Opinion
A147238 A146709
11-28-2018
FOOT LOCKER RETAIL, INC., Plaintiff, Appellant, and Cross-Respondent v. MADISON BAY FAIR LLC, Defendant, Respondent, and Cross-Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. RG14711931)
Foot Locker Retail, Inc. (Foot Locker) operates retail stores in the Bay Fair Center Mall in San Leandro (the mall). Three of the lease agreements between Foot Locker and Madison Bay Fair LLC (Madison), which operates the mall, included a "Protected Use" clause forbidding Madison from leasing other premises in the mall for the operation of a store whose primary use was the sale of athletic footwear or athletic apparel. "Primary use" was defined to mean that the store "displays athletic footwear or athletic apparel in more than fifteen percent (15%) of the floor area of such premises." Under the agreements, if Madison violated this provision, Foot Locker was entitled to pay "in lieu" rent in the amount of five percent of its gross monthly sales, plus utilities, rather than the normal rent.
In this action, Foot Locker alleges that Madison breached the agreements by leasing premises to another retailer, db Shoes, which displayed athletic footwear and apparel in approximately 36 percent of its floor area, and that Madison refused to accept in-lieu rent from Foot Locker. The trial court concluded Madison breached the agreements, but that Foot Locker failed to prove damages caused by the breach.
Both Foot Locker and Madison have appealed. The primary questions before us are (1) whether the trial court erred in including viewing areas around the displays in calculating the percentage of the floor space dedicated to athletic shoes and apparel, rather than only the floor areas under the fixtures upon which these goods were displayed; and (2) whether it was correct in ruling Foot Locker could not recover the rent it paid in excess of the in-lieu amount during the period of the breach. We conclude that the trial court was correct in ruling Madison breached the agreements, but that it erred in failing to award damages. Accordingly, we shall reverse the judgment and remand for further proceedings consistent with this opinion.
I. BACKGROUND
A. The Protected Use Clause and the Dispute
Foot Locker and Madison were parties to lease agreements for three stores at the mall: Kids Foot Locker, Lady Foot Locker, and Champs Sports. In 2004, they entered into amendments to each lease that contain the disputed provisions (the 2004 amendments). The 2004 amendments recited that Madison wanted to relocate the three stores temporarily during an expansion of the mall and that the parties therefore agreed to certain amendments to the leases. Among those amendments were the protected use clauses, which provide: "3.31 Protected Use. Notwithstanding anything to the contrary contained in the Lease, the parties hereby agree that as and for partial consideration for this Amendment, . . . Landlord shall not lease or permit the use of any other premises in the enclosed mall portion of the Center for the operation of a store whose primary use (as hereinafter defined) is the sale of athletic footwear or athletic apparel (the 'Protected Use') . . . As used herein, the term 'primary use' means that such other premises displays athletic footwear or athletic apparel in more than fifteen percent (15%) of the floor area of such premises. . . . [¶] In the event that Landlord violates the foregoing restrictions, Tenant shall be entitled to immediately commence payment of 'in lieu' rent equivalent to five percent (5%) of Tenant's monthly Gross Sales, plus all amounts payable under Article 18 of the Lease on account of Landlord's Utilities furnished to the applicable Premises, and if such violation has not been cured within one (1) year of the initial violation, Tenant shall have the right to terminate the Lease by written notice to Landlord given at any time prior to Landlord's cure of such violation, such termination to be effective immediately."
Foot Locker also operates a "Foot Locker" brand store at the mall. The lease for this store does not contain a protected use clause.
Another store, db Shoes, opened at the mall on March 7, 2011. Db Shoes is described as a "family shoe store," which sells dress shoes, casual shoes, and athletic shoes. In July 2012, Foot Locker became aware that db Shoes had opened. After a field auditor from Foot Locker visited the db Shoes store, Foot Locker concluded that more than 15 percent of the floor area was used to display athletic shoes. Foot Locker reached this conclusion by comparing the total area of the db Shoes store to "the area that was being used for display, the fixtures and the viewing area," of athletic shoes. According to Foot Locker's calculations, db Shoes used approximately 36 percent of its floor area to display athletic footwear and apparel, an amount that included the aisles directly in front of the footwear and apparel.
