[00:00:12] Speaker 02:
May it please the court, Alon Levy appearing on behalf of the appellant KJ Park.

[00:00:18] Speaker 02:
Below the trial court suffered from a fundamental misconception of both the inner workings of this admittedly complex commercial lease, but also of the entitlements afforded by the city and the way those two pieces of information worked together.

[00:00:43] Speaker 02:
On their motion for summary judgment, Match, of course, had the affirmative duty to set forth their right to relief with a showing of undisputed material facts for each portion or each element that they wish to prove up for their claim or to negate the claims of KJ Park.

[00:01:09] Speaker 02:
And it appears that the trial court

[00:01:13] Speaker 02:
failed to hold the movement to that burden in evaluating the affirmative motion.

[00:01:23] Speaker 02:
And the effect of that was a judgment against KJ Park.

[00:01:30] Speaker 02:
But more critically, the errors that occurred involved

[00:01:38] Speaker 02:
an absence of a showing of undisputed facts indicating that there was a right to terminate, that this commercial lease, like many, had a regular breach clause, and that required notice and an opportunity to cure.

[00:01:52] Speaker 05:
Council, can I ask you a question?

[00:01:53] Speaker 05:
It seems that you have changed track from your arguments in district court.

[00:02:01] Speaker 05:
You're now arguing that the lease termination clause was never triggered because ordinance

[00:02:07] Speaker 05:
53-58 is not applicable law under the plain language of the lease.

[00:02:13] Speaker 05:
But you didn't raise that theory before the district court.

[00:02:15] Speaker 05:
So I guess the question to you is, can we consider this argument at this stage?

[00:02:21] Speaker 05:
And if we can, why is that the case?

[00:02:24] Speaker 02:
Thank you, Your Honor.

[00:02:25] Speaker 02:
There are two reasons.

[00:02:27] Speaker 02:
Fundamentally, the issues before the court are purely legal, and so the court has discretion to do so.

[00:02:34] Speaker 02:
I don't disagree with the court's characterization of the focus below.

[00:02:40] Speaker 02:
However, the initial opposition papers, if you look at the first and second sections, they do lay out, albeit perhaps not as forcefully as one would like, the duties of match to lay out its claim affirmatively and to demonstrate why it had that right to terminate under the lease.

[00:03:01] Speaker 02:
So either under the forfeiture laws, which of course

[00:03:04] Speaker 02:
benefit or lean towards an absence of forfeiture or based on the fact that the issues here are purely legal and the court is entitled to exercise its discretion to consider legal issues in the interest of justice, which certainly here that exists because there does appear to have been a fundamental miscarriage here with respect to the lease terms.

[00:03:34] Speaker 04:
Was this put at all in front of the district court?

[00:03:36] Speaker 04:
Because it seemed like what was put in front of the district court was this vested rights theory.

[00:03:41] Speaker 04:
And that's what the district court spent a lot of time reviewing.

[00:03:44] Speaker 04:
So was the district court on notice of this other kind of antecedent point?

[00:03:49] Speaker 02:
The papers below, the opposition papers, as I indicated, were not as forceful as one would like in that.

[00:03:56] Speaker 02:
But they did lay out again in that initial section, at least in a cursory manner, that the

[00:04:02] Speaker 02:
The match was required to make a showing on each element of its claim, one of which was... But did you explain why it didn't make that showing?

[00:04:11] Speaker 04:
I mean, it doesn't appear you were necessarily counsel below, I don't think, or at least didn't argue this issue in front of the district court.

[00:04:19] Speaker 04:
But at the same time, like, was... It's one thing to say they have the burden.

[00:04:22] Speaker 04:
It's another thing to say here's why they haven't met that burden.

[00:04:26] Speaker 04:
Was that ever put out there?

[00:04:30] Speaker 02:
It was not explained.

[00:04:32] Speaker 02:
as the court indicates, I was not counseled below.

[00:04:35] Speaker 02:
But the record evidence, which is we rely only, of course, on the record evidence, had all of the points that we raise in our briefing, including most critically, the interpretation of the lease itself.

[00:04:52] Speaker 02:
One could maybe glean that, but was it ever actually argued?

[00:04:56] Speaker 02:
It certainly was not argued forcefully.

[00:05:01] Speaker 02:
The first section in the opposition papers does discuss the triggering, the delivery date, and the triggering mechanism that was required.

[00:05:13] Speaker 02:
But again, certainly not as thoroughly and not with the force.

[00:05:17] Speaker 04:
No, I appreciate your candor on this.

[00:05:19] Speaker 04:
I mean, the other piece of it, of course, is that the district court asked, basically, at the hearing, if the vested rights issue is resolved against you, is there anything more to this?

[00:05:30] Speaker 04:
And I'm paraphrasing.

[00:05:31] Speaker 04:
It's a fair interpretation of your client's position at the hearing that that would be it.

[00:05:38] Speaker 02:
And we would argue that that is not a fair read.

[00:05:44] Speaker 02:
We indicated, if you look at the earlier section right before that exchange, the court does indicate that it's talking about KJ Park's motion and not Match's motion.

[00:05:56] Speaker 02:
There is some confusion in the exchange itself, which is quoted by both parties here.

[00:06:02] Speaker 02:
But it does appear that counsel is that counsel for KJ Park is talking about its own motion.

[00:06:09] Speaker 02:
That is, if KJ Park's affirmative motion for summary judgment in that motion, if the vested rights issue is lost, then KJ Park does not have a route to.

[00:06:22] Speaker 05:
Oh, go ahead.

[00:06:23] Speaker 05:
Go ahead.

[00:06:24] Speaker 05:
Counsel, do we have to get to the vested rights issue if we address your main argument now that you're making, which is,

[00:06:32] Speaker 05:
that really 53-58 is not applicable.

[00:06:38] Speaker 05:
I mean, do we really have to get into the vested rights argument?

[00:06:42] Speaker 02:
You do not need to reach that argument except, I suppose, with respect to K.J.

[00:06:48] Speaker 02:
Park's affirmative motion for judgment in its favor, but certainly with respect to the main thrust of the appeal which deals with

[00:06:59] Speaker 02:
the obviously more harmful part for my client, the affirmative grant of relief to match.

[00:07:06] Speaker 04:
So what are you asking for?

[00:07:07] Speaker 04:
Are you asking for summary judgment for you, or are you claiming there's a triable issue based on this new theory that wasn't raised below?

[00:07:13] Speaker 02:
We have made both requests.

[00:07:18] Speaker 02:
We have requested a reversal with respect to K.J.

[00:07:23] Speaker 02:
Park's

[00:07:24] Speaker 02:
appeal but clearly that is a less critical issue for us.

[00:07:28] Speaker 02:
The main thrust of our appeal is the relief to reverse matches affirmative grant of summary judgment and judgment because of course that terminates the case and does the most harm to my client.

[00:07:49] Speaker 00:
And I take it your

[00:07:51] Speaker 00:
Your basic point is that you delivered the base shell and core in accordance with applicable law as it existed, even if some people quibbled about what law was applicable.

[00:08:06] Speaker 00:
But by the time of the termination, it was clear it wasn't applicable law?

[00:08:11] Speaker 00:
Or kind of give me the time frame there of what you have to say about applicable law.

[00:08:17] Speaker 02:
Yes.

[00:08:18] Speaker 02:
The applicable law term.

[00:08:21] Speaker 02:
is somewhat ambiguous.

[00:08:23] Speaker 02:
It applies in different ways to both parties here.

