Eddie Bauer Llc v. Bfo Factory Shoppes Llc

• Court: Court of Appeals of Washington
• Decided: March 30, 2020
• Docket: 79236-9
• Status: Unpublished

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

BFO FACTORY SHOPPES LLC, a ) foreign company doing business in ) No. 79236-9-I Washington State, ) ) DIVISION ONE Respondent, ) ) v. ) ) EDDIE BAUER LLC, a foreign ) company doing business in ) Washington State, ) UNPUBLISHED OPINION ) Appellant. ) )

SMITH, J. — Eddie Bauer LLC (Eddie Bauer) leased space in a mall from BFO

Factory Shoppes LLC. The original lease entailed a rental structure with three

components. And in the event that the mall’s occupancy fell below 75 percent, a

provision in a rider to the lease contemplated that Eddie Bauer could pay a reduced

rental amount in lieu of one of the distinct rental components. The parties amended the

lease four times between 2004 and 2016. The issue on appeal is whether one of the

amendments superseded or overrode the reduced rental provision. We conclude that it

did, and we therefore affirm the trial court’s order granting summary judgment in favor of

BFO.

FACTS

In 2002, Eddie Bauer’s predecessor, Eddie Bauer Inc. (EB Inc.), leased space

from BFO at a shopping mall in Burlington, Washington. The lease agreement provided No. 79236-9-I/2

that EB Inc. would pay the sum of three rental components: (1) “Annual Basic Rental,”

(2) “Annual Percentage Rental,” and (3) “Additional Rental.” The lease agreement

defined “Annual Basic Rental” as “the product of Fifteen Dollars ($15.00) multiplied by

the number of square feet contained in Tenant’s Floor Area.” Annual Percentage Rental

was calculated as three percent “of the amount by which [EB Inc.’s] Annual Gross Sales

exceed[ed] three million dollars.” Additional Rental encompassed “all additional sums,

charges or amounts of whatever nature.”

The parties executed the lease agreement in conjunction with a rider which was

“fully incorporated into th[e] Lease” agreement. The rider provided that in the event of a

conflict between the rider and the lease agreement, its provisions “are paramount and

the Lease Agreement shall be construed accordingly.” Section 4 of the rider (section 4)

provided that in the event that the occupancy at the mall fell below 75 percent of the

available square footage, EB Inc. was entitled to pay “a percentage rent equal to three

percent (3%) of Gross Sales” (Reduced Rent) “in lieu of Annual Basic Rental.” Thus,

EB Inc. could pay the lesser of Annual Basic Rental or three percent of gross sales.

Section 4 did not affect EB Inc.’s obligation to pay Annual Percentage Rental or

Additional Rental.

On February 3, 2004, the parties amended the lease agreement (First

Amendment) and thereby extended the term of the lease. The First Amendment

modified all three components, which continued to be due. As referred to herein, the

“lease” means the lease agreement, the rider as incorporated therein, and the First

Amendment.

In 2009, EB Inc. filed for chapter 11 bankruptcy. Eddie Bauer purchased some of

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Eddie Bauer Inc.’s assets and assumed certain commercial leases. In December 2009,

in order to assume the lease, the parties amended the lease (Second Amendment).

Under the Second Amendment and “[n]otwithstanding anything to the contrary in the

Lease,” Eddie Bauer was to pay “Substitute Rent,” defined as “the greater of (a)

$150,000 per Rental Year, or (b) 10% of Tenant's Gross Sales,” “in lieu of Annual Basic

Rent, Annual Percentage Rent and Additional Rent.” (Boldface omitted.) The parties

also agreed that “[t]he Lease as assumed and . . . amended shall remain in full force

and effect in accordance with the terms thereof.”

On February 15, 2013, the parties again amended the lease agreement (Third

Amendment). The Third Amendment provided that “[t]he modifications contained herein

are made to correct and clarify the Lease [agreement and prior amendments] to reflect

the agreements of the parties and except as amended herein, all of the terms,

covenants and conditions in said Lease [agreement and prior amendments] remain in

full force and effect.” The Third Amendment increased rent to “the greater of

(i) $160,000 (“Basic Rent”) per Rental Year or (ii) 10% of Tenant’s Gross Sales . . . per

Rental Year.” As with the Second Amendment, rent under the Third Amendment was

“in lieu and satisfaction of Annual Basic Rent, Annual Percentage Rent and Additional

Rent.”

On January 11, 2016, the parties executed a fourth amendment (Fourth

Amendment), which was in effect at the time this lawsuit commenced. The Fourth

Amendment required Eddie Bauer to pay “Gross Annual Basic Rent” of $170,000 and

10 percent of Gross Sales as Annual Percentage Rent. According to the Fourth

Amendment, “[t]he payment of Gross Annual Basic Rent [wa]s in lieu of and in full

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satisfaction of the Additional Rent, which shall mean all additional sums, changes or

amounts of whatever nature which [Eddie Bauer was] required to pay under the Lease”

agreement and prior amendments. The Fourth Amendment was “made to correct and

clarify the Lease [agreement and prior amendments] to reflect the agreements of the

parties.” It provided that “except as amended herein, all of the terms, covenants and

conditions in [the lease agreement and prior amendments] remain in full force and

effect.”

