Flagship West, LLC v. Excel Realty Partners, L.P. (758 F. Supp. 2d 1004, 2010)

United States District Court for the Eastern District of California 2010-12-20

Citations

Full opinion text

MEMORANDUM DECISION AND ORDER GRANTING PLAINTIFFS’ MOTION FOR INTERPRETATION OF LEASE (Doc. 500) AND DENYING DEFENDANT’S MOTION TO STRIKE AND/OR FOR LEAVE TO FILE SUR-REPLY BRIEF (Doc. 508)

OLIVER W. WANGER, District Judge.

This case is before the Court after remand by the Ninth Circuit Court of Appeal. The Ninth Circuit reversed the Court’s granting of Flagship West, LLC’s and Marvin and Kathleen Reiche’s (“Flagship”) election of rescission of its lease with Excel Realty Partners, L.P. (“Excel”) after a jury found that Excel materially violated an “exclusive use” provision of the lease. The trial court ruling that judicial estoppel precluded Excel from asserting that § 4.5 of the lease bars rescission, was not warranted and the limited remand was “so that the district court may determine in the first instance whether the contract, in its entirety, allows for rescission and whether California law would give effect to the lease’s limitations on remedies in these circumstances.” Specifically:

Excel ... appeals the district court’s order granting Excel’s tenant ..., rescission of its lease based on a determination that Excel materially violated an ‘exclusive use’ provision of that lease. The district court invoked judicial estoppel to prevent Excel from asserting that § 4.5 of the lease bars rescission. Because we find judicial estoppel was not warranted here, we remand for the district court to determine whether rescission is an available remedy under California law and the terms of the contract.

First, Excel’s litigation positions were not clearly inconsistent. There is no evidence that Excel ever conceded that rescission was available to Flagship. Although the Pretrial Order did not specifically cite § 4.5 of the lease or discuss all of the arguments that might be based on the section, it acknowledged that Excel contested Plaintiffs’ entitlement to rescind, at least on both materiality and independent covenant grounds. Other related arguments that rescission was not available, including the contractual limitation on remedies argument at issue, were adequately embraced within the order ....

Second, the district court never relied on a party’s inconsistent statements ... Even though the district court may have been under the impression that rescission was being ‘actively litigated,’ judicial estoppel is not appropriate unless the court made rulings in reliance on an admission by Excel that rescission was in fact available. No such reliance is possible here because, throughout the proceedings, Excel actively contested the availability of rescission on a theory-by-theory basis. Excel had no legal obligation to pursue a general legal argument against rescission prior to its more narrow arguments because the argument regarding limitation of remedies available under the contract is not an affirmative defense under Fed.R.Civ.P. 8(c) ....

Third, allowing Excel to raise its contractual remedies limitation argument after the jury had deliberated did not give Excel an unfair advantage or impose an unfair detriment on Flagship. Even if Excel had raised the argument at an earlier stage, the same factual issues would have been put to the jury to determine liability for damages. Consequently, we vacate the district court’s judgment awarding rescission damages to Flagship and remand so that the district court may determine in the first instance whether the contract, in its entirety, allows for rescission and whether California law would give effect to the lease’s limitations on remedies in these circumstances. We do not reach either party’s claims related to the calculation of rescission damages and express no opinion on those claims.

A supplemental scheduling conference was held. The Supplemental Scheduling Conference Order filed on August 14, 2009 (Doc. 499), states: “Plaintiff shall not raise any new matter in the reply memorandum of law.”

Flagship seeks interpretation of § 4.5 of the lease as not precluding rescission of the lease. Excel opposes Flagship’s motion.

A. BACKGROUND.

Excel is the owner of the Briggsmore Plaza in Modesto. On July 16, 1998, Excel executed a 15 year ground lease (“Lease”) with Flagship, whose only members are the Reiches, for a stand-alone 10,000 square foot lot (the “Property”) in the Briggsmore Plaza for the purpose of constructing and operating a buffet style restaurant under the Golden Corral franchise (the “Restaurant”). The Lease provides that Flagship has the “exclusive right to operate a self service buffet style family restaurant within the Shopping Center.” (Lease § 6.3).

To construct the Restaurant, Flagship borrowed a 25 year, $2 million loan from The Money Store, which was secured by a deed of trust on Flagship’s leasehold interest in the Property. The Reiches also executed written personal guarantees of the loan. The Restaurant opened on June 10, 1999. Approximately a year later, the Four Seasons, a buffet restaurant serving Chinese food, opened in the Briggsmore Plaza in a location directly across from the Restaurant. Based on an express lease provision, Flagship contended that the operation of the Four Seasons breached their exclusive right to run a buffet style restaurant in the shopping center and caused the Restaurant to become unprofitable, leading to its closure on April 1, 2001.

Flagship filed suit against Excel, alleging breach of contract, fraud, and negligent misrepresentation, seeking contract damages and rescission. In the Pretrial Order, Flagship requested a jury trial on all issues, while Excel relied on Flagship’s jury demand instead of making one themselves. The ease was tried to a jury. The trial commenced on November 12, 2003 and verdicts were returned on December 3, 2003. The general verdict with interrogatories found in favor of Flagship and awarded Flagship $1,502,000.00 in contract damages. Specifically, the jury found that Flagship proved “by a preponderance of the evidence, that Defendant Excel Realty Partners, L.P., breached the lease by leasing space in the Briggsmore Plaza to Bi Wen Liu for the operation of the Four Seasons Buffet” and Excel’s “breach of paragraph 6.3 of the lease agreement [was] material.” (Doc. 280). Entry of judgment was deferred to allow Flagship to elect the remedy of rescission and any rescission damages or damages for breach of contract.

The “Order Re: Post Trial Election of Remedies; Defendants’ Claimed Rescission Waiver Clause; Defendants’ Claimed Damage Limitation Clause” filed on November 19, 2004 (November 19, 2004 Memorandum Decision; Doc. 353), notes the parties’ extensive post-trial briefing, addressing a number of issues. Rescission was elected and rescission damages awarded. A remedies lease provision barring rescission was found unenforceable.

