Filed 4/29/14 Linda Vista Park, LLC v. Linda Vista, LLC CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
LINDA VISTA PARK, LLC,
Plaintiff and Appellant, G049497
v. (Super. Ct. No. RIC10000667)
LINDA VISTA, LLC, OPINION
Defendant and Respondent.
Appeal from a judgment and order of the Superior Court of Riverside
County, Mac R. Fisher and Craig G. Riemer, Judges. Affirmed.
Thomas Whitelaw, Joseph E. Thomas and Kerri A. Rich for Plaintiff and
Appellant.
Hart, King and Coldren, Robert S. Coldren, C. William Dahlin and Rhonda
H. Mehlman for Defendant and Respondent.
* * *
I. INTRODUCTION
This is a multivolume dispute about how to interpret an option clause in a
lease agreement. A retired Orange County Superior Court judge acting as an appointed
referee interpreted the contract to mean the land which was subject to the option – a
mobilehome park then being operated as a viable, ongoing mobilehome park – had to be
valued as a mobilehome park, and not as if the would-be buyer were starting with just
naked land and building a mobilehome park from scratch. The referee thus denied the
would-be buyer’s attempt to compel specific performance of the sale of the land as if it
were in a wholly raw state – sans entitlements, sans permits, sans intangible development
costs, sans everything but the bare-naked land itself. We affirm the judgment embodying
that denial.
II. FACTS
We begin with the problem of telling the parties apart. Only one word
distinguishes the plaintiff “Linda Vista Park, LLC” from the defendant “Linda Vista,
LLC,” so there is a strong potential for confusion. We will therefore mostly refer to
Linda Vista Park as “the Carnahan group” (after its progenitor, Karubah Carnahan)
sometimes as “the Lessee.” We will refer to Linda Vista sans Park mostly as “the
Watkins group” (after its progenitor, Ervin Watkins) and sometimes as “the Lessor.”
The story begins in the early 1980’s, when Watkins bought the Linda Vista
Mobilehome Park in Banning. In 1995, Watkins and Karubah Carnahan entered into a
contract which may be safely described as a lease with an option to buy. In broad terms
the contract provides that Carnahan leased the park from Watkins, operated it, and if he
chose, had an option to buy it.1
1 Neither Carnahan nor Watkins were available for trial in this case. Carnahan suffered a stroke in
2008 and is under a conservatorship, and Watkins died in 2004.
2
The agreement begins by describing Watkins as Lessor and Carnahan as
Lessee.2 The agreement then calls for rent due on the first of each month, to be
calculated as the sum of two components: a fixed component and a variable component
to take into account inflation. The fixed component is set at $11,000 and is to remain the
same for 30 years. The variable component starts at $13,333 and then increases each
year as the cost of living goes up. Thus the first year’s rent in 1995 was set at $24,333.
In no event is the variable component of the rent to decrease.3 The Lessee is further
obligated to pay, after the first year (which involved some proration) all taxes on the
property.4 Similarly, the Lessee is obligated to maintain the existing physical
infrastructure (things like curbs, driveways and gutters) plus maintain any new physical
infrastructure which he himself puts in.5
2 “THIS LEASE, made as of the 1st day of February, 1995, by and between Ervin L. Watkins and
Vera K. Watkins, Trustees Under Trust Dated March 20, 1978, as to Parcel A; and Ervin L. Watkins and Vera K.
Watkins, Trustees U/D/T March 20, 1978 F/B/O The Watkins Family Trust, as to Parcel B . . . herein referred to as
‘Lessor’, and Karubah Carnahan . . . herein referred to as ‘Lessee.’”
3 “A. Initial Rental: The sum of Twenty Four Thousand Three Hundred Thirty Three and No/100
Dollars ($24,333.00) per month payable in advance on the first day of each month commencing February 1, 1995
and through and including January 1, 1996. The initial rental shall have two components; first, a ‘fixed rental
portion’ in the sum of $11,000.00 and second a ‘variable rental portion’ in the sum of $13,333.00.
“B. Adjustment to Initial Rental: Commencing February 1, 1996 and each February 1 thereafter
(‘adjustment date’), the variable rental portion shall be increased, but in no event decreased, in accordance with the
increase, if any, in the cost of living. The initial rental, including the variable rental portion as so adjusted, shall be
paid on the adjustment date and on the first day of each month until the next adjustment date.
“The adjustment to the variable rental portion shall be calculated based on the increase in the cost
of living shall be determined on each adjustment date by multiplying the sum of $13,333 (i.e. the variable rental
portion) by a fraction [based on the] Consumer Price Index . . . .” (Original underlining omitted.)
