Amarjit Sandhu & American Pizza & Pasta, Inc. v. Seattle Children's Hospital ( 2017 )

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE
SEATTLE CHILDREN'S HOSPITAL, ) No. 74433-0-1
)
Respondent, )
)
v. ) UNPUBLISHED OPINION
)
AMARJIT SANDHU; AMERICAN PIZZA)
& PASTA INC., )
)
Appellants. ) FILED: February 27, 2017
SCHINDLER, J. — In 2005, Amarjit Sandhu and American Pizza and Pasta Inc.
(collectively Sandhu) entered into a 10-year lease agreement. The agreement gave
Sandhu the option to extend the lease for two additional 5-year terms. But the plain and
unambiguous language of the lease states Sandhu cannot exercise the option to extend
if he "has ever been in default beyond any applicable cure period more than two (2)
times in any twelve (12) month period." We affirm the decision on summary judgment
that Sandhu was not entitled to exercise the option to extend the lease.
FACTS
Amarjit Sandhu is the president and sole stockholder of American Pizza and
Pasta Inc. On December 23, 2005, Touchstone 9th and Stewart LLC (Touchstone)
entered into an agreement with Sandhu to lease 1,246 square feet of street-level retail
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space in the Ninth & Stewart Life Sciences Building. The Ninth & Stewart Life Sciences
Building contains more than 200,000 square feet of medical research space.
The 10-year lease agreement expired on December 31, 2015. The agreement
gave Sandhu the option to extend the lease for two additional 5-year terms. The lease
agreement states, in pertinent part:
Extension Option. Tenant shall have the option to extend this lease (the
"Extension Option") for two additional terms of five (5) years each (the
"Extension Period"), upon the terms and conditions hereinafter set forth.
But the plain and unambiguous language of the lease agreement states Sandhu cannot
exercise the extension option if he "has ever been in default beyond any applicable cure
period more than two (2) times in any twelve (12) month period."
The lease agreement required Sandhu to make the monthly rent payment on the
first day of each month. The monthly rent payment included a "Base Rent" and an
"Additional Rent" based on Sandhu's share of "Operating Expenses and Taxes."
Section 4.1 of the lease agreement states, in pertinent part:
Each monthly installment (the "Monthly Rent") shall be payable by check
or by money order on or before the first day of each calendar month. In
addition to the Base Rent, Tenant also agrees to pay Tenant's Share of
Operating Expenses and Taxes (each as hereinafter defined), and any
and all other sums of money as shall become due and payable by Tenant
as hereinafter set forth, all of which shall constitute additional rent under
this Lease (the "Additional Rent").
Beginning in early 2006, Sandhu operated A Pizza Mart in the leased retail
space. Pizza Mart sold "pizza and other foods, together with non-alcoholic beverages,
beer, and wine." In February 2006, Sandhu and Touchstone amended the lease to add
American Pizza and Pasta Inc. as a tenant.
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No. 74433-0-1/3
In 2006, Seattle Children's Hospital (Children's) purchased the Ninth & Stewart
Life Sciences Building for "laboratory research related to diseases and conditions that
affect children."
In 2010, the monthly base rent under the lease agreement was $3,219.00 and
the additional rent was $827.71 for a total monthly rent payment of $4,046.71. On
January 25, Sandhu paid only $2,903.00 of the $4,046.71 due for the January 2010
rent. On March 25, Sandhu paid only $2,903.00 for the February rent.
On March 25, Children's sent Sandhu a letter addressing the failure to pay the
full amount of rent due under the lease agreement and directing Sandhu to "pay Seattle
Children's Research Institute $4,046.71 per month . . . on the first of each month." The
letter states, in pertinent part:
Pursuant to your lease, effective January 1, 2010, your monthly base
lease rate at 1900 9th Ave is $3,219. Our records indicate you are
currently paying a total of $2,903 and you should have increased your
payment amount per the lease agreement in each of the last three years.
In addition to the base rent payment, you are to be paying Additional Rent
. . . as called out in Article 5 of your lease agreement. This includes your
portion of the taxes and operating expenses as outlined in your lease. We
estimate the amount of additional rent at $827.71 per month for 2010.
