Best Buy Stores, L.P. v. Manteca Lifestyle Center, LLC
Filing
153
MEMORANDUM and ORDER signed by Judge William B. Shubb on 3/16/12 denying 73 Motion to exclude plaintiff's experts and denying 75 Motion for Summary Judgment. (Kaminski, H)
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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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BEST BUY STORES, L.P.,
NO. CIV. 2:10-389 WBS KJN
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Plaintiff,
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MEMORANDUM AND ORDER RE:
MOTION TO EXCLUDE PLAINTIFF’S
EXPERTS AND MOTION FOR SUMMARY
JUDGMENT
v.
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MANTECA LIFESTYLE CENTER, LLC,
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Defendant.
_____________________________/
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Plaintiff Best Buy Stores, L.P. (“Best Buy”) brought
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this action against defendant Manteca Lifestyle Center, LLC
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(“Manteca”) alleging various claims arising out of plaintiff’s
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lease with defendant.
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motion for summary judgment pursuant to Federal Rule of Civil
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Procedure 56 and motion to exclude plaintiff’s experts.
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I.
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Presently before the court are defendant’s
Relevant Facts
In 2004, Poag & McEwen Lifestyle Centers, LLC (“Poag”)
began work on a shopping center to be located in Manteca,
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California.
(Best Buy App. Ex. 7 (“Poag Dep. II”) at 188:18-21.)
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Like most of the shopping centers developed by Poag, this center
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was originally intended to be a “lifestyle” center, meaning that
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it would “cater to the retail needs and lifestyle pursuits of
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higher-income consumers.”
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App. Ex. 42.)
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as a two-phase project with an initial phase of 650,000 to
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715,000 square feet and a second phase of approximately 389,000
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square feet, (Best Buy App. Ex. 10 (“Grambergs Dep. II”) at
(Moseley Decl. ¶¶ 7-10, 12; Best Buy
While Poag initially envisioned the Manteca center
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190:12-191:19; Best Buy App. Ex. 39 at MAN0008686), it ultimately
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sought approval from the city of Manteca for a lifestyle center
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of 650,000 to 746,000 square feet.
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20; Best Buy App. Ex. 8 at MAN00006553.)
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Orchard Valley (“the Promenade”), the shopping center eventually
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developed in Manteca, is owned by Manteca, a limited liability
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company related to Poag.
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Manteca App. Ex. 7 (“Poag Dep. I”) at 11:3-15.)
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(Grambergs Dep. II at 191:8Promenade Shops at
(Best Buy App. Ex. 42; id. Ex. 43;
In 2007, Poag provided Best Buy with a site plan for
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the proposed Manteca shopping center and negotiation of a lease
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agreement began.
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(“Moll Dep. I”) at 116:6-117:1.)
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Estate during the relevant time period, Melissa Moseley was the
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primary person involved in negotiations on behalf of Best Buy.
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(Moseley Decl. ¶¶ 1, 6.)
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(Id. ¶¶ 17-21, 24.)
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in July of 2007.
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(Moseley Decl. ¶¶ 17-19; Manteca App. Ex. 13
As Best Buy’s Director of Real
Her counterpart at Poag was Bud Moll.
A lease was executed by Manteca and Best Buy
(Manteca App. Ex. 1 at MAN0000451-52.)
Before entering into the lease at issue here, Best Buy
had previously entered into a lease related to a Poag-developed
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shopping center in Colorado known as Centerra.
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13-16.)
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Centerra lease as a starting point.
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(Moseley Decl. ¶¶
17 (“Schram Dep. I”) at 114:21-115:2.)
In negotiating the Promenade lease, the parties used the
(Id. ¶ 21; Manteca App. Ex.
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The co-tenancy provision in the Centerra lease provided
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that co-tenancy would be established if two of the following five
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establishments were open and operating: a department store, a
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sporting goods store, a bookstore, a cinema, or no less than
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150,000 square feet of smaller retail tenants.
(Manteca App. Ex.
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3 Art. 8.)
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Buy rejected Moll’s proposal that a 20,000 square foot retail
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store and 50,000 square feet of small retail stores be included
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as co-tenancy factors, instead requiring that between J.C.
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Penney, Bass Pro, and a cinema, two of these businesses be open
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for the co-tenancy condition to be met.
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(“Moll Dep. I”) at 133:6-135:5; id. Ex. 44 at MAN000534; id. Ex.
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45 at MAN000557.)
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least 60% of the “gross leasable area of the Shopping Center” be
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open before co-tenancy would be established.
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133:11-35; Manteca App. Ex. 15 at MAN0000826; id. Ex. 1 Art. 8.)
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The Co-Tenancy Condition the parties ultimately agreed
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In adapting this provision to the Manteca lease, Best
(Manteca App. Ex. 13
Best Buy also added a requirement that at
(Moll Dep. I at
to provides that:
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As used herein, the “Opening Co-Tenancy Condition”
shall mean that, as of the Commencement Date, Tenant
shall not be required to open for business unless sixty
percent (60%) (not including Best Buy) of the gross
leasable area of the Shopping Center are open and
operating at the Shopping Center, or are to open
concurrently with Tenant, including at least two (2) or
more of the following tenants: (I) J.C. Penney; (ii)
Bass Pro; (iii) a cinema.
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Should the Opening Co-Tenancy Condition not be
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satisfied, Tenant may either (I) delay opening for
business until the Opening Co-Tenancy Condition is
satisfied . . . or (ii) open for business and pay fifty
percent (50%) of the monthly Rent (and any additional
other costs without reduction) payable pursuant to the
terms of this Lease until such time as the Opening CoTenancy Condition has been satisfied.
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(Manteca App. Ex. 1 Art. 8.)
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While the initial lease signed by the parties provided
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for an April 2009 opening, the parties later discussed the
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possibility of an October 2008 opening.
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(“Moseley Dep. I”) at 316:4-13, 334:11-16; Moseley Decl. Ex. 4.)
(Manteca App. Ex. 4
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There was a concern on the part of Best Buy, however, about
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opening a store “without the appropriate cotenancy,” (Manteca
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App. Ex. 51; id. Ex. 11 (“Matre Dep. I”) at 98:25-99:13), or
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opening “while everyone [was] in the middle of construction and
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the site [was] a mess.”
(Best Buy App. Ex. 48.)
