36 Cal.App.5th 375
Cal. Ct. App.2019Background
- Paul Orozco formed Solid Restaurant Ventures to operate Pauly’s Famous Franks N Fries and signed a 10‑year lease at The Plant shopping center after the landlord’s leasing agent, Amber Weltner (Vornado), repeatedly told him no competing restaurant concepts or products were being considered.
- Unknown to Orozco, Weltner had already negotiated and secured a fully executed lease with Al’s Beef, a chain selling hot beef sandwiches, hot dogs, and fries; Al’s Beef opened near Pauly’s about six months after Pauly’s opened and Pauly’s sales then dropped sharply and closed within six months.
- Solid Restaurant Ventures and Orozco sued Vornado (and successor Cole) for intentional misrepresentation and fraudulent concealment (fraud in the inducement). A jury found Vornado liable and awarded Solid Restaurant Ventures $872,141 (including $676,967 in lost profits).
- After the verdict, Solid Restaurant Ventures elected damages rather than rescission of the lease; Orozco (who had personally guaranteed the lease) sought rescission of the personal guaranty but the trial court denied rescission and denied attorney’s fees under Civil Code § 1717.
- The Court of Appeal affirmed liability and the lost‑profits award, reversed the denial of rescission as to Orozco’s guaranty (finding the trial court erred), and reversed the denial of fees only to the extent Orozco is entitled to fees under the guaranty’s fee clause; it remanded for entry of rescission of the guaranty and calculation of Orozco’s fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff reasonably relied on landlord’s representations | Orozco: He repeatedly asked about competing tenants, was told none, and reasonably relied on the leasing agent’s statements | Vornado: Reliance was unreasonable because lease disclaimers and Orozco’s failure to read the lease and secure an exclusive made reliance negligent | Held: Substantial evidence supported reasonable reliance; disclaimers do not bar recovery for fraud and jury credibility controls |
| Admissibility of plaintiff’s damages expert | Solid: Expert used Pauly’s historical sales to extrapolate lost profits over lease term with reasonable methods | Vornado: Expert lacked qualifications/methodology; testimony speculative | Held: Defense waived many objections; trial court did not abuse discretion admitting expert under Sargon standard |
| Sufficiency of evidence for lost profits award | Solid: Used 21 weeks of pre‑competition sales, reasonable trend and discounting to compute lost profits | Vornado: Business was unestablished; projections speculative; discount rate unreasonable | Held: Lost‑profits finding supported by substantial evidence (including defense expert’s nonzero estimate); jury’s factual determinations stand |
| Whether Orozco could rescind his personal guaranty after tenant elected damages | Orozco: He is a separate juridical claimant and may rescind guaranty procured by fraud even without pecuniary loss | Vornado: Lease and guaranty cannot be separated; tenant’s election of damages precludes rescission of guaranty; rescission requires individual damages | Held: Trial court erred; rescission permissible—pecuniary loss not required and guaranty is separable for remedies; reverse as to guaranty rescission |
| Whether Civil Code § 1717 entitles plaintiffs to attorney’s fees under lease | Plaintiffs: The dispute related to the lease and its fee clause; § 1717 should apply reciprocally | Vornado: The action sounded in tort (fraud), not an action on a contract, so § 1717 does not apply | Held: Overall action was tort/fraud (not "on a contract") so § 1717 does not apply; trial court correctly denied fees under lease |
| Whether Orozco is entitled to fees under the guaranty’s fee clause | Orozco: Guaranty contains a prevailing‑party fee clause covering actions arising out of the guaranty | Vornado: (did not meaningfully contest on appeal) | Held: Orozco prevailed on rescission of guaranty and is entitled to reasonable attorney’s fees under the guaranty; remand to determine amount |
Key Cases Cited
- Nestle v. City of Santa Monica, 6 Cal.3d 920 (discussing appellate deference to jury credibility findings)
- Sargon Enterprises, Inc. v. University of Southern California, 55 Cal.4th 747 (expert opinion admissibility: gatekeeping focuses on sound logic, not persuasiveness)
- Santisas v. Goodin, 17 Cal.4th 599 (purpose of Civ. Code § 1717: ensure mutuality of remedy for contractual fee clauses)
- Earl v. Saks & Co., 36 Cal.2d 602 (fraudulent inducement: pecuniary loss not required to obtain rescission)
- Denevi v. LGCC, LLC, 121 Cal.App.4th 1211 (distinct juridical persons may pursue separate remedies arising from same facts)