Effective immediately starting April 1, 2010 Pizza Mart is to pay Seattle
Children's Research Institute $4,046.71 per month as your total lease
payment. Rent is due on the first of each month, and any payments
received later than 5 days after the due date will result in a 5% late charge
as called out in article 4.2 of you[r] lease agreement.
Sandhu did not pay $4,046.71 on April 1. Instead, on April 23, Sandhu paid
$2,903.00. For the next several months, Sandhu continued to submit late payments of
only $2,903.00. And for September, October, and November, Sandhu paid only
$2,000.00 per month in rent.
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On November 26, Children's directed Sandhu to immediately pay "the correct
rent amount." The letter states, in pertinent part:
Over the past few months there have been a number of incidents we
consider in default of your contract that need to be corrected right away.
Please note the following, and take corrective action immediately:
In March of 2010, we informed you of your rental underpayment per
letter dated 3/25/10. We have received your financials and verbal
request for rent abatement, but at this time we are not able to agree
on any reduction in rent. Please start paying the correct rent
amount of $4,046.71 immediately, as called out in article 4 of your
lease agreement. Failure to do so will put you in default, and we
will have no choice but to take further action.
Sandhu did not pay the past-due amount. On December 20 and continuing into 2011,
Sandhu paid less than the full amount due for rent.
On June 6, 2011, Children's sent Sandhu a "THREE-DAY NOTICE TO PAY
RENT OR VACATE PREMISES." The notice demands Sandhu pay $24,860.36 in
back rent and late fees or vacate the premises.2 Sandhu paid the amount owed of
$24,860.36.3
1 Boldface omitted.
2 The notice states, in pertinent part:
YOU ARE HEREBY NOTIFIED, on behalf of Seattle Children's Hospital, as successor
landlord to Touchstone 9th and Stewart LLC ("Landlord"), that you must either pay the
sum of $24,860.36 or else vacate the Premises described in that Lease Agreement
dated December 23, 2005 as:
Retail Space #3, 912 Stewart St., Seattle, Washington 98101
The amount above reflects Base Rent, Additional Rent, Operating Expenses, Late Fees,
and Attorneys Fees and Costs due under the Lease through June 1, 2011.
FAILURE TO COMPLY WITH THIS NOTICE WILL BE CONSIDERED AN UNLAWFUL
DETAINER, AS DEFINED BY RCW 59.12.030(3), AND WILL RESULT IN THE
COMMENCEMENT OF EVICTION PROCEEDINGS AGAINST YOU.
(Emphasis in original.)
3 Correspondence between Sandhu's attorney and Children's attorney indicates Sandhu tendered
the check on June 29, 2011.
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On February 17, 2015, Sandhu notified Children's of his intent to exercise the
option to extend the lease for another five years.
On February 24, Children's filed a declaratory judgment action. Children's
alleged it was entitled to terminate the lease. Children's asserted Sandhu was not
entitled to exercise the option to extend the lease because he "has been in default
beyond applicable cure periods more than two times over a twelve month period."
Sandhu filed an answer and counterclaim. The counterclaim alleged, "Tenants are in
fact in compliance with the Lease and. . . Tenants are eligible to exercise the option to
extend the Lease."
Children's filed a motion for partial summary judgment dismissal of the claim that
Sandhu was entitled to exercise the option to extend the lease. Children's submitted a
number of documents including a copy of the lease agreement, a spreadsheet
documenting the rent payments from October 2008 through September 2011, and
copies of the March 25, 2010 and November 26, 2010 letters to Sandhu. Children's
also submitted the declaration of Jessica Espinosa, the "primary point of contact for all
of Children's tenant and lease functions, including Pizza Mart."
In opposition, Sandhu argued the March 25 and November 26, 2010 letters did
not comply with the lease requirements and he was never in default beyond an
applicable cure period. Sandhu filed three declarations. The first declaration addresses
the sale of alcoholic beverages at Pizza Mart. The second declaration addresses a
number of issues including the sale of alcoholic beverages at Pizza Mart and Sandhu's
efforts to relocate the business. The third declaration addresses negotiation of the
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lease agreement with Touchstone and Sandhu's refusal to comply with Children's
request to reduce hours of operation.