Madison calculated the amount of the floor area dedicated to athletic shoes and apparel differently. Shoes at db Shoes were displayed on top of large boxes, and additional shoe sizes were placed inside the large boxes. An employee of Madison measured the individual displays of athletic shoes and concluded they covered approximately five percent of the floor area.
In May 2013, Foot Locker tendered in-lieu rent to Madison. In June 2013, Madison informed Foot Locker it was in default on its leases for the three stores. Foot Locker then paid the normal full rent under protest.
B. Evidence Regarding Purpose and Effect of Protected Use Clause
1. Foot Locker's Evidence
Foot Locker presented evidence that the purpose of protected use clauses is to protect a tenant's market share by preventing the landlord from leasing space to a competing use. Such a clause is intended to benefit the tenant. Landlords often sought to include a provision allowing them to lease to other tenants who sold a limited amount of the relevant product.
Donald Yost, a vice-president in Foot Locker's real estate group, signed the 2004 amendments. Yost testified that Madison had inquired whether Foot Locker would move the three stores to accommodate work to be done at the mall, and Foot Locker agreed to do so in exchange for certain terms, including the exclusive use clauses. According to Yost, if a competitor came to the mall, Foot Locker would immediately suffer lost sales. However, it would be difficult to estimate the amount of the lost profits because many factors could affect sales, such as the economy in general, rates of employment, quality of store employees and managers, and conditions in a shopping center. It was Yost's understanding that if a violation of the protected use clause occurred, Foot Locker would be able to seek retroactive damages in the form of the difference between normal rent and in-lieu rent.
Yost did not directly negotiate the amendments; he would have communicated with Foot Locker's attorneys while the agreements were being negotiated, but at trial, he did not specifically recall the substance of those communications. The attorney who negotiated the 2004 amendments on Foot Locker's behalf was deceased at the time of trial.
Yost testified that he understood that the 15 percent restriction meant that it was permissible for another tenant to have incidental sales of athletic footwear or apparel. He understood the clause to refer to "[t]he amount of area that's being devoted to athletic footwear and apparel versus the total." An interpretation of the clause that included only the square footage of the fixtures was inconsistent with the business rationale of an exclusive use clause; according to Yost, that was because "you wouldn't be comparing like items. You should be comparing the area . . . beneath the fixtures that hold the athletic footwear or apparel to the square footage of all the fixtures that are there. That would be the proper ratio, not to the overall gross leasable area." In Foot Locker stores, the area beneath the fixtures was only a small portion of the entire store, although they sold almost entirely athletic shoes and apparel. According to Yost, it would not be reasonable to include only the floor area under the fixtures in the calculation, because customers used the surrounding area to see, touch, and try on the products.
Foot Locker's expert, Stephen Morris, testified that the fixtures in some retail shoe stores, such as Finish Line and Foot Locker, typically took up less than 15 percent of the total floor area. In some of these stores, samples of the athletic shoes were displayed on the perimeter walls, and additional sizes were stored in a back room; thus, although less than 15 percent of the floor area was used for the fixtures, virtually the entire store was used to display athletic shoes. In other stores, such as db Shoes and ASICS, additional sizes were placed underneath the fixtures containing sample shoes. The fixtures in those stores could take up as much as 20 percent of the total floor area. Because of building code requirements for aisle width, the need to maintain access for disabled customers, and the space needed for cash registers, restrooms, and back rooms, Morris opined that it was "almost impossible to design a store . . . where the fixture floor area is much above 20 or 25 percent of the entire store. And I think 25 percent would be pretty high. You would probably be out of code with the building authorities." In his view, an interpretation of the protected use clause that considered only the floor space under the fixtures upon which shoes were displayed—and that did not include any surrounding space in the calculation—would render the clause meaningless, because "the landlord could lease to virtually anybody and not violate—you know, db Shoes for example, could be 75 percent athletic shoes and still fall under . . . that ratio."
Morris testified that the purpose of a brick and mortar store was to display merchandise. It was appropriate to include the area in which customers viewed and tried on shoes when calculating what portion of a store was used for displaying shoes, because customers used the whole aisle when looking at shoes. For those stores, such as db Shoes, that kept their stock under the displays, it was appropriate to include the whole aisle in front of a row of shoes.