Beginning in February 2016, BFO failed to lease more than 75 percent of the

space available at the mall. Eddie Bauer realized this in June 2017 and provided notice

to BFO that it would begin to pay Reduced Rent pursuant to section 4. Shortly

thereafter, Eddie Bauer notified BFO that it believed it was entitled to a refund for the

amount it previously had paid above that required by section 4. BFO disagreed, arguing

that the Second Amendment superseded section 4. But Eddie Bauer nonetheless

discontinued its rental payments.

Thereafter, BFO filed a complaint for declaratory judgment and damages for

breach of lease in Skagit County Superior Court, and both parties moved for summary

judgment. The trial court determined that section 4 was superseded and replaced

because the “language[ involving] substitute rent . . . delete[s] or negate[s] or remove[s]

th[e] three components” of Annual Basic Rental, Annual Percentage Rental, and

Additional Rental and that “the rider, which attaches itself to annual basic rental, cannot

be enforced.” It therefore granted BFO’s motion for summary judgment and denied

Eddie Bauer’s motion. The court also determined that Eddie Bauer breached the lease

“by failing to pay rent as provided in the Fourth Amendment.” The court ordered Eddie

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Bauer to pay “outstanding rent, interest, attorney’s fees, and late fees.” Eddie Bauer

appeals.

ANALYSIS

Section 4 and the Lease Amendments

Eddie Bauer contends that the trial court erred when it determined that the

amendments to the lease agreement replaced and superseded section 4. Accordingly,

it contends that the trial court erred by denying its motion for summary judgment and

instead granting BFO’s motion. We disagree.

We review an order granting summary judgment de novo, viewing “the evidence

and all reasonable inferences therefrom . . . in the light most favorable to the . . .

nonmoving party.” Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 501,

115 P.3d 262 (2005); Young v. Key Pharm., Inc., 112 Wn.2d 216, 226, 770 P.2d 182

(1989). “[S]ummary judgment is appropriate where there is ‘no genuine issue as to any

material fact and . . . the moving party is entitled to a judgment as a matter of law.’”

Elcon Constr., Inc. v. E. Wash. Univ., 174 Wn.2d 157, 164, 273 P.3d 965 (2012)

(second alteration in original) (quoting CR 56(c)).

To determine whether summary judgment was proper, we must interpret the

lease. Here, the parties agree that the plain language of the lease agreement and its

amendments resolve this dispute and that we need not consider any extrinsic evidence.

Thus, we interpret the lease de novo. See Keystone Masonry, Inc. v. Garco Constr.,

Inc., 135 Wn. App. 927, 932, 147 P.3d 610 (2006) (holding that an appellate court

reviews contract interpretation de novo in the absence of disputed facts); Viking Bank v.

Firgrove Commons 3, LLC, 183 Wn. App. 706, 711, 334 P.3d 116 (2014) (“[C]ontract

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interpretation is a question of law when the interpretation does not depend on the use of

extrinsic evidence.”).

The court’s “primary objective in contract interpretation is to ascertain the mutual

intent of the parties at the time they executed the contract.” Viking Bank, 183 Wn. App.

at 712. To ascertain that intent, we focus on “what the parties wrote, giving words in a

contract their ordinary, usual, and popular meaning unless the agreement as a whole

clearly demonstrates a contrary intent.” Renfro v. Kaur, 156 Wn. App. 655, 662, 235

P.3d 800 (2010) (citing Hearst Commc'ns, Inc., 154 Wn.2d at 504).

Although Eddie Bauer raises several challenges to the trial court’s interpretation

of the lease agreement and its amendments, the dispositive issue is whether the plain

language of the Second Amendment overrode the applicability of section 4. The plain

language of section 4 was clear: Eddie Bauer’s payment of Reduced Rent was “in lieu

of”—or in place of—the payment of Annual Basic Rental. See BLACK’S LAW DICTIONARY

907 (10th ed. 2014) (The ordinary definition of “in lieu of” is “[i]nstead of” or “in place

of.”). But the plain language of the Second Amendment also was clear: Substitute Rent

replaced the three distinct components of rent, including Annual Basic Rental. Eddie

Bauer’s ability to pay Reduced Rent pursuant to section 4 hinged on the existence of

the Annual Basic Rental component for it to replace. Under the Second Amendment

and thereafter, Annual Basic Rental ceased to exist. It follows that Eddie Bauer cannot

pay Reduced Rent—pursuant to section 4—in place of a category of rent which was

overridden and replaced by Substitute Rent.

