Michaels Stores, Inc., V Rpai Lakewood Llc

COURT FILED
OF
APPEALS
2015KR10 Ail 8 : 40
ST
TO
BY
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
MICHAELS STORES, INC., a Delaware No. 46071 -8 -II
corporation,
Respondent,
v.
RPAI LAKEWOOD, L.L.C., f/k/ a INLAND UNPUBLISHED OPINION
WESTERN LAKEWOOD, L.L.C., a Delaware
limited liability company,
Appellant.
LEE, J. — RPAI Lakewood LLC ( RPAI) appeals the superior court' s order granting
summary judgment to its tenant, Michaels Stores, Inc. ( Michaels), in this declaratory judgment
action. Because the commercial lease provisions at issue are unambiguous and show that RPAI' s
termination notice was untimely, we affirm the order granting summary judgment and the final
judgment awarding damages and attorney fees to Michaels. We also award Michaels attorney fees
on appeal.
FACTS
On August 10, 2001, Michaels entered into a lease agreement with RPAI' s predecessor for
space in the Lakewood Towne Center, a retail shopping center located in Lakewood. The lease
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was due to expire on February 28, 2012, but contained options for three five -year extensions. By
exercising the first of these options, Michaels extended the lease to February 28, 2017.
Section 16. 3 of the lease contains an " On -Going Co- Tenancy Requirement." Clerk' s
Papers ( CP) at 37, 233. Under this provision, RPAI must lease at least 70 percent of the total
square footage of the shopping center to " Anchor Tenants," as defined in the lease. CP at 37, 233.
If RPAI cannot do so for any six -month period, Michaels can choose to pay an " Alternative Rent"
in lieu of the higher " Minimum Rent" until RPAI satisfies the co- tenancy requirement. CP at 37-
38, 233 -34.
Section 16. 3 allows either party to terminate the lease following nonsatisfaction of the co-
tenancy requirement. It describes Michaels' right to terminate as follows:
In addition to the rights of Tenant to pay " Alternative Rent ", if ... non -satisfaction
of the On -Going Co- Tenancy Requirement shall continue for a period of twelve
12) months beyond the initial failure to meet the On -Going Co- Tenancy
Requirement and for so long as such non -satisfaction shall continue, ... Tenant
shall have the right to terminate this Lease
by sixty ( 60) days' written notice
delivered to Landlord.
CP at 234. Section 16. 3 then describes RPAI' s right to terminate:
Landlord shall likewise have a right to terminate this Lease, at the end of the
fourteenth ( 14th) month following the initial nonsatisfaction of the Co- Tenancy
Requirement by giving sixty ( 60) days prior written notice to Tenant of the
termination.
CP at 234. Upon receiving such notice, section 16. 3 provides that Michaels may avoid termination
by agreeing to resume paying the full minimum rent.
Section 16. 3 was triggered when Gottschalks, a defined anchor tenant, closed its store at
the shopping center in May 2009. Six months later, when RPAI had failed to obtain another anchor
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1
tenant, Michaels informed RPAI that it would begin paying the lower alternative rent. By May
2010, RPAI still had not obtained another anchor tenant. But neither party exercised its right to
terminate the lease at that time.
On December 14, 2012, RPAI notified Michaels that it would terminate the lease in 60
days unless Michaels agreed to resume paying the minimum rent. By that time, Michaels had
extended its lease to February 2017. Michaels responded that it would keep paying the alternative
rent until RPAI satisfied the co- tenancy requirement, but RPAI refused to rescind its termination
notice. Beginning January 30, 2013, Michaels began paying the minimum rent under protest,
reserving its right to pursue available remedies against RPAI.
Michaels subsequently filed a declaratory judgment action seeking a determination that
RPAI failed to timely exercise any right it had to terminate the lease under section 16. 3. Michaels
also sought an award of damages for the difference between the minimum rent it had been paying
under protest and the alternative rent. RPAI responded that the lease allowed it to give notice of
termination at any time after the end of the 14th month following the initial co- tenancy failure.
RPAI agreed with Michaels that the end of the 14th month was July 31, 2010.