2. Madison's Evidence
Madison's outside real estate counsel, Donald Dvorin, drafted and negotiated on Madison's behalf the amendments that included the protected use clauses. He testified that Foot Locker's counsel was a "tough negotiator," "[s]mart," and "[k]nowledgeable about leasing terms." According to Dvorin, the term "primary use" was defined "to provide an objective standard for both parties to determine if a violation had occurred." He testified that, under the clause, the scope of the protected use was the square footage of the footprint of the floor area beneath the "display," and it did not include any other area, such as aisles, walkways, or viewing areas. He and Foot Locker's counsel did not discuss including those areas in the scope of the 2004 amendments, and the inclusion of language including aisles and viewing areas would have required extensive negotiations.
Madison also introduced the expert testimony of a real estate attorney, Gary Glick, that when a protected use clause measures competing use by floor area, only the floor area under the display items would be counted, rather than an adjacent viewing area. This method of computation provided an objective standard.
C. Trial and Ruling
Foot Locker brought this action on January 29, 2014, alleging Madison breached the lease agreements by allowing db Shoes to display athletic footwear and apparel in more than 15 percent of its floor area. Foot Locker sought a refund of the rent that it paid in excess of the amount that would have been due under the in-lieu rent provision. The matter proceeded to a bench trial, at which Foot Locker sought to recover $1,047,188 in allegedly overcharged rent, plus prejudgment interest.
The trial court issued a statement of decision rejecting Madison's interpretation of the protected use clause. The court noted that Madison's position was that only the floor area directly underneath the actual displays of footwear should be measured; under Madison's interpretation, db Shoes would be entitled to triple its displays of athletic footwear—which, with accompanying viewing areas, would more than fill the store— without exceeding the 15 percent threshold. The court went on: "Madison's interpretation is also inconsistent with the intent of the Protected Use clause. The parties agree that the intent was to prevent Foot Locker's competitors from leasing spaces in the mall, but allow shoe stores like db Shoes that sell all kinds of shoes, to enter into a lease as long as their displays of athletic footwear were limited. Thus, the Protected Use clause could have been written to compare the number of athletic shoes displayed with the number of all shoes displayed, or to compare the size of the athletic footwear displays with the size of the displays of all shoes. The common factor in these measurements is that they compare the same things, namely number of shoes versus number of shoes, size of display versus size of display, and as contended by Foot Locker, floor area versus floor area. [¶] By contrast, Madison chooses to measure size of display versus floor area, which is inconsistent with the intent of the Protected Use clause because the size of the displays of athletic footwear does not have any relationship with the total floor area. The total floor area of a store like db Shoes also includes the entrances which open out to the mall and the area around the cash register, which have nothing to do with the intent of the Protected Use clause to limit athletic footwear displays. For example, the larger these areas are, the smaller the percentage of displays of athletic footwear becomes under Madison's interpretation, without any change in the actual number of athletic or non-athletic shoes displayed. [¶] As a result, this Court holds that Madison breached the terms of its leases with Foot Locker as a matter of law because it leased space to a competitor that displayed athletic footwear in more than 15% of its floor area." (Footnotes omitted, italics added.)
The court went on, however, to find Foot Locker did not suffer any damages from the breach. The court concluded the in-lieu rent provision did not provide for liquidated damages, but only for temporary rent relief. The court concluded that under the protected use clause, if Madison breached the agreement, "Foot Locker was immediately entitled to pay a lower amount of rent in lieu of their normal rent . . . and Madison was entitled to accept the lower 'in lieu' amount of rent, as opposed to no rent, from Foot Locker. [¶] Once the issue was resolved, Foot Locker would have been obligated to pay the remainder of the full rent owed. Had Foot Locker proved damages in this case, Madison could have offset the amount it owed for damages from the amount Foot Locker was obligated to pay for the remainder of the full rent owed. However, in the present case, Foot Locker never paid the 'in lieu' rent amount, but instead paid the full amount of rent. [¶] Since there are no liquidated damages available for a breach of the Protected Use clause, Foot Locker's failure to present evidence of damages caused by the breach prevents them from recovering anything despite the breach by Madison as a matter of law."
The trial court later awarded costs and attorney fees to Madison, as discussed in greater detail below.
