Filed 11/6/15; pub. order 12/7/15 (see end of opn.)




              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                  FOURTH APPELLATE DISTRICT

                                             DIVISION THREE


HOT RODS, LLC,

    Plaintiff and Respondent,                             G049953

         v.                                               (Super. Ct. No. 30-2009-00118853)

NORTHROP GRUMMAN SYSTEMS                                  OPINION
CORPORATION,

    Defendant and Appellant.



                  Appeal from a judgment of the Superior Court of Orange County, Franz E.
Miller, Judge. Affirmed in part and reversed in part, remanded.
                  Lewis Brisbois Bisgaard & Smith, R. Gaylord Smith, Ernest Slome and
Brittany H. Bartold for Defendant and Appellant.
                  Palmieri, Tyler, Wiener, Wilhelm & Waldron, Patrick A. Hennessey,
Michael I. Kehoe and Erica M. Sorosky for Plaintiff and Respondent.
                                        *             *        *
              Defendant and appellant Northrop Grumman Systems Corporation
(Northrop) appeals from a judgment of approximately $1.1 million plus interest, costs,
and attorney fees of approximately $1.8 million in favor of plaintiff and respondent Hot
Rods, LLC (Hot Rods). This case involves an environmentally compromised property
Hot Rods purchased from Northrop and the alleged damages stemming from
environmental cleanup and related issues. The matter was tried by a referee pursuant to
stipulation, and judgment was entered by the trial court, adopting the referee’s
recommendations. Northrop alleges numerous errors.
              First, Northrop argues that based on contractual language stating “no
extrinsic evidence whatsoever may be introduced” in any case involving the agreement,
the referee erred by admitting such evidence. We agree. Based on the plain language of
the agreement, no extrinsic evidence should have been admitted to interpret the
document.
              Northrop further claims the referee misinterpreted an environmental
indemnity provision to include both first and third party claims. We find that taken as a
whole, the provision is broad enough to encompass both first and third party claims.
Accordingly, a declaratory judgment finding Northrop liable for such claims is valid and
shall be upheld.
              Next, for several reasons, Northrop argues the $1 million the referee
awarded to Hot Rods for loss of use of the property was improper. We concur that this
award was erroneous because there was not sufficient evidence to support the amount of
the award, and, accordingly we reverse it. With the $1 million award stricken, this leaves
Hot Rods with a monetary award of $117,050.
              There also is language in the referee’s statement of decision indicating
Northrop had negligently misrepresented certain facts, but did not find any damages were
proximately caused, nor did the referee award any damages on that cause of action. We



                                             2
conclude any finding of negligent misrepresentation is therefore improper, and not
sufficiently supported by substantial evidence in any event.
              Finally, because we are reversing the bulk of the damages award, we must
remand the case for a reconsideration of which, if either, is the prevailing party, and
therefore entitled to attorney fees.


                                              I
                                          FACTS
              This is a complicated case with a long history. In the interest of avoiding
an exceedingly long opinion, we shall provide an overview of the background while
focusing our attention on the facts pertinent to the issues on appeal. Likewise, we have
omitted references to procedural matters that do not impact the instant appeal.


Background
              For many years, Northrop operated the property at 301 East Orangethorpe
Avenue in Anaheim (the property) for the purpose of manufacturing floor beams for
Boeing 747 aircraft. The facility was closed in the mid-1990’s, and in 1994, Northrop
retained Canonie Environmental (Canonie), a consultant, to conduct what was referred to
as a “Phase I Environmental Assessment” (Phase I assessment) of the property. The
Phase I assessment “is a qualitative assessment of process and accumulation areas
throughout the . . . facility that may chemically affect soil beneath the property.”
Canonie identified 15 areas of potential concern and recommended further investigation.
              Northrop then retained Smith Environmental Technologies (Smith) to
conduct a further investigation (the Smith Report). The investigation, conducted in 1994,
included 43 borings drilled and sampled at various locations. Smith also excavated and
removed soil containing certain chemicals, including trichloroethene (TCE). Smith
concluded the chemicals found did not pose a significant threat to groundwater, and the