[00:08:26] Speaker 02:
As we point out in our briefing, match also has an obligation.

[00:08:31] Speaker 02:
Its obligation is to build out what I'll call the skeleton, right?

[00:08:36] Speaker 02:
Our obligation, my client's obligation, is to provide the skeleton of the building.

[00:08:40] Speaker 02:
That's the shell core and base.

[00:08:42] Speaker 02:
And the tenant match is required to build it out doing the tenant improvements.

[00:08:49] Speaker 02:
And so in both of those instances, the parties are obligated to comply with applicable law.

[00:08:55] Speaker 02:
Schedule 1 of the lease lays out in great detail what most of the laws would be, which are understandably construction laws.

[00:09:05] Speaker 02:
You build out the framing of the building, et cetera, in a particular manner.

[00:09:12] Speaker 02:
We contend the use of the building is not covered in that way.

[00:09:17] Speaker 02:
Certainly delivery of the building in a manner that is usable cannot be done under the lease provisions because the shell core and base is just that.

[00:09:31] Speaker 02:
It's the skeleton of a building.

[00:09:33] Speaker 02:
So the use could not have been contemplated by the lease.

[00:09:37] Speaker 02:
And that's why we have at section, excuse me, excerpts 856 and 879,

[00:09:44] Speaker 02:
the obligation on the tenant to do the tenant improvements and to comply with laws.

[00:09:48] Speaker 04:
So if this is true, why was your client in such substantial discussions with the city over whether this ordinance would apply?

[00:09:57] Speaker 04:
Because it seems that your position is this ordinance is not our problem at all.

[00:10:01] Speaker 04:
Nonetheless, you were actively negotiating with the city over that very issue.

[00:10:05] Speaker 02:
Yes.

[00:10:07] Speaker 02:
Our client is a much smaller entity.

[00:10:10] Speaker 02:
It very much wanted to

[00:10:12] Speaker 02:
save this lease and wanted to do whatever was necessary in order to make things right and make this a smooth transition for the tenant.

[00:10:22] Speaker 02:
Also, we can know that at this time there was a shift in the market.

[00:10:26] Speaker 02:
So the lease became much more valuable for the landlord than for the tenant.

[00:10:32] Speaker 02:
And so the landlord was attempting to

[00:10:35] Speaker 02:
discuss.

[00:10:36] Speaker 02:
And it did this from the very beginning, right?

[00:10:38] Speaker 02:
It did this as early as, I believe, 2016.

[00:10:41] Speaker 02:
It was talking with Mr. Late and Mr. Wright about the ordinance and whether or not it applied.

[00:10:50] Speaker 02:
I did wish to reserve 10 minutes for rebuttal, but, of course, I want to... Well, we'll make sure you have plenty of time.

[00:10:55] Speaker 04:
I guess I don't know that we're finished questioning you about the theory here.

[00:10:59] Speaker 04:
I mean,

[00:11:01] Speaker 04:
I have a few questions.

[00:11:03] Speaker 04:
One is, is it obvious that the Shell Basin Core has nothing to do with whether the first floor is retail?

[00:11:10] Speaker 04:
I mean, I don't see anything in the record on this, but one might imagine that if there's going to be retail on the first floor, that might affect how the building is constructed.

[00:11:21] Speaker 02:
I suppose one could envision a scenario where it might, but there is no record evidence, and that's one of our arguments, is that at a minimum,

[00:11:30] Speaker 02:
there's a disputed issue of fact.

[00:11:33] Speaker 02:
At a maximum, there's no showing at all as to why the core base or shell would violate the ordinance.

[00:11:41] Speaker 04:
The description of... Is there expert reports or testimony on this part of the case?

[00:11:49] Speaker 02:
There is an expert that is part of our appeal as well.

[00:11:53] Speaker 02:
The expert

[00:11:54] Speaker 02:
opinion was excluded in full, but, and it deals mostly with the discussions, how the communications occur with the city with respect to each of these things and what it means when the different individuals respond as they did.

[00:12:12] Speaker 04:
I guess what I'm trying to understand is, you know, we're being presented with a theory that, I have to say from my part, I don't think was fully vetted below.

[00:12:20] Speaker 04:
at least in the briefing.

[00:12:21] Speaker 04:
And so I'm wondering if you're right about this and we overlook the forfeiture, then what needs to happen in order for this to move forward?

[00:12:30] Speaker 04:
Is it ready to try or is this now a whole new kind of issue for summary judgment and there needs to be new fact and expert development on this issue?

[00:12:40] Speaker 02:
No.

[00:12:40] Speaker 02:
We would contend that this would be a reversal.

[00:12:43] Speaker 02:
There would be a denial of the summary judgment.

[00:12:46] Speaker 02:
and the matter would proceed to trial.

[00:12:49] Speaker 02:
These are the theories that were in the case before, and I did want to respond to the prior question about where we can find what was required to be done in the Shell Corridor Base, and that begins at Excerpt 882, which lays out what KJ Park was required to do.

[00:13:10] Speaker 00:
But the trial would then

[00:13:12] Speaker 00:
be open to whatever type of attack your adversaries wish to make, factually, that is, it looked to me like the base shell and core were fine, but they could attack that if they wished.

[00:13:28] Speaker 03:
They could.

[00:13:29] Speaker 00:
And they could attack the applicable law question.

[00:13:32] Speaker 00:
I take it your position is that the applicable law was the way you want it from the beginning,

[00:13:41] Speaker 00:
and certainly by the time of the settlement.

[00:13:44] Speaker 00:
Is that fair or was it ever unapplicable and then reinstated as applicable?

[00:13:51] Speaker 02:
No, that's fair.

[00:13:53] Speaker 02:
The law was on the books since shortly after the Arula was provided, which is the last discretionary act of the city.

[00:14:05] Speaker 02:
Then the ordinance came into play.

[00:14:09] Speaker 02:
It's discussed with Mr. Late and Mr. Reich throughout the time that that core base and shell are being provided.

[00:14:21] Speaker 02:
They all say, no problem.

[00:14:23] Speaker 02:
And eventually, well after the delivery date, and there's also a dispute about the delivery date, there's disputed evidence as to whether or not

[00:14:34] Speaker 02:
Both items were delivered in October or whether that was that only occurred in April Although our contention is that where wherever that occurred even if it's they concede the part that excuse me the date that That match concedes delivery occurred the termination Time period would still have run right because the delivery date

[00:15:02] Speaker 02:
triggers, if it's late, if it's after March of 2019, then it triggers a 15-day window within which the tenant can exercise the right to terminate.

[00:15:14] Speaker 02:
And so taking the latest date that match indicates they received the notice of delivery, then that would be May 1, and they did not terminate until May 30.

[00:15:31] Speaker 04:
What I guess I I was not I was confused by the vested rights theory because I understand how you might argue that as to the city to say listen you told us one thing now you're telling us something else you can't do that I was not sure why match had to

[00:15:51] Speaker 04:
was bound by that in some way, at least in the face of the city expressing uncertainty.

[00:15:56] Speaker 04:
Can you clarify that?

[00:15:58] Speaker 04:
And don't worry about the rebuttal time.

[00:15:59] Speaker 04:
We'll make sure you have a full opportunity.

[00:16:01] Speaker 02:
I appreciate that.

[00:16:02] Speaker 02:
Thank you.

[00:16:03] Speaker 02:
And I appreciate the question, because I do think that the trial court struggled with this as well.