Michaels moved for summary judgment, arguing that the language of section 16. 3 did not
give RPAI an ongoing right to terminate the lease. RPAI responded that Michaels' interpretation
was unfair and that section 16. 3 granted the landlord and tenant similar termination rights.
The superior court agreed with Michaels' interpretation: " I think [ RPAI] did have a right
to terminate [ the. Lease] at the end of the 14th month. They waived that, and I' m going to grant
1 The alternative rent is approximately one third of the minimum rent.
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summary judgment to Michaels on ... the language in the contract." Report of Proceedings ( RP)
at 36. The superior court entered an order granting summary judgment in favor of Michaels,
prohibiting RPAI from terminating the lease, and awarding Michaels damages in the amount of
the difference between the alternative rent and the minimum rent it had been paying since January
2013. . The superior court also entered final judgment in favor of Michaels for $ 279,466. 56,
including an award of attorney fees.
RPAI appeals, arguing that issues of fact remain concerning the meaning of the lease' s
termination provisions and that this court should reverse the order of summary judgment and
remand this case for trial.
ANALYSIS
A. STANDARD OF REVIEW
Our review on summary judgment is de novo. Trimble v. Wash. State Univ., 140 Wash. 2d
88, 92, 993 P.2d 259 ( 2000). Summary judgment is appropriate only where there are no genuine
issues of material fact and the moving party is entitled to judgment as a matter of law. CR 56( c);
Hearst Commc' ns, Inc. v. Seattle Times Co., 154 Wash. 2d 493, 501, 115 P.3d 262 ( 2005). The
moving party has the initial burden to show that there is no genuine issue as to any material fact.
Yakima Fruit & Cold Storage Co. v. Cent. Heating & Plumbing Co., 81 Wash. 2d 528, 530, 503 P.2d
108 ( 1972). If the moving party satisfies its burden, the nonmoving party must present evidence
demonstrating that material facts are in dispute. CR 56( e); Vallandigham v. Clover Park Sch. Dist.
No 400, 154 Wash. 2d 16, 26, 109 P.3d 805 ( 2005). If the nonmoving party fails to do so, summary
judgment is appropriate. CR 56( e); Vallandigham, 154 Wash. 2d at 26.
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The interpretation of a contract provision is a question of law when the interpretation does
not depend on the use of extrinsic evidence, or when only one reasonable inference can be drawn
from the extrinsic evidence. Lokan & Assocs., Inc. v. Am. Beef Processing, LLC, 177 Wash. App.
490, 499, 311 P.3d 1285 ( 2013). " If a contract is unambiguous, summary judgment is proper even
if the parties dispute the legal effect of a certain provision." Voorde Poorte v. Evans, 66 Wash. App.
358, 362, 832 P.2d 105 ( 1992).
B. INTERPRETATION OF THE CONTRACT
1. Underlying Principles
The primary objective of contract interpretation is to ascertain the parties' mutual intent at
the time they executed the contract. Viking Bank v. Firgrove Commons 3, LLC, 183 Wash. App.
706, 712, 334 P.3d 116 ( 2014). Washington follows the " objective manifestation theory" of
contract interpretation, under which the focus is on the reasonable meaning of the contract
language to determine the parties' intent. Hearst, 154 Wash. 2d at 503. " We generally give words
in a contract their ordinary, usual, and popular meaning unless the entirety ofthe agreement clearly
demonstrates a contrary intent." Hearst, 154 Wash. 2d at 504.
To assist in determining the meaning of contract language, Washington courts also apply
the " context rule." Viking Bank, 183 Wash. App. at 713 ( citing Berg v. Hudesman, 115 Wash. 2d 657,
667 -68, 801 P.2d 222 ( 1990)). This rule allows examination of the context surrounding a
contract' s execution, including the consideration of extrinsic evidence, to help understand the
parties' intent. Hearst, 154 Wash. 2d at 502. Extrinsic evidence is to be used only to determine or
clarify the meaning of specific words and terms in the contract, and not to show an intent
independent of the instrument or to vary the words used. Hearst, 154 Wash. 2d at 503; King v. Rice,
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146 Wn. App. 662, 671, 191 P.3d 946 ( 2008), review denied, 165 Wash. 2d 1049 ( 2009). Admissible
extrinsic evidence does not include evidence of a party' s unilateral or subjective intent as to the
contract' s meaning. Lynott v. Nat' l Union Fire Ins. Co., 123 Wash. 2d 678, 684, 871 P.2d 146 ( 1994).