4 “With respect to the 1994-1995 tax year and the 2028-2029 tax year, the tax shall be pro-rated
between Lessor and Lessee based on the number of months that this Lease is in effect during the tax year. In each
other tax year during the term of this lease, Lessee shall pay and discharge all taxes, assessments and other charges
against the leased land. . . .”
5 “6. MAINTENANCE AND REPAIRS. In addition to the other covenants and conditions to be
performed by Lessee hereunder as a material part of the consideration for this Lease, Lessee agrees to cause to be
maintained and repaired all walks, sewers, drains, curbs, gutters, driveways, streets, structures, facilities and other
improvements (hereinafter collectively referred to as ‘improvements’) which are now included as a part of the leased
land, which are located on adjacent land but service the leased land, or which are subsequently constructed on the
leased land or such adjacent land servicing the leased land.
“To the extent required by law, ordinance or regulation applicable to the leased land, Lessee shall
make or cause to be made any and all additions, alterations and repairs to Improvements which are now included as
part of the leased land, which are located on adjacent land but service the leased land, or which are subsequently
constructed on the leased land or such adjacent land servicing the leased land.
“Lessee hereby indemnifies and saves Lessor harmless from all actions, claims and damages by
reason of Lessee’s failure to comply with and perform Lessee’s obligations under this Paragraph 6.
3
The contract is very clear on the use of the land. It is to be used only as a
mobilehome park.6 It is also clear that the land was already being used as a mobilehome
park at the time of the inception of the lease, and that the Lessor had already obtained the
necessary permits and legal entitlements required to be in business as a mobilehome
park.7
All of which brings us to the option clause, which is the center of this
litigation. Essentially – in the aftermath of the death of Watkins and his wife – Carnahan
(or in this case, the Carnahan group) has the option to purchase the park, but – in keeping
with the way the rent is structured – at a price dependent on both fixed and variable
components. The value of the fixed component, denominated in the contract and in the
briefs as the “Improvement Component,” is (thankfully), not at issue in this case.8
Accordingly, the parties were able to agree the amount as of December 2009 came to
$1,157,247.9
“All of Lessee’s repairs, additions, modifications, alterations, and construction of Improvements
on or about the leased land shall conform to all applicable public laws, ordinances, regulations and judicial decisions
applicable thereto; and all work in connection therewith shall be prosecuted and completed with reasonable
diligence and said work shall be done at the sole cost of Lessee, without any cost or expense to Lessor.” Original
underlining omitted.)
6 “5. USE. During the term hereof Lessee shall use and occupy the leased land for the sole purpose
of the operation and maintenance of a mobilehome park. Lessee shall not use or permit the leased land or any part
thereof to be used for any other purpose except by permission granted in writing by Lessor.” (Original underlining
omitted.)
7 “7. PERMITS AND ZONING. Lessor has obtained the necessary use permits required to utilize
the leased land as a mobilehome park and the same shall be transferred to Lessee, upon Lessee’s payment of all
applicable fees and costs. The park is zoned residential, a designation which permits operation of a mobilehome
park.” (Original underlining omitted.)
8 The calculation yields a different result depending on the month the property is purchased
according to the option clause.
9 Because it is the center of this appeal, we set out the option paragraph in its entirety:
“9. OPTION TO PURCHASE.
“A. Commencing on the earlier of: (i) January 1, 2025 or (ii) the day following the date of death
of the earlier to die as between Ervin L. Watkins and Vera K. Watkins, and continuing through the end of the term
of this Lease (‘Option Period’), Lessee shall have the right to purchase the leased land at the price (‘Option Price’)
set forth in Paragraph 9B, below, and upon exercise of this option (‘Exercise’) as set forth in Paragraph 9C, below.
“B. The Initial Option Price shall be the sum of Three Million Five Hundred Thousand Dollars
($3,500,000). The Initial Option Price shall be in effect with respect to a purchase closed on or before December 31,
1995. With respect to a purchase closed after December 31, 1995, the Option Price shall be the sum of two
component parts, as follows:
4
“(1) The first component of the Option Price shall be the ‘Improvement Component’. The
Improvement Component shall be determined by starting with the sum of $1,500,000 and subtracting from that sum
an amount equal to the principal portion of monthly installment payments on the sum of $1,500,000 at 8% per
annum if paid at $11,000 per month for a period equal to the number of full months that have elapsed on the term of
this Lease as of the date of the Closing (as hereinafter defined).