B. FLAGSHIP’S MOTION FOR INTERPRETATION OF LEASE.

The primary issue before the Court is the proper interpretation of § 4.5 of the lease. Section 4.5 provides:

4.5 Triple Net Lease. Tenant’s Basic Rent and Additional Rent shall be absolutely net to Landlord, so that this Lease shall yield to Landlord the full amount of the installments of Basic Rent and Additional Rent throughout the Term, and shall be paid without assertion of any counterclaim, set off, deduction or defense and without abatement, suspension, deferment, diminution, reduction or refund of any kind, except as expressly set forth herein. Under no circumstances whether now existing or hereafter arising, or whether beyond the present contemplation of the parties, shall Landlord be required to make any payment or refund of any kind whatsoever or be under any obligation or liability hereunder, except as expressly set forth herein. Except as otherwise expressly set forth in this Lease, this Lease shall continue in full force and effect, and the obligations of Tenant hereunder shall not be released, discharged or otherwise affected, by reason of any of the following: (a) any damage to or destruction of the Premises or any portion of either or any Taking of the Premises or any portion of either; (b) any restriction or prevention of or interference with any use of the Premises or any portion of either; or (c) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, in each case, whether or not Tenant shall have notice or knowledge of any of the foregoing. The obligations of Tenant in this Lease shall be separate and independent covenants and agreements. Tenant hereby waives, to the fullest extent permitted by the applicable law, any and all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease or the Premises or any portion thereof, or to any abatement, suspension, deferment, diminution, reduction or refund of Basic Rent or Additional Rent, except as otherwise expressly set forth herein.

1. Independent and Separate Covenants.

Excel argues that rescission is barred because Flagship’s obligations under the Lease are explicitly made separate and independent covenants by Section 4.5. Excel refers to the “Order Re: Post Trial Election of Remedies; Defendants’ Claimed Rescission Waiver Clause; Defendants’ Claimed Damages Limitation Clause,” filed on November 19, 2004, (November 19, 2004 Memorandum Decision, Doc. 353), and specifically to 49:2-3 and 51:8-15:

Plaintiffs were experienced and sophisticated restaurant operators.

With respect to § 4.5, the Lease shows that the parties modified the provision, striking out the term ‘or the Access Area’ several times. These changes were ratified by initials ‘MGR’ (Marvin G. Reiche) in the margins. See Doc. 302, Ex. A, Lease, at 4. Plaintiffs cannot claim that § 4.5 escaped their notice.

Excel relies on these statements to assert that Section 4.5 was bargained for between sophisticated parties at arm’s length. Therefore, Excel contends, Flagship cannot rescind or otherwise avoid their obligations under the Lease based on a violation of the exclusive use provisions in Section 6.3 of the Lease and asserts that Flagship’s sole remedy is damages for Excel’s breach of the exclusive use provisions.

Excel argues that it is unaware of any court that has allowed rescission for breach of an exclusive use clause in a lease that also provides that such clause is an independent covenant. Excel refers to the “Memorandum Decision and Order Re Posh-Trial Election of Remedies” filed on September 30, 2005, 2005 WL 4701939 (September 30, 2005 Memorandum Decision, Doc. 362), at 14:13-17:

Breach of an independent covenant does not warrant rescission because, by definition, breach of an independent covenant is not material. By its very nature, an independent covenant does not run to the whole of the consideration.

However, Excel’s reference to the September 30, 2005 Memorandum Decision is incomplete:

Defendant asserts that materiality is not the central inquiry, and rather, the key inquiry is whether the covenant breached is independent. It is true that some courts approach the question of rescission based at least in part on an analysis of whether the provision breached was a dependent or independent covenant. See, e.g., Medico-Dental, 21 Cal.2d at 418-19 [132 P.2d 457]; Mills, 56 Cal.App. at 776 [206 P. 486]. This follows because the factors that determine whether a covenant is independent, overlap with the factors that in determine [sic] whether a breach was material. Medico-Dental, 21 Cal.2d at 433 [132 P.2d 457], Breach of an independent covenant does not warrant rescission because, by definition, breach of an independent covenant is not material. By its very nature, an independent covenant does not run to the whole of the consideration. However, what Defendant has not provided is citation to any authority holding that exclusive use provisions, such as the one at issue here, are independent covenants as a matter of law. In fact, the courts in the two cases upon which Defendant relies, Kulawitz and Medico-Dental, found that the exclusive use covenants at issue there were dependent, based on an analysis of the factors and the factual record.

In this case, the jury has already made a finding that the breach was material. It is not necessary for the court to now decide, as a matter of law, that the covenant at issue was independent. The provision was integral to the Lease, which would not have been entered into without it. The answer to the mixed question of law and fact as to independence of the provision is irrelevant to the question whether the Plaintiff is entitled to elect rescission. The jury’s finding of materiality provides sufficient grounds for rescission, according to well-established California law.

(September 30, 2005 Memorandum Decision at 14:4-15:5).

Excel argues that Kulawitz v. The Pacific Woodenware and Paper Co., 25 Cal.2d 664, 155 P.2d 24 (1944) and Medico-Dental Bldg. Co. v. Converse, 21 Cal.2d 411, 132 P.2d 457 (1942), “stand for a proposition that has no bearing on this case.” Excel contends that “[a]bsent an express statement in the lease that covenants are independent, a court may determine that the covenants involved are conditions precedent so that a breach may justify rescission if it goes to the heart of the matter.” Excel contends that such analysis is only necessary where there is no explicit agreement by the parties and is unwarranted here “because the Ground Lease specifies that Plaintiffs’ obligations are independent of Excel’s compliance with its obligations.” Excel asserts that the jury verdict of “material breach” during the breach of contract phase of the trial “does not overrule the clear tenant of California law that where the parties to a contract agree that the terms thereof are independent covenants, a breach will not justify rescission.”

Excel’s contention that Section 4.5 makes Excel’s obligation to honor the exclusive use provisions of the Lease an independent covenant ignores the express wording of Section 4.5: Section 4.5 deals with a tenant’s obligation to pay rent and provides that “[t]he obligations of Tenant in this Lease shall be separate and independent covenants and agreements.” Section 4.5 does not provide that any of the landlord’s obligations under the Lease are independent covenants. As Flagship asserts: “Defendants cite no authority in support of their position, and without explanation assert that because the Lease states Tenant’s obligations are ‘independent covenants,’ that the Landlord’s obligations are independent as well.” Flagship cites Medico-Dental, supra, 21 Cal.2d at 419, 132 P.2d 457, in turn citing 32 Am.Jur. § 144, that “ ‘covenants and stipulations on the part of the lessor and lessee are to be construed to be dependent upon each other or independent of each other, according to the intention of the parties and the good sense of the case, and technical words should give way to such intention.’ ” Flagship contends:

Excel’s interpretation patently ignores the circumstances of this case, the undisputed evidence that the exclusive use provision was central to the Lease, and the jury’s finding of materiality, in arguing that a clause providing that the Tenant’s obligations are independent also means the Landlord’s obligations are independent. In making this argument, Defendants are asking the court to read the word ‘Landlord’ into the provision, without any supporting evidence that that is what was intended by the parties.