Courts do not interpret what was intended to be written but what was written. Hearst, 154 Wash. 2d
at 504.
2. Section 16. 3
The parties agree that this case turns on the interpretation of the termination provisions in
section 16. 3 of the lease agreement and, in particular, the meaning of the word " likewise." This
word follows the description of the tenant' s termination rights and prefaces the description of the
landlord' s termination rights.
As stated, section 16. 3 provides that a tenant may terminate the lease 12 months after the
landlord fails to satisfy the co- tenancy requirement " and for so long as such non -satisfaction shall
continue" upon giving the landlord 60 days' notice. CP at 234. Section 16. 3 then states that the
landlord shall " likewise" have a right to terminate the lease " at the end of the fourteenth ( 14th)
month following the initial nonsatisfaction" of the co- tenancy requirement by giving the tenant 60
days' prior notice. CP at 234.
RPAI contends that it is reasonable to read the word " likewise" to convey the same
termination rights to the landlord as to the tenant. RPAI argues that it therefore has an ongoing
right to terminate the lease that takes effect on the last day of the 14th month following
nonsatisfaction of the co- tenancy requirement, and that this right continues " for so long as" the
nonsatisfaction lasts. RPAI asserts that if the parties had intended its termination rights to be
waived if not exercised at the end of the 14th month, they would have so stated, as shown by
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another lease provision stating that if the landlord ceases to claim reimbursement for certain
expenses within a certain timeframe, its right to recover is " deemed to have been waived." CP at
26.
Michaels responds that " likewise" simply means that RPAI also has termination rights and
that section 16.3 clearly shows the parties' intent to limit RPAI' s right of termination to its exercise
at the end of the 14th month following nonsatisfaction of the co- tenancy requirement. See
WEBSTER' S THIRD NEW INT' L DICTIONARY, at 1310 ( 1969) ( " likewise" means " moreover" or
similarly "). Michaels contends that RPAI is attempting to rewrite the contract by ( 1) substituting
after" for " at" in the phrase allowing it to terminate " at the end of the 14th month" following
nonsatisfaction of the co- tenancy requirement, (2) adding the " for so long as" modifier to RPAI' s
termination clause so that both Michaels and RPAI have the right to terminate as long as the
nonsatisfaction continues, and ( 3) reading " likewise" as a single word that grants RPAI the same
termination rights as Michaels despite the different language used. See Markel Am. Ins. Co. v.
Dagmar' s Marina, LLC, 139 Wash. App. 469, 480, 161 P.3d 1029 ( 2007) when drafter of agreement
employs different terms instead ofparallel terminology, the presumption is that the change in usage
was purposeful and reflects different meaning).
As support for its interpretation of section 16. 3, Michaels cites a federal district court
decision that examined a similar provision after another shopping center attempted to terminate its
lease with a Michaels store. Regency Realty Group, Inc. v. Michaels Stores, Inc., 2012 WL 954639
No. 46071 -8 -II
E. D. Mich.) ( court order).2 In granting Michaels summary judgment on its declaratory relief
claim, the district court held that the different language used to describe the parties' termination
rights was determinative:
Regency and Michaels are both sophisticated parties that have presumably
negotiated and entered into numerous commercial leases. Presumably, both parties
acted upon the advice of counsel in drafting, negotiating, and entering into the
Lease. The fact that the parties used language granting a continuing option in
Michael' s[ sic] termination provision and did not use that same language in
Regency' s option to terminate is convincing evidence that Regency does not have
an ongoing option.
Regency, 2012 WL 954639, at * 7. The district court then rejected the landlord' s argument that the
word " likewise" in section 16. 3 gave the both the landlord and the tenant an ongoing right to
terminate:
The use of the word likewise indicates that Landlord also has the right to terminate;
it does not indicate that Landlord' s termination right is procedurally identical to
Tenant' s. After the term likewise, the contract describes the procedures by which
Landlord may exercise its termination right. These procedures are materially
different from those granted Tenant. Landlord essentially asks the Court to alter
the plain language of the contract by changing " at the end of the twelfth month" to
after the end of the twelfth month." The Court, however[,] must honor the parties'
bargain and respect the plain language of the contract as written.