“For Example: If 90 full months have passed before the Closing, the Improvement Component of
the Option Price shall be $1,377,225, determined as follows:
($1,500,000 x 1.818494) – ($11,000 x 122.77404) = $1,377,225
“(2) The second component of the Option Price shall be the ‘Land Component’. The Land
Component shall be determined by 3 MAI [masters of appraisal institute] appraisers as the value of the leased land,
without improvements, based on its use as a mobilehome park and determined as of the date of Exercise as follows:
“Within 20 days after the Exercise, Lessor and Lessee shall each select one MAI appraiser with
experience in valuing mobilehome parks.
“Within 20 days thereafter the two MAI appraisers selected by the parties shall agree upon a third
MAI appraiser and if they fail to do so, either party may petition the Superior Court for the appointment of such a
third MAI appraiser.
“The Lessor and the Lessee shall have the right to each submit a single package of information
relating to the value of the leased land to each appraiser within 20 days after the appointment of the final appraiser.
Within 45 days after the appointment of the third appraiser, the three appraisers, acting without consultation between
each other, shall each fix a value of the Land Component.
“Each appraiser’s opinion of value shall be kept confidential until the ‘Disclosure Date’. The
Disclosure Date shall be the earlier of the date when each appraiser has fixed a value and notified the others and a
date for disclosure within the 45 day period has been agreed upon by the appraisers; or the last business day within
the 45 day period after appointment of the third appraiser.
“On the Disclosure Date the appraisers shall simultaneously make a single sealed envelope with
their respective opinions of value of the Land Component available to Lessee and Lessor at a single location.
“The Land Component shall be: the average of the three values IF the lowest value is not less than
95% of the highest value; IF NOT, the two values that are closest shall be averaged to determine the Land
Component and the third value shall be disregarded.
“With respect to a closing after December 31, 1995, the Option Price shall be the sum of the
Improvement Component and the Land Component determined as set forth above.
“C. At any time before Noon on the last day of the Option Period, Lessee may Exercise by
delivering a written notice to Lessor unequivocally and irrevocably exercising the option and thereafter depositing a
copy of this Agreement with Chicago Title Company in Riverside, California (or such other escrow company as is
then agreed upon by the parties), (‘the Escrow’) along with a check in the amount of $10,000.00 as a deposit.
“D. Escrow shall close on a business day within 180 days after it is opened (the ‘Closing’) on a
date specified by Lessee or on the last day of that period if no date is specified by Lessee. Lessee shall be required
to deposit into escrow, not less than 48 hours prior to the Closing, immediately available funds in addition in an
amount equal to the sum of the following: (1) the Initial Option Price or the Option Price (whichever is then
applicable) less the sum of $10,000; and (2) closing costs and prorations applicable to Lessee. Closing costs
attributable to Lessee shall include one half the amount of the escrow fees, any applicable title charges, and
documentary transfer taxes. (Note: The Closing shall be equitably extended for the benefit of the other party if one
party fails to timely name an appraiser or if the two appraisers are unable to agree on a third appraiser and the
Superior Court must select the third appraiser.)
“E. Within 5 days after receipt of the notice of Exercise referred to in Paragraph 9C, above,
Lessor shall deposit into escrow a duly executed and acknowledged grant deed in recordable form in the form
attached hereto as Exhibit ‘B’. At the closing, the leased land shall be subject only to items 3 and 4 as shown on
schedule B of the Preliminary Title Report attached hereto as Exhibit ‘C’ and referenced as order No. 578486-08.
“F. Lessor and Lessee agree to execute the standard form escrow instructions of escrow in
connection with this transaction and such other and further documents as may be required to give this Agreement
effect.
“G. Lessor shall deliver good title to the leased land, free and clear of all liens and encumbrances
except unpaid taxes not yet delinquent, easements now of record, and other matters of record acceptable to Lessee.”
(Original underlining omitted.)
5
And at the center of the option clause, is the variable component, or, to be
precise, the more variable component, called the “Land Component.” There is no dispute
the contract provides for an arbitration-like process to arrive at a value for that
component. Essentially, the price is to be an average of what three MAI appraisers (one
picked by one side, one picked by the other, the third agreed on by the other two) say it
is, with a provision to discard any outlier appraiser’s value if not within a certain
percentage of the others.10
But the parties dispute precisely what the appraisers are to appraise. The
relevant text from the option clause is: “The Land Component shall be determined by 3
MAI appraisers as the value of the leased land, without improvements, based on its use as
a mobilehome park and determined as of the date of Exercise . . . .” The Carnahan group
interprets the phrase “without improvements” to include not only physical infrastructure,
but intangible items such as the cost of obtaining permits and entitlements. The Watkins
group believes the phrase still allows for such intangibles as entitlements and permits to
be part of the value of the land, and not excluded from it.