Contrary to Excel’s contention, Flagship argues, there is no “express statement” in the Lease making Excel’s obligation to honor the exclusive use clause an independent covenant. Flagship argues that Excel’s interpretation of Section 4.5 allows Excel to treat every obligation it had under the Lease as optional, precluding Flagship from rescinding the Lease under any circumstances:

Excel presents no support for its position that any party can be required to stay in a contract which the other party has materially failed to perform. Without the consideration Flagship expressly bargained for, the Lease failed. The language making Flagship’s covenants to pay rent ‘independent’ did not in way [sic] alter Defendants’ obligation to hon- or the exclusive use provision, and does not make that provision any less central to the parties’ bargain.

Excel argues that Section 6.3 of the Lease provides a remedy in damages for breach of the exclusive use clause. Section 6.3 provides:

6.3 Exclusive Use Rights. Subject to the conditions and restrictions set forth herein, Tenant shall have the exclusive right to operate a self service buffet style restaurant within the Shopping Center, except that such exclusive right:

(h) Shall not result in Landlord being liable to Tenant for monetary damages for any other tenants’ or occupants’ violation of such exclusive use privilege of Tenant unless, with respect to future tenants or occupants ..., Landlord has failed to restrict such tenant or occupant from violating Tenant’s exclusive use privilege granted in this Lease ....

Flagship responds that Section 6.3(h) does not restrict the tenant from rescinding the Lease if Excel failed to prevent future tenants from violating Flagship’s exclusive use privilege. Flagship notes that Excel cites no authority that a damages provision limits the ability of a party to a contract from rescinding the contract because of a material breach. Flagship cites California Civil Code § 1692, which provides that “[a] claim for damages is not inconsistent with a claim for relief based upon rescission.” Flagship refers to the November 19, 2004 Memorandum Decision that “[i]n the event rescission is elected, § 22.25 cannot be enforced as rescission avoids enforceability of clauses of the Lease, including damage limitations.”

Flagship’s contentions are well-taken. Section 4.5 by its terms provides that the tenant’s obligation to pay rent under the lease is an independent covenant. Section 4.5 does not refer in any way to the landlord’s obligations to the tenant under the lease. To the contrary, Section 6.3 imposes an express duty on Excel to restrict any other tenant from violating Flagship’s exclusive use privilege. This imposed an express obligation on Excel which was integral to the lease and represented a dependent covenant. The jury specifically found that Excel’s breach of the exclusive use provision in Section 6.3 of the lease was material. Excel’s contention that the jury’s verdict on this issue is irrelevant to the determination that Section 4.5 makes Excel’s obligations under the lease independent covenants not only ignores the verdict, which is now final, but ignores the plain language of the lease, expressly imposing the duty on Excel to protect the exclusive use right.

2. Waiver of Section í-5.

Flagship argues that Excel waived the defense of Section 4.5 by not presenting the issue to the jury and that Excel has the burden of establishing that Section 4.5 operated as a waiver of the right to rescind by clear and convincing evidence.

Excel rejoins that the Ninth Circuit “specifically ruled that § 4.5 was not an affirmative defense (affirming this Court’s earlier ruling).” The Ninth Circuit, in reversing the finding of judicial estoppel, ruled that there was no evidence that the Court relied on any inconsistent statement by Excel: “Excel had no legal obligation to pursue a general legal argument against rescission prior to its more narrow arguments because the argument regarding limitation of remedies available under the contract is not an affirmative defense under Fed.R.Civ.P. 8(c).”

In the November 19, 2004 Memorandum Decision, 40:3-41:26, the Court addressed Flagship’s contention that Sections 4.5 and 22.25 were affirmative defenses that were waived by Excel by failure to raise them in the Answer. The discussion in the November 19, 2004 Memorandum Decision is limited to contractual limitation of damages clauses:

With respect to contractual limitations on damages in a contract dispute, the defense is contained in the cause of action itself. Both sides had full access to the Lease (38 pages long) and are presumed to have examined it carefully. There is no danger of unfair surprise by assertion of this defense.

This discussion is limited to Section 22.25 of the Lease; it does not address Section 4.5 as an affirmative defense. Excel relies on the Ninth Circuit’s ruling to assert that it had no burden of proof “with respect to this issue or other purported ‘waiver’ issues proffered by Plaintiffs.” Excel contends that the burden is on Flagship to prove their entitlement to rescission.

Flagship’s waiver argument is premised on the contention that application of Section 4.5 to bar rescission is Excel’s affirmative defense. The Ninth Circuit’s ruling resolves Flagship’s position.

Excel previously argued that “[i]n § 4.5 Plaintiffs have expressly waived the right to ‘quit, terminate or surrender’ the Lease ‘except as otherwise expressly set forth herein’ and there is not ‘otherwise’ in the Lease” and that Section 4.5 precludes rescission “ ‘... by reason of ... any restriction or prevention of or interference with any use of the Premises.”

Flagship argues that Section 4.5’s plain language reveals that it does not constitute a waiver of rescission. Flagship notes that the term “rescission” does not appear in Section 4.5 and cites California case law in support of its contention that the terms “quit,” “terminate,” or “surrender” are not synonyms for rescission and have distinct unrelated meanings within the context of the Lease.

Flagship invokes principals of contract interpretation.

In California, “the intention of the parties as expressed in the contract is the source of contractual rights and duties. A court must ascertain and give effect to this intention by determining what the parties meant by the words they used.” Pacific Gas and Electric Co. v. G.W. Thomas Drayage & Rigging Co., Inc., 69 Cal.2d 33, 38, 69 Cal.Rptr. 561, 442 P.2d 641 (1968). “The precise meaning of any contract ..., depends upon the parties’ expressed intent, using an objective standard.” As explained in Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 18-19, 44 Cal.Rptr .2d 370, 900 P.2d 619 (1995):

The fundamental rales of contract interpretation are based on the premise that the interpretation of a contract must give effect to the ‘mutual intention’ of the parties. ‘Under statutory rales of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. [Civ.Code, § 1636.] Such intent is to be inferred, if possible, solely from the written provisions of the contract. [Id., § 1639.] The ‘clear and explicit’ meaning of these provisions, interpreted in their ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage’ (id., § 1644), controls judicial interpretation ... A [contract] provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable ... But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract ... Courts will not strain to create an ambiguity where none exists.

