KJ-Park, LLC v. Match Group, LLC

Background

This diversity case arose from a lease for a three-story building in Palo Alto, California. KJ-Park claimed that Match Group, LLC breached the lease and that Match Group, Inc. breached its guaranty by terminating the lease. KJ-Park sought at least $6,986,605, plus additional unpaid rent, interest, attorneys’ fees, and costs. Match Group, LLC asserted counterclaims seeking more than $300,000 for rent, expenses, vendor costs, and security.

The lease required KJ-Park to deliver the building’s base, shell, and core in compliance with applicable law to the extent necessary for Match Group to obtain and retain a certificate of occupancy for general office use. The lease also prohibited retail or restaurant use serving the general public. A Palo Alto ordinance that took effect in November 2015 generally required retail use on the ground floor in the relevant zoning district. After city officials raised questions about whether Match Group could use all three floors as offices, Match Group terminated the lease on May 30, 2019, under a lease provision allowing termination if delivery had not occurred by March 1, 2019. The City later agreed that ground-floor retail would not be required, but Match Group maintained that it had already terminated the lease.

KJ-Park’s Motion for Partial Summary Judgment

KJ-Park argued that earlier city approvals gave it a “vested legal right” to use the entire building as office space without retail. The court held that the vested-rights doctrine primarily addresses rights between a property owner and the government, and KJ-Park identified no authority applying the doctrine against a private contracting party based on alleged government error.

The court also held that KJ-Park had not established a vested right through the City’s Record of Land Use Action. The approval required a later building permit, required compliance with applicable ordinances, and did not finally approve the building’s specific land uses. KJ-Park did not begin construction or perform substantial work in reliance on a building permit before the retail ordinance took effect, and the later building permit described a “warm shell” without a specific occupancy.

The court therefore denied KJ-Park’s motion to the extent it relied on the claimed vested right. It also denied KJ-Park summary judgment on Match Group’s unilateral- and mutual-mistake defenses, denied summary judgment on the illegal-purpose defense, and granted summary judgment on Match Group’s fraud-in-the-inducement defense. The court granted KJ-Park summary judgment on Match Group’s frustration-of-purpose defense, concluding that the ordinance was not shown to be an unforeseen event that substantially or nearly totally destroyed the lease’s value. The court’s conclusion on that defense was also supported by the lease’s discretionary termination right and evidence that at least two floors remained available for Match Group’s use.

Match Group’s Motion for Summary Judgment

The court granted Match Group summary judgment on KJ-Park’s breach-of-lease claim. KJ-Park did not present evidence or argument creating a triable dispute that the lease’s Delivery Date occurred on or before March 1, 2019. KJ-Park also conceded at the hearing that, if it had no vested legal right to use all three floors as offices, nothing remained to try regarding its lease and guaranty claims.

Because the breach-of-lease claim failed, the court also granted Match Group summary judgment on KJ-Park’s breach-of-guaranty claim, applying the same contract-breach standard to the guaranty claim.

The court denied Match Group summary judgment on its unilateral- and mutual-mistake defenses. The record did not sufficiently establish whether a mistake occurred, who made it, whether KJ-Park knew about Match Group’s claimed mistake, or whether the parties made different mistakes of fact or law.

The court denied Match Group summary judgment on its frustration-of-purpose defense. The court had already granted KJ-Park summary judgment on that defense in ruling on KJ-Park’s motion.

The court denied Match Group summary judgment on Match Group, LLC’s counterclaims for breach of contract and money had and received to the extent the amount remained to be tried. Although the court concluded that Match Group properly terminated the lease and that the lease required return of rent, additional rent, or security paid by Match Group, LLC, Match Group, LLC had not submitted evidence documenting the amounts it claimed to have paid and not received back.

Expert-Testimony Motions and Disposition

Because of the rulings in the order, the court denied as moot the motions to exclude the damages opinions of Mr. Owyang and Mr. Fronen. The court stated that it would issue a separate order concerning Match Group’s motion to exclude Erik Schoennauer’s testimony and that those opinions would not change the analysis or disposition in this order.

The court’s final disposition was to grant in part and deny in part KJ-Park’s motion for partial summary judgment and to grant in part and deny in part Match Group’s motion for summary judgment.