II. DISCUSSION
A. Interpretation of Protected Use Clause
In its cross-appeal, Madison argues the trial court erred in interpreting the protected use clause to refer, not only to the boxes and fixtures upon which athletic shoes and apparel were displayed, but also to the surrounding areas from which customers viewed the shoes and apparel. Foot Locker argues we should uphold the trial court's ruling as it is supported by substantial evidence; Madison, on the other hand, urges us to review the ruling de novo.
"We review a trial court's construction of a lease de novo as long as there was no conflicting extrinsic evidence admitted to assist in determining the meaning of the language. [Citation.] If a lease provision is ambiguous, parol evidence may be admitted as to the parties' intentions if the language is reasonably susceptible to a suggested interpretation. [Citation.] If there is conflicting evidence necessitating a determination of credibility, we use the substantial evidence test." (California National Bank v. Woodbridge Plaza LLC (2008) 164 Cal.App.4th 137, 142 (California National Bank); see Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912-913.) We seek to "give effect to the 'mutual intention' of the parties" at the time of the agreement. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.)
Here, while extrinsic evidence was admitted, Foot Locker does not point to any direct conflict in the evidence. There was evidence that the purpose of protected use clauses is to protect the tenant; that the amount of floor space under fixtures in shoe stores typically ranged from below 15 percent to 20 percent; that it would be almost impossible to design a shoe store with fixtures taking more than 20 or 25 percent of the floor space; and that Foot Locker's vice president for real estate did not understand the 15 percent to be limited to the floor space under fixtures. On Madison's behalf, there was evidence that the lawyer who negotiated the contract on behalf of Madison did not believe the fifteen percent included a viewing area; and that where an exclusive use clause limits the competing use by square footage, the correct measurement was the floor space under the display items. However, none of this evidence necessarily presents a factual conflict. (See California National Bank, supra, 164 Cal.App.4th at p. 143 ["[A]n interpretation of the lease is not the same as evidence of intent when negotiating or executing the lease"]; Cooper Companies v. Transcontinental Ins. Co. (1995) 31 Cal.App.4th 1094, 1100 ["[T]he meaning of the [insurance] policy is a question of law about which expert opinion testimony is inappropriate"].) We shall review the meaning of the protected use clause in the 2004 amendments de novo.
We first look to the language of a contract to discern its meaning. (California National Bank, supra, 164 Cal.App.4th at p. 143.) Each protected use clause defines "primary use" to mean that another store "displays athletic footwear or athletic apparel in more than fifteen percent (15%) of the floor area of such premises." Two aspects of this provision stand out.
First, the word "displays" is used as a verb, not as a noun. Madison's position is, in essence, that "the displays" cannot cover more than 15 percent of the floor area. For instance, Madison argues that "display" "refers to something definite and tangible, that can be measured"; that aisles, walkways, and other viewing areas may be necessary for "the displays" to be effective, but "they are not floor area that displays"; and that under Madison's interpretation, "one need only measure . . . the area of the store's athletic footwear or apparel displays." But the protected use clause does not refer to the floor area on which "the displays" are placed, it refers to the area in which athletic footwear and apparel are "display[ed]."
Second, and perhaps more subtly, the use of the preposition "in," rather than "on," suggests that the focus is not on the footprint of the fixtures upon which athletic shoes and apparel are displayed, but upon the total floor area devoted to such products. As a matter of common parlance, someone who heard that cookware, for instance, was displayed in half of a store's floor area and bedding was displayed in half the store's floor area would assume that those two product lines took up the entire store. Similarly, one who heard that cookware was displayed in a quarter of the area of a store and bedding in another quarter would almost certainly expect to find other product lines in the remainder of the store.
The extrinsic evidence likewise indicates that the 15 percent included not only the fixtures upon which athletic shoes and apparel were placed but also the surrounding floor space dedicated to the sale of such items. There is evidence that fixtures in full-priced shoe stores typically take up less than 15 percent of a store's floor space, and that even in the case of retailers such as db Shoes that keep all of their stock in the public area of the store, the fixtures rarely take up more than 20 percent of the floor space. Moreover, because of building code requirements and the need for cash registers and stock rooms, it would be "almost impossible" to design a store that contains fixtures covering more than 20 or 25 percent of the floor space. Madison does not dispute this evidence. Nevertheless, it asks us to accept an interpretation of the protected use clause that gives Foot Locker virtually no benefit, because it does not apply even to a competitor who devotes a store entirely to athletic footwear and apparel. Nothing in the record or the law compels us to accept this unlikely result.