“Interpretation of a contract ‘must be fair and reasonable, not leading to absurd conclusions’ ” and a court “ ‘must avoid an interpretation which will make a contract extraordinary, harsh, unjust, of inequitable.’ ” ASP Properties Group v. Fard, Inc., 133 Cal.App.4th 1257, 1269, 35 Cal.Rptr.3d 343 (2005):

Section 1643 provides: ‘A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.’ In the event other rules of interpretation do not resolve an apparent ambiguity or uncertainty, ‘the language of a contract should be interpreted most strongly against the party who cause the uncertainty to exist.’ (§ 1654).

Id.

Flagship argues that, applying these rules of contract interpretation, Section 4.5 cannot be reasonably interpreted as a waiver of its right to rescind or as precluding rescission in any way. Flagship contends that Excel waived the right to argue that extrinsic evidence should be considered in interpreting the Lease because it did not present extrinsic evidence at trial concerning the meaning of the Lease or request findings of fact by the jury through special interrogatories.

Flagship contends that the plain language of Section 4.5 does not constitute a waiver of its right to rescind.

Flagship asserts the word “terminate” is not synonymous with “rescission.” Flagship cites Welles v. Turner Entertainment Co., 503 F.3d 728 (9th Cir.2007). In Welles, the daughter of Orson Welles sought a declaratory judgment that she owned the copyright and home video rights to “Citizen Kane,” an accounting of royalties, and for alleged breach of contract and unfair business practices. In pertinent part, the Ninth Circuit ruled:

As noted above, the Exit Agreement stated that it was ‘the mutual desire of the parties to terminate and cancel’ their prior agreements. Beatrice Welles argues that this language rescinded the parties’ prior agreements and thus returned any right Orson Welles and Mercury had in the Citizen Kane motion picture to them. However, under California law, it seems that ‘terminate’ and ‘cancel’ mean something different from ‘rescind’:

The words “terminate,” “revoke,” and “cancel,” ... all have the same meaning, namely, the abrogation of so much of the contract as might remain executory at the time notice is given, and must be sharply distinguished from the word “rescind,” ... which conveys a retroactive effect, meaning to restore the parties to their former position.

Grant v. Aerodraulics Co., 91 Cal. App.2d 68, 204 P.2d 683 (1949). Thus, under California law, the Exit Agreement prospectively terminated and can-celled Orson Welles’s right to royalties, but did not retroactively rescind RKO’s copyright in the Citizen Kane motion picture unless RKO’s copyright remained executory at the time of the Exit Agreement.

503 F.3d at 738. See also Sanborn v. Ballanfonte, 98 Cal.App. 482, 488, 277 P. 152 (1929).

Flagship argues that the Lease uses the word “terminate” consistently with its definition under California law as explained in Sanborn and Grant. Flagship refers to Section 18.2 of the Lease, captioned “Remedies:”

(a) If an Event of Default shall occur, then, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the right to immediately terminate this Lease, and to recover from the Tenant the following:

(1) the worth at the time of award of the unpaid Basic Rent, Additional Rent, and other sums owing by Tenant under this Lease (collectively ‘Rent’) which had been earned at the time of termination;

(2) the worth at the time of award of the amount by which the Unpaid Rent would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided.

Flagship also refers to Section 6.4 of the Lease, captioned “Cessation of Business:”

If, after the Commencement Date, Tenant ceases business from the Premises for a period of one hundred eighty (180) days in any sixty (60) month period, Landlord shall have the option, by written notice to Tenant, to terminate this Lease as of the date set forth in such notice, which date shall not be earlier than thirty (30) days after the date of such notice. In the event Landlord elects to terminate this Lease as described above, this Lease shall be null and void and of no further force or effect on the date set forth for such termination, except that accrued but unpaid or unperformed obligations shall continue in effect; provided, however, that Landlord shall pay to Tenant on the effective termination date the unamortized cost incurred by Tenant for the construction of the improvements ....

Flagship refers to Section 15 of the Lease, captioned “Eminent Domain,” and specifically Sections 15.1(a) (“In the event of a Total Taking of the Premises, the Lease shall terminate as of the date of the Taking ... ”) and 15.2(a) (“If a Partial Taking results [in specified loss of parking or premises], then Tenant may, at Tenant’s option, terminate this Lease in its entirety as of the date of the Taking, in which case Landlord and Tenant shall be released from all further obligations and liability under the Lease ... ”). Flagship argues that interpretation of the word “terminate” in Section 4.5 to have a different meaning from these Lease provisions violates a basic premise of contract interpretation law. See E.M.M.I. Inc. v. Zurich American Ins. Co., 32 Cal.4th 465, 475, 9 Cal.Rptr.3d 701, 84 P.3d 385 (2004):

Accepting Zurich’s interpretation would require that we give different meanings to the same term used in the same policy paragraph. This would run afoul of the rule of contract interpretation that the same word used in an instrument is generally given the same meaning unless the policy indicates otherwise.

Flagship also contends that the term “surrender” is not synonymous with “rescission.” Flagship cites Scott v. Mullins, 211 Cal.App.2d 51, 55, 27 Cal.Rptr. 269 (1962):

A surrender is a yielding up of an estate for life or years to the reversioner or remainderman. A surrender yields the estate as distinguished from the possession and can be accomplished by express consent of the parties in writing, or by operation of law when the parties do something which implies they have consented.

“In landlord-tenant law, surrender exists when the tenant voluntarily gives up possession of the premises prior to the full term of the lease and the landlord accepts possession with intent that the lease be terminated.” Black’s Law Dictionary at 1444 (6th ed. 1990).

Flagship also contends that the term “surrender” in the Lease is used consistently with the definition under California law. Flagship refers to Section 22.5 of the Lease, captioned “Removal of Trade Fixtures During Term; Delivery at End of Term:”

At any time during the Term of the Lease, Tenant may remove from the Premises any trade fixtures, machinery or equipment belonging to Tenant or third parties, provided Tenant shall repair any damage to the Premises caused by such removal. Upon expiration or earlier termination of this Lease, Tenant shall surrender the Premises ... and all portions thereof, to Landlord in good order, condition and repair ....