[00:16:09] Speaker 02:
This is almost akin to an affirmative defense, right?

[00:16:12] Speaker 02:
Because the issue here is whether or not the core base and shell were delivered properly.

[00:16:19] Speaker 02:
And in that analysis, the question is, did it comply with applicable law?

[00:16:26] Speaker 02:
So the city has never stated that it did not comply with applicable law.

[00:16:32] Speaker 02:
And so the question is, why do we think that it may not have complied with applicable law?

[00:16:39] Speaker 02:
And so in doing so, that vested rights theory springs forth because

[00:16:45] Speaker 02:
The vested rights theory is a critical part of the developer's tool bag.

[00:16:52] Speaker 02:
They rely on that vested rights theory in a great many, if not all.

[00:16:58] Speaker 04:
Is there a case law in which developers or landlords have asserted it as against tenants who are trying to break a lease?

[00:17:07] Speaker 02:
We have not found any case where that has occurred.

[00:17:12] Speaker 02:
Our contention is that we are not directly asserting it against match.

[00:17:17] Speaker 02:
We're using it to demonstrate that there was compliance with the law.

[00:17:22] Speaker 02:
Because if you have a vested right, the government agency... What good is that to match?

[00:17:28] Speaker 04:
I mean, they're at the point where they are being told by the city, we don't know if this ordinance applies or not.

[00:17:34] Speaker 04:
They have a window in which they can terminate and

[00:17:37] Speaker 04:
Their position would be, you know, we don't want to trust either you or the city to get this right by us, and we're just going to get out of this.

[00:17:46] Speaker 02:
And the issue is that there wasn't actually a determination by the city, right?

[00:17:53] Speaker 02:
There is a lower level employee who says, this might be an issue.

[00:17:58] Speaker 02:
Let me find out.

[00:18:00] Speaker 02:
He testifies.

[00:18:01] Speaker 02:
That's Mr. Sauls.

[00:18:02] Speaker 02:
Mr. Sauls testifies that he needs to go talk to his supervisors.

[00:18:06] Speaker 02:
the supervisors are the individuals that have been talking with K.J.

[00:18:11] Speaker 02:
Park all along telling them this is fine.

[00:18:14] Speaker 02:
You're not required to have retail space on the bottom floor.

[00:18:17] Speaker 00:
Isn't the better way to look at it that in effect match

[00:18:23] Speaker 00:
is in a position of saying or trying to prove that you're not in accordance with applicable law and you're using that as a defense or at least as a question of material fact.

[00:18:37] Speaker 02:
Yes.

[00:18:39] Speaker 02:
Yes, I would agree with that.

[00:18:41] Speaker 02:
That would be part of their burden is to show, they must show in order to say that we didn't comply with the delivery condition that there's a violation of applicable law.

[00:18:52] Speaker 02:
And our contention is they did not do that.

[00:18:55] Speaker 04:
I mean, isn't the point of this that they, again, assuming the applicable law is your burden, that this ordinance falls on you, isn't the point that they need to be in a position to be able to move to the next step and get their own certificates and permits?

[00:19:13] Speaker 04:
And if they're not able to do that, then that is an issue for them.

[00:19:20] Speaker 02:
It could be an issue for them if indeed they were unable to get a permit, but there's no indication that they weren't able to get a permit.

[00:19:28] Speaker 02:
In fact, the resolution all the way as high as the city council itself occurs four days after the termination, and it occurs with no change to the core shell or base, which I would submit to the court as a strong indication that that core shell and base was compliant.

[00:19:46] Speaker 00:
Because your language under landlord work is

[00:19:50] Speaker 00:
to the extent necessary for tenant to obtain a certificate of occupancy doesn't say for them to have obtained a certificate as of a given date correct and we would go even further and it is true that the city kind of push them off a little bit it said you you know well maybe you shouldn't apply quite yet but there's no time limit for the actually

[00:20:19] Speaker 00:
of obtaining of that certificate.

[00:20:21] Speaker 02:
Correct.

[00:20:22] Speaker 02:
And the time limit was going to be exactly my next point.

[00:20:25] Speaker 02:
First of all, the entire clause is a substantial completion clause.

[00:20:30] Speaker 02:
It has wording built in for the idea that it may not be exactly perfect.

[00:20:38] Speaker 02:
In fact, if you look at the later clauses, the lease even indicates that

[00:20:49] Speaker 02:
that there could be work being done concurrently by both landlord and tenant, and that's at 872.

[00:20:56] Speaker 02:
That portion both talks about a built-in flexibility as to the delivery date and also the possibility that you may have landlord and tenant working at the same time, even though it's after the delivery date.

[00:21:12] Speaker 02:
And that's because of that substantial completion.

[00:21:15] Speaker 04:
Is that referring, you know, usually you think of substantial completion as some part of the structure that's not yet complete.

[00:21:21] Speaker 04:
We don't really think of it as some uncertainty in the law that's getting resolved.

[00:21:26] Speaker 02:
I think that is fair, but I think it would apply in both instances.

[00:21:30] Speaker 02:
That is, I think it's fair to say that most likely what's contemplated there is you're fixing some things that weren't done quite right in the building, but I would contend that it's equally applicable if,

[00:21:41] Speaker 02:
you're in this unusual scenario where you're talking about whether or not a law is applicable to the creation of the base shell and core.

[00:21:53] Speaker 02:
And that also goes to the question of the built-in flexibility on the delivery date.

[00:22:03] Speaker 04:
OK.

[00:22:03] Speaker 04:
Well, we've kept you on the run.

[00:22:06] Speaker 04:
We'll put five minutes up for rebuttal.

[00:22:08] Speaker 02:
Thank you.

[00:22:09] Speaker 02:
I appreciate the court's questions.

[00:22:10] Speaker 02:
Thank you.

[00:22:24] Speaker 04:
Good morning.

[00:22:25] Speaker 01:
Good morning.

[00:22:26] Speaker 01:
Eileen Ridley, Foley & Lardner on behalf of the Defendants and Respondents of the Match Group.

[00:22:32] Speaker 01:
I'm here with my colleague Alan Nolette.

[00:22:35] Speaker 01:
May it please the Court?

[00:22:39] Speaker 01:
And briefly, thank you to the court for the flexibility regarding the schedule.

[00:22:43] Speaker 01:
I just wanted to take a moment regarding that.

[00:22:46] Speaker 01:
With regard to the discussion, I think it's important that, in fact, this new argument was not addressed in the court below whatsoever.

[00:22:54] Speaker 01:
It wasn't addressed in the briefing.

[00:22:56] Speaker 01:
It wasn't addressed during the oral argument, which lasted an hour and 26 minutes.

[00:23:04] Speaker 01:
Having been there, I will say that the record, the transcript record reflects the experience, which was the court repeatedly asked if there were other grounds other than the vested theory, vested rights theory, that K.J.

[00:23:21] Speaker 05:
Park was asserting not- Council, I think your friend on the other side has pretty much agreed with you that it was not at least forcefully addressed, probably not addressed at all.

[00:23:34] Speaker 05:
But they agree with you on that.

[00:23:40] Speaker 05:
If we do, in fact, consider the argument, could you address the merits of that argument?

[00:23:45] Speaker 01:
Happy to do so.

[00:23:46] Speaker 01:
For the record, we would say that the argument was waived.

[00:23:49] Speaker 01:
But having said that, and to address the argument itself,

[00:23:53] Speaker 01:
We think it misses the point and actually doesn't reflect what's actually in the record.