10 “(2) The second component of the Option Price shall be the ‘Land Component’. The Land
Component shall be determined by 3 MAI appraisers as the value of the leased land, without improvements, based
on its use as a mobilehome park and determined as of the date of Exercise as follows:
“Within 20 days after the Exercise, Lessor and Lessee shall each select one MAI appraiser with
experience in valuing mobilehome parks.
“Within 20 days thereafter the two MAI appraisers selected by the parties shall agree upon a third
MAI appraiser and if they fail to do so, either party may petition the Superior Court for the appointment of such a
third MAI appraiser.
“The Lessor and the Lessee shall have the right to each submit a single package of information
relating to the value of the leased land to each appraiser within 20 days after the appointment of the final appraiser.
Within 45 days after the appointment of the third appraiser, the three appraisers, acting without consultation between
each other, shall each fix a value of the Land Component.
“Each appraiser’s opinion of value shall be kept confidential until the ‘Disclosure Date’. The
Disclosure Date shall be the earlier of the date when each appraiser has fixed a value and notified the others and a
date for disclosure within the 45 day period has been agreed upon by the appraisers; or the last business day within
the 45 day period after appointment of the third appraiser.
“On the Disclosure Date the appraisers shall simultaneously make a single sealed envelope with
their respective opinions of value of the Land Component available to Lessee and Lessor at a single location.
“The Land Component shall be: the average of the three values IF the lowest value is not less than
95% of the highest value; IF NOT, the two values that are closest shall be averaged to determine the Land
Component and the third value shall be disregarded.” (Original underlining omitted.)
6
The Carnahan group decided to exercise the option in a letter dated July 16,
2009. By the end of the month the Carnahan group designated its MAI appraiser, John
Neet. The Watkins group responded almost immediately thereafter, on July 30,
designating its MAI appraiser, Jim Brabant. By the end of September 2009 the two
designees had chosen the third appraiser, Clay Harris.
By December, the appraisers had come up with their numbers for the land
component. But those numbers varied widely. Neet (Carnahan group’s pick) and Harris
(the third) came in at $1.23 million and $1.6 million respectively. These were their
estimated values of the raw land underlying the park. But Brabant (the Watkins’ group’s
pick) came up with $5.945 million – or, to put it in perspective – a number almost four
times what the next highest appraisal was. His figure included in the value of the
nontangible land development costs, permits and entitlements. Throwing out Brabant’s
figure as the outlier resulted in a land component worth $1.415 million. The total option
price, given the figures from the appraisal process, excluding Brabant’s number, and
adding the agreed number from the “Improvement Component” was thus about $2.57
million.11
The figure did not satisfy the Watkins group at all. On December 30, 2009,
the Watkins group sent a letter to the Carnahan group asserting the option had not been
properly exercised. By mid-January litigation was afoot. The Carnahan group filed a
complaint for specific performance to compel the sale of the land at the $2.57 million
price, and the Watkins group responded with a cross-complaint for, among other things,
breach of contract. While the case was originally filed in Riverside County, the parties
agreed (we note both sides have attorneys based in Orange County) to have the matter
referred to a retired Orange County Superior Court Judge, David H. Brickner as referee.
11 The exact numbers consist of an Improvement Component as of January 2010 of $1,153,962 and
$1.415 million land component, equaling $2,568,962.
7
Judge Brickner heard the case in early February 2012. He denied the
Carnahan group’s request for specific performance, and ruled it had breached the
contract, indeed had done so in bad faith by first getting an appraisal from Neet before it
exercised the option, something the judge determined to be in violation of the
confidentiality provisions of the option clause. What is more, Judge Brickner reformed
the contract to make it plainly say – by including the word “physical” in front of
improvements – that the land component was to include intangible items of value like
permits and entitlements. Judgment pursuant to the referee’s decision was soon formally
entered by Judge Mac R. Fisher in Riverside Superior Court.
About a month later an attorney fee award was made by referee Brickner in
favor of the Watkins group of about $600,000 (half a million in fees, $100,000 in costs).
This award was later converted into a formal postjudgment order by Judge Craig R.
Riemer in Riverside Superior Court. The Carnahan group filed timely appeals from both
the judgment denying it specific performance and the ensuing attorney fee and cost
award.