The court granted the motion for partial summary judgment. The court ruled
Sandhu could not exercise the option to extend the lease and therefore, the lease shall
terminate on December 31, 2015. The order states, in pertinent part:
[T]he Court HEREBY ORDERS that Plaintiff Seattle Children's Hospital's
Motion for Partial Summary Judgment is GRANTED. Accordingly, by their
defaults Amarjit Sandhu and American Pizza & Pasta, Inc. ("Tenants")
cannot exercise the Extension Option, and Tenants' Lease shall terminate
no later than December 31, 2015.
The parties stipulated to entry of a final judgment and dismissal of all remaining
claims. Sandhu appeals.
ANALYSIS
Sandhu argues the court erred in ruling on summary judgment that he was not
entitled to exercise the option to extend the lease. Sandhu claims he was never "in
default beyond any applicable cure period" because the March 25, 2010 and November
26, 2010 letters did not comply with the notice requirements.
We review summary judgment de novo, engaging in the same inquiry as the trial
court. Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wash. 2d 493, 501, 115 P.3d 262
(2005); Citizens All. for Prop. Rights Legal Fund v. San Juan County, 184 Wash. 2d 428,
435, 359 P.3d 753 (2015). Summary judgment is appropriate when there is no genuine
issue as to any material fact and the moving party is entitled to judgment as a matter of
law. CR 56(c); Scrivener v. Clark Coll., 181 Wash. 2d 439, 444, 334 P.3d 541 (2014). We
consider all facts and make all reasonable factual inferences in the light most favorable
to the nonmoving party. Young v. Key Pharms., Inc., 112 Wash. 2d 216, 226, 770 P.2d
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182 (1989). "However, a nonmoving party may not rely on speculation or on
argumentative assertions that unresolved factual issues remain." White v. State, 131
Wash. 2d 1, 9, 929 P.2d 396 (1997); Elcon Constr., Inc. v. E. Wash. Univ., 174 Wash. 2d 157,
169, 273 P.3d 965 (2012).
The interpretation of a lease is a question of law that we review de novo. 4105
1st Ave. S. lnvs., LLC v. Green Depot WA Pac. Coast, LLC, 179 Wash. App. 777, 784,
321 P.3d 254 (2014). Our primary goal is to ascertain the parties' intent. Berg v.
Hudesman, 115 Wash. 2d 657, 663, 801 P.2d 222 (1990). We determine intent by
focusing on the objective manifestation of the parties in the written contract. Hearst,
154 Wash. 2d at 503. "Accordingly, a court considers only what the parties wrote; giving
words in a contract their ordinary, usual, and popular meaning unless the agreement as
a whole clearly demonstrates a contrary intent." Green Depot, 179 Wash. App. at 784;
Hearst, 154 Wash. 2d at 503-04. A contract "should be construed as a whole and, if
reasonably possible, in a way that effectuates all of its provisions." Colo. Structures,
Inc. v. Ins. Co. of the West, 161 Wash. 2d 577, 588, 167 P.3d 1125 (2007).4
The plain and unambiguous language of the lease agreement precludes Sandhu
from exercising the extension option if he "has ever been in default beyond any
applicable cure period" more than two times in a 12-month period. Section 51.2 states,
in pertinent part:
Tenant many not exercise its Extension Option if at the time of exercise it
is then in default beyond any applicable cure period or if it has ever been
in default beyond any applicable cure period more than two (2) times in
any twelve (12) month period.[5]
4 Footnote omitted.
5 Emphasis added.
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No. 74433-0-1/8
Section 22.1 addresses the cure period for failure to pay the amount due under
the lease agreement. Section 22.1 states, in pertinent part:
The term "Event of Default" refers to the occurrence of any one (1) or
more of the following:
(a) Failure of tenant to pay when due any sum required to be paid
hereunder, provided that Landlord shall not take action based on such
default unless such failure is not cured within three (3) days after written
notice thereof (the "Monetary Default").161
The undisputed record establishes that throughout 2010 and from January
through June 2011, Sandhu did not pay the full amount of rent due under the terms of
the lease. But Sandhu contends the applicable cure period for failure to pay rent under
section 22.1(a) was not triggered because he did not receive "written notice" as
specified in the lease. Sandhu claims the March 25 and November 26, 2010 letters
were procedurally defective because Children's did not serve the letters using one of
the methods specified in the lease agreement.