[00:24:01] Speaker 01:
To be clear, this lease was very expressed about what use could be made of this property.

[00:24:12] Speaker 01:
It was to be for general office use on all three floors.

[00:24:16] Speaker 01:
And if that were not enough, it also has a provision that specifically prohibits

[00:24:22] Speaker 01:
retail use.

[00:24:25] Speaker 01:
So the lease, as it is worded, is contrary to the ordinance.

[00:24:33] Speaker 01:
And the ordinance predates the lease.

[00:24:37] Speaker 01:
It predates KJ Park's purchase of this property.

[00:24:42] Speaker 01:
And in fact, what happened was while the evidence shows that KJ Park knew of the application of the ordinance to the lease,

[00:24:52] Speaker 01:
the prior owner informed them of it.

[00:24:58] Speaker 01:
And as a result, they informally went to the interim director of the planning department and got what the director himself, Mr. Leight, says was just his opinion.

[00:25:14] Speaker 01:
Notwithstanding the fact that they were knowing of this ordinance and that it applied to the property,

[00:25:21] Speaker 01:
so much so that they go to the director to ask his opinion.

[00:25:25] Speaker 01:
If you read the ordinance, it itself says any variance requires counsel action.

[00:25:33] Speaker 01:
They never went so far as to get counsel action.

[00:25:37] Speaker 01:
They only got an informal email.

[00:25:41] Speaker 01:
But their actions in inquiring of the department and

[00:25:49] Speaker 01:
After the issue was raised to match, continuing to deal with the department and frankly their city attorney reflects the fact that they knew the ordinance was in fact applicable.

[00:26:00] Speaker 00:
But then the city actually issued the appropriate permits for the building under the terms that they were going to use it as a full office building.

[00:26:12] Speaker 01:
Well, the building permit said it was a commercial building.

[00:26:16] Speaker 01:
And Mr. Late was very clear in his testimony that the building permit had to do with the construction.

[00:26:21] Speaker 01:
It didn't deal with the use yet.

[00:26:24] Speaker 01:
But the reality is that the contract that KJ Park entered into with match expressly stated what the use had to be multiple times, both in positive terms and in negative terms.

[00:26:37] Speaker 05:
Well, counsel, I guess I'm looking at the termination letter.

[00:26:43] Speaker 05:
And to me, it appears it expressly acknowledges that the final inspection approvals from the city of Palo Alto evidence that the base

[00:26:52] Speaker 05:
the shell and the core were in compliance with applicable law.

[00:26:57] Speaker 05:
That's a quote at ER 907.

[00:26:59] Speaker 05:
So if it was in compliance with applicable law, I guess, are you changing your position?

[00:27:09] Speaker 01:
No.

[00:27:09] Speaker 01:
No, Your Honor.

[00:27:10] Speaker 01:
It was to be in compliance with applicable law regarding construction, but it didn't deal with the applicable law and ordinances regarding use.

[00:27:20] Speaker 05:
Okay, but the ordinance

[00:27:23] Speaker 05:
I guess you're saying that 53-58, that that was applicable law with regards to the terms

[00:27:34] Speaker 05:
That's what you're arguing, correct?

[00:27:37] Speaker 01:
I would argue that it's, yes, in the terms of our contract, but also in the terms with regard to the city.

[00:27:43] Speaker 01:
I mean, notably, the settlement agreement that ultimately resulted from the interactions between KJ Park and the city didn't say that this was compliant with the law.

[00:27:56] Speaker 01:
But what it did say was it was going to be considered to be a non-conforming use.

[00:28:03] Speaker 01:
and allowed non-conforming use.

[00:28:05] Speaker 01:
The implied statement there is that this ordinance was applicable to the property.

[00:28:11] Speaker 05:
Can you point me to, so that I want to make sure I understand your argument, can you point me to the lease section that you indicate, indicates that the building was to have a specific use such that this ordinance somehow changed that?

[00:28:32] Speaker 01:
Yes.

[00:28:33] Speaker 01:
If you take a look at the lease at match 0000.

[00:28:37] Speaker 05:
Give me an ER number, Council.

[00:28:46] Speaker 01:
I apologize.

[00:28:47] Speaker 01:
I have the baits of match 4 to 51.

[00:28:49] Speaker 01:
I will provide the ER in a moment.

[00:28:55] Speaker 05:
At some point, that would be great.

[00:28:59] Speaker 01:
OK.

[00:29:00] Speaker 01:
But I would note that it literally says it has to be in compliance with applicable law such that match could obtain and retain a certificate of occupancy or its legal equivalent for the premises for general office use.

[00:29:17] Speaker 01:
And then the lease itself also states that retail use is prohibited.

[00:29:24] Speaker 00:
Okay, so then the part that you just read,

[00:29:30] Speaker 00:
It is, in order to be able to obtain and retain a certificate of occupancy, no formal application was made.

[00:29:41] Speaker 00:
So isn't that, in effect, a question of fact now as to whether you could have gotten that certificate had you pursued it?

[00:29:52] Speaker 00:
And the settlement agreement potentially would be relevant, among other things.

[00:29:56] Speaker 00:
But to the extent that we're looking at that term as of the date

[00:30:01] Speaker 01:
of termination isn't it obviously sort of forward-looking uh... i would disagree with that characterization we actually match actually made an application we went to the city to to get the application for the uh... permit and the occupancy it was undisputed facts stalled as a result of this dispute and beyond that we again requested hey should we proceed and mister sauls

[00:30:30] Speaker 01:
inquired of not only Mr. Lake, but the city attorney.

[00:30:34] Speaker 01:
And the response back was, no, hold up until this is resolved.

[00:30:40] Speaker 01:
We could not get a permit.

[00:30:42] Speaker 01:
The city was not going to process this.

[00:30:45] Speaker 01:
We attempted twice, undisputedly, and yet could not get through the process because of this issue.

[00:30:53] Speaker 00:
But there's no date for that.

[00:30:57] Speaker 00:
I don't know about California bureaucracy, but getting permits from any building place is frequently time, you know, requires time.

[00:31:05] Speaker 00:
So it is that you could get it, not that you had gotten it.

[00:31:09] Speaker 00:
Is that fair?

[00:31:11] Speaker 01:
At the time, I don't know that I would say that it was fair.

[00:31:13] Speaker 01:
It was unclear that we would ever get it.

[00:31:15] Speaker 00:
There was no... No, but I'm saying what the contract means, that the contract says you could get it, not that you had gotten it.

[00:31:22] Speaker 01:
But the contract also has a delivery date, also undisputed, which the lower court acknowledged.

[00:31:27] Speaker 01:
And the delivery date was March 1, 2019.

[00:31:32] Speaker 01:
And the delivery condition, specifically, was that the property would be in...

[00:31:40] Speaker 01:
in compliance with applicable law such that we could get and retain a certificate of occupancy.

[00:31:50] Speaker 01:
That did not happen.

[00:31:51] Speaker 00:
And you just said the March date, how did we get from March to May 15th?

[00:31:57] Speaker 00:
Or do you have any disagreement about May 15th being the relevant date when you then made the termination on May 30th?

[00:32:06] Speaker 01:
We made the termination on May 30th.

[00:32:08] Speaker 01:
We actually gave

[00:32:10] Speaker 01:
the K.J.

[00:32:11] Speaker 01:
Park the chance literally two months to get this resolved and frankly the city.

[00:32:16] Speaker 01:
At some time, practically speaking, at some point if you took K.J.