                                              3
property was not a source of groundwater contamination. This conclusion was based on
the property’s location in a “regional groundwater plume” of contamination, and data
showing the concentrations of TCE up gradient were higher than those down gradient
from the property. The Smith Report recommended no further action or remediation
despite the existing contamination at the property with respect to either soil or
groundwater.
               Northrop requested closure of the site from the Regional Water Quality
Control Board (the Board) in 1995. The Board requested a work plan to address
additional groundwater monitoring wells and quarterly water sampling. With respect to
the soil, the Board indicated that contamination did not exist in concentrations that would
require further cleanup at the time. If, however, information became available in the
future that significant concentrations of contaminants existed, the Board might take
further remedial action.
               At meeting with the Board, Dr. Jim Babcock, Northrop’s consultant and
principal author of the Smith Report, expressed disagreement with the Board’s water
sampling requirements. Eventually the Board agreed that a method of sampling other
than wells could be used instead to determine if additional investigation was required.
Samples taken in the fall of 1995 revealed high concentrations of TCE in groundwater at
two locations.
               Northrop’s consultant continued to believe that remediation was
unnecessary because the data did not indicate the property itself was the source of the
contamination, for a number of technical reasons, including the sampling method that
was used. Monitoring wells installed later indicated lower levels of TCE which were
more consistent with concentrations from up-gradient areas. Babcock conceded,
however, that remediation might be necessary.




                                              4
Purchase and Sale Agreement
              While this series of tests and discussions with the Board was ongoing, in
mid-1995, Northrop began negotiations with Dan Welden to sell the property.
Northrop’s practice at the time was not to consider the sale of a property until soil
remediation was completed. A property with groundwater issues or potential issues
could be sold, because groundwater treatment could proceed without interfering with a
new owner’s operations.
              For Welden, who was looking for a new location for his auto parts reselling
business, buying a property with unremediated contamination was a nonstarter. He did
not want to be responsible for any cleanup costs.
              On December 1, 1995, Northrop executed a purchase and sale agreement
(the agreement) for the 9.5 acre property, selling the property to Welden and his wife,
Kathy J. Welden, for $3.5 million. According to the parties, at some point, the Weldens
assigned their rights to Hot Rods, an LLC owned entirely by the Weldens. The
agreement includes numerous provisions which are pertinent here.
              In section 3.3.1, the agreement states: “Seller has provided to Buyer . . .
Due Diligence Materials for review and acceptance. . . . [¶] Subject to the provisions of
Section 16, Buyer acknowledges and agrees that Seller has not made and does not
make . . . any representations or warranties regarding the compliance of the Real Property
and Improvements with Environmental Law. To the best of Seller’s information and
belief . . . (i) there are no underground storage tanks located in or under the Real
Property; (ii) there are no Hazardous Materials Conditions, in, on, or under the Real
Property or Improvements caused by Seller; and (iii) there has been no Release or
presence of Hazardous Materials in, on, or under the Real Property or Improvements
including the soil or groundwater that requires Remediation under applicable
Environmental Law as of the Closing.”



                                              5
              The term “[t]o the best of Seller’s information and belief” was defined
elsewhere in the agreement as meaning “information actually known to Seller.”
              The due diligence materials referred to in paragraph 3.3.1 included
Canonie’s Phase I assessment, the summary of the Smith Report, correspondence
between the Board and Northrop, and various other documents. The agreement itself
disclosed the groundwater condition pursuant to Health and Safety Code section 25359.7.
It also stated the Board had decided no further action was required with respect to soil
remediation, but further action might be required to monitor the groundwater. A work
plan submitted to the Board for the installation of groundwater monitoring wells was
among the due diligence materials.
              Section 16.2 addressed environmental indemnity. It stated: “With respect
to the Seller’s ownership and/or operation of the Real Property including the acts or
omissions of Seller’s employees, agents or contractors before or after the Closing, Seller
hereby agrees to indemnify, defend by legal counsel selected and retained by Seller, and
reasonably approved by Buyer, and hold the Buyer and Buyer’s lenders . . . harmless
from and against any claims, demands, penalties, fees, fines, liability, damages, costs,
losses, or other expenses including, without limitation, reasonable environmental
consulting fees and reasonable attorney fees arising out of (a) any Environmental
Action(s) and/or Remediation involving an environmental condition or liability involving
the Real Property caused by an act or omission of Seller and its employees, agents and
contractors before or after the Closing; (b) any personal injury (including wrongful death)
or property damage (real or personal) arising out of Hazardous Materials used, handled,
generated, transported, disposed, or released by Seller and its employees, agents and
contractors at the Real Property before or after the Closing. This Environmental
Indemnity is in addition to any rights or remedies of Buyer and Seller under section 3.3.”
              The agreement stated in section 17.16 that it was to “be construed to
effectuate the normal and reasonable expectations of a sophisticated Seller and Buyer.”