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In early January 2008, Moll assured Moseley that, other
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than Dick’s Sporting Goods, he was “not aware of anyone who won’t
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be opening on time this October (except In Shape Health Club).”
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(Id.)
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its opening until March 2009 and that some of the small retail
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shops, referred to as in-line shops, would also not open until
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2009.
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indicated to a construction project manager at Best Buy that Bass
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Pro, the theater, J.C. Penney, and “the balance of the center”
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would be open by March 2009.
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In February, he notified her that J.C. Penney was delaying
(Moseley Decl. ¶ 41, Ex. 5.)
In April 2008, Moll
(Best Buy App. Ex. 50.)
Best Buy was concerned that if it opened before other
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parts of the Promenade, it would not be able to generate a
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profitable level of sales.
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Matre Dep. I at 99:25-102:8.)
(Moseley Decl ¶ 40, Ex. 4; see also
Although it noted that under the
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Co-Tenancy Condition its operating costs would be lower if it
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opened in October because it would be on reduced rent “until the
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balance of the retail,” (Moseley Decl. Ex. 5; Moseley Dep. I at
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330:12-331:24; see also Manteca App. Ex. 51), Best Buy ultimately
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opted not to open its store in 2008.
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As a result of the economic downturn that occurred in
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2008, Manteca had a harder than expected time finding tenants
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interested in leasing space at the Promenade.
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9 (“W. Moseley Dep. II”) at 247:24-248:15; id. Ex. 14 No. 8.)
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Rather than constructing all of the buildings indicated on the
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Site Plan at once only to have many of them sit empty, Manteca
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decided to stagger construction.
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15.)
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(Best Buy App. Ex.
(Id. Ex. 14 No. 8 at 3; id. Ex.
In September 2008, Moll informed Moseley that (1) only
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Bass Pro and the cinema were opening in October 2008, (2) J.C.
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Penney was the only store opening in March 2009, (3) In Shape
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Health Club and Dick’s Sporting Goods were not opening until July
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2009, (4) only half of the “small lifestyle” space was leased,
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and (5) Hampton Inn would not open until July or August 2009.
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(Manteca App. Ex. 53.)
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indicated that Best Buy was no longer interested in opening its
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store at the Promenade.
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responded by reminding her that their lease agreement required
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Best Buy to open for at least one day.
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According to Moll, Moseley then expressed interest in opening at
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a lower rent.
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have Best Buy’s lease in front of him, and did not know exactly
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what Best Buy was permitted or not permitted to do.
A month later, Moseley contacted Moll and
(Moll Dep. I at 238:16-22.)
(Id. at 239:2-4.)
Moll
(Id. at 238:23-239:1.)
Moll responded that he did not
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(Id. at
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239:4-6.)
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Moseley sent Moll an email the following month
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requesting an update on “signed leases and co-tenancy for
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Manteca.”
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your scheduled opening next Spring we will have met your co-
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tenancy requirems [sic].”
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to Moseley that, according to his property administration
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department, Manteca would “meet the opening co-tenancy
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requirement per your lease once JC Penney opens at the center,”
(Manteca App. Ex. 27.)
(Id.)
Moll informed her that “upon
He elaborated in a later email
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and that the square footage of J.C. Penney, Bass Pro, and the
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movie theater together “surpasses the 60% GLA requirement per
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your lease.”
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(Manteca App. Ex. 28.)
In December 2008, Moseley negotiated for forty-five
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days of free rent in exchange for Best Buy agreeing to open three
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weeks ahead of schedule.
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29.)
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would receive one and a half months of free rent, and then “go to
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co-tenancy rent under the existing lease until such time as the
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co-tenancy is met (which would be our old opening date based upon
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your information on co-tenancy, or earlier if you meet it).”
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(Manteca App. Ex. 29.)
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lease on January 19, 2009.
(Moseley Decl. ¶ 47; Manteca App. Ex.
During these negotiations, Moseley clarified that Best Buy
The parties executed the amendment to the
(Manteca App. Ex. 2.)
Moseley and Kris Thorn, another Best Buy employee,
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exchanged emails discussing co-tenancy at the Promenade in early
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January 2009.
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exchange by asking Moseley “How did you/ can we verify your co-
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tenancy?”
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to other retailers and to defendant, and noted that both Bass Pro
(Id. Ex. 58; id. Ex. 59.)
(Id. Ex. 59.)
Thorn began the email
Moseley responded that she had spoken
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and the theater were open.
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specifically who she talked to that “makes up the sixty percent,”
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Moseley was unable to give an immediate answer.
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Instead she noted the square footage of Bass Pro and the theater
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and stated that she would “dig out [her] notes from the file in
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the morning.”
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Moseley nor Thorn recall the circumstances that led to the email
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exchange or any follow-up in which the question of co-tenancy was
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definitively answered.
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(Id. Ex. 58; id. Ex. 59.)
When asked
(Id. Ex. 59.)
(Id.; Moseley Dep. I at 427:1-430:9.)
Neither
(Moseley Dep. I at 427:1-430:9; Manteca
App. Ex. 32 (“Thorn Dep. I”) at 133:5-137:20.)
Moll updated Moseley on the status of the Promenade in
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January 2009, informing her that (1) the health club would not
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begin construction until March, (2) the hotel and Red Robin
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restaurant would not open until the fall, (3) Dick’s Sporting
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Goods, which had been in talks to lease the building next to Best
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Buy’s, was no longer interested in the property and the building
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next to Best Buy was not built yet, and (4) Manteca had partnered
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with Craig Realty, an outlet developer who was now pursuing
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outlet-type tenants for the Promenade.
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422:10-424:1; Manteca App. Ex. 57.)
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had assumed responsibility for securing tenants for the larger
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retail spaces, referred to as “pads.”
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(“Kern Dep. II”) at 40:20-25; Best Buy App. Ex. 18.)
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elected not to pursue the deal with Dick’s in order to allow more
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square footage for the outlet center Manteca was now pursuing in
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partnership with Craig Realty.
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II at 326:2-15.)
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(Moseley Dep. I at
At this point, Craig Realty
(Best Buy App. Ex. 23
Manteca
(Best Buy App. Ex. 17; Poag Dep.
This was the first time that Manteca indicated that a
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significant portion of the Promenade would not be open when the
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Best Buy store opened for business.
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By this point, plans for Best Buy’s opening had progressed too
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far for it to be feasible for Best Buy to change its opening
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date.