[00:32:22] Speaker 01:
Park's argument, essentially we have a lease where we could potentially never get this property but somehow have to pay for it for ten years.

[00:32:30] Speaker 00:
Then you sort of hit right at my next point.

[00:32:33] Speaker 00:
Conversely, had they gotten the settlement agreement

[00:32:37] Speaker 00:
not on June 4th, but on May 14th.

[00:32:41] Speaker 00:
Would we be here at all?

[00:32:43] Speaker 01:
Probably not.

[00:32:45] Speaker 01:
But they didn't.

[00:32:47] Speaker 01:
And they knew about this issue before the lease.

[00:32:50] Speaker 01:
They didn't tell us about the issue.

[00:32:53] Speaker 01:
And they didn't take it upon themselves to do what was required, even in the plain language of the ordinance.

[00:33:01] Speaker 00:
I mean, granted, everybody is entitled to stand on their rights.

[00:33:05] Speaker 00:
But from your last answer, this could have been worked out over a period of a couple of weeks there of other two things.

[00:33:13] Speaker 00:
One is that your answer that it would have implies that the settlement agreement was, in fact, good enough to allay your concerns.

[00:33:23] Speaker 01:
Well, at least the settlement agreement identified that the property would be considered a legal non-conforming use going forward.

[00:33:34] Speaker 01:
So we had something official, and frankly, not only official from the settlement agreement, but we had an actual council action.

[00:33:43] Speaker 00:
Yes, they had a 6 to 1 vote a couple of days earlier.

[00:33:46] Speaker 01:
Right, which resulted in the settlement agreement.

[00:33:49] Speaker 01:
So we now have a council action.

[00:33:51] Speaker 00:
But in effect, that may be part of the argument is, does it say we're now giving you grace to go forward or are we agreeing that you were right all along, you had the right to do it?

[00:34:08] Speaker 01:
I believe it's saying we're giving you the grace to go forward.

[00:34:11] Speaker 01:
It's forward-looking.

[00:34:13] Speaker 01:
It specifically says we're seeing this as a legal nonconforming use.

[00:34:19] Speaker 01:
It's a nonconforming use because the

[00:34:21] Speaker 01:
prior use did not comply with the ordinance.

[00:34:27] Speaker 01:
And it is doing exactly what the ordinance required.

[00:34:30] Speaker 01:
It has council action indicating why this particular property doesn't have to comply with the terms of the ordinance.

[00:34:36] Speaker 04:
So if you had this council action by March 15th, would this have been fine?

[00:34:43] Speaker 01:
You know, it's probably, but it didn't happen.

[00:34:47] Speaker 01:
I understand that.

[00:34:48] Speaker 04:
I mean, curiously, with all the

[00:34:50] Speaker 04:
It seems that maybe your client just wanted to get out of the lease anyway, because the city council acts in a matter of days later, and at that point, obviously, the parties could have said, you know, okay, it's late, but we're going to take the building.

[00:35:03] Speaker 01:
I think that's an incorrect perception.

[00:35:06] Speaker 01:
My client waited literally months

[00:35:11] Speaker 01:
And no action was happening.

[00:35:13] Speaker 01:
There was no indication to us that it was actually constructive or even likely.

[00:35:18] Speaker 04:
No, I appreciate that.

[00:35:18] Speaker 04:
It's just that after the City Council acted, you obviously had the ability to say, okay, glad this is now fixed and let's get in there.

[00:35:25] Speaker 01:
I understand, but at that point, now we have a history of learning that the landlord has backdated certificates, has not told us about an ordinance that they knew about, had never informed us of its communications with the city.

[00:35:39] Speaker 01:
We now have a different issue with regard to how this landlord is treating us as well, including its failure to comply with the terms of the lease.

[00:35:46] Speaker 04:
So can we just go back to the lease?

[00:35:52] Speaker 04:
The other side is saying, look, this really doesn't have anything to do with the base shell and the core.

[00:35:56] Speaker 04:
Do you agree with that, or do you dispute that?

[00:35:58] Speaker 04:
I dispute that.

[00:35:59] Speaker 04:
OK, so what would be the basis for disputing it?

[00:36:01] Speaker 01:
Because the specific delivery condition for the base shell and core was that it had to be in the condition where we could get a tenant of occupancy and retain it.

[00:36:12] Speaker 01:
That did not happen.

[00:36:13] Speaker 04:
OK, but how does the ordinance affect the construction or the configuration of the base shell and core?

[00:36:19] Speaker 04:
Is there anything that would change?

[00:36:21] Speaker 01:
it would change because the use would be permitted.

[00:36:25] Speaker 01:
In other words, it's not just give me the base shell and core.

[00:36:30] Speaker 01:
I mean, that argument essentially excises numerous references within the lease itself about this being to be used as a

[00:36:39] Speaker 01:
office building on all three floors and the prohibition, the express prohibition with regard to retail.

[00:36:46] Speaker 01:
So clearly the intent of the lease was that the base shell and core would be delivered so that could be acted upon, i.e.

[00:36:54] Speaker 01:
that the use would comply with what the lease anticipated, which was... Finish your thought, yeah.

[00:37:01] Speaker 01:
...which was use and occupancy as an office building on all three floors.

[00:37:08] Speaker 04:
I guess the question would be, so if that was not provided, it would seem to breach the contract in some way because you're right that the contract does say in this there should be no retail.

[00:37:20] Speaker 04:
The issue here is just does it trigger the termination clause, right?

[00:37:23] Speaker 04:
And the termination clause is, I don't know that it should be read to say any time there's a breach of the contract prior to delivery, we can terminate.

[00:37:33] Speaker 04:
It's a little more specific than that.

[00:37:36] Speaker 01:
I think it does trigger the termination clause because it's not just a breach of the contract.

[00:37:41] Speaker 01:
The property wasn't delivered in the condition that it was contemplated to be used.

[00:37:46] Speaker 01:
We were not getting the benefit of the deal.

[00:37:49] Speaker 04:
It has nothing to do necessarily with the physical base shell or core.

[00:37:53] Speaker 04:
It's more the legal uncertainty over the permitted use and is that the issue?

[00:37:59] Speaker 01:
Well, it does have to do with the Bay Schelling Court because it was to be delivered in a way where we could use and build out according to the use contemplated.

[00:38:09] Speaker 01:
We clearly could not, not withstanding our attempts multiple times with the city to be able to do so.

[00:38:14] Speaker 01:
And the reason why we couldn't do so is because the owner failed to deliver the property as required on March 1, 2019,

[00:38:24] Speaker 01:
ready for us to be able to occupy it as a general office building.

[00:38:28] Speaker 00:
In a condition is our dispute between a physical condition that is there's nothing about the building that made it impossible to have it as an office building and a legal condition where you're saying that we might never

[00:38:49] Speaker 00:
be able to use it the way we want because we would have to put in retail and we don't want to do that.

[00:38:56] Speaker 01:
That's exactly right.

[00:38:57] Speaker 00:
Is that fair?

[00:38:58] Speaker 01:
This is not a lease that says we'll give you a base shell and core and use it as you wish.

[00:39:03] Speaker 00:
Well, but that takes us back to in accordance with applicable law and that's where the dispute is that did the ordinance

[00:39:16] Speaker 00:
Is the proper interpretation of the ordinance that it would have forbidden it, or is that what was disputed and ultimately resolved in favor of K.J.

[00:39:29] Speaker 00:
Park's view of it?

[00:39:30] Speaker 01:
It was never resolved in favor of K.J.