Madison asks us to ignore this inconvenient fact, arguing that in this case, the majority of the stock of db Shoes was not athletic footwear and apparel. But the precise question before us is not whether db Shoes displayed athletic shoes on all or the great majority of its fixtures, it is how to interpret the contractual language. The term "primary use" is a defined term, and we must look to that language—not to whether we might otherwise conclude the sale of shoes was a primary use at db Shoes—to determine whether there has been a breach of the contractual provisions.
Madison also argues that this interpretation would violate the principle that restrictions on the use of leased property are disfavored. (See Civ. Code § 1997.220 ["An ambiguity in a restriction on use of leased property by a tenant shall be construed in favor of unrestricted use."; see also Stockton Dry Goods Co. v. Girsh (1951) 36 Cal.2d 677, 681 [declining to interpret lease of a portion of department store for " 'a shoe department' " to provide an exclusive grant].) We first note that it is not clear that Civil Code Section 1997.220 has any applicability here, where the lease in question does not restrict Foot Locker's use of its leased property. In any case, we are not persuaded that the lease language is ambiguous or that we must apply this principle to interpret it in a way that provides little or no benefit to Foot Locker.
B. Evidence of Breach
Madison contends Foot Locker presented no admissible evidence that, even under its interpretation of the protected use clause, athletic footwear and apparel were displayed in more than 15 percent of db Shoes. It argues that the only evidence on this point was found in the testimony of a witness who lacked personal knowledge of the matter.
After db Shoes opened, Foot Locker's manager of lease audit, Kelly D'Eramo, asked a field auditor, Casey Wink, to visit db Shoes and take pictures of the athletic shoes that were offered at the stores in the mall. D'Eramo testified she was based in Pennsylvania and it was "part of [Wink's] job to go and be my eyes at the mall." After D'Eramo saw the pictures, she asked Wink to send her a diagram of the layout of db Shoes. He sent her a diagram and explained it to her. Based on the pictures Wink had sent and their conversation, D'Eramo "tweaked" Wink's diagram. She later prepared a diagram showing the floor area she calculated was used to display athletic footwear; this included the fixtures upon which the shoes were displayed and the aisles in front of and between those fixtures. The diagram showed that, according to D'Eramo's calculations, 36 percent of the floor area of the retail portion of db Shoes contained or displayed athletic footwear and apparel; if the stockroom was included, D'Eramo calculated the number at 45 percent. The evidence of this diagram was admitted over Madison's objection.
On appeal, Madison argues that the evidence of D'Eramo's calculations was inadmissible and that the record contains no other evidence of the amount of floor space dedicated to displaying athletic shoes and apparel. It notes, as it did in objecting to the evidence, that D'Eramo was not qualified as an expert witness, and argues she was not a percipient witness to this issue because she never visited the db Shoes store and instead based her conclusions on hearsay information provided by Wink. (See Evid. Code, § 702 ["Subject to Section 801, the testimony of a witness concerning a particular matter is inadmissible unless he has personal knowledge of the matter."]; Alvarez v. State of California (1999) 79 Cal.App.4th 720, 731 ["Personal knowledge means a present recollection of an impression derived from the exercise of the witness's own senses."].)
Without determining the admissibility of D'Eramo's testimony, we reject Madison's contention that the judgment must be reversed on this basis. Although Madison argued in its objections to the proposed statement of decision that the factual basis for the finding of breach was "ambiguous and not supported by findings on key controverted issues," its objections were based on the proper interpretation of the protected use clause. Madison did not challenge the proposed statement of decision's conclusion that, under the interpretation the court adopted, athletic footwear and apparel were displayed in more than 15 percent of the floor area of db Shoes. In the absence of such an objection, we presume the trial court made all necessary factual findings in support of its conclusion that Madison breached its contracts, and we review the findings under the substantial evidence standard. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1132-1134; Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 59-60; Code Civ. Proc., § 634.)