One aspect of the trial testimony requires special recounting before we
address the Carnahan group’s arguments on appeal. As we have noted, neither Watkins
nor Carnahan themselves were available to testify. But the attorney both of them used
back in 1995 – Fred Sainick – did testify. The Carnahan group’s opening brief describes
Sainick as the parties’ joint “scrivener.” However accurate that description is, by 2012
Sainick had clearly cast his lot with the Carnahan group. He testified the original
contracting parties did not want Carnahan to “pay twice for his efforts on the property.”
However, Sainick admitted at trial that Carnahan and Watkins actually never had a
8
discussion or agreement in which they agreed that the word “improvements” in the
contract would include entitlements.12
III. DISCUSSION
A. Contract Interpretation
The central argument presented by the Carnahan group is that Judge
Brickner necessarily erred in concluding that the value of the Land Component isn’t just
raw land, but includes the costs of obtaining permits and entitlements and other soft
(nontangible) development costs. For the Carnahan group, whether the word
“improvements” is spelled with a small “i” or with a capital “I” makes all the difference
in the case. Its theory is that Carnahan did not want to “pay twice for his efforts on the
property” if he exercised the option, and so the word “improvements” – small “i” as it
appears in the actual option valuation clause – encompasses intangible items like permits
and entitlements, and so those items should not be included in the Land Component as
part of the option price.
Judge Brickner rejected the interpretation, and so do we. As a matter of the
textual exegesis of the lease the case seems clear to us.
We begin with paragraph 6, dealing with maintenance and repairs, for it is
here that we actually find the nearest thing the contract has to a specific definition of the
word “improvements.” There are three references to “improvements” in paragraph 6 –
one small “i” and the other two capital “I” – but all three clearly refer to physical
hardscape, infrastructural items like curbs and gutters, and not to soft intangible items
like permits. Moreover, the references come so close to each other, and so clearly refer
12 This is a fact not mentioned in the opening brief, and is illustrative of why the Watkins group
invites us simply to dismiss the Carnahan group’s appeal outright for failure to set forth in its opening brief all the
material evidence bearing on its appeal. (See Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.)
We decline the invitation as regards the Carnahan group’s appeal from the main judgment,
recognizing that appellate courts are inclined to cut appellants a bit of slack on the “all-the-material-evidence” rule
when it comes to large records. However, we will enforce the rule anon when we come to the Carnahan group’s
challenge to the attorney fee and cost award. There, its briefing and record references are so deficient that there is
nothing we can do but conclude the argument is waived.
9
to the same sort of items, that it is hard to escape the conclusion – and it certainly didn’t
escape the trial judge – that the agreement doesn’t distinguish between small “i”
improvements and capital “I” Improvements at all. The occasional capitalization of the
word merely reflects the tendency of many Contract Drafters to overcapitalize Nouns.
The first reference, in fact, is the one to a small “i,” and it is here we find an
actual definition: “. . . Lessee agrees to cause to be maintained and repaired all walks,
sewers, drains, curbs, gutters, driveways, streets, structures, facilities and other
improvements (hereinafter collectively referred to as ‘improvements’) which are now
included as a part of the leased land, which are located on adjacent land but service the
leased land, or which are subsequently constructed on the leased land or such adjacent
land servicing the leased land.” (Italics added.)
There is a basic rule of contract interpretation known as ejusdem generis.
(Nygard, Inc. v. Uusi–Kerttula (2008) 159 Cal.App.4th 1027, 1045, fn. 4 [“‘Where
general words follow the enumeration of particular kinds or classes of persons or things,
the general words will, unless a contrary intent is manifested, be construed as applicable
only to persons or things of the same general nature or class as those specifically
enumerated.’”]; accord, Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th
725, 743 [“Under the principle of statutory construction known as ‘ejusdem generis,’ the
general term ordinarily is understood as being ‘“restricted to those things that are similar
to those which are enumerated specifically”’”].)
Here, the rule of ejusdem generis requires that word “improvements,” and
with a small “i” to boot, refers to physical things like curbs, gutters and driveways. Not a
single item in the list preceding the word suggests anything intangible or abstract.13 In
fact, even after the enumerated list of items such as curbs and gutters, the contract
13 The trial judge, as trier of fact, could thus have readily concluded that Sainick’s testimony that
small “i” improvements were broader than capital “I” improvements was an afterthought, at odds with the actual
language of the agreement.
10
confirms the limitation of “improvements” to such physical items by allusions to things
that are physically “located on” or “constructed on” the land.