[00:39:33] Speaker 01:
Park's view of it.

[00:39:34] Speaker 01:
What happened was actually the ordinance was complied with if you take a look at it.

[00:39:40] Speaker 01:
An actual council action took place to vary the ordinance to allow this to be a nonconforming, legal nonconforming use going forward.

[00:39:51] Speaker 01:
So the actual terms of the ordinance were applied.

[00:39:55] Speaker 01:
And it went through the actual council action required for... And that's an additional item.

[00:40:00] Speaker 00:
Their argument is that it was in accordance with applicable law all along.

[00:40:05] Speaker 00:
That's why the city issued them the building permit and took half a million dollars in development fees.

[00:40:13] Speaker 01:
But even Mr. Late testified that that's not a correct analysis because, in fact, it's undisputed that the building

[00:40:21] Speaker 01:
was for the actual construction of the building.

[00:40:24] Speaker 01:
It didn't deal with the use.

[00:40:25] Speaker 01:
They still had to comply with all ordinances regarding use.

[00:40:30] Speaker 01:
And the concept of use in the lease is specifically addressed.

[00:40:36] Speaker 01:
It was specifically contemplated by the parties.

[00:40:39] Speaker 04:
What parts of the lease, what provisions of the lease do you think are the key ones for this piece of your argument?

[00:40:46] Speaker 01:
I think the key provisions are the delivery date, the delivery condition, and the termination clause.

[00:40:54] Speaker 04:
Okay.

[00:40:54] Speaker 04:
So we're obviously talking about this whole argument that the district court didn't address.

[00:40:59] Speaker 04:
So I gather you were trial counsel also?

[00:41:02] Speaker 01:
Yes.

[00:41:02] Speaker 04:
Okay.

[00:41:02] Speaker 04:
So from your standpoint, if this issue were to be resolved, is there more discovery factor expert that needs to be done?

[00:41:11] Speaker 01:
No.

[00:41:12] Speaker 01:
I think it's all before.

[00:41:13] Speaker 01:
It was all before the lower court as well as the appellate court here.

[00:41:18] Speaker 04:
When you say that, what do you mean?

[00:41:20] Speaker 04:
I mean, the lease is before everybody.

[00:41:22] Speaker 04:
But is there other testimony on what some of these things mean?

[00:41:25] Speaker 01:
No.

[00:41:27] Speaker 01:
You've been presented with all the testimony.

[00:41:29] Speaker 01:
There was no expert with regard to this particular issue or, for that matter, the question of whether or not the construction alone was something that could be considered

[00:41:42] Speaker 01:
separate from the use.

[00:41:43] Speaker 01:
In fact, it was understood during the litigation in the lower court that that was part and parcel of the lease.

[00:41:50] Speaker 01:
It was always contemplated to have that use.

[00:41:53] Speaker 01:
Essentially, I would argue that Appellant's argument is trying to excise that part from the lease when in fact it was a central tenet of it.

[00:42:01] Speaker 04:
I'm just trying to figure out if this argument is going to be considered.

[00:42:05] Speaker 04:
There's a question as to whether we would consider it, or there's a question as to whether the district court would consider it, and if the latter, what more, if anything, would need to be done or presented for somebody to be able to evaluate this?

[00:42:16] Speaker 01:
And our position is, it's been waived, but if it weren't waived, that all of the evidence that's needed to apply

[00:42:23] Speaker 01:
It was before the lower court and this court, and it ultimately results in the same result.

[00:42:28] Speaker 04:
No, but that's probably because you view the lease as favoring you.

[00:42:32] Speaker 04:
It just has a matter of law on this point.

[00:42:33] Speaker 04:
But if the view is that's not necessarily correct, I'm not taking position on that.

[00:42:39] Speaker 04:
I'm just saying if one were to say that, that this lease is ambiguous and we don't know what it means and who had the obligation as to this particular ordinance, would there need to be more discovery factor expert to help evaluate that question?

[00:42:53] Speaker 01:
I don't see more discovery and I don't know that there would be an expert because the expert would be opining upon the application of law, which the trier of fact, again this is a bench trial, so the trier of fact was the lower court itself and would be, again,

[00:43:11] Speaker 04:
We haven't asked about the vested rights piece, but we're taking you over.

[00:43:14] Speaker 04:
But I'm going to ask you about that just because we're here.

[00:43:18] Speaker 04:
What is your response on that?

[00:43:20] Speaker 04:
Because obviously this was the whole basis for the district court's ruling.

[00:43:25] Speaker 01:
Agreed.

[00:43:26] Speaker 01:
Two things about the vested rights.

[00:43:30] Speaker 01:
One is there is no case law at all.

[00:43:34] Speaker 01:
that applies this concept of vested rights to a private dispute between non-governmental agencies.

[00:43:43] Speaker 01:
And the lower court recognized that.

[00:43:45] Speaker 01:
And if you look at all of the authorities being cited, it's all private parties vis-a-vis government actors and what they did or didn't do.

[00:43:55] Speaker 01:
So none of the authorities suggests or supports the idea of the application of a vested right to a private party.

[00:44:04] Speaker 01:
And it wasn't just for affirmative defenses, as our opponents argued.

[00:44:08] Speaker 01:
They brought suit on this concept against us.

[00:44:12] Speaker 01:
They waited four years and brought suit against us on this concept.

[00:44:18] Speaker 01:
But the reality is that the dispute they had was really with the city.

[00:44:23] Speaker 01:
It was not

[00:44:25] Speaker 01:
with regard to any control of match or any of match's actions.

[00:44:29] Speaker 01:
And to apply the vested rights theory here would be, it would be new law, it would be never seen before, and frankly, would suggest that a party that had no control over governmental action somehow was liable for a dispute between yet another party and that governmental entity.

[00:44:47] Speaker 04:
I guess there's a suggestion that it's maybe more like an affirmative defense?

[00:44:51] Speaker 01:
They brought suit.

[00:44:52] Speaker 01:
They brought suit on this theory.

[00:44:55] Speaker 01:
So it's not just an affirmative defense.

[00:44:57] Speaker 01:
This is their active theory for bringing their lawsuit.

[00:45:02] Speaker 01:
And I will note that in the briefing, our opponent suggests that the lower court failed to provide consideration of the burdens of the summary judgment and literally just ruled against them on their affirmative claims on vested rights and just applied it to ours.

[00:45:19] Speaker 01:
If you take a look at the order, and the order is at ER 027, Volume 1, it goes for pages.

[00:45:30] Speaker 01:
nine pages, pages 2 for 11 of all the undisputed facts, it then deals with their affirmative claims, it then deals with affirmative defenses, and then it deals with our motion.

[00:45:44] Speaker 01:
And when it talks about our motion, it talks about what evidence we presented, and then talks about that K.J.

[00:45:50] Speaker 01:
Park failed to dispute or bring evidence to dispute those evidences, or those, that position and the evidence presented by Maj.

[00:45:59] Speaker 01:
So clearly the court went through the burdens, weighed the evidence, and made a ruling.

[00:46:05] Speaker 01:
It wasn't just an automatic unthinking ruling.

[00:46:11] Speaker 01:
And so we believe the vested rights argument doesn't support affirmative claims and certainly doesn't support an affirmative defense.

[00:46:21] Speaker 01:
If it was an affirmative defense, it would be as to the city, not to match as a private party.

[00:46:25] Speaker 04:
What's actually at stake monetarily here?