The trial court had before it not only D'Eramo's diagram, but also the diagram Wink prepared after he visited db Shoes. The exhibit containing the diagram included an email Wink sent to D'Eramo attaching the diagram and providing approximate measurements for the dimensions of the store, the rows of shoes, and the aisles between the shoes. The court also had before it diagrams of the store prepared for Madison, pictures of the store, and a 22-minute video showing the layout of the store. The extent of the fixtures dedicated to athletic shoes was smaller in a diagram prepared for Madison than in the diagrams prepared by Wink, but D'Eramo testified she calculated from Madison's diagram that the fixtures and viewing areas for athletic shoes took up 20 percent of the floor area. Madison objected to this testimony, but it did not object to the diagram itself, which independently supports this assessment.
Thus, even aside from D'Eramo's calculations regarding the diagrams she and Wink prepared, there was ample evidence to which the court could turn to determine whether, under the interpretation it adopted, athletic shoes and apparel were displayed in more than 15 percent of the store. In its statement of decision, the court noted: "Madison presented evidence questioning Foot Locker's definition of athletic footwear and accuracy of its measurements. However, Madison did not argue that this evidence would materially change the measurements Foot Locker used to determine if the Protected Use clause had been violated." Madison provides no evidence to challenge this conclusion on appeal. It is Madison's burden to show error on appeal, and it has failed to show that the evidence does not support the trial court's conclusion. (Nielsen v. Gibson (2009) 178 Cal.App.4th 318, 324; Byars v. SCME Mortgage Bankers, Inc. (2003) 109 Cal.App.4th 1134, 1140.)
C. Remedy for Breach
In its appeal, Foot Locker argues the trial court erred in denying any recovery for Madison's breach of the protected use clause. The issue is one of contractual interpretation that does not require us to weigh conflicting extrinsic evidence, and we shall review it de novo. (California National Bank, supra, 164 Cal.App.4th at p. 142.)
The trial court acknowledged that, under the protected use clause, Foot Locker was entitled to pay the in-lieu rent to Madison, but it rejected Foot Locker's argument that it was entitled to recover the difference between in-lieu rent and the normal monthly rent it paid after db Shoes began operating. Foot Locker had taken the position that in-lieu rent constituted liquidated damages. The court noted that a separate part of the lease contained an explicit liquidated damages provision for a specified type of breach by Foot Locker, and reasoned that because the protected use clause did not contain similarly explicit language, it was not intended to provide for liquidated damages. The court interpreted the in-lieu clause to mean that, "until the issue of a breach of the Protected Use clause and resulting damages is resolved by the parties, Foot Locker was simply obligated to pay the lower, 'in lieu' amount of rent, as opposed to the full rent, to Madison," but that "[o]nce the issue was resolved, Foot Locker would have been obligated to pay the remainder of the full rent owed," except to the extent it had evidence of actual damages.
Section 4.03 of the original leases required Foot Locker to keep its premises open during certain business hours, and provided that the agreement "goes to the essence of the parties' agreement hereunder and that Tenant's failure to perform its obligations will result in automatic deprivation to Landlord for which Landlord's remedies hereunder or at law may not be adequate. It is, therefore, agreed that in the event of any violation, after the second such violation during any Lease Year, of the aforesaid obligation by Tenant . . . the Minimum Rent for said day shall be increased to one hundred twenty five percent (125%) of the rate for the day in which Tenant so fails. . . . The liquidated damages provided in the previous sentence shall be in addition to and not in lieu of Landlord's other remedies hereunder or at law, and acceptance by Landlord of such shall not be deemed an election of remedies or preclude Landlord from seeking any other remedy for said violation or a subsequent violation including, without limitation, specific performance or termination of this Lease or Tenant's right to possession . . ." Section 3.22 of the 2004 amendments made minor modifications to this clause under the heading "Liquidated Damages."