Section 22.11 of the Lease, captioned “Modification; Acceptance of Surrender,” provides:

No modification, amendment, termination or surrender of this Lease or surrender of the Premises or any portion thereof or of any interest therein by Tenant shall be valid or effective unless agreed to and accepted in a writing signed by Landlord, and no act by any representative or agent of Landlord, other than such a written agreement and acceptance by Landlord, shall constitute an agreement thereto or acceptance thereof.

Flagship argues that the term “quit” is not synonymous with rescission. Flagship cites Grand Central Public Market v. Kojima, 11 Cal.App.2d 712, 717, 54 P.2d 786 (1936). In Kojima, the landlord sent two three day notices to its tenant to pay rent or quit. The notices were ignored by the tenant and not acted upon by the landlord and expired by their terms. The landlord then sent the tenant a letter stating that if back rent was not paid, the landlord would commence suit to remove the tenant from the premises. The landlord sued the tenant, who quit the premises the day after the suit was filed. The tenant argued that it was not liable for the rent for the month of January, because the lease terminated when he quit the premises. The Court of Appeal ruled:

The lease is terminated only if the notice is acted upon by one of the parties. If the lessor had brought an unlawful detainer suit based upon the notices to quit, as they were framed in this case, then the court trying such unlawful detainer action would, upon a proper showing, have the undoubted right to decree a forfeiture of the lease ... Or, if the lessee within the three-day period specified in the notices had quit the premises, the respective lease would have been forfeited by agreement of the parties, since the lessee would be in the position of accepting lessor’s offer to terminate the same ... Neither of these methods was followed or taken advantage of by either of the parties. When a lessor, as did the lessor in this case, claims or collects rent in an action, or otherwise, as the result of a legal proceeding, or otherwise, he waives his existing right to effect a termination.

Flagship relies on this to argue that the physical act of quitting the premises in and of itself does not effect termination of a lease: “Similarly, prohibition on ‘quitting’ the premises or a waiver of one’s right to ‘quit’ the premises in no way could be interpreted as a waiver of one’s right to rescind the lease.”

Excel responds that Flagship’s “hyper-technical argument” based on the definitions of “terminate,” “surrender” or “quit” does not address the meaning of Section 4.5 as a whole. Excel asserts that Flagship’s “convoluted argument boils down to the contention that because § 4.5 does not contain the word ‘rescission,’ rescission is not barred.” Excel refers to the November 19, 2004 Memorandum Decision discussing the effect of rescission on contractual clauses at 41:18-44:25:

With respect to § 4.5, Defendants cite a California Court of Appeals opinion which states an alternate holding for denying rescission:

In plaintiffs’ closing brief, not before, our attention was drawn to a provision contained in the subcontract agreement of plaintiff ...: ‘Subcontractor, in the event of any dispute or controversy with Contractor or any other subcontractor over any matter whatsoever, shall not cause any delay or cessation in or of Subcontractor’s work or the work of any other subcontractor or of the Contractor but shall proceed under this Subcontract Agreement with the performance of the work required thereby.’

The quoted clause bound [Subcontractor] to finish its work regardless of any dispute with [Contractor], In effect, the clause was an advance waiver of any right to rescind after partial performance. The net result of the clause was to make a breach of contract action the subcontractor’s exclusive remedy. (Nelson v. Spence, 182 Cal.App.2d 493, 497 [6 Cal.Rptr. 312] ...; 5A Corbin on Contracts, § 1227; 17A C.J.S., Contracts, § 422[1], p. 521, fn. 62.). Having committed itself to complete performance, [Subcontractor] was confined to the remedy and to make the scale of damages available to one who has completed his contract notwithstanding a breach by the other party — suit on the contract and recovery by the scale of damages which the law applies in such suits.

B.C. Richter Contracting Co. v. Continental Casualty Co., 230 Cal.App.2d 491, 500-501 [41 Cal.Rptr. 98] (Cal.Ct.App. 1964). The provision waiving rescission was applicable even though it was first noticed on appeal after the completion of a bench trial. The cited provision does not mention the term ‘rescission’ and was found to be a valid waiver of that remedy. Its language is comparable to § 4.5.

The opinion upheld a valid anti-rescission clause, although rescission would void the effect of all other contractual clauses. The cases Plaintiff cite to the contrary do not negate the ability to waive the remedy of rescission. See e.g. Guerini Stone Co. v. P.J. Carlin Constr. Co., 248 U.S. 334, 341 [39 S.Ct. 102, 63 L.Ed. 275] (1919) (subcontractor properly terminated contract when project was indefinitely delayed; ‘the 11th paragraph of the sub-contract, providing: “The general contractors will provide all labor and materials not included in this contract in such manner as not to delay the material progress of the work, and in the event of failure so to do, thereby causing loss to the sub-contractor, agree that they will reimburse the sub-contractor for such loss,” as applied to the facts of the case, imported an agreement by defendant to furnish the foundation in such manner that plaintiff might build upon it without delay, and was inconsistent with an implication that the parties intended that delays attributable to the action of the owner should leave plaintiff remediless’); Gally v. Wynne, 96 Cal. App. 145, 147 [273 P. 825] (Cal.Ct.App. 1929) (the contract provision in question stated ‘In the event I violate any part of this agreement I agree to deduct $500 from the purchase price of $3500,’ which is not an anti-rescission clause); Dyer Bros. Golden West Iron Works v. Central Iron Works, 72 Cal.App. 202, 207 [237 P. 386] (Cal.Ct.App.1925) (both parties breached the contract, voiding the liquidated damages clause).

The B.C. Richter holding cited by Defendants has been affirmed by more recent opinions. See Fosson v. Palace (Waterland), Ltd., 78 F.3d 1448, 1455 (9th Cir.1996) (‘Fosson admitted that he read and understood the Synch License provision in which he waived his right to rescind or terminate the agreement.... Thus, Fosson has no right to rescind as a matter of law by virtue of his waiver.’); Michel & Pfeffer v. Oceanside Properties, Inc., (1976) 61 Cal.App.3d 433, 442 [132 Cal.Rptr. 179] (specifically distinguishing Guerini as not mandating the performance of the contract, hence no waiver of rescission). These cases affirm the general enforceability of an anti-rescission clause.