A capital “I” reference to “Improvements” soon follows in paragraph 6, but
the context of the reference again unmistakably refers to physical items: “To the extent
required by law, ordinance or regulation applicable to the leased land, Lessee shall make
or cause to be made any and all additions, alterations and repairs to Improvements which
are now included as part of the leased land, which are located on adjacent land but
service the leased land, or which are subsequently constructed on the leased land or such
adjacent land servicing the leased land.” (Italic added.) Here, the idea of
“Improvements” is something which one constructs – one would never use the word
“constructs” in connection with a land use entitlement requiring a permit or license – or
something to which one makes additions, alterations or repairs. Again, nothing
intangible. One doesn’t repair a license. One repairs a roof.
Then comes the third mention, this one another capital “I” reference. This
reference even more strongly differentiates Improvements from entitlements and permits,
because the word is used a context which distinguishes it from land use rules: “All of
Lessee’s repairs, additions, modifications, alterations, and construction of Improvements
on or about the leased land shall conform to all applicable public laws, ordinances,
regulations and judicial decisions applicable thereto; and all work in connection
therewith shall be prosecuted and completed with reasonable diligence and said work
shall be done at the sole cost of Lessee, without any cost or expense to Lessor.” (Italics
added.) Nary a thought is given to the possibility that “Improvements” actually include
permits and entitlements themselves.
Finally, there is the small “i” improvement reference in the option clause
itself that is the linchpin of this appeal. Again, the usage indicates that improvements
should not include things like permits or entitlements, because those things are integral to
the use of the land “as a mobilehome park” but are treated as things different from
11
“improvements”: “The Land Component shall be determined by 3 MAI appraisers as the
value of the leased land, without improvements, based on its use as a mobilehome park
and determined as of the date of Exercise as follows . . . .” (Italics added.) Not only
does this small “i” usage show that improvements and Improvements are interchangeable
in the contract, it also establishes that the land, after deduction of “improvements,” still
must include value for its use as a mobilehome park.
The Carnahan group never really proffers a theory of how the phrase
“without improvements, based on its use as a mobilehome park” is compatible with the
idea of valuation of raw land. If only raw land is meant, the reference to use as a
mobilehome park is reduced to surplusage. (See ACL Technologies, Inc. v. Northbrook
Property & Casualty Ins. Co. (1993) 17 Cal.App.4th 1773, 1785 [collecting cases
illustrating rule against interpretations of contracts that render language surplus].)
Our conclusion is confirmed by the linguistic canon that contracts are to be
read as a whole. (E.g., Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1265.)
As we have noted, paragraph 5 plainly limits the use of the park to one as a mobilehome
park, while paragraph 7 recites that it is the Lessor who has already obtained the permits
and entitlements necessary to operate as a mobilehome park. Valuing the Land
Component without reference to permits and entitlements runs contrary to the confined
use of the land contemplated in the agreement.
It is true that paragraph 7 also recites that the permits already obtained by
the Lessor “shall be transferred to Lessee, upon Lessee’s payment of all applicable fees
and costs.” But the Carnahan group points to no evidence Carnahan paid anything
separately for the transfer of permits; all it did vis-à-vis the Lessor was begin paying its
lease payments. That’s hardly “paying twice” for Carnahan’s own efforts. The
reasonable inference is that the “applicable fees and costs” being referred to in paragraph
7 are those associated with their transfer qua transfer, that is, fees paid to the agency
issuing the permit for the privilege of having a different person hold title to it, and not
12
paid to Watkins for the presumably more expensive cost of initially obtaining the permit
in the first place.
To refer back to the Carnahan’s basic complaint for specific performance,
the Carnahan group was seeking specific performance of a right it didn’t have under the
contract in the first place – the right to compel the sale of the property without having to
pay for the intangibles that go into its “use as a mobilehome park.” The court was thus
correct to deny specific performance of that right.
B. Other Arguments Challenging the Main Judgment
The Carnahan group raises several additional issues challenging the main
judgment, but these are necessarily subsumed in our determination the written contract
itself means that neither “improvements” nor “Improvements” include intangible costs.
None of the Carnahan group’s arguments in regard to these matters logically affect the
validity of our determination that the word “improvements” in the option clause does not
include the value of permits and entitlements and other soft costs. That said, we briefly
address these challenges.
Reformation: Part of the judgment was that the option clause has been
reformed to now read as follows, with new words in italics: “‘The Land Component shall
be determined by 3 MAI appraisers as the value of the leased land, without the physical
improvements thereon, based on its use as a mobilehome park and determined as of the
date of the exercise . . . .’” (Italics added.)