We disagree with the trial court's interpretation of the in-lieu provision of the protected use clause. "Where the parties have reduced their agreement to writing, their mutual intention is to be determined, whenever possible, from the language of the writing alone. [Citations.] We may not 'create for the parties a contract which they did not make, and . . . cannot insert into the contract language which one of the parties now wishes were there.' " (Ben-Zvi v. Edmar Co. (1995) 40 Cal.App.4th 468, 473 (Ben-Zvi).) Nothing in the 2004 amendment indicates the payment of in-lieu rent was only an interim remedy, to be repaid if Foot Locker was not able to show it suffered actual damages from a breach. We will not read such a limitation into the clause in the absence of textual support.
Having rejected the trial court's approach, we must decide whether Foot Locker is entitled to recover the rent it paid in excess of the in-lieu rent. The 2004 amendments provided that Foot Locker was "entitled to immediately commence payment of 'in lieu' rent" if Madison violated the protected use restrictions. In this case, however, when Foot Locker tendered only the in-lieu rent, Madison informed Foot Locker it was in default on its leases. Rather than risk termination of the lease, Foot Locker paid the full amount of rent under protest.
Madison would have this court decide, in essence, that even if Foot Locker had the right to pay in-lieu rent in the event of a violation, Madison had no obligation to accept it. Madison argues: "[B]ecause the in lieu rent language of the [protected use clause] only grants a right, but is not a covenant, the right itself cannot be 'breached.' " We disagree. "[T]he law implies in every contract a covenant of good faith and fair dealing, which requires neither party do anything which will deprive the other of the benefits of the agreement." (Ellis v. Chevon, U. S. A., Inc. (1988) 201 Cal.App.3d 132, 139; accord Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 372 [covenant of good faith and fair dealing applies to commercial leases].) An interpretation of the protected use clause that allows Madison to refuse to accept in-lieu rent when properly tendered would deprive Foot Locker of the benefit of its bargain.
Madison further argues that because the 2004 amendments do not expressly provide for a refund of the difference between full and in-lieu rent, the court cannot order one. Foot Locker chose to pay full rent under protest rather than running the risk of default and eviction, Madison argues, so it cannot recover the difference. Again, we disagree. Madison does not draw our attention to any cases denying a tenant recovery in similar circumstances. The closest California analogy Madison discusses is Childs v. Eltinge (1973) 29 Cal.App.3d 843 (Childs). In Childs, lessors and lessees had a dispute about the amount of rent due under a commercial lease, and the lessors sought to evict the lessees and terminate the lease. (Id. at pp. 845-847.) In the course of discussing the remedy of unlawful detainer, the court stated, "Where the amount of rent due is in dispute, we think it unquestionable that a lessee may pay the disputed rent under protest and institute an action for declaratory relief in which, if he prevailed, it could be declared that he was entitled to reimbursement or credit against rent due thereafter during the term of the lease." (Id. at pp. 853-854, italics added.) Foot Locker chose to bring an action for breach of contract rather than declaratory relief, but we are not persuaded this distinction is important. The focus of Child's statement is not the form of the action, but the tenant's right to relief.
Madison's reliance on Western etc. Oil Co. v. Title Ins. & Tr. Co. (1949) 92 Cal.App.2d 257, 266 (Western Gulf) is similarly unavailing. There, a lessee sought to recover from the lessor the cost of dehydrating oil under an oil and gas lease. (Western Gulf, 92 Cal.App.2d at p. 259.) The lease did not contain any covenant regarding the cost or burden of dehydrating the oil produced from the premises. (Ibid.) The lessee deducted from royalties payable to the lessor its share of the cost of dehydrating oil. (Id. at pp. 260-261.) The lessor informed the lessee it was in breach of the lease, and the lessee paid the full amount of the royalties. (Id. at p. 261.) In an action for declaratory relief, the court found the lessor was obligated to bear its proportionate share of the cost of dehydrating the oil, but it declined to allow the lessee to recover any part of its payments. (Id. at pp. 259-265.) However, the court in Western Gulf relied on the finding that the lessee's payments were "made and accepted without any conditions or reservations." (Id. at p. 265.) Here, on the other hand, the payments were made under dispute. Also, the contract in Western Gulf did not include any covenant regarding the disputed payments (id. at p. 259), whereas in the circumstances of our case, the 2004 amendments explicitly allowed Foot Locker to pay in-lieu rent.