[00:46:28] Speaker 04:
So how much are we talking about in terms of your counterclaim and how much in terms of what they're asking?

[00:46:35] Speaker 01:
Well, the counterclaim was 300,000 plus attorney's fees, which was about a million.

[00:46:40] Speaker 01:
They were asking for 6.9 million because their theory

[00:46:45] Speaker 01:
is that we would be on the hook for the entire time frame of the lease, not withstanding the fact that they couldn't establish during the delivery date the condition of the property, which was contemplated by the lease, i.e.

[00:47:00] Speaker 01:
the use as a general office on all three floors.

[00:47:08] Speaker 00:
And conversely,

[00:47:09] Speaker 00:
From your side, the counterclaim, that's what you're referring to, is the $300,000 plus the million.

[00:47:15] Speaker 00:
And they currently are asking for what was like seven and a half years of the lease.

[00:47:22] Speaker 01:
That's exactly right.

[00:47:23] Speaker 00:
Mitigation of damages, have they released it to anybody else?

[00:47:28] Speaker 00:
Is the building there?

[00:47:30] Speaker 01:
They sold the property for a substantial profit.

[00:47:34] Speaker 00:
That would just go to damages.

[00:47:37] Speaker 00:
But on the other hand,

[00:47:40] Speaker 00:
If you had worked it out within that month or two period, then you would both be in business.

[00:47:47] Speaker 01:
You know, again, they had the opportunity to follow the procedures they could have to not have this issue at all.

[00:47:54] Speaker 01:
They knew of the ordinance at the time they purchased the property.

[00:47:58] Speaker 01:
They nevertheless still entered into the lease with us, fully understanding that the contemplation was the use as an office building and specifically prohibiting retail.

[00:48:07] Speaker 01:
Yet they did nothing to

[00:48:10] Speaker 01:
make sure that ordinance didn't falter that with the city.

[00:48:14] Speaker 00:
I suppose that that's the disputed fact on the make sure the dealing the dealings with with late and so forth and you eat you each have evidence on that on that point that in the end the the city dragged its feet but never never took any steps to stop the building from being built under the

[00:48:37] Speaker 00:
under the terms that the building people had presented.

[00:48:42] Speaker 00:
KJ Park presented it that this was going to be a full office building and was given permission to go forward.

[00:48:51] Speaker 01:
to construct, but not with regard to use, as Mr. Late testified.

[00:48:56] Speaker 01:
And that's not disputed.

[00:48:58] Speaker 01:
And really, we don't have any dispute with the fact that KJ Power did nothing to follow the lease requirements to get a council action to get a variance until the 13th hour, notwithstanding its knowledge

[00:49:12] Speaker 01:
at the time it entered the lease.

[00:49:14] Speaker 04:
Is all use, I mean part of the issue in this case then if we're into this argument is who bears the risk under the contract of legal uncertainty surrounding use and your position obviously is that as to this type of use it's on them.

[00:49:29] Speaker 04:
Their position as I understood from the briefs is you know we can't be sort of the guarantor of all things a tenant might do with the property so are there some

[00:49:39] Speaker 04:
Are there some uses issues that are on them and some that are on you, and how does one figure that out?

[00:49:45] Speaker 01:
I think the answer is that the use that's pertinent here is the use as a general office building.

[00:49:53] Speaker 01:
That's on them.

[00:49:54] Speaker 01:
That's what literally was required with regard to the delivery date and delivery condition.

[00:50:00] Speaker 01:
If there are other uses that came in the future, that might have an issue for both parties, but they are not

[00:50:09] Speaker 01:
absolved of having to provide the property as it promised to do so in the lease.

[00:50:16] Speaker 00:
Your counsel several times you've quoted I'm not disputing that it's a good quote of late saying that the it wasn't as to use but there are other things in the record saying that they had an entitlement that

[00:50:33] Speaker 00:
late confirmed they had an entitlement to build the office building it was always understood the building would be an office building what is your quote for that it's it's not an office building it's only it doesn't touch on use at all you've made very forceful statements of that a couple of times and it's a it's a very useful but can you give me a site and and source

[00:51:00] Speaker 01:
I'm looking for it.

[00:51:01] Speaker 01:
It was reflected in the court's own order, which is found at ER 027, Volume 1.

[00:51:08] Speaker 01:
And I'm looking for the site as we speak.

[00:51:30] Speaker 01:
If I may, it's on page three of that order, and the quote is as follows.

[00:51:38] Speaker 01:
This is from the order.

[00:51:40] Speaker 01:
Jonathan Late, the city's current director of planning and development services, testified in deposition that the RLUA documented in the city's findings

[00:51:49] Speaker 01:
that the proposed project met applicable standards in the zoning code, quote, allows offices to be built in this building, close quote, and, quote, authorizes the offices to be located at the building, close quote, while the, quote, land uses that go into the building would be the subject to permitted land uses of the zoning code, close quote.

[00:52:13] Speaker 00:
So that covers what you had said.

[00:52:16] Speaker 01:
Yes.

[00:52:17] Speaker 00:
Paraphrased earlier, and the RLUA was something that the city had granted earlier, was it not, in May of 26, or even earlier than 16, I'm sorry, 2016, as opposed to what went on in 2017 when Minkoff is dealing with late and so on.

[00:52:41] Speaker 00:
Okay, but if I want to thrash this out, I would go to the opinion

[00:52:45] Speaker 00:
and then presumably the judge has citations in that opinion?

[00:52:49] Speaker 01:
The judge does.

[00:52:50] Speaker 01:
I can give them to you.

[00:52:52] Speaker 00:
I can do it.

[00:52:52] Speaker 00:
That's fine.

[00:52:53] Speaker 00:
Appreciate it.

[00:52:54] Speaker 00:
Thank you.

[00:52:54] Speaker 01:
Thank you.

[00:52:56] Speaker 04:
Judge Mendoza, anything else from you?

[00:52:57] Speaker 04:
Okay.

[00:53:00] Speaker 04:
Thank you very much.

[00:53:17] Speaker 02:
Thank you, Your Honor, for allowing some rebuttal.

[00:53:19] Speaker 02:
I'll try to be brief.

[00:53:21] Speaker 02:
And I apologize.

[00:53:21] Speaker 02:
I will jump around a little bit.

[00:53:24] Speaker 02:
One rather, I think, critical point that has come up a couple of times is this distinction between the construction of the shell base and core and the use of the building.

[00:53:40] Speaker 02:
And counsel's comment was that the lease delegates to the landlord, to KJ Park,

[00:53:48] Speaker 02:
the requirement for ensuring the proper use.

[00:53:53] Speaker 02:
And I want to read to the court from excerpts of record at page 856.

[00:54:00] Speaker 02:
It's section 24.1.

[00:54:03] Speaker 02:
And this is roughly the middle of the paragraph.

[00:54:08] Speaker 02:
And it says, at its sole cost and expense, tenant shall promptly comply with any applicable laws

[00:54:17] Speaker 02:
which relate to paren one tenants use of the premises.

[00:54:23] Speaker 02:
So that at a bare minimum creates confusion.

[00:54:30] Speaker 02:
I would submit to the court it actually creates clarity that this and this is the reason why in our briefing we said this was actually matches responsibility and it goes to the court's question in the beginning.

[00:54:42] Speaker 02:
Why were we doing this to begin with?

[00:54:44] Speaker 02:
Well, because this lease was very important to my client.

[00:54:47] Speaker 02:
So we were trying to get this done no matter what.