                                             6
The parties also agreed that any dispute would be resolved by the reference procedures
described in Code of Civil Procedure section 638, et seq.
              Finally, the agreement included the following integration clause: “This
Agreement contains the entire understanding between the Parties and supersedes any
prior understandings or written or oral agreements between them regarding
representations, agreements, arrangements or understandings, oral or written, between the
parties hereto relating to the subject matter of this Agreement which are not fully
expressed in this Agreement. The Parties further intend that this Agreement constitutes
the complete and exclusive statement of its terms and that no extrinsic evidence
whatsoever may be introduced in any judicial proceedings involving this Agreement.”
              We shall discuss other provisions of the agreement below as it becomes
necessary.


Remediation Following Sale
              In November 1996, Hot Rods’ attorney informed Northrop that an
underground storage tank had been discovered on the property. The letter demanded
Northrop “comply with its environmental indemnification obligations” and address the
matter. Northrop informed Hot Rods it would remove the tank. Northrop also
reimbursed approximately 30 different environmentally related expenses between 1995
and 2008.
              Meanwhile, in November 2003, the Board issued a Cleanup and Abatement
Order directing Northrop to remediate the groundwater at the property. Northrop
developed a plan, which the Board approved. In 2007 and 2008, additional testing
revealed substantial soil contamination. The remediation plan was updated and
implemented. Part of the property has since been fully remediated, and work was
ongoing to complete remediation. According to Welden, he was subject to substantial
inconvenience as a result of the remediation procedures, including the presence of wells,

                                             7
odors, parking spots taken up with equipment, blocked access, pollution generated by
equipment, and similar matters. Damage to the building also occurred and evacuation for
several days was required at one point.
              As noted above, Northrop had regularly reimbursed Hot Rods for
remediation related expenses. Starting in 2008, Northrop began stating it was willing to
pay for some, but not all, costs under a “reservation of rights.” According to Northrop,
the dispute that finally triggered this lawsuit was a dispute over a claim for loss of rental
payments. Hot Rods asserted its tenant, The Rock Church, had delayed entry into a lease
for the property due to the remediation activities. Northrop disagreed with Hot Rods that
it was responsible for this claim.


The Instant Case
              In April 2009, Hot Rods filed its initial complaint, and in June 2011, an
amendment thereto. The complaint alleged causes of action for breach of contract, fraud,
negligent misrepresentation, private nuisance, public nuisance, trespass to land, unfair
business practice, and declaratory relief. The amendment to the complaint added newly
numbered causes of action for breach of contract, trespass, negligent misrepresentation,
fraud, declaratory relief, and injunctive relief. Northrop eventually answered and denied
the allegations of both the complaint and the amended complaint. The parties stipulated
to a referee pursuant to the agreement.


Trial and Decision
              Prior to trial, Northrop filed a motion in limine to exclude extrinsic
evidence regarding the meaning of the agreement, pursuant to the integration clause. The
referee denied the motion. Thus, at trial, Hot Rods introduced extensive testimony
regarding preliminary negotiations, draft provisions, and evidence of the parties’ conduct
after the agreement was executed.

                                              8
                At the conclusion of trial, the referee issued a tentative statement of
decision awarding Hot Rods $1,116,450, comprising $1,000,000 in damages for
impairing the use of the property, lost rent of $105,000,1 $10,000 it spent on an air study,
and $1,450.00 for electricity and water used on the site. Hot Rods was also entitled to its
costs and reasonable attorney fees. After briefing, the referee supplemented the statement
of decision by adding an attorney fees award of $1,841,204 and costs of $250,092, as
well as interest at the rate of $334.21 per day. The total damage award, accordingly, was
$3,311,169.
                In January 2014, the court entered judgment pursuant to the referee’s
statement of decision. Northrop’s subsequent objections to the statement of decision and
request for a new trial were summarily denied. Northrop appeals.