We are similarly unpersuaded by Madison's reliance on Steinman v. Malamed (2010) 185 Cal.App.4th 1550, 1559-1560 (Steinman). A party who made a payment under a settlement agreement sought to recover an amount it had allegedly overpaid. (Id. at p. 1352.) The appellate court concluded the payment was voluntary; there was no protracted dispute about the amounts owed, no payment amounts were withheld, and there was no economic duress. (Id. at pp. 1557-1560.) Steinman has no application to this case, in which the parties had a contract allowing Foot Locker to pay in-lieu rent.
Cases in other jurisdictions have allowed recovery of the difference between normal rent and alternative rent in similar circumstances, under different theories. The District Court for the District of Oregon considered the effect of a "Co-Tenancy Failure"—which would occur if certain other stores stopped operating in a mall—that triggered the right of another tenant, Old Navy, to pay a lower "Alternate Rent" rate. (Old Navy, LLC v. Ctr. Devs. Oreg, LLC (D. Or. June 13, 2012, No. 3:11-472-KI) 2012 U.S. Dist. LEXIS 82579, *1.) In a breach of contract action brought by Old Navy after one of the other stores closed, the district court concluded that the alternate rent remedy was a "tiered rent structure," and that Old Navy was entitled to recover the excess rent it paid after the closure. (Id., *1, 25-29.) The court in Red Sage Ltd. Partnership v. Despa Deutsche Sparkassen Immobilien-Anlage-Gasellschaft MBH (D.C. Cir. 2001) 254 F.3d 1120, on the other hand, treated an exclusive use clause referring to the landlord's violation of the covenant and the tenant's remedies as a valid liquidated damages clause. (Id. at pp. 1125, 1127-1128.)
In sum, the protected use clause in the 2004 amendments entitled Foot Locker "to immediately commence payment of 'in lieu' rent" upon a violation of the protected use clause. By necessary implication, Madison was obliged to accept in-lieu rent, and having failed to do so must now reimburse amounts collected in error. Foot Locker seeks the difference between the rent it paid and in-lieu rent beginning in March 2011, when db Shoes opened, which it calculates as $1,047,188, plus prejudgment interest. Madison takes the position that, even if there was a violation of the protected use clause, the recovery should be limited to amounts paid after Foot Locker tendered in-lieu rent in May 2013.
Here Madison has the better of the argument. The protected use clause entitles Foot Locker "to immediately commence payment of 'in lieu' rent" when the protected use clause is violated. It is silent as to any period between the beginning of the violation and the time Foot Locker tenders in-lieu rent. Foot Locker discovered db Shoes had opened in July 2012, but it did not tender in-lieu rent until May 2013. We will not imply in the 2004 amendments an entitlement to a remedy for which Foot Locker did not bargain, and therefore see no basis for a damages calculation reaching back before May 2013. (See Ben-Zvi, supra, 40 Cal.App.4th at p. 473.) We shall therefore remand the matter to the trial court to calculate Foot Locker's recovery based upon these standards.
D. Attorney Fees and Costs
Our conclusions compel us to reverse the trial court's ruling regarding attorney fees and costs. The 2004 amendments provide that in the event of a suit for breach of the lease or to interpret or enforce the lease, the prevailing party is entitled to reasonable attorney fees. In its statement of decision, the court originally did not award attorney fees, concluding that, although Foot Locker did not obtain any recovery, Madison was not the prevailing party because it did not prevail on the issue of interpreting or enforcing the leases.
Madison then submitted a memorandum of costs. It also moved for post-offer attorney fees as costs under Code of Civil Procedure section 998, based on its pre-trial offer to resolve the lawsuit for $216,191. After granting in part Foot Locker's motion to tax costs, the trial court awarded costs of $107,084.49 and post-offer attorney fees of $568,846 to Madison.
Because we conclude Foot Locker is entitled to recover the difference between in-lieu rent and the rent it paid, we must reverse the trial court's orders denying attorney fees to Foot Locker and awarding costs and post-offer attorney fees to Madison.
III. DISPOSITION
The judgment is reversed. The matter is remanded to the trial court for further proceedings consistent with this opinion. Foot Locker shall recover its costs on appeal.
/s/_________
Tucher, J. We concur: /s/_________
Streeter, Acting P.J. /s/_________
Lee, J.
Judge of the Superior Court of California, City and County of San Mateo, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. --------