Excel asserts that Flagship cites no authority that requires the explicit use of the term “rescission” in order to bar rescission as a remedy. Excel contends the result reached in B.C. Richter should apply here, “because all facets of rescission are barred by § 4.5.”

Flagship replies that Excel’s reliance on B.C. Richter and the November 19, 2004 Memorandum Decision is misplaced. Flagship contends that Excel argued to the Ninth Circuit on appeal that the Court correctly determined that Section 4.5 barred rescission based on B.C. Richter and the other cases cited in the November 19, 2004 Memorandum Decision. Excel contended on appeal that, had it not been for the finding of judicial estoppel, Section 4.5 would have prevented rescission. The Ninth Circuit remanded “so that the district court may determine in the first instance whether the contract, in its entirety, allows for rescission and whether California law would give effect to the lease’s limitations on remedies in this circumstances.” Implicit in these instructions, Flagship contends, is a rejection of Excel’s position that B.C. Richter, Fosson, and Michel & Pfeffer require, as a matter of law, that Section 4.5 be interpreted as a waiver of rescission.”

Flagship argues that the circumstances of the cases on which Excel relies are different from the facts of this case: “[n]either B.C. Richter, Fosson, nor Michel & Pfeffer involved a landlord’s undisputed material breach of a 25 year ground lease a year after the lease commenced.”

In Fosson a composer brought a copyright infringement action against movie producers and a financing company. The District Court granted summary judgment for defendants. On appeal, the Ninth Circuit addressed the circumstances under which a subsequent breach of an express license, which may constitute grounds for rescission, can give rise to a suit for infringement by the licensor. Flagship argues that Fosson is distinguishable because there, the remedies limitation clause specifically provided that the licensor “shall not have any right to terminate or rescind this Agreement” and because Fosson admitted that he read and understood the agreement. Flagship notes that Section 4.5 does not mention the term “rescission” and contends that there is no testimony in this action regarding any party’s understanding of Section 4.5.

In Michel & Pfeffer, a subcontractor on a building project brought an action against the contractor, the contractor’s surety, and the property owners for payment on a bond, foreclosure of a mechanic’s lien, and a common count based on work performed. Flagship contends: “These circumstances alone point to why remedies’ limitation clauses in construction contracts may be generally enforced, as the subcontractor has both the security of the bond and mechanics lien statutes to secure payment for his work done.” Flagship asserts that also at issue in Michel & Pfeffer was a delay of the subcontractor’s work caused by the contractor. The contract provided that an extension of time for delays “shall be the sole remedy of Subcontractor.” Flagship argues that Michel & Pfeffer is distinguishable because Section 4.5 does not provide for any sole remedy for the landlord’s breach and does not reference or otherwise pertain to the landlord’s obligation to honor Flagship’s exclusive use rights.

B.C. Richter involved actions by subcontractors on the prime contractor’s surety bond for quantum meruit recovery to be measured by the reasonable value of unpaid labor and materials. The trial court ruled that the subcontractors’ recovery was limited to the unpaid remainder of the contract price. On appeal, the subcontractors argued that the breaches and defaults by the contractor entitled them to forego the contract price as the strict measure of liability, permitting recovery by the more generous scale of quantum meruit or reasonable value. The Court of Appeal ruled:

Plaintiffs’ thesis rests upon misconceptions of contract law and misuse of the phrase ‘quantum meruit.’ The general rule in California is “ ‘... one who has been injured by a breach of contract has an election to pursue any of three remedies, to wit: ‘He may treat the contract as rescinded and may recover upon a quantum meruit so far as he has performed; or he may keep the contract alive, for the benefit of both parties, being at all times ready and able to perform; or, third, he may treat the repudiation as putting an end to the contract for all purposes of performance, and sue for the profits he would have realized if he had not been prevented from performing.’’” ... When, after partial performance, the innocent party elects to disaffirm or rescind, there is no longer any contract which conclusively fixes a limit upon his recovery; hence, it is said, he may sue upon a quantum meruit as if the special contract had never been made and may recover the reasonable value of the services performed, even though recovery exceeds the contract price ....

If the innocent party chooses to rescind, he must do so promptly upon discovery of the breach ... He may not wait to see whether the contract turns out to be profitable or unprofitable, good or bad

Where his performance is not prevented, the injured party may elect instead to affirm the contract and complete performance. If such is his election, his exclusive remedy is an action for damages ... Affirmation of the contract, on the one hand, and rescission and restitution on the other, are alternative remedies. Election to pursue one is a bar to invoking the other ....

In plaintiffs’ closing brief, not before, our attention was drawn to a provision contained in the subcontract agreement of plaintiff B.C. Richter Contracting Company, but not in the subcontract of R. & E. Materials Company: ‘Subcontractor, in the event of any dispute or controversy with Contractor or any other subcontractor over any matter whatsoever, shall not cause any delay or cessation in or of Subcontractor’s work or the work of any other subcontractor or the Contractor but shall proceed under this Subcontract Agreement with the performance of the work required thereby.’

The quoted clause bound Richter to finish its work regardless of any dispute with Hayes-Cal Builders. In effect, the clause was an advance waiver of any right to rescind after partial performance ... Having committed itself to complete performance, Richter Contracting was confined to the remedy and to the scale of damages available to one who has completed his contract notwithstanding a breach by the other party— suit on the contract and recovery by the scale of damages which the law applies in such suits ....

On the assumption that Hayes-Cal was guilty of hindrances and defaults amounting to a breach of contract conditions, the other plaintiff, R. & E. Materials Company, had an election to rescind promptly or to stand on its contract and continue performance. Choice of the first alternative would have permitted R. & E. Materials to sue in quantum meruit for the reasonable value of partial performance, less any sums paid. The joint venture did not choose that alternative. The trial court correctly concluded that it lost all right to rescind by failing to do so promptly after the cessation of progress payments. It is equally accurate to say that it elected not to repudiate the subcontract, but to affirm it and continue performance. Having chosen the second alternative, it was then barred from repudiation and pursuit of reasonable value.

Thus, when both plaintiffs argue on appeal for ‘quantum meruit’ unlimited by the contract price, they speak in terms not available to them. Their remedy was that imposed upon them, in the one case, by the contract and in the other by their election to perform: to sue for the unpaid balance of the contract price plus extra costs caused by hindrances and delay.