[00:54:51] Speaker 02:
But it is Match's obligation to comply with use restrictions.

[00:54:57] Speaker 04:
Does this mean all use restrictions, or is that the question?

[00:55:00] Speaker 04:
I mean, that's what we're trying to decide here.

[00:55:03] Speaker 02:
Very fair.

[00:55:04] Speaker 02:
And I want to be clear, because that paragraph does go on to create a bit of ambiguity.

[00:55:09] Speaker 02:
It says, and I don't have that part highlighted, but I'll try to paraphrase.

[00:55:14] Speaker 02:
It does envision that there could be some things connected to the core basin shell.

[00:55:21] Speaker 02:
I think it's a fair read, at least, that that does go on to say that.

[00:55:26] Speaker 02:
But that goes to the court's earlier questions about what is the construction problem here?

[00:55:32] Speaker 02:
What is the, and the court in my questioning asked me, could there be a scenario where the ordinance could apply or an ordinance could apply?

[00:55:42] Speaker 02:
I'm sorry if I'm getting the question not quite right.

[00:55:45] Speaker 02:
I struggled as I was preparing to come up with an example because I want to be clear with the court that I am not saying that it's impossible, right?

[00:55:56] Speaker 02:
Here's a somewhat ridiculous example, but it makes the point.

[00:56:01] Speaker 02:
Let's say ridiculously that the landlord created a shell base and core that had no entrances, right?

[00:56:10] Speaker 02:
That presumably would violate a number of use restrictions that any city or county would have, whether it's handicap access, et cetera, et cetera, et cetera.

[00:56:20] Speaker 02:
That would be an instance where there was a clear violation and a use application could apply.

[00:56:29] Speaker 02:
But that isn't what we have here.

[00:56:31] Speaker 02:
We have a tremendous amount of ambiguity about whether or not there's any violation here.

[00:56:36] Speaker 02:
We've got multiple Mr. Late, Mr. Wright,

[00:56:39] Speaker 02:
Essentially, every single person in the city that the developer goes to, and again, the developers rely on this information.

[00:56:48] Speaker 02:
That's the reason that the city has all these staff people.

[00:56:51] Speaker 02:
They rely on this and they spend, as KJ Park did, hundreds of thousands of dollars in reliance on that because they have to in order to make commercial space available.

[00:57:04] Speaker 02:
And so this is a critically important part

[00:57:07] Speaker 02:
of many commercial leases in this area.

[00:57:11] Speaker 02:
But on its face, that provision envisions the compliance with the

[00:57:18] Speaker 04:
use restrictions falls falling to match and not to I mean I guess what match is saying we're not just talking about any old use restriction here we're talking about like the basic purpose for which this building can be used and there's a whole provision in the agreement that says it's not to have retail so if we're gonna call that any use restriction then then there's basically then really every use is on the tenant and I think match's position is this is kind of uh...

[00:57:45] Speaker 04:
a big deal use item that really is on you.

[00:57:48] Speaker 04:
Because otherwise, we just can't even use the building for the purpose that we're trying to use it for.

[00:57:54] Speaker 02:
Yes.

[00:57:54] Speaker 02:
And there were a number of places in the argument and in briefing where I think that match went to essentially a frustration of purpose argument.

[00:58:05] Speaker 02:
And I just want to draw the court's attention to the fact that frustration of purpose was one of the issues that, or excuse me, one of the, I think it was affirmative defense, to which

[00:58:16] Speaker 02:
match brought summary judgment, but that was denied.

[00:58:19] Speaker 02:
So that aspect isn't there.

[00:58:21] Speaker 02:
The issue here is that there is no violation that the city ever indicated was present, right?

[00:58:30] Speaker 02:
So we don't have that clear indication.

[00:58:32] Speaker 02:
We don't have that scenario where there are no doors on the bottom floor.

[00:58:37] Speaker 02:
The council repeatedly, and again in briefing and here, talked about the stalled permit or

[00:58:45] Speaker 02:
the characterization that staff indicated that they needed to hold the permit or wait for the permit.

[00:58:54] Speaker 02:
And all of that goes to the information that was laid out in the first argument.

[00:59:00] Speaker 02:
There isn't a time limit on this termination clause.

[00:59:04] Speaker 02:
Now, does that mean it's never?

[00:59:06] Speaker 02:
I think the court asked that to counsel.

[00:59:08] Speaker 02:
It does not.

[00:59:09] Speaker 02:
Of course, California is going to read in a reasonableness term there.

[00:59:14] Speaker 02:
There's also the covenant of good faith and fair dealing.

[00:59:16] Speaker 02:
But the point is, all of those are fact-intensive issues.

[00:59:21] Speaker 02:
And they would have to show that there was an unreasonable delay.

[00:59:27] Speaker 02:
I submit to the court, I think the judge indicated that for his area,

[00:59:36] Speaker 02:
This might not be the slowest permit.

[00:59:38] Speaker 02:
I would submit that for California, this is a very quick turnaround.

[00:59:41] Speaker 02:
A couple of months is actually quite fast.

[00:59:44] Speaker 02:
And the reason that it was so quick was all of the staff were on board.

[00:59:48] Speaker 02:
All of the staff, no one in the staff said, this is a violation.

[00:59:54] Speaker 02:
We can't let this go forward.

[00:59:56] Speaker 02:
No one said that.

[00:59:57] Speaker 02:
They said, let's wait.

[00:59:58] Speaker 02:
Let's see what we're doing with this.

[01:00:00] Speaker 02:
That's very different.

[01:00:01] Speaker 02:
And again, there was a,

[01:00:03] Speaker 02:
There was a different way to go.

[01:00:05] Speaker 02:
There was a breach in cure provision if that was really what they wanted to do.

[01:00:12] Speaker 02:
But as I think the court teased out in the prior questioning, that wasn't really the point of Match's efforts.

[01:00:22] Speaker 02:
They didn't want this cured.

[01:00:23] Speaker 02:
They wanted out of the lease.

[01:00:30] Speaker 02:
Anything else you want to add?

[01:00:31] Speaker 04:
We're into borrowed time here, but we want to make sure we have... I apologize.

[01:00:35] Speaker 02:
I'll just make one final point and then I'll close.

[01:00:38] Speaker 02:
It's a fairly brief one, but it just has to do with whether or not the council action was necessary in order to have the vested rights accrue.

[01:00:49] Speaker 02:
And I was just going to point to the City of West Holland.

[01:00:52] Speaker 02:
That's a Cal Supreme Court decision.

[01:00:54] Speaker 02:
And it's quite clear that the vested rights issue supersedes.

[01:00:59] Speaker 02:
It's outside of whatever ordinance or provision you're talking about, because the vested rights issue goes to, it comes from the underlying principle of a taking.

[01:01:10] Speaker 02:
And it says that government cannot do these certain things.

[01:01:14] Speaker 02:
So irrespective of what the provisions of the ordinance or provisions say, if there's a vested right, that supersedes it.

[01:01:23] Speaker 02:
Unless the court has questions, I'll close very briefly.

[01:01:26] Speaker 04:
Okay.

[01:01:26] Speaker 04:
We thank both counsel for the helpful briefing and argument.

[01:01:29] Speaker 04:
This case is submitted.

[01:01:32] Speaker 04:
Thank you, your honor.

[01:01:33] Speaker 04:
We'll invite counsel for the second case to come up and get ready.

[01:01:36] Speaker 04:
I've asked our court staff to bring in our students, so we'll have them come in as well.