(Moseley Decl. ¶¶ 42-49.)
(Moseley Dep. II at 422:10-24.)
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When the Best Buy store at the Promenade opened at the
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end of February 2009, the cinema and Bass Pro were open.
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(Manteca App. Ex. 35.)
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begin paying rent, J.C. Penney was also open.
By the time plaintiff was required to
(Best Buy App. Ex.
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46 No. 3.)
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approximately 290,000 square feet open and operating at the
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Promenade.
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constructed at that point was approximately 373,000, (id.), and
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the total square footage listed on the Site Plan attached to the
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lease was 743,908, (id. Ex. 1 Ex. B).
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than Best Buy’s therefore represented approximately seventy-eight
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percent of the buildings built so far and approximately thirty-
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eight percent of the buildings shown on the Site Plan.
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Together, these three tenants represented
(Manteca App. Ex. 35.)
The total square footage
The businesses open other
Shortly after Best Buy’s store opened for business,
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Manteca emailed a co-tenancy calculation to Tricia Remus, an
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operating expense analyst at Best Buy responsible for processing
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real estate invoices.
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Dep. II”) at 14:8-15:1, 17:6-18:15; Moseley Decl. ¶ 53.)
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the total constructed square footage as the gross leasable area
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of the shopping center, this calculation showed that seventy-
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eight percent of the gross leasable area was open and operating
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as of March 6, 2009.
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the email and the parties’ lease and entered information into
(Id. Ex. 35; Best Buy App. Ex. 79 (“Remus
(Manteca App. Ex. 35.)
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Using
Remus reviewed both
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Best Buy’s database indicating that the Co-Tenancy Condition had
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been met. (Remus Dep. II at 14:8-15:1; 38:5-39:23.)
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Remus’ first time doing any work related to a co-tenancy
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condition on a Best Buy lease.
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This was
(Id. at 77:18-78:10.)
In May 2009, Remus emailed Moseley and the Best Buy
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construction project manager assigned to the Promenade store
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seeking approval to submit a request to her managers that Best
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Buy begin making rent payments to Manteca.
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61.)
(Manteca App. Ex.
In that email, Remus stated that “[c]o-tenancy was met on
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3/6/09 when J.C. Penney opened and 78% percent of the shopping
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center was open.”
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project manager indicated that they approved, Remus submitted her
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rent payment request to a manager who would ultimately be
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responsible for determining the rent due under the Co-Tenancy
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Condition.
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(“Beine Dep. II”) at 7:9-8:11.)
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(Id.)
After both Moseley and the construction
(Remus Dep. II at 63:5-14; Best Buy App. Ex. 80
By July, Best Buy had not made any rent payments to
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Manteca and Manteca entered a Notice of Default.
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Ex. 38.)
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that the amount of rent demanded was too high.
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Ex. 56.)
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been met because the open businesses did not represent sixty
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percent of “the gross leasable area of the shopping center as
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shown on Exhibit B.”
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(Manteca App.
Remus responded to Manteca on July 30, 2008, protesting
(Best Buy App.
She explained that the Co-Tenancy Condition had not
(Id.)
After sending this email, Remus contacted Kate Beine,
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her supervisor and one of the managers responsible for
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determining the rent due under the Co-Tenancy Condition, noting
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that under Article 1 of the lease confusion might arise as to
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whether the sixty percent occupancy condition referred to sixty
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percent of the planned center shown on the Site Plan or of the
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buildings fully constructed when Best Buy opened.
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Beine responded that she had spoken with Moseley about the
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“intent of the language” and determined that “gross leasable area
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of the Shopping Center” referred to what was shown on the Site
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Plan, not to what was actually constructed.
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later, in an email to Moseley, Remus stated “I misspoke in my
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rent commencement approval request back in May.
(Id. Ex. 55.)
Several days
(Id.)
As you know, the
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co-tenancy has not been met and we are to pay 50% fixed and
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additional rent.”
(Id. Ex. 57; see also Manteca App. Ex. 62.)
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In August 2009, Best Buy paid the rent past due under
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its interpretation of the Co-Tenancy Condition and began making
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monthly rent payments for fifty percent of the rent.
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insisted that because over sixty percent of the buildings that
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had been constructed were open, it was entitled to full rent
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under the Co-Tenancy Condition.
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issued a Second Notice of Default in January 2010.
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February 2010, Best Buy began paying the full rent under protest,
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and filed suit against Manteca.
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No. 1.)
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Best Buy are open and operating at the Promenade and the space
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next to Best Buy’s store, which was originally conceived of as
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space for two larger tenants, is an empty dirt pad.
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App. Ex. 46 at 3-6; Kern Dep. II at 41:21-42:24; Best Buy App.
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Ex. 25 (“Craig Dep. II”) at 63:23-64:10.)
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Craig’s deposition testimony, he is not aware that Craig Realty
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has engaged in any discussions with prospective tenants or
Manteca
(Manteca App. Ex. 40.)
Manteca
(Id.)
In
(Best Buy App. Ex. 35; Docket
To date, approximately 370,000 square feet other than
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(Best Buy
According to Steven
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created any marketing materials related to the space next to Best
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Buy, and Craig Realty’s efforts have been focused on getting
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tenants into constructed buildings rather than on finding tenants
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for and constructing additional buildings.
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128:19-129:19; 145:8-20.)1
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II.
(Craig Dep. II at
Judicial Notice
A court may take judicial notice of facts “not subject
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to reasonable dispute” because they are either “(1) generally
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known within the territorial jurisdiction of the trial court or
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(2) capable of accurate and ready determination by resort to
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sources whose accuracy cannot reasonably be questioned.”
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Evid. 201.
Fed. R.
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Manteca filed a request for judicial notice that
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requests the court take notice of three documents: (1) the
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definitions of “phase” set forth in the Merriam-Webster
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Dictionary; (2) the definitions of “section” set forth in the
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Merriam-Webster Dictionary; and (3) a definition of “gross
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leasable area” from the International Council of Shopping
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Centers’s (“ICSC”) Dictionary of Shopping Center Terms.
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No. 75.)
With respect to the Merriam-Webster definitions, while
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(Docket
courts may consider dictionary definitions when determining the
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Best Buy filed twelve evidentiary objections to
portions of Joshua D. Poag’s Declaration and Exhibits 6 and 14
submitted in support of defendant’s motion for summary judgment,
(Docket No. 142), and Manteca filed twenty-two evidentiary
objections to portions of Melissa Moseley’s Declaration, C. Paul
Wazzan’s Declaration, Michael Di Geronimo’s Declaration, Joel
Hall’s Declaration, and associated exhibits, (Docket No. 148).
Because the court does not rely on any of the evidence to which
the parties object, the court does not find it necessary to rule
on these objections.
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“plain, unambiguous, and common meanings of terms,” U.S. Wealth &
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Tax Advisory Servs., Inc., 526 F.3d 528, 530 (9th Cir. 2008),
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they may not judicially notice any matter that is reasonably
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disputed.
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2001).
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the words “phase” and “section” in the context of the lease.
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While the court will take the ordinary definitions of “phase” and
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“section” found in Marriam-Webster Dictionary into consideration
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in interpreting the lease, it will not judicially notice these
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Lee v. City of L.A., 250 F.3d 668, 689-90 (9th Cir.
Here, the parties reasonably disagree over the meaning of
definitions as controlling.
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The court also declines to take notice of Manteca’s
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remaining exhibit because it does not satisfy Federal Rule of
13
Evidence 201(b).
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subject to reasonable dispute because the ICSC’s dictionary is
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only a compilation of definitions from trade sources.
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Additionally, it contains multiple possible interpretations of
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“gross leasable area” in its definition.
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ICSC definition as evidence of how the phrase “gross leasable
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area” is commonly understood in the shopping center industry, as
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it did when citing it in its motion for summary judgment.
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not rely on it to establish a definitive definition of the phrase
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as used in the contract at issue here.
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cannot be considered authoritative on the meaning of the phrase
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“gross leasable area” and is therefore inappropriate for judicial
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notice.2
The definition of “gross leasable area” is
Manteca may provide the
It may
The ICSC dictionary
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2
Best Buy filed a “Conditional Request for Judicial
Notice,” in which it requested that the court take notice of
additional documents should it grant defendant’s request for
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1
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III. Discussion
A.
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Motion to Exclude Best Buy’s Experts
Manteca moves to exclude the expert witness testimony
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of C. Paul Wazzen on the ground that it would constitute
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impermissible expert opinion and lack relevance, and of Michael
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Di Geronimo and Joel Hall on the ground that it would lack
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relevance.
This motion, aimed at excluding the expert reports from
8
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(See Docket No. 73.)
consideration by the fact finder, is of a type better suited for
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determination at trial.
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R.R. Co., No. 04-5591, 2005 WL 5977657, at *1 (W.D. Wash. Oct.
12
26, 2005) (declining to decide a motion to exclude an expert
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opinion when raised well in advance of trial); In re Real Estate
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Assocs. Ltd. P’ship Litig., No. 98-7035, 2002 WL 31027451, at
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*1-2 (C.D. Cal. Aug. 29, 2002) (acknowledging that exclusion
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could be argued at trial but holding that a motion to exclude an
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expert’s report and testimony before trial was premature because
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no party had yet relied upon the report).
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will deny the motion to strike expert reports without prejudice
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to its renewal at trial.
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B.
See Pipkin v. Burlington N. & Santa Fe
Accordingly, the court
Motion for Summary Judgment
Summary judgment is proper “if the movant shows that
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there is no genuine dispute as to any material fact and the
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movant is entitled to judgment as a matter of law.”
Fed. R. Civ.
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judicial notice. (Docket No. 134.) Since the court does not
take notice of defendant’s definitions, it will also not take
judicial notice of the documents submitted by Best Buy.
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1
P. 56(a).3
2
of the suit, and a genuine issue is one that could permit a
3
reasonable jury to enter a verdict in the non-moving party’s
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favor.
5
(1986).
A material fact is one that could affect the outcome
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
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The party moving for summary judgment bears the initial
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burden of establishing the absence of a genuine issue of material
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fact.
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Alternatively, the moving party can demonstrate that the
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
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non-moving party cannot produce evidence to support an essential
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element upon which it will bear the burden of proof at trial.
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Id.
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shifts to the non-moving party to “designate ‘specific facts
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showing that there is a genuine issue for trial.’”
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(quoting then-Fed. R. Civ. P. 56(e)).
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non-moving party must “do more than simply show that there is
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some metaphysical doubt as to the material facts.”
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Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
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“The mere existence of a scintilla of evidence . . . will be
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insufficient; there must be evidence on which the jury could
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reasonably find for the [non-moving party].”
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at 252.
Once the moving party meets its initial burden, the burden
Id. at 324
To carry this burden, the
Matsushita
Anderson, 477 U.S.
23
In deciding a summary judgment motion, the court must
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view the evidence in the light most favorable to the non-moving
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party and draw all justifiable inferences in its favor.
Id. at
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3
27
28
Federal Rule of Civil Procedure 56 was revised and
rearranged effective December 1, 2010. However, as stated in the
Advisory Committee Notes to the 2010 Amendments to Rule 56,
“[t]he standard for granting summary judgment remains unchanged.”
14
1
255.
“Credibility determinations, the weighing of the evidence,
2
and the drawing of legitimate inferences from the facts are jury
3
functions, not those of a judge . . . ruling on a motion for
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summary judgment . . . .”
Id.
5
1.
Declaratory Relief and Breach of Contract Claims
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Best Buy’s first four causes of action for declaratory
7
relief, money paid, money had and received, and breach of
8
contract allege that Manteca failed to satisfy the Co-Tenancy
9
Condition of the lease and then charged Best Buy excessive rent
10
by claiming it had met the condition and threatening Best Buy
11
with eviction.
12
“The fundamental rules of contract interpretation are
13
based on the premise that the interpretation of a contract must
14
give effect to . . . ‘the mutual intention of the parties at the
15
time the contract is formed . . . .’”
16
Exch., Inc., 11 Cal. 4th 1, 18 (1995) (quoting Cal. Civ. Code §§
17
1636, 1639).
18
properly interpret a contract as a matter of law only if the
19
meaning of the contract is unambiguous.
20
Prods., Inc., 454 F.3d 975, 990 (9th Cir. 2006) (citation
21
omitted).
Waller v. Truck Ins.
On a motion for summary judgment, a court may
Miller v. Glenn Miller
Language in a contract must be construed in light of
22
23
the instrument as a whole and in the circumstances of the case.
24
Monaco v. Bear Stearns Residential Mortg. Corp., 554 F. Supp. 2d
25
1034, 1040 (C.D. Cal. 2008).
26
reasonably susceptible of more than one application to material
27
facts.”
Dore v. Arnold Worldwide, Inc., 39 Cal. 4th 384, 391
28
(2006).
When a contract provision is ambiguous, therefore,
Language is ambiguous if it “is
15
1
“ordinarily summary judgment is improper because differing views
2
of the intent of parties will raise genuine issues of material
3
fact.”
4
1993) (quoting United States v. Sacramento Mun. Util. Dist., 652
5
F.2d 1341, 1344 (9th Cir. 1981)).
6
Maffei v. N. Ins. Co. of N.Y., 12 F.3d 892, 898 (9th Cir.
Although the parol evidence rule prohibits the use of
7
extrinsic evidence where the contract “is intended to be a final
8
expression of that agreement and a complete and exclusive
9
statement of the terms,” extrinsic evidence is admissible to
10
explain or interpret ambiguous language.
11
LLC v. Goldentree Asset Mgmt., LP, 201 Cal. App. 4th 368, 376 (2d
12
Dist. 2011) (citing Cal. Code Civ. Proc. § 1856(b), (d)).
13
there is no material conflict over extrinsic evidence, the court
14
may interpret an ambiguous term as a matter of law.
15
Summary judgment is inappropriate, however, if the court cannot
16
determine the parties’ intent at the time of contracting without
17
judging the credibility of the extrinsic evidence.
18
Hope Nat. Medical Center v. Genentech, Inc., 43 Cal. 4th 375, 395
19
(2008).
20
Lonely Maiden Prods.,
If
Id. at 377.
See City of
Here, the parties dispute whether the Co-Tenancy
21
Condition has been satisfied.
Under Article 8 of the lease, Best
22
Buy must only pay the monthly full rent if, “sixty percent (60%)
23
(not including Best Buy) of the gross leasable area of the
24
Shopping Center are open and operating at the Shopping Center . .
25
. .”
26
centered around their differing interpretations of the phrase
27
“gross leasable area of the Shopping Center.”
28
order denying Manteca’s motion to dismiss, the court noted that
(Manteca App. Ex. 1 Art. 8.)
16
The parties’ disagreement is
In its previous
1
both “gross leasable area” and “Shopping Center” were ambiguous
2
terms susceptible to at least two interpretations.
3
2010, Order at 6:1-9:2 (Docket No. 17).)
4
(May 12,
First, the definition of “Shopping Center” is open to
5
two reasonable interpretations because of the inconsistent use of
6
“Shopping Center” in Article 1.
7
8
9
10
11
12
13
14
That article provides that
The
premises
and
improvements
and
appurtenances
constructed
and
to
be
constructed
thereto
(the
“Premises”) located at the SE corner of State Highway
Route #120 and South Union, in Manteca, California (the
“Shopping Center”).
The legal description of the
Shopping Center is attached hereto as Exhibit A and made
a part hereof, and the Shopping Center is outlined in red
on the site plan attached hereto as Exhibit B and made a
part hereof . . . Nothing contained in this Lease will
prohibit Landlord from constructing the Shopping Center
at various times, and in various phases or sections . .
. The buildings located within phases or sections
constructed after the date of execution of this Lease
will be deemed to be included within the defined Shopping
Center for all purposes of this Lease as of the date that
the buildings are fully constructed . . . .
15
16
(Manteca App. Ex. 1 Art. 1.)
17
“Shopping Center” may be defined as those buildings shown on the
18
Site Plan referred to as Exhibit B.
19
outline on Exhibit B, Manteca’s attorney involved in drafting the
20
lease characterized this omission as an “oversight” that “happens
21
all the time.”
(Best Buy App. Ex. 13 (“Schram Dep. II”) at
22
119:8-120:19.)
Alternatively, as suggested by Manteca, the last
23
two sentences, which originate in Poag’s form lease, may provide
24
that buildings only become relevant to co-tenancy calculations
25
once they are “fully constructed.”
26
As plaintiff contends, the term
Although there is no red
Second, the term “gross leasable area” as used in the
27
lease also lends itself to two interpretations.
28
leasable area” could be interpreted to mean the 743,908 square
17
The “gross
1
feet listed as “Gross Leaseable Area” on the Site Plan that was
2
explicitly incorporated into the lease.
3
B.)
4
only be determined after a building is constructed as suggested
5
by Article 7 of the lease, which provides that “the leasable area
6
of the Premises shall be measured from the center of all common
7
walls and the outside of all exterior walls of the Premises.”
8
(Manteca App. Ex. 1 Art. 7.)4
(Manteca App. Ex. 1 Ex.
“Gross leasable area” could also refer to a number that can
9
The court held in its earlier Order that neither party
10
had established that their interpretation of the relevant terms
11
was correct as a matter of law, and found that the ambiguities in
12
the lease could not be resolved without looking to relevant
13
extrinsic evidence.
14
motion for summary judgment, both parties have produced evidence
15
tending to support their respective positions with regard to
16
whether the Co-Tenancy Condition was met.
17
that the extrinsic evidence proves that its interpretation is
18
correct as a matter of law.
19
(May 12, 2010, Order at 9:3-16.)
On this
Manteca has not shown
First, evidence of the parties’ negotiations does not
20
establish that the interpretation advanced by Manteca was the one
21
intended by the parties when they entered into the lease.
22
4
23
24
25
26
27
28
The dictionary published by the International Council
of Shopping Centers provides that the gross leasable area is
“[n]ormally the total area on which a shopping center leases to
tenants or is available for lease” and that area available for
lease is “measured from the center line of joint partitions and
from outside wall faces.” This definition, however, states that
this is only the “normal” definition, and Manteca has introduced
no evidence that the parties incorporated the definitions
contained in this dictionary into their agreement or referred to
this dictionary when drafting the lease. Accordingly, this
definition does not prove the meaning intended by the parties
when entering into the lease.
18
1
Pointing to Best Buy’s disinclination to give it the flexibility
2
to meet co-tenancy by opening a certain square footage of small
3
retail stores or unspecified large retail stores, Manteca
4
contends that in negotiating the Co-Tenancy Condition Best Buy
5
cared primarily that the major tenants named in the lease (J.C.
6
Penney, Bass Pro, and a cinema) be open before full rent would be
7
due.
8
percent limitation was included only to ensure that the Promenade
9
did not feature too many empty buildings, not to ensure that an
It follows from this, according to Manteca, that the sixty
10
adequate square footage of businesses was open alongside Best
11
Buy.
12
The parties’ communications, however, do not prove that
13
Best Buy was indifferent to tenants other than the three major
14
tenants specifically named in the lease.
15
consistent with the course of the parties’ negotiations that Best
16
Buy cared about both smaller and larger tenants, but believed
17
that the sixty percent condition it proposed would ensure that an
18
adequate amount of retail other than the major tenants was open,
19
just as the minimum square footage of small retail included in
20
the Centerra Co-Tenancy Condition had done.
21
at 306:12-308:17.)
22
between the parties and between Best Buy employees prior to and
23
after the lease was signed in which Best Buy appears interested
24
in the status of a variety of tenants, indicating that Best Buy
25
was concerned with more than just the major tenants.
26
Moseley Dep. I at 263:20-264:13, 328:7-22; Manteca App. Ex. 25;
27
id. Ex. 43; id. Ex. 46; Best Buy App. Ex. 52.)
28
It is equally as
(See Moseley Dep. I
Additionally, there are communications
(See, e.g.,
The fact that Manteca negotiated to have flexibility in
19
1
deciding how to build the Promenade also does not establish that
2
its interpretation of the Co-Tenancy Condition is correct.
3
Although Manteca may gave included language providing that it
4
could construct the Promenade “at various times, and in various
5
phases or sections,” in order to afford it “the flexibility of
6
building and opening buildings as they are leased, and to prevent
7
the possibility of having vacant buildings and spending millions
8
of dollars with them being unleased,” (Moll Dep. I at 315:18-
9
317:1; Poag Dep. I at 230:2-21, 233:9-15), this flexibility is
10
not eliminated under Best Buy’s interpretation of the Co-Tenancy
11
Condition.
12
interpretation would not require Manteca to build the center all
13
at once.
14
Promenade as it found tenants for the proposed buildings, Best
15
Buy would simply not be responsible for the full rent until
16
Manteca successfully opened 446,345 square feet, or sixty percent
17
of the 743,908 square footage indicated on the Site Plan.
18
Contrary to Manteca’s arguments, Best Buy’s
Rather Manteca would still be able to build up the
Second, evidence of the parties’ conduct after the
19
lease was entered into also does not allow the court to conclude
20
that Manteca’s interpretation is correct as a matter of law.
21
Manteca claims that the evidence shows that for seventeen months
22
Best Buy acted as if it believed co-tenancy would be established
23
when J.C. Penney opened, until it had a convenient, and money-
24
saving, change of heart in July of 2009.
25
during this period indicating that co-tenancy would be
26
established when J.C. Penney opened, though, were made before
27
September 2008, while Moll was still representing that “the
28
balance of the center” would be open along with J.C. Penney by
20
Many of the statements
1
March 2009, (Best Buy App. Ex. 50), and that “some small retail”
2
would be open in October 2008, (Moseley Dep. I at 328:17-22).
3
The statements by Best Buy employees, therefore, do not prove
4
that Best Buy believed that J.C. Penney alone would satisfy the
5
co-tenancy condition because, at the time they were made, Best
6
Buy was operating on the assumption that other areas of the
7
center would be opening at around the same time as J.C. Penney.
8
Best Buy may simply have been referring to J.C. Penney by name as
9
the largest of a group of businesses that would together satisfy
10
the Co-Tenancy Condition.5
For example, although Moseley indicated in February
11
12
2008 that Best Buy would be “on reduced rent until [J.C. Penney]
13
opens,” (Manteca App. Ex. 51), a February 2008 email sent by
14
Moseley indicating that Best Buy would be opening in April of
15
2009 because J.C. Penney had pushed their opening date back to
16
April also noted that the lifestyle part of the shopping center
17
would also be opening in April, (Manteca App. Ex. 52).
18
after September 2008, when Manteca cautioned Best Buy that many
19
openings were being delayed and that only half of the small
20
retail was leased, it is not clear that Best Buy could know that
21
the only other tenants that would be open as of March 2009 would
22
be the cinema, Bass Pro, and J.C. Penney.
Even
This is because, at
23
24
25
26
27
28
5
Additionally, the court notes that according to
Manteca, no one could know what the Promenade’s gross leasable
area would be when J.C. Penney opened without first measuring the
buildings that had been constructed as of J.C. Penney’s opening
date. Even estimating this number would have been difficult due
to the variable nature of defendant’s construction schedule,
which depended on when it could secure tenants for planned
buildings. Any prospective statements regarding co-tenancy,
then, would seem to be necessarily tentative.
21
1
the same time that Manteca alerted Best Buy to the delays, it
2
also mentioned that it was in talks with possible tenants for
3
some of the larger retail spaces that were still available.
4
(Manteca App. Ex. 53.)
5
With respect to the January 2009 emails between Thorn
6
and Moseley, which are particularly relevant as they suggest that
7
an employee involved in negotiating the lease actually
8
investigated whether co-tenancy would be established when J.C.
9
Penney opened, neither woman can recall the circumstances that
10
lead to the email exchange or any follow-up in which the question
11
of co-tenancy was definitively answered.
12
427:1-430:9; Thorn Dep. I at 133:5-137:20.)
13
enough evidence concerning the context of these emails and the
14
ultimate conclusion the two women came to regarding co-tenancy to
15
conclude that the meaning of the Co-Tenancy Condition advanced by
16
Manteca is correct as a matter of law.
17
in light of the fact that the question of co-tenancy continued to
18
be raised by Best Buy employees in the following months.
19
(Moseley Dep. I at
There is simply not
This is especially true
After the Best Buy store opened, it took Best Buy
20
several months to work through its internal rent approval
21
process.
22
the co-tenancy condition was met when J.C. Penney opened.
23
is also evidence, however, that this belief was a preliminary
24
opinion that relied on Manteca’s representation that the sixty
25
percent part of the condition was satisfied.
It appears that at least Remus initially believed that
There
26
It is not surprising that Remus, who was not involved
27
in the negotiation of the lease and had never worked with a co-
28
tenancy condition before, might have been confused by the
22
1
ambiguity in the contract regarding the definition of “Shopping
2
Center” and that Best Buy would not make the ultimate evaluation
3
of co-tenancy based on only her say so.