Regency, 2012 WL 954639, at * 7. The district court concluded that the lease unambiguously
granted the landlord a one -time option to terminate the lease, that the landlord did not timely
exercise that right, and that judgment on the termination issue should enter for Michaels as a matter
of law. Regency, 2012 WL 954639, at * 8.
2 The Michigan lease provision was identical to the provision at issue except for the different time
periods that triggered the parties' termination rights. Regency, 2012 WL 954639, at * 2. We may
cite this unpublished decision because the federal rules allow its citation. GR 14. 1( b); Fed. R.
App. P. 32. 1.
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RPAI complains that this interpretation considers the words used in section 16. 3 totally
divorced from any facts, circumstances, and extrinsic evidence. RPAI cites the commercial
context of the lease in arguing that there is no indication that the parties intended to impose a major
disparity in termination rights where the tenant' s right to terminate would never end, but the
landlord' s right would last only one day. RPAI contends that its interpretation of section 16. 3 is
more reasonable than Michaels' because it gives each party the opportunity to adjust to market
conditions as they exist in the commercial world. See Byrne v. Ackerlund, 108 Wash. 2d 445, 453-
54, 739 P.2d 1138 ( 1987) ( where one construction would make a contract unreasonable, and
another, equally consistent with its language, would make it reasonable, the latter construction
must prevail). According to RPAI, Michaels' interpretation of section 16. 3 is punitive and a
disconnect with commercial reality." Br. of Appellant at 10.
Michaels responds that it is commercially reasonable to give the tenant greater termination
rights because satisfaction of the co- tenancy requirement was a major part of the parties' bargain
and because it was RPAI' s duty to satisfy that requirement. Michaels points out that if RPAI had
a continuing right to terminate in the event of nonsatisfaction, it would have far less incentive to
satisfy the co- tenancy requirement.
Both parties' references to extrinsic evidence focus on their own observations of what is
commercially reasonable. Although the parties engaged in some discovery before the superior
court considered Michaels' motion for summary judgment, there is no evidence in the record
concerning the parties' lease negotiations. The only additional facts provided consist of RPAI' s
description of its difficulties in obtaining another anchor tenant and its assertion that Michaels'
yearly sales increased after Gottschalks closed.
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As stated, the context rule allows the use of extrinsic evidence only to determine the
meaning of specific words used in the contract and not to vary or modify the language used. See
McCormick v. Dunn & Black, P. S., 140 Wn. App. 873, 891, 167 P.3d 610 ( 2007) ( courts do not
have the power, under the guise of interpretation, to rewrite contracts), review denied, 163 Wash. 2d
1042 ( 2008). In Hearst, the court held that extrinsic evidence concerning the defendant' s acts
following adoption of the contract did not shed meaning on the words in the contract and was
irrelevant to their interpretation. 154 Wash. 2d at 510 n. 14; see also Hollis v. Garwall, Inc., 137
Wash. 2d 683, 697, 974 P.2d 836 ( 1999) ( "[ e] xtrinsic evidence is to be used to illuminate what was
written "). Here, too, the difficulty of obtaining a new anchor tenant and Michaels' revenues
following Gottschalks' departure are irrelevant to the meaning of the words used in section 16. 3.
Because the language of the contract is unambiguous and clearly shows that RPAI did not exercise
its termination rights in a timely manner, we affirm the superior court' s grant of summary judgment
in favor of Michaels.
C. ATTORNEY FEES
Michaels requests an award of attorney fees on appeal. A prevailing party may recover
such fees if permitted by applicable law, which includes contractual fee provisions in commercial
leases. RAP 18. 1( a); City of Puyallup v. Hogan, 168 Wash. App. 406, 430, 277 P.3d 49 ( 2012).
Section 14. 5 of the lease provides that following an action between the landlord and the tenant
relating to the lease, the prevailing party may recover reasonable attorney fees. We grant
Michaels' request for reasonable attorney fees on appeal.
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We affirm.
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW 2. 06.040,
it is so ordered.
We concur:
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