230 Cal.App.2d at 499-501, 41 Cal.Rptr. 98.

Flagship asserts that the court in B.C. Richter did not find that the remedies provision barred rescission outright. B.C. Richter ruled that the “clause bound Richter to finish its work regardless of any dispute with Hayes-Cal Builders” and that “clause was an advance waiver of any right to rescind after partial performance.” 230 Cal.App.2d at 501, 41 Cal.Rptr. 98. Flagship contends that B.C. Richter does not support interpreting Section 4.5 as a waiver of Flagship’s right to rescind, particularly in light of the fact that in B.C. Richter, there was no material breach by the other contracting party that thwarted performance. Flagship asserts:

Significantly, B.C. Richter had completed the contract and then sought to rescind the contract. (Id. at 502, 41 Cal.Rptr. 98.) The court found that under these circumstances, the subcontractor had waived its right to rescind.

Flagship cites Seaboard Surety Co. v. United States, 355 F.2d 139, 143 (9th Cir.1966), where the Ninth Circuit, in discussing B.C. Richter, stated that “[t]he subcontractors had a right to rescind after the cessation of certain progress payments, but elected to proceed with contract and completed performance.”

Flagship also cites Barton Properties, Inc. v. Superior Gunite Co., 2006 WL 541025 at *7 (Cal.Ct.App.2006).

The dispute in Barton Properties was over paragraph 35 of a construction contract:

35. In the event of a dispute between the parties as to performance of the work, the interpretation of this contract, extra work, delay, disruption, or payment or nonpayment for work performed, the parties shall attempt to resolve the dispute by negotiation. If the dispute is not resolved, Contractor agrees to Continue the work diligently to completion and will neither rescind nor stop the progress of the work, but will submit such controversy to determination by a court of competent jurisdiction after the project has been completed.

Id. at *5. The Court of Appeal, citing California Civil Code § 1511 and Peter Kiewit Sons’ Co. v. Pasadena City Junior College, 59 Cal.2d 241, 28 Cal.Rptr. 714, 379 P.2d 18 (1963), that an owner who is a party to a construction contract is a creditor, ruled:

We conclude that where a general contractor (Barton Properties) materially breaches a contract so as to delay or prevent the performance of the subcontract (Superior Gunite) the subcontractor is not foreclosed from refusing to perform and rescinding the contract by-reason of a contractual provision, such as paragraph 35, which requires a contractor not to rescind the contract or stop working but instead to ‘continue the work diligently to completion’ and then ‘submit [any] controversy [regarding]’ ‘performance of the work, the interpretation of this contract, extra work, delay, disruption, or payment or nonpayment for work performed’ ‘to determination by a court of competent jurisdiction after the project has been completed.’ A contrary conclusion would impermissibly conflict with the controlling plain language of section 1511, paragraph 1----Barton Properties acknowledges the existence of this conflict. Its position is that the 1965 amendment to section 1511, paragraph 1 ‘added [a] clause permitting ... provisions’ such as paragraph 35.

We note Barton Properties has cited no applicable authority in support of its position that contractual provisions such as paragraph 35 are authorized under section 1511, paragraph 1. Its reliance is misplaced on B.C. Richter Contracting Co. v. Continental Cas. Co. (1964) 230 Cal.App.2d 491 [41 Cal.Rptr. 98] ... and Michel & Pfeffer v. Oceanside Properties, Inc. (1976) 61 Cal.App.3d 433 [132 Cal.Rptr. 179]. Neither case addressed section 1511, paragraph 1, much less its impact on a contractual provision such as paragraph 35 ....

Id. at *6. The Court of Appeal then addressed Barton Properties’ contention that it was prejudiced by a jury instruction that it contended negated paragraph 35. In so ruling, the Court of Appeal stated:

And B.C. Richter is factually inapplicable and thus fails to support Barton Properties’s position. As discussed above, B.C. Richter did not involve section 1511, paragraph 1 or its applicability to paragraph 35 or a similar contract provision, and its comments regarding such a provision were dicta. The court did not discuss whether section 1511, paragraph 1 rendered unenforceable a contract provision like paragraph 35. In [B.C. Richter ], two subcontractors sued in quantum meruit for an amount greater than the contract price on the theory they were entitled to rescind the contract ... Their exclusive remedy, however, was for breach of contract because they affirmed the contract by completing their performance ... The B.C. Richter court characterized a clause in the contract of one subcontractor, which required it to complete its performance notwithstanding any dispute with the contractor, to be an ‘advance waiver of any right to rescind after partial performance^ which meant] a breach of contract action [was] the subcontractor’s exclusive remedy.’ ... But this was dicta because the trial court did not make any factual findings that the contractor had hindered the subcontractor’s performance, and the subcontractor had performed completely.

Id. at *7.

Barton Properties is not controlling. California Civil Code § 1511 provides:

The want of performance of an obligation, or an offer of performance, in whole or in part, or any delay therein, is excused by the following causes, to the extent to which they operate:

1. When such performance or offer is prevented or delayed by the act of the creditor, or by the operation of law, even though there may have been a stipulation that this shall not be an excuse; however, the parties may expressly require in a contract that the party relying on the provisions of this paragraph give written notice to the other party or parties, within a reasonable time after the occurrence of the event excusing performance, of an intention to claim an extension of time or of an intention to bring suit or any other similar or related intent, provided that the requirement of such notice is reasonable and just ....

As Excel notes, Flagship and Excel were tenant and landlord. Flagship makes no showing or argument that it was a creditor within the meaning of Section 1511.

The rules of contract construction support Flagship’s position that Section 4.5 is not a waiver of rescission; the unavailability of rescission is never mentioned in Section 4.5 and no evidence was presented that the parties intended that rescission of the lease be precluded based on Excel’s material breach of the lease. Moreover, B.C. Richter and related cases contain continual performance obligations, despite an event of breach, which is the basis for a waiver of the right to rescind. Section 4.5 is expressly subject to exceptions “otherwise expressly set forth herein.” Section 6.3 is such an express exception.

3. Rescission Voided Entire Lease.

Flagship argues that, because it rescinded the Lease, the entire Lease, including Section 4.5, is extinguished and cannot be enforced.