                                               II
                                         DISCUSSION
Admissibility of Extrinsic Evidence
                We address this issue first, although neither of the parties did, because it
presents a threshold question directly impacting the other issues in this case. Northrop
argues the referee should not have considered extrinsic evidence in interpreting the
meaning of the agreement, and we agree this was error.
                As noted above, the agreement included an integration clause that included
the following language: “The Parties further intend that this Agreement constitutes the
complete and exclusive statement of its terms and that no extrinsic evidence whatsoever
may be introduced in any judicial proceedings involving this Agreement.”
                “Under the parol evidence rule, when a contract is integrated (as this one is
under Art[icle] 46), extrinsic evidence cannot be used to vary or contradict the

1   This was revised to $105,600 in the final statement of decision.


                                                9
instrument’s express terms. [Citations.] This rule is based on sound logic and policy;
when a contract is reduced to writing, it is presumed to contain all of the material terms,
and it cannot reasonably be presumed that the parties would intend two contradictory
terms to be part of the same agreement. [Citation.]” (Thrifty Payless, Inc. v. Mariners
Mile Gateway, LLC (2010) 185 Cal.App.4th 1050, 1061 (Thrifty).)
              Ordinarily, even in an integrated contract, extrinsic evidence can be
admitted to explain the meaning of the contractual language at issue, although it cannot
be used to contradict it or offer an inconsistent meaning. The language, in such a case,
must be “‘reasonably susceptible’” to the proposed meaning. (Thrifty, supra, 185
Cal.App.4th at p. 1061.) But by attempting to introduce any extrinsic evidence here, Hot
Rods is trying to do an end run around the integration clause itself. The sentence “no
extrinsic evidence whatsoever may be introduced in any judicial proceedings involving
this Agreement” permits no other interpretation. The expressed intent of the parties was
to bypass the general rule that consistent extrinsic evidence is admissible to explain the
meaning of a contractual provision. Contracts must mean what they say, or the entire
exercise of negotiating and executing them defeats the purpose of contract law –
predictability and stability. (Thrifty, supra, 185 Cal.App.4th at pp. 1061, 1064 [provision
stating a contract may be terminated for “any reason” means “any reason”].)
              Hot Rods argues the provision should not be enforced because doing so
would contradict public policy. While the parol evidence rule is a provision of
substantive law, rather than a question of evidence or procedure, it does not follow, as
Hot Rods argues, that the parties cannot give up their right to seek its admission. The
case Hot Rods cites, Tahoe National Bank v. Phillips (1971) 4 Cal.3d 11, does not stand
for the proposition that such a clause is inherently unenforceable.
              Moreover, “‘“It has been well said that public policy is an unruly horse,
astride of which you are carried into unknown and uncertain paths. . . . While contracts
opposed to morality or law should not be allowed to show themselves in courts of justice,

                                             10
yet public policy requires and encourages the making of contracts by competent parties
upon all valid and lawful considerations, and courts so recognizing have allowed parties
the widest latitude in this regard; and, unless it is entirely plain that a contract is violative
of sound public policy, a court will never so declare.”’” (Bovard v. American Horse
Enterprises, Inc. (1988) 201 Cal.App.3d 832, 838-839.) Hot Rods cannot clear this high
bar. This contract only governs the relationship between Hot Rods and Northrop, and has
no implications for public policy.
               Indeed, in the context of an arbitration agreement, a similar clause has
previously been upheld. In Bonshire v. Thompson (1997) 52 Cal.App.4th 803, a contract
for binding arbitration included language that the language of the contract “‘may not be
contradicted by evidence of any prior agreement or contemporaneous oral agreement.
The parties further intend that this agreement constitutes the complete and exclusive
statement of its terms and that no extrinsic evidence whatsoever may be introduced in any
judicial or arbitration proceeding, if any, involving this agreement.’” (Id. at p. 806;
italics omitted.) The court found it was error for the arbitrator to use extrinsic evidence,
finding he exceeded his powers. (Id. at pp. 810-811.) While we agree with Hot Rods
that the context is different, we see no reason why such a provision would be fully
enforceable in an arbitration setting yet completely unenforceable as against public policy
in a reference under Code of Civil Procedure section 638.
               Hot Rods also argues the parties did not have equal bargaining strength and
were not on equal footing because Northrop was a global aerospace company and had
superior knowledge about the condition of the property. If that were true, the seller
would always have superior bargaining strength. This, obviously, is not the law. The
idea behind equal bargaining strength is the ability to bargain for fair terms rather than
being forced to accede to unacceptable ones. There is nothing in the evidence in this case
that even suggests Hot Rods (or the Weldens) were forced to accede to anything. Both