4
indicating that Remus should submit the rent request does not
5
prove that she agreed with Remus’ tenancy calculation.
6
App. Ex. 61; Best Buy App. Ex. 27 (“Moseley Dep II”) at 441:9-
7
442:4.)
8
determined that the Co-Tenancy Condition was met is contradicted
9
by evidence that after Beine, Remus’s manager and the Best Buy
Moseley’s email
(Manteca
Most importantly, evidence that Remus initially
10
employee ultimately responsible for determining if co-tenancy was
11
established, spoke to Moseley about the intent of the language
12
and conducted her own investigation into whether co-tenancy was
13
established, Best Buy came to the opposite conclusion.
14
That Best Buy waited until several months after its
15
store opened to dispute Manteca’s claims that co-tenancy would be
16
established once J.C. Penney opened because the gross leasable
17
area of that store, the cinema, and Bass Pro “surpasses the 60%
18
[gross leasable area] requirement,” (Manteca App. Ex. 29), does
19
not prove that Best Buy believed that the Co-Tenancy Condition
20
was met according to the terms of the lease.
21
requirement that Best Buy notify Manteca that co-tenancy was not
22
established in order to trigger the fifty-percent rent reduction,
23
and so Best Buy may simply have been waiting to see what stores
24
were actually open when rent was due in April before contesting
25
the issue.
26
equally true--it never notified Manteca that the Co-Tenancy
27
Condition was met.
28
There was no
Best Buy can also point out that the converse is
In their briefs, each party offers explanations of why
23
1
its interpretation of the Co-Tenancy Condition is correct and why
2
the other’s must fail.
3
support of their interpretations.
4
establish that its position, according to which it need only
5
construct the Best Buy store and two other buildings in order to
6
demand full rent from Best Buy, is correct as a matter of law.
7
Any inferences to be drawn from this conflicting extrinsic
8
evidence are reserved for a jury.
9
2.
Both sides produce extrinsic evidence in
Manteca’s argument does not
Breach of the Implied Covenant of Good Faith and
Fair Dealing
10
“Every contract imposes upon each party a duty of good
11
12
faith and fair dealing in its performance and its enforcement.”
13
Marsu, B.V. v. Walt Disney Co., 185 F.3d 932, 937 (9th Cir. 1999)
14
(quoting Carma Developers, Inc. v. Marathon Dev. Cal., Inc., 2
15
Cal. 4th 342, 371 (1992)).
16
imposed by the implied covenant of good faith and fair dealing is
17
‘that neither party will do anything which will injure the right
18
of the other to receive the benefits of the agreement.’”
19
v. Mobile Aire Estates, 125 Cal. App. 4th 578, 589 (2d Dist.
20
2005) (quoting Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 573
21
(1973)).
22
“A typical formulation of the burden
Andrews
To show that a party has not exercised its
23
discretionary power in good faith, a party does not need to show
24
dishonest conduct because “the covenant of good faith can be
25
breached for objectively unreasonable conduct, regardless of the
26
actor’s motive.”
27
Boland, Inc. v. Rolf C. Hagen (USA) Corp., 685 F. Supp. 2d 1094,
28
1103 (E.D. Cal. 2010) (under California law, party need not show
Carma Developers, 2 Cal. 4th at 373; see also
24
1
bad faith conduct to prove breach of implied covenant).
Good
2
faith performance of a contract requires “faithfulness to an
3
agreed common purpose and consistency with the justified
4
expectations of the other party.”
5
13 Cal. App. 4th 1589, 1602 (3rd Dist. 1993).
6
sufficient to constitute a breach of the covenant of good faith
7
and fair dealing includes conduct described as “inaction,”
8
“subterfuge,” “lack of diligence,” “evasion of the spirit of the
9
bargain,” and “abuse of power.”
R.J. Kuhl Corp. v. Sullivan,
Bad faith
Id.
In the First Amended Complaint (“FAC”), Best Buy
10
11
alleges that Manteca breached the implied covenant of good faith
12
and fair dealing by “failing or refusing to construct, or to
13
fully construct, the buildings that it represented would be
14
constructed, upon the timeline stated for their construction.”
15
(FAC ¶ 35 (Docket No. 44).)6
16
that a certain square footage had to be constructed, but the Site
17
Plan was explicitly incorporated into the lease.
18
affords Manteca the discretion to construct the Shopping Center
19
“at various times, and in various phases or sections,” and Best
20
Buy argues that Manteca abused this discretion in violation of
There was no provision specifying
The lease
21
22
23
24
25
26
27
28
6
Nowhere in the FAC does Best Buy allege that Manteca
promised and failed to build the Promenade as a lifestyle center.
Nor has Best Buy sought to file a Second Amended Complaint
including such allegations. As “summary judgment is not a
procedural second chance to flesh out inadequate pleadings,”
Wasco Prods., Inc. v. Southwall Techs., Inc., 435 F.3d 989, 992
(9th Cir. 2006), the court will not consider Best Buy’s
assertions regarding Manteca’s alleged duty under the contract to
build the Promenade as a “lifestyle center.” See Pickern v. Pier
1 Imports (U.S.), Inc., 457 F.3d 963, 968-69 (9th Cir. 2006);
Samica Enters., LLC v. Mail Boxes ETC. USA, Inc., No. CV 06-2800,
2010 WL 807440, at *3 (C.D. Cal. Feb. 26, 2010).
25
1
the implied covenant.
2
As pointed out in Gabana Gulf Distribution, Ltd. v. GAP
3
International Sales, Inc., No. C 06-02584, 2008 WL 111223 (N.D.
4
Cal. Jan. 8, 2008), “[t]here are two legal principles in some
5
tension with each other that are at play with respect to the
6
breach of covenant claim” where, as here, a contract gives one
7
party discretion and the second party accuses the first of
8
abusing that discretion.
9
have noted that “[t]he covenant of good faith finds particular
Id. at *7.
First, California courts
10
application in situations where one party is invested with a
11
discretionary power affecting the rights of another.
12
must be exercised in good faith.”
13
Second, however, the covenant cannot “be read to prohibit a party
14
from doing that which is expressly permitted by an agreement”
15
because, “as a general matter, implied terms should never be read
16
to vary express terms.”