It is an interesting, but academic, question as to whether there is any
meaningful difference between, on the one hand, a court formally reforming a contract to
plainly say X and not non-X, and, on the other hand, a court merely interpreting the same
contract to mean X and not non-X. Since the language of the contract here requires an
interpretation exactly the same as the one the referee formally reformed it to no
prejudicial error inheres present in the formal reformation. The judgment of reformation
therefore must be affirmed.
13
We need only add that the Carnahan group’s argument that the effect of the
reformation means the option price exceeds fair market value – and hence presumably
must be contrary to the putative intent of the parties to allow Carnahan to have the park at
below fair market value – is not persuasive. Here, the option clause was clearly and
carefully structured by two sophisticated businessmen (as particularly shown by the
outlier provision) so that the option formula would yield a price according to variables
kept within a relatively narrow range. But as in all option contracts, whether the exercise
of the option is a good deal for the would-be buyer or not ultimately depends on the fair
market value of the item itself. Put another way, an option deal is a good one if the
would-be buyer can turn around and resell on the open market what it has just bought.
The fair market value of this mobilehome park, however, is only loosely
connected to the various components which make up the fixed price here. Mobilehome
parks, like utilities, are a highly regulated industry. (See County of Santa Cruz v.
Waterhouse (2005) 127 Cal.App.4th 1483, 1489-1493 [noting intense interest of
Legislature to occupy field in Mobilehome Park Act]; accord, Rubin v. Green (1993) 4
Cal.4th 1187, 1192, fn. 1 [noting heavy regulation of affairs between park owners and
tenants].) The fair market value of a mobilehome park as a going concern depends on
any number of items not included in the contract formula before us now, such as local
rent control, good will among existing tenants, overall land values, the general and local
economy, and the perception of favorable or unfavorable political change. The parties
knew this and presumably wrote it into their contract.
Breach of the Covenant of Good Faith and Fair Dealing: There is
confidentiality language in the options clause as regards the process by which the three
appraisers arrive at their respective values: “Each appraiser’s opinion of value shall be
kept confidential until the ‘Disclosure Date’. The Disclosure Date shall be the earlier of
the date when each appraiser has fixed a value and notified the others and a date for
disclosure within the 45 day period has been agreed upon by the appraisers; or the last
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business day within the 45 day period after appointment of the third appraiser.” The
referee found that the Carnahan group violated this confidentiality language by obtaining
a preliminary appraisal from Neet before invoking the option, hence the finding of
violation of the covenant of good faith and fair dealing in the judgment.
As the Carnahan group sees it, the preliminary appraisal obtained from
appraiser Neet was mere prudence, given that, as both sides agree, once the option
provision is invoked, it cannot be recalled. Textually, the Carnahan group bases its
contention on the fact there is no provision in the contract preventing either party from
getting an appraisal prior to exercise of the option.
But there is more than the absence of an express prevention of pre-exercise
appraisals. There is sequence. When we examine the sequence of the valuation
procedure set out in paragraph 9 we find that the contract contemplates exercise of the
option before the party who exercises the option selects its designated appraiser.
The actual sequence as spelled out in paragraph 9 is determinative. First,
there is an “Exercise” of the option. (A capital “E” exercise, reflecting again their
contract’s eccentric capitalization.) Then, within 20 days after that exercise, each side
selects one MAI appraiser. After that, within another 20 days, the two selected MAI
appraisers pick a third appraiser. Then, each side gets to submit a “single package of
information” to all three appraisers. And only then, within 45 days after the submission
of the information package, each of the three appraisers “acting without consultation
between each other,” are to “fix a value of the Land Component.” (Italics added.) But
even then, “[e]ach appraiser’s opinion of value shall be kept confidential until the
“Disclosure Date.” It is only at the Disclosure Date the sealed valuations are opened.
Again we conclude Judge Brickner correctly read the contract. The parties
had obviously taken some pains to structure a process in which the appraisers would be
acting not only independently of each other, but, at least initially, independently of the
parties themselves. From this structure it is pretty obvious that the would-be buyer (the
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Lessee) would have a patently unfair advantage over the potential seller (the Lessor) if
the buyer were able to first select an appraiser, and then, based on that particular
appraiser’s value, exercise the option and designate the same appraiser for the actual
appraisal used to calculate the option price.