                                               11
parties were represented by counsel and there is no indication Hot Rods was not willing
to walk away from the deal if acceptable terms could not be reached.
              As stated in section 17.16, this contract was entered into under “the normal
and reasonable expectations of a sophisticated Seller and Buyer.” Surely those
expectations must include the premise that completely unambiguous contractual language
would be enforced. The parties decided “that no extrinsic evidence whatsoever” would
be admissible, and we presume they did so deliberately and meaningfully. The referee,
therefore, erred by admitting extrinsic evidence to interpret the contract, and accordingly,
we decline to consider any extrinsic evidence in conjunction with the remaining issues on
appeal.


Environmental Indemnity Provision & Declaratory Judgment
              As noted above, the agreement included paragraph 16.2, which stated:
“With respect to the Seller’s ownership and/or operation of the Real Property including
the acts or omissions of Seller’s employees, agents, or contractors before or after the
Closing, Seller hereby agrees to indemnify, defend by legal counsel selected and retained
by Seller, and reasonably approved by Buyer, and hold the Buyer and Buyer’s lenders . . .
harmless from and against any claims, demands, penalties, fees, fines, liability, damages,
costs, losses, or other expenses including, without limitation, reasonable environmental
consulting fees and reasonable attorney fees arising out of (a) any Environmental
Action(s) and/or Remediation involving an environmental condition or liability involving
the Real Property caused by an act or omission of Seller and its employees, agents and
contractors before or after the Closing; (b) any personal injury (including wrongful death)
or property damage (real or personal) arising out of Hazardous Materials used, handled,
generated, transported, disposed, or released by Seller and its employees, agents and
contractors at the Real Property before or after the Closing. This Environmental



                                             12
Indemnity is in addition to any rights or remedies of Buyer and Seller under section
3.3.”2
                Northrup argued during trial, and continues to do so here, that the
indemnity provision applied only to third party claims and does not permit Hot Rods to
sue for its own damages. The referee concluded: “This is a reasonable argument in most
indemnity actions but it does not apply here. Paragraph 16.2 is much broader than third
party claims. This conclusion is supported by the text of the paragraph. . . . The
consistent course of conduct during the negotiations and during the initial claims
demonstrates that both sides interpreted the [agreement] to include damages or losses
sustained by Hot Rods due to environmental contamination.”
                “‘[I]nterpretation of a contract is subject to de novo review where the
interpretation does not turn on the credibility of extrinsic evidence.’” (People ex rel.
Lockyer v. R.J. Reynolds Tobacco Co. (2003) 107 Cal.App.4th 516, 520.) “A contract
must be so interpreted as to give effect to the mutual intention of the parties as it existed
at the time of contracting, so far as the same is ascertainable and lawful.” (Civ. Code, §
1636;3 Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.) “The language of a
contract is to govern its interpretation, if the language is clear and explicit, and does not
involve an absurdity.” (§ 1638.) “Where contract language is clear and explicit and does


2 “Environmental Action” was defined to mean “any complaint, summons, citation,
notice of violation, notice of potential liability, agency request, directive, order, claim,
litigation, investigation, proceeding, judgment, letter or other communication from any
governmental agency involving Hazardous Materials Conditions, violations of
Environmental Laws, or Releases at or from the Real Property for which Seller is or may
be liable under applicable Environmental Laws.” “Remedial Work” was defined as “all
remedial work performed or to be performed to investigate, characterize and remove,
contain, dispose, treat, or otherwise deal with Hazardous Materials Conditions and
Releases in, on, from, or under the Real Property in order to render the Real Property in
compliance with applicable Environmental Laws.”