17
resolved the tension between these two propositions by “examining
18
whether the contract gives the defendant merely the power to
19
exercise discretion, or whether it gives the defendant the
20
greater power to refrain from acting at all” and declining to
21
apply the covenant in situations where the defendant has the
22
power to refrain from acting altogether.
23
Distribution, Ltd., 2008 WL 111223, at *7 (citing Locke v. Warner
24
Bros., Inc., 57 Cal. App. 4th 354, 367 (2d Dist. 1997)).
Such power
Carma, 2 Cal. 4th at 372.
Id. at 374.
California courts have
Gabana Gulf
In Vectren Communications Services v. City of Alameda,
25
26
No. C 08-3137, 2009 WL 2566722 (N.D. Cal. Aug. 18, 2009), the
27
city of Alameda entered into a contract regarding a telecom
28
system.
Id. at *1.
The contract specified several features that
26
1
had to be included in the system, and granted the city the
2
discretion to make additions to the telecom service “in its sole
3
discretion.”
4
service to the telecom system, the plaintiff sued the city for
5
breach of the implied covenant, alleging that without voice
6
service the economic value of the telecom system decreased, which
7
reduced the plaintiff’s economic benefit under the contract.
8
at *6.
9
implied covenant because the agreement contained no requirement
Id. at *4.
When the city declined to add voice
Id.
The court held that there could be no breach of the
10
that voice service be provided and “conferred complete discretion
11
on the City to decide whether to make any additions or
12
modifications to the system.”
Id.
13
Similarly, in Wolf v. Walt Disney Pictures & Television
14
162 Cal. App. 4th 1107 (2d Dist. 2008), the contract entered into
15
by the parties afforded the defendant “unlimited discretion to
16
grant (or not grant)” third-parties licenses related to a cartoon
17
character and further specified that the defendant “shall not be
18
under any obligation to exercise any of the rights” conveyed by
19
the agreement.
20
right to issue third-party licenses, the plaintiff sued alleging
21
that the defendant had breached the implied covenant by issuing
22
the licenses for inadequate consideration.
23
on the combination of the defendant’s right to refrain from
24
issuing any licenses at all and right to grant licences in any
25
manner it “saw fit,” the court held that the contract granted the
26
defendant “unfettered discretion” with respect to licensing.
27
at 1122-23.
28
claim for breach of the implied covenant.
Id. at 1121-22.
After the defendant exercise its
Id. at 1121.
Relying
Id.
Therefore, the plaintiff could not recover on its
27
Id.; see also Third
1
Story Music, Inc. v. Waits, 41 Cal. App. 4th 798, 808-09 (2d
2
Dist. 1995) (plaintiff could not state claim for breach of the
3
implied covenant arising out of defendant’s failure to grant a
4
license where contract provided that defendant could “‘at [its]
5
election’ refrain from all marketing efforts”) (alteration in
6
original).
7
While the lease may provide Manteca with discretion as
8
to when to build the shopping center, Manteca has not pointed to
9
any language that provides it with discretion as to whether to
10
construct the shopping center.
11
suggesting that the parties viewed the construction of the
12
Promenade as hypothetical or contingent at the time of
13
contracting.
14
discuss the possibility that not all of the buildings shown on
15
the Site Plan would be built and that “[i]t never crossed [his]
16
mind during this negotiation” whether Manteca had discretion
17
under the lease to build only the Best Buy store out of the
18
buildings shown on the Site Plan.
19
120:12.)
20
Nor has it pointed to evidence
Moll himself admitted that the parties did not
(Poag Dep. II at 119:18-
Unlike in the cases above, the lease here did not
21
provide Manteca with “unfettered discretion” as to whether to
22
build the Promenade.
23
with respect to the timing of construction, which it must
24
“exercise[] in good faith.”
25
there is no provision explicitly requiring that Manteca build the
26
shopping center, the implied covenant of good faith may be
27
breached by conduct that, though not prohibited by the contract,
28
is “nevertheless contrary to the contract’s purposes and the
Rather, Manteca bargained for discretion
Carma, 2 Cal. 4th at 372.
28
While
1
parties’ legitimate expectations.”
Pac. Rollforming, LLC v.
2
Trakloc N. Am., LLC, Civil No. 07cv1897-L, 2010 WL 2523946, at *4
3
(S.D. Cal. June 18, 2010) (quoting Carma, 2 Cal. 4th at 373).
4
Construction of the Promenade was slowed due to the
5
economic downturn that occurred in 2008.
(G. Moseley Dep. II at
6
197:24-200:24, 201:13-19; Best Buy App. Ex. 14 No. 8; Manteca
7
App. Ex. 31.)
8
tenants for the larger retail spaces to Craig Realty, a non-party
9
to the contract between Manteca and Best Buy, and abandoned plans
10
to lease space next to Best Buy to Dick’s Sporting Goods because
11
those plans were inconsistent with Craig Realty’s outlet
12
orientation.
13
Today, much of the shopping center as shown on the Site Plan has
14
not yet opened for business, including the unconstructed pads
15
next to Best Buy’s store.
Manteca then transferred responsbility for finding
(Kern Dep. II at 40:20-25; Best Buy App. Ex. 17.)
16
While Manteca’s decisions may have been motivated by
17
legitimate business concerns, legitimate business purposes may
18
coexist with bad faith.
19
United States, 150 F.3d 1369, 1372 (Fed. Cir. 1998) (noting that
20
“[b]ad faith” under a requirements contract includes actions
21
“motivated solely by a reassessment of the balance of advantages
22
and disadvantages under the contract”).
23
covenant of good faith and fair dealing arising out of an
24
improper exercise of discretion turns on whether the defendant
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exercised its discretion “for any purpose within the reasonable
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contemplation of the parties at the time of formation.”
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Cal. 4th at 372.
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construction and transfer responsibility for leasing over to a
See Technical Assistance Int’l, Inc. v.
A breach of the implied
Carma, 2
Whether Manteca’s decisions to delay
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third party were objectively reasonable and consistent with the
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parties’ contemplation at the time they signed the lease remains
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a question of fact that must be answered by the trier of fact.
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IT IS THEREFORE ORDERED that defendant’s motion to
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exclude plaintiff’s experts is DENIED without prejudice to
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renewal at trial.
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IT IS FURTHER ORDERED that defendant’s motion for
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summary judgment be, and the same hereby is, DENIED.
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DATED:
March 16, 2012
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