California Civil Code § 1688 provides that “[a] contract is extinguished by rescission.” “Rescission of a contract must be of the contract as a whole and not in part. It is the undoing of a thing and means that both parties to the contract are entirely released as if it had not been made.” Douglass v. Dahm, 101 Cal. App.2d 125, 128, 224 P.2d 914 (1950). Flagship refers to the November 19, 2004 Memorandum Decision at 41:28-42:17, where the Court discussed the effect of rescission on contractual clauses:

Plaintiffs are correct in stating that rescission would void ordinary contractual clauses such as § 22.25. Once a contract is rescinded, all its provisions cease to have effect. See Larsen v. Johannes, 7 Cal.App.3d 491, 501 [86 Cal.Rptr. 744] (Cal.Ct.App.1970) (citing Lemle v. Barry, 181 Cal. 1, 5 [183 P. 150] (Cal.1919)). (‘When a contract is rescinded, it ceases to exist. If the action to rescind or an action based on an alleged rescission or abandonment is successful, the contract is forever ended and its covenants cannot thereafter be enforced by any action’). In an unpublished state court opinion, an analogous question was posed: ‘The issue presented is elemental — may a defendant resist an action for rescission by relying on a liquidated damages provision of the contract the plaintiff is seeking to rescind? The answer is equally simple — no.’ BTS, Inc. v. Sonitrol Corp. of Contra Costa, No. A093591, 2002 WL 234889 (Cal.App. 1 Dist., Feb. 19, 2002) (‘rescinded contract is an extinguished contract meaning that it has ceased to exist and none of its provisions can be enforced by any party’).

Excel responds that Flagship’s position evades “the point entirely: § 4.5 bars rescission from the outset, so what might happen if Plaintiffs could rescind is meaningless.” Excel asserts that Flagship’s “circular argument” was rejected by the Court in the November 19, 2004 Memorandum Decision discussing the effect of rescission on contractual clauses quoted above. This is belied by the express exceptions included in Sections 4.5 and 6.3, which suspend the Lessor’s remedies upon occurrence of the condition of the exception; to wit, Excel’s violation of Flagship’s exclusive use rights.

4. Context of Lease as a Whole Does Not Support Interpreting Other Portions of Section U.5 as Waiver of Right to Rescind.

Flagship argues that, looking to the Lease as a whole, Section 4.5 cannot be interpreted as a waiver of the right to rescind. Flagship notes that Section 4 of the Lease is captioned “Rent.” The provisions of Section 4 are specifically directed at the Tenant’s obligations to pay rent: Section 4.1 sets out the preliminary rent Flagship was obligated to pay from the time it entered into the Lease until the Golden Corral Restaurant opened for business; Section 4.2 sets out the basic rent after the restaurant opened; Section 4.3 provided for the amount of rent during the five-year option periods; Section 4.4 obligated Flagship to pay additional rent on demand; Section 4.6 provided Landlord the right to assign rent payments. Flagship argues that within the context of these provisions, Section 4.5, captioned “Triple Net Lease,” provides what Excel would net from the rental payments. Flagship cites 6 Matthew Bender, California Real Estate Law & Practice, § 154.10[1], that a triple net lease provision assures the Landlord that “the tenant pays the taxes, the insurance, costs of repair, and costs of maintenance.” Flagship argues that Section 4.5 is a standard triple net lease provision which entitles the Landlord to rent net of these costs and “is essentially a financing device that gives the tenant the advantages of ownership without the investment of capital or direct obligation under a deed of trust and gives the owner of the property a return of his or her investment without the active responsibilities of investment management.” Id.

Flagship refers to the portion of Section 4.5 providing:

Except as otherwise expressly set forth in this Lease, this Lease shall continue in full force and effect, and the obligations of Tenant hereunder shall not be released, discharged or otherwise affected, by reason of any of the following: (a) any damage to or destruction of the Premises or any portion of either or any Taking of the Premises or any portion of either; (b) any restriction or prevention of or interference with any use of the Premises or any portion of either; or (c) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, in each case, whether or not Tenant shall have notice or knowledge of any of the foregoing. [Emphasis added].

Flagship argues that nothing in this language can be interpreted as a waiver of Flagship’s right to rescind:

On its face, the language deals with physical interference or restrictions and is facially not applicable to the material breach of the lease at issue in this case. By definition, the provision provides that the lease would continue in force notwithstanding the occurrence of a condition subsequent. Specifically, there is no language contained within Section 4.5 that could reasonably be interpreted as a limitation on a tenant’s right to rescind.

Flagship argues that the purpose of the provision in Section 4.5 that

Tenant’s Basic Rent and Additional Rent shall be absolutely net to Landlord, so that this Lease shall yield to Landlord the full amount of the installments of Basic Rent and Additional Rent throughout the Term, and shall be paid without assertion of any counterclaim, set off, deduction or defense and without abatement, suspension, deferment, diminution, reduction or refund of any kind, except as expressly set forth herein, [emphasis added]

is “to preclude a tenant from interposing a counterclaim in any action or proceeding brought by the landlord for rent, or for possession based on nonpayment,” quoting 1 Friedman on Leases § 5:1.2[A] (5th ed. 2009). Flagship asserts that “[t]his interpretation flows from the language of the sentence, which uses the words, ‘counterclaim, set off, deduction, or defense,’ and does not use the words typically associated with offensive action, such as ‘cause of action’ ‘claims’ etc.” Flagship argues that this portion of Section 4.5 should be contrasted with Section 12.1, captioned “General Indemnity:”

Tenant shall protect, indemnify, defend and hold Landlord ... harmless from and against any and all liabilities, obligations, claims, damages, penalties, causes of action, judgments, costs and expenses ... incurred by or asserted against Landlord ... during the Term hereof, arising in connection with or resulting from (a) this Lease; (b) any accident or injury to or death of persons or loss of or damage to property occurring on or about the Premises or any portion thereof; (c) any use or condition of the Premises or any portion thereof; (d) any failure by Tenant to perform or comply with any terms of this Lease, or (e) any negligence, willful misconduct or tortious act or omission on the part of Tenant or any Subtenant ... If any action, suit or proceeding is brought against Landlord ... by reason of any of the foregoing, Tenant, upon Landlord’s request, shall, at Tenant’s sole cost and expense, defend such action, suit or proceeding with counsel designated by Landlord. The obligations of Tenant under this Paragraph shall survive the expiration or earlier termination of this Lease.

Flagship, noting that Section 12.1 uses the terms “any and all liabilities, obligations, claims, damages, penalties, causes of act