Section 36.1 of the lease agreement governs service of written notice. Section
36.1 states, in pertinent part:
Whenever in this Lease it shall be required or permitted that notice or
demand be given or served by either party to this Lease to or on the other,
such notice or demand shall be given or served in writing and delivered
personally, or forwarded by certified or registered mail, postage prepaid,
or recognized overnight courier.
The March 25, 2010 letter states Sandhu did not pay the amount due and directs
him to pay the full amount due. The record establishes Sandhu did not pay the full
amount due and on November 26, 2010, Children's sent Sandhu a letter directing him to
immediately "start paying the correct rent amount." In the three declarations Sandhu
6 Emphasis added.
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No. 74433-0-1/9
submitted in opposition to partial summary judgment, Sandhu did not dispute that he
received the March 25 and November 26, 2010 letters. And at oral argument, his
attorney conceded Sandhu received the March 25 and November 26 letters. Sandhu
also concedes there is "no evidence" in the record of the method Children's used to
deliver the letters. See Seven Gables Corp. v. MGM/UA Entm't Co., 106 Wash. 2d 1, 13,
721 P.2d 1 (1986) ("A nonmoving party in a summary judgment may not rely on
speculation[ or] argumentative assertions that unresolved factual issues remain.").
Sandhu also argues the March 25 and November 26 letters were substantively
"defective as a matter of law" because the letters did not contain "any demand for
payment of a specific amount claimed to be past due" or "any stated cure period."
Sandhu cites no provision in the lease that requires a written notice to contain a
"demand for payment" or a "stated cure period." In any event, the March 25 and
November 26 letters clearly state Sandhu did not pay the full amount of rent under the
lease agreement and direct Sandhu to pay the past-due amounts.
The undisputed record establishes that because Sandhu did not pay the rent due
within three days of receiving the March or November 2010 letters, he was "in default
beyond [an] applicable cure period" more than two times during 2010 and was not
eligible to exercise the option to extend the lease.
Sandhu claims the court ignored his argument that the court should use its
equitable authority to allow him to exercise the option to extend the lease to avoid a
forfeiture of his business. The record does not support his argument.
A trial court has "broad discretionary authority to fashion equitable remedies."
Recreational Equip., Inc. v. World Wrapps Nw., Inc., 165 Wash. App. 553, 559, 266 P.3d
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924 (2011); Sorenson v. Pyeatt, 158 Wash. 2d 523, 531, 146 P.3d 1172 (2006); In re
Proceedings of King County for Foreclosure of Liens for Delinquent Real Prop. Taxes
for the Years 1985 Through 1988, and Some Prior Years, 123 Wash. 2d 197, 204, 867
P.2d 605 (1994). A trial court abuses its discretion only when its decision is "manifestly
unreasonable or is exercised on untenable grounds or for untenable reasons."
Recreational Equip., 165 Wash. App. at 559.
At the hearing on the motion for summary judgment, the court specifically
addressed the argument that the loss of the option to extend the lease would result in a
forfeiture. The court did not abuse its discretion in declining to exercise its equitable
authority. A lessee is not entitled to equitable relief allowing him to exercise the option
to extend the lease where the lessee "consistently paid his rent late, and failed to make
timely insurance and tax payments as required by the lease." Lenci v. Owner, 30 Wn.
App. 800, 803, 638 P.2d 598 (1981).
Children's requests attorney fees on appeal. The lease agreement states, in
pertinent part:
[I]f either party hereto shall file any action or bring any proceeding against
the other party arising out of this Lease or for the declaration of any rights
hereunder, the prevailing party in such action shall be entitled to recover
from the other party all costs and expenses, including reasonable
attorneys' fees incurred by the prevailing party.
We affirm the determination that Sandhu was not entitled to exercise the option
to extend the lease and upon compliance with RAP 18.1, award Children's reasonable
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No. 74433-0-1/11
attorney fees.7
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WE CONCUR:
7. )
7 Because we conclude Sandhu was not entitled to exercise the option to extend the lease, we
need not address other issues raised on appeal.
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