Additionally, the Second Amendment superseded or overrode “anything to the

contrary” in the lease agreement or the rider, and “[t]he terms of th[e Second]

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Amendment supersede any provisions of the Lease that are in conflict with the terms of

th[e] amendment.” To this end, section 4 conflicts with the payment of Substitute Rent

because it requires payment of the Annual Basic Rental component, which was

eliminated by the Second Amendment. In short, there is only one reasonable

interpretation of the Second Amendment, that is, the Second Amendment replaced the

three-part rental structure without which Eddie Bauer cannot pay Reduced Rent

because the Substitute Rent formulae created by the Second Amendment superseded

section 4. Thus, the trial court did not err by granting summary judgment in favor of

BFO. See Renfro, 156 Wn. App. at 661 (“‘In the contract interpretation context,

[s]ummary judgment is . . . proper if the parties’ written contract, viewed in the light of

the parties’ other objective manifestations,’” has only one reasonable meaning. (first

alteration in original) (internal quotation marks omitted) (quoting Go2Net, Inc. v. C I

Host, Inc., 115 Wn. App. 73, 83, 60 P.3d 1245 (2003)).

Eddie Bauer’s arguments to the contrary are unpersuasive. Eddie Bauer

contends that the Second Amendment did not override section 4 because section 4 was

not a rental obligation. But the Second Amendment does not assert that it supersedes

only rental obligations contrary to the lease. Instead, it provides that Substitute Rent is

due instead of the three-part rent structure, “[n]otwithstanding anything to the contrary in

the Lease.” (Emphasis added.) And as discussed, section 4 is inconsistent with the

payment of Substitute Rent. Therefore, Eddie Bauer’s contention fails.

Eddie Bauer further asserts that the parties must replace or modify the lease

agreement expressly and that section 4 was not expressly replaced or modified.

However, as discussed above, the Second Amendment overrode and “supersede[d]

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any provisions of the Lease” inconsistent with Substitute Rent. (Emphasis added.) And

because section 4 is inconsistent, it was replaced or overridden. Therefore, we

disagree with Eddie Bauer’s assertion.

Eddie Bauer next contends that it would not have agreed either to the Second

Amendment or to assume the lease had it known section 4 no longer applied. But the

parties’ objective manifestations are clear in the lease’s plain language, so we are not

persuaded by Eddie Bauer’s unexpressed subjective intent. See Renfro, 156 Wn. App.

at 662 (“Washington courts follow the objective manifestation theory of contracts,

looking for the parties' intent as objectively manifested rather than their unexpressed

subjective intent.”).

In the alternative, Eddie Bauer contends that the Fourth Amendment is

consistent with section 4, and it asserts that the Fourth Amendment, in effect, revived

the three-part rental structure because Substitute Rent no longer appears therein.

However, the Fourth Amendment does not revive the three-part rental structure.

Rather, it provides a two-part rental structure including Annual Percentage Rent1 and

“Gross Annual Basic Rent.” Gross Annual Basic Rent “is in lieu of and in full

satisfaction of the Additional Rent.” The Fourth Amendment does not mention Annual

Basic Rental. And we are unpersuaded by Eddie Bauer’s attempt to conflate Gross

Annual Basic Rent with Annual Basic Rental. Thus, under the Fourth Amendment,

Annual Basic Rental and Additional Rental still do not exist and section 4 cannot apply.

1 Annual Percentage Rent is 10 percent of Eddie Bauer’s “Gross Sales in excess of” $1.7 million. 8 No. 79236-9-I/9

As a final matter, Eddie Bauer contends that because section 4 was not

superseded or overridden, Eddie Bauer did not breach the lease. Because we conclude

that section 4 was superseded and Eddie Bauer stopped paying rent in June 2017 in

reliance on the applicability of the section 4, we disagree.

Attorney Fees

Eddie Bauer contends that the trial court erred in awarding fees and costs to

BFO, and both parties request fees on appeal. Because BFO is the prevailing party on

appeal, we award BFO its fees and costs and affirm the award below.

“When a contract provides for an attorney fee award in the trial court, the party

prevailing before this court may seek reasonable attorney fees incurred on appeal.”

Viking Bank, 183 Wn. App. at 717-18. Here, sections 17.2 and 17.3 of the lease and

section 3 of the rider provide the authority for awarding fees: “If either party shall bring

an action against the other to enforce or interpret the terms of this lease or otherwise

arising out of this lease, the prevailing party in such action shall be entitled to recover its

costs of suit and reasonable attorney’s fees.” Neither party contends that these

provisions have been amended or replaced. Because BFO was the prevailing party at

the trial court and is the prevailing party on appeal and because the lease provisions

apply, we affirm the trial court’s award of fees and award BFO fees on appeal subject to

its compliance with RAP 18.1.

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We affirm.

WE CONCUR: