claims for breach of written and oral contract, "intentional interference with use of premises," and trespass to chattel, the jury returned a special verdict in Ginsberg's favor on the breach of contract and intentional interference claims. The jury awarded Ginsberg $49,100 in compensatory damages and $385,000 in punitive damages.

Ginsberg requested injunctive relief. The trial court issued an injunction ordering Gamson to make repairs to the leased premises within 48 hours of notice of the need for repairs. If Gamson did not make repairs within 48 hours, she was ordered to immediately provide Ginsberg access to the building to make repairs. The injunction further ordered Gamson to give Ginsberg working and updated keys to an apartment security gate and hallway in accordance with the terms of the lease, and access to the premises' telephone connections.

Gamson filed motions for new trial and judgment notwithstanding the verdict, both of which challenged the jury's punitive damages award. The trial court granted the motions and struck the punitive damages award. The court noted that all of Gamson's challenged conduct was "within the contract," and the jury's finding of malice, oppression and fraud on the breach of covenant of quiet enjoyment was "part of the contract claim."

The instant appeals followed. Gamson challenges the trial court's ruling on her declaratory relief claims and the injunctive relief awarded on Ginsberg's claims. Ginsberg challenges the trial court order striking the punitive damages award.*fn3

DISCUSSION

Gamson's Appeal

I. The Lease Did Not Unequivocally Provide for Unlimited Extensions

Gamson contends the trial court erred in concluding the lease clearly provided for unlimited extensions, limited only by Civil Code section 718. " '[W]e apply de novo review, exercising our independent judgment as to the meaning of' [a lease] because '[i]t is a judicial function to interpret a contract or written document unless the interpretation turns upon the credibility of extrinsic evidence . . . . We are guided by the well-settled rules of interpretation of a contract, endeavoring to effectuate the mutual intent of the parties as it existed at the time of contracting insofar as it is ascertainable and lawful.' [Citation.]" (Quantification Settlement Agreement Cases (2011) 201 Cal.App.4th 758, 797-798; Eltinge & Graziadio Dev. Co. v. Childs (1975) 49 Cal.App.3d 294, 297-298.) We conclude the lease cannot be construed as awarding Ginsberg unlimited extensions.

A. The Statute of Limitations Does Not Bar Gamson's Declaratory Relief Claims

As an initial matter, we disagree with Ginsberg's contention that the statute of limitations barred Gamson's claims for declaratory relief. This is a question of law subject to our de novo review. (Sahadi v. Scheaffer (2007) 155 Cal.App.4th 704, 713-714.) The limitations period for declaratory relief claims depends on "the right or obligation sought to be enforced, and the [statute of limitations'] application generally follows its application to actions for damages or injunction on the same rights and obligations." (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 821.) Gamson's cross-complaint concerned obligations or liabilities "founded upon an instrument in writing." (Code Civ. Proc., § 337(1).) A four-year statute of limitations applied. (Ibid.)

The parties agree that the lease afforded Ginsberg at least one extension, which extended the lease until April 2006. Even if Gamson realized the parties had different interpretations of the lease's option to extend, there would have been no breach of the lease, either on Ginsberg's part by being a holdover tenant, or on Gamson's part by insisting the lease had terminated, until after April 2006. The limitations period did not begin to run until a breach occurred. (Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 489; Garver v. Brace (1996) 47 Cal.App.4th 995, 999-1000 (Garver) [limitations period does not begin to run until the plaintiff sustains actual and appreciable harm].) A party may seek declaratory relief before there has been an actual breach of an obligation; in such cases the limitations period still does not begin to run until the breach occurs. (Maguire v. Hibernia S & L Soc. (1944) 23 Cal.2d 719, 734.) The parties agree that the effective filing date of the cross-complaint was February 2006. This was well within the limitations period. We reject Ginsberg's argument that the limitations period began to run in 1996 when the parties signed the lease. (Garver, supra, at p. 1001.)

B. Special Rule of Construction Relating to Perpetual or Unlimited Renewals

In general, lease provisions giving the tenant the right to perpetual renewals are disfavored.*fn4 In Morrison v. Rossignol (1855) 5 Cal. 64, 65 (Morrison), the California Supreme Court concluded a covenant allowing a lease to be renewed indefinitely at the lessee's option is "in effect, the creation of a perpetuity; it puts it in the power of one party to renew forever, and is therefore against the policy of the law." Although subsequent cases have determined that a perpetual renewal provision does not violate the rule against perpetuities, (Shaver v. Clanton (1994) 26 Cal.App.4th 568, 575-576 (Shaver)), Morrison still reflects the law's general skepticism about such provisions. (See generally, Annot., Sufficiency of Provision of Lease to Effect Second or Perpetual Right of Renewal (1984) 29 A.L.R.4th 172, 177, 179, §§ 3, 4; Blackmore v. Boardman (Mo. 1859) 28 Mo. 420 [because the law discourages perpetuities, it does not favor covenants for continued renewals]; Hallock v. Kintzler (Ohio 1943) 51 N.E.2d 905, 906 (Hallock) [courts do not favor perpetuities, and law does not favor perpetual leases]; Burns v. City of New York (N.Y.Ct.App. 1915) 108 N.E. 77, 79 [citing English and American authorities].) In other legal contexts as well, California courts have noted that contract provisions creating perpetual rights are disfavored. (See Cooper Companies v. Transcontinental Ins. Co. (1995) 31 Cal.App.4th 1094, 1103 [insurance policy]; Nissen v. Stovall-Wilcoxson Co. (1953) 120 Cal.App.2d 316, 319 (Nissen) [agreement to pay assessments on land]; O. T. Johnson Corp. v. Pacific E. R. Co. (1937) 19 Cal.App.2d 306, 311 [use of land for narrow purpose].)

Despite being disfavored, courts will enforce a lease provision that grants a tenant the right to unlimited renewals, so long as the parties' intent to create that right is explicit and clear. In Becker v. Submarine Oil Co. (1921) 55 Cal.App. 698 (Becker), the Court of Appeal stated the general rule: "It is true that while not within the purview of the rule against perpetuities, leases which may have been intended to be renewable in perpetuity, if at all uncertain in that regard, will be construed as importing but one renewal. This principle is announced in Diffenderfer v. Board [(Mo. 1894) 25 S.W. 542 (Diffenderfer)], and Syms v. Mayor of New York [(N.Y.Ct.App. 1887) 11 N.E. 369] . . . . [¶] On the other hand, a clause providing for perpetual renewals at the option of the lessee is held to be enforceable when it appears that it was clearly the intention of the parties that the lessee should have that right. (Burns v. City of New York, [supra, 108 N.E. 77]; Blackmore v. Boardman, [supra,] 28 Mo. 420.) This provision is also clearly stated in Diffenderfer. . . ." (Id. at p. 700; see also Nissen, supra, 120 Cal.App.2d at p. 319 [contract will be construed to impose an obligation in perpetuity only when the language unequivocally compels such a construction].)

The Becker court thus adopted what is essentially a special rule of construction applied to a lease provision that appears to give the tenant the right to perpetual renewals of the lease. As the United States Supreme Court explained in Winslow v. Baltimore & Ohio Railroad (1903) 188 U.S. 646, 655 (Winslow): "From the ordinary covenant to renew, a perpetuity will not be regarded as created. There must be some peculiar and plain language before it will be assumed that the parties intended to create it." And, as stated in Diffenderfer, upon which the Becker court relied: "Unless it appears from the covenant in the lease, by express term or clearly by implication, that plaintiffs are entitled to have the lease renewed for all time to come, a court of equity will not decree specific performance of the covenant for that purpose. [¶] . . . [¶] . . . So it has been said that a covenant which does not plainly imply or express a perpetual renewal, will not be construed to give this right." (Diffenderfer, supra, 25 S.W. at p. 544, citations omitted; see also Hallock, supra, 51 N.E.2d at p. 906.) When confronted with a lease that is equivocal or ambiguous as to whether the tenant has a right to unlimited renewals of the lease, courts following this rule do not apply principles of contract interpretation that would allow admission of extrinsic evidence relevant to the parties' intent, or rules construing ambiguities against the drafter. Instead, courts simply will not construe the provision as creating a right to perpetual renewals. (See Geyer v. Lietzan (Ind. 1952) 103 N.E.2d 199, 200 (Geyer) ["A lease will, if possible, be so construed as to avoid a perpetuity by renewal"]; Oak Bay Prop. v. Silverdale Sportsman's Center (Wash.Ct.App. 1982) 648 P.2d 465, 466 (Oak Bay) [when there is a contention that lease is perpetually renewable, the usual principles of contract interpretation "do not apply in the usual way"].)

The second part of the rule is that a "general" covenant to renew is construed as providing only one renewal. The Winslow court explained: "It is quite plain that a lease containing a covenant to renew at its expiration with similar covenants, terms and conditions contained in the original lease is fully carried out by one renewal without the insertion of another covenant to renew." (Winslow, supra, 188 U.S. at p. 654.) This portion of the rule is also repeated in Becker, in which the court explained that "leases which may have been intended to be renewable in perpetuity, if at all uncertain in that regard, will be construed as importing but one renewal." (Becker, supra, 55 Cal.App. at p. 700.)

C. California Cases Addressing Perpetual or Unlimited Renewals

Although a few California courts after Becker have considered leases containing perpetual renewal provisions, none of the resulting cases include a detailed analysis of whether the lease in question clearly established the parties' intent to create a right to perpetual renewals. For example, in Penilla v. Gerstenkorn (1927) 86 Cal.App. 668, 669 (Penilla) the court considered a lease provision that gave the lessees " 'the right of renewing this lease' " at the end of an initial four-year term. At the end of the four-year term, the lessors refused to acknowledge the lessee had a right to renew the lease. The Court of Appeal concluded that although the renewal provision was "general, it is sufficiently certain to be enforceable. It does not, as [lessors] contend, purport to create a perpetuity . . . . 'A general covenant to extend or renew implies an additional term equal to the first, and upon the same terms, including that of rent, except the covenant to renew; to include which would make the lease perpetual.' [Citation.]" (Id. at p. ...


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