Grand Prospect Partners v. Ross Dress for Less, Inc.
232 Cal. App. 4th 1332
| Cal. Ct. App. | 2015Background
- Grand Prospect (landlord) and Ross Dress for Less (tenant) negotiated a 10-year retail lease for space in Porterville Marketplace containing cotenancy provisions requiring Mervyn’s (and Target) to be open on the lease commencement date; if Mervyn’s was not open, Ross could defer opening and pay no rent until cured, and could terminate after a 12-month uncured period.
- Mervyn’s filed bankruptcy and closed its Porterville store before Ross’s commencement date; Ross took possession, never opened or paid rent, and terminated after the 12-month cure period expired.
- Grand Prospect sued seeking a declaration that the cotenancy provisions were unenforceable and damages for unpaid and future rent; the trial court struck the cotenancy provisions as unconscionable and an unenforceable penalty, treating Ross’s termination and withholding of rent as breaches.
- A jury awarded Grand Prospect $672,100 for unpaid rent and roughly $3.1 million for termination-related damages; trial court entered judgment including attorneys’ fees; Ross appealed.
- The Court of Appeal held there was no procedural unconscionability (parties were sophisticated and negotiated multiple drafts), the rent-abatement clause was an unreasonable penalty (no reasonable relation between forfeited rent and anticipated harm), but the termination option was valid under the rule that contingent terminations agreed by sophisticated parties and unrelated to party default are not forfeitures.
- Judgment was modified to award only unpaid rent ($672,100); other termination-related damages were vacated and total award reduced accordingly.
Issues
| Issue | Grand Prospect's Argument | Ross's Argument | Held |
|---|---|---|---|
| Were the cotenancy provisions procedurally unconscionable? | Lease (and its cotenancy clauses) were adhesionary/oppressive and should be invalidated. | Parties were sophisticated and negotiated terms; not adhesive. | No procedural unconscionability: sophisticated parties, multiple drafts, meaningful negotiation. |
| Were the cotenancy provisions substantively unconscionable? | Terms were unduly harsh and one-sided, so unenforceable. | Clauses are commercially reasonable protections for tenant. | No general substantive unconscionability ruling; court refused to void provisions on that ground given lack of procedural unconscionability and factual record. |
| Was the rent-abatement (no rent until cure) an unreasonable penalty? | Enforceable liquidated-remedies or bargained-for remedy. | Clause protects tenant’s economic interest; not a penalty. | Rent abatement was an unenforceable penalty: forfeited value (~$39,500/mo) bore no reasonable relationship to anticipated harm (trial court found Ross anticipated $0). |
| Was the 12-month termination option a penalty/forfeiture? | Termination produced a windfall to tenant; should be struck as penalty. | Termination is a negotiated contingency right and valid. | Termination provision is valid: contingent termination by sophisticated parties unrelated to their acts does not create a forfeiture; thus enforceable. |
Key Cases Cited
- Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109 (Cal. 2013) (discusses procedural and substantive unconscionability and sliding-scale test)
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (Cal. 2000) (unconscionability framework; sliding scale)
- Ridgley v. Topa Thrift & Loan Assn., 17 Cal.4th 970 (Cal. 1998) (penalty doctrine—lack of proportionality between forfeiture and anticipated harm)
- C. M. Staub Shoe Co. v. Byrne, 169 Cal. 122 (Cal. 1915) (termination clauses triggered by external contingencies do not necessarily operate as forfeitures)
- Fox Chicago R. Corp. v. Zukor’s, 50 Cal.App.2d 129 (Cal. Ct. App. 1942) (condition drafted as clause can be treated as a penalty when it causes forfeiture unrelated to actual damages)
- Blank v. Borden, 11 Cal.3d 963 (Cal. 1974) (distinguishes true alternative performance from penal forfeiture)
- Henck v. Lake Hemet Water Co., 9 Cal.2d 136 (Cal. 1937) (equity may relieve against forfeiture caused by condition precedent)
- A & M Produce Co. v. FMC Corp., 135 Cal.App.3d 473 (Cal. Ct. App. 1982) (discusses unconscionability doctrine elements)