Here, the trial judge ascertained that appraiser Neet had, in substance, been
selected prior to the exercise of the option, a finding for which there is substantial
evidence in the fact that Neet’s preliminary appraisal was identical to his as-a-designated-
appraiser appraisal. That pre-exercise selection gave the Carnahan group an unfair
advantage, because the Watkins group had only 20 days to designate its appraiser, and,
unlike the Carnahan group, had no advantage from any preliminary pre-selection-of-its-
appraiser appraisal. The attempt at an unfair advantage, in return, meant the Carnahan
group was acting to deprive the Watkins group of the benefit of its side of the contract,
here, an appraisal process in which both sides would incur some risk that the ultimate
number might not be what they wanted. (See Love v. Fire Ins. Exchange (1990) 221
Cal.App.3d 1136, 1153 [“In essence, the covenant is implied as a supplement to the
express contractual covenants, to prevent a contracting party from engaging in conduct
which (while not technically transgressing the express covenants) frustrates the other
party’s rights to the benefits of the contract.”].)
Miscellany: We need not address whether the referee “correctly” rejected
some of the Watkins’ groups affirmative defenses, or whether attorney Sainick suffered
some sort of conflict of interest. Neither issue affects the judgment being affirmed, and
there is no cross-appeal from the Watkins group to require consideration of either issue.
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C. Attorney Fees and Costs
A postjudgment order awards the Watkins group about $500,000 in
attorney fees and $100,000 in costs (including expert witness costs). The Carnahan
group’s main complaint concerns the amount of the $500,000 attorney fee award and the
concomitant $100,000 cost award; the Carnahan group tacitly concedes it owes
something. (There is, for example, no argument that it somehow was the prevailing
party.)
The Carnahan group argues the $600,000 fee and cost award includes work
on legal theories that ultimately proved unavailing or unnecessary. In particular, the
Carnahan group posits that the legal work on the theories of (a) Sainick’s alleged conflict
of interest, (b) that the Carnahan group opened escrow too early in the process of
exercising the option, or (c) that Harris had not been designated timely as the third
appraiser later on in the process, were all rejected or unnecessary and therefore it is
unreasonable to award fees based on that work. The Carnahan group’s challenge also
includes challenges to the expert witness costs of two defense experts who critiqued
Neet’s appraisal.
Preliminarily, we must note that even time spent on unsuccessful legal
theories is still compensable in an attorney fee award if the time is reasonably spent.
(See Sundance v. Municipal Court (1987) 192 Cal.App.3d 268, 273 [observing, in
context of private attorney general statute, that “as a practical matter, it is impossible for
an attorney to determine before starting work on a potentially meritorious legal theory
whether it will or will not be accepted by a court years later following litigation”].) That
principle, of course, merely accords with the actual terms of this particular contract,
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which entitles the prevailing party to reasonable fees, as distinct from absolutely
necessary fees.14
But if the Carnahan group is at all correct in its assertions, there is no way
we can tell from its briefing. We thus conclude this is an issue that has been waived.
(See People ex rel. Strathmann v. Acacia Research Corp. (2012) 210 Cal.App.4th 487,
502-503 [articulating rule that if party fails to support its argument with necessary
citations to the record the argument will be deemed waived]; Provost v. Regents of
University of California (2011) 201 Cal.App.4th 1289, 1294 [“we will generally consider
only those facts and arguments supported by adequate citations to the record”]; Byars v.
SCME Mortgage Bankers, Inc. (2003) 109 Cal.App.4th 1134, 1140-1141 [“An appellant
must support his argument in the briefs by appropriate references to the record, which
includes providing exact page citation . . . . ‘An appellate court is not required to search
the record to determine whether or not [it] supports appellants’ claim of error. It is the
duty of counsel to refer the reviewing court to the portions of the record which support
appellants’ position.’”]; Colt v. Freedom Communications, Inc. (2003) 109 Cal.App.4th
1551, 1560 [because no record reference was “furnished for” a particular statement, court
could “ignore it”].)
Here, the very nature of the Carnahan group’s argument requires an
itemization of the fees challenged as wholly unnecessary and hence presumably
unreasonable. Yet the appellant’s opening brief asserts that no less than $423,000 of the
$500,000 attorney fee award – over 84 percent – is attributable to theories that were not
successful. For this arresting proposition it gives us no references and no specifics,
merely a conclusory citation to the Carnahan group’s own opposition to the Watkin
group’s request for fees.
14 The clause reads: “If any action be commenced to enforce any of the provisions of this
Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, court costs and reimbursement for
any other expenses incurred in connection therewith.”
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Without more than that, we may dismiss the argument as waived. The
Carnahan group has certainly not carried its burden on appeal of showing some abuse of
discretion by pointing out specific evidence to the contrary.
IV. DISPOSITION
The judgment is affirmed. The attorney fee and cost order is affirmed. The
respondent Watkins group shall recover its costs on appeal.
BEDSWORTH, J.
WE CONCUR:
RYLAARSDAM, ACTING P. J.
MOORE, J.
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