3   All further statutory references are to the Civil Code.

                                               13
not lead to absurd results, we ascertain intent from the written terms and go no further.”
(Ticor Title Ins. Co. v. Employers Ins. of Wausau (1995) 40 Cal.App.4th 1699, 1707.)
Here, we can go no further pursuant to the integration clause, which prohibits the
introduction of extrinsic evidence. We therefore interpret the clause based on the
language of the agreement alone.
              Section 2772 defines “indemnity” as “a contract by which one engages to
save another from a legal consequence of the conduct of one of the parties, or of some
other person.” This provision “plainly states that indemnity may apply to either direct or
third party claims.” (Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547,
556, fn.5 (Dream Theater).)
              Indemnity provisions typically refer to third party claims, but if the parties
so intend, such provisions may also encompass direct claims. Zalkind v. Ceradyne, Inc.
(2011) 194 Cal.App.4th 1010, 1023 (Zalkind), addressed this issue at length: “The terms
‘indemnify’ and ‘indemnity’ have been defined in several ways. ‘Indemnity may be
defined as the obligation resting on one party to make good a loss or damage another
party has incurred.’ [Citation.]” (Ibid.)
              “Although indemnity generally relates to third party claims, ‘this general
rule does not apply if the parties to a contract use the term ‘indemnity’ to include direct
liability as well as third party liability.’ [Citation.] ‘[E]ach indemnity agreement is
“interpreted according to the language and contents of the contract as well as the
intention of the parties as indicated by the contract.”’ [Citation.] When indemnity is
expressly provided by contract, the extent of the duty to indemnify must be determined
from the contract itself. [Citations.]” (Zalkind, supra, 194 Cal.App.4th at p. 1024.)
              “‘[T]he question whether an indemnity agreement covers a given case turns
primarily on contractual interpretation, and it is the intent of the parties as expressed in
the agreement that should control. When the parties knowingly bargain for the protection
at issue, the protection should be afforded. This requires an inquiry into the

                                              14
circumstances of the damage or injury and the language of the contract; of necessity, each
case will turn on its own facts.’ [Citation.] The indemnity provisions of a contract are to
be construed under the same rules for interpreting contracts, ‘“with a view to determining
the actual intent of the parties.”’ [Citations.]” (Zalkind, supra, 194 Cal.App.4th at
pp. 1024-1025.) Thus, while Northrup argues there must be “express language” in an
indemnity clause before it is interpreted to encompass first party claims, we disagree. It
is the intent of the provision, and the agreement as a whole, that governs.
               The contract in Zalkind stated the “‘Buyer shall indemnify, hold harmless
and defend the Selling Parties . . . from and against any and all Damages that arise from
or are in connection with: [¶] . . . [¶] . . . Any breach or default by the Buyer of its
covenants or agreements contained in this Agreement.’” (Zalkind, supra, 194
Cal.App.4th at p. 1022.) The contract defined “Damages” as “‘(i) demands, claims,
actions, suits, investigations and legal or other proceedings brought against any
indemnified party. . . and (ii) all liabilities, damages, losses, . . . costs and expenses
(including . . . reasonable attorneys’. . . fees . . . ) incurred by any indemnified party.’”
(Id. at p. 1023, italics omitted.)
               We determined the provision was “broadly worded” and “does not limit
indemnification to third party claims and extends indemnification to ‘any and all’
damages incurred by [plaintiffs] arising out of [defendant’s] breach of the Asset Purchase
Agreement. Read in . . . context of . . . the word ‘indemnify’ makes better sense when
read to mean ‘make good,’ ‘reimburse,’ or ‘compensate.’” (Zalkind, supra, 194
Cal.App.4th at p. 1027.) The court also concluded that other parts of the contract, when
read together, supported a broad interpretation of the indemnification provision. (Id. at
pp. 1027-1029.)
               In Dream Theater, Inc., supra, 124 Cal.App.4th 547, an indemnity
provision in an asset purchase agreement for an Internet-based multimedia and
entertainment business provided that “[the] [s]ellers agreed to indemnify buyer Dream

                                               15
Theater, LLC against (a) any breach by Sellers of any representations or warranties made
in the Contract; (b) any breach of any covenant in the Contract or ancillary documents;
and (c) all liabilities except those buyer assumed. Buyer Dream Theater, LLC agreed to
indemnify seller Dream Theater, Inc. against (a) any breach by buyer of any
representations or warranties made in the Contract; (b) any breach of any covenant in the
Contract or ancillary documents; and (c) all liabilities buyer assumed.” (Id. at p. 554.)
              An arbitration clause was located in the same portion of the contract as the
clause addressing indemnification. The party seeking to avoid arbitration argued it
applied only to third party claims. But the court determined the language was sufficiently
broad to encompass direct claims, reasoning the contract clearly required both parties to
indemnify the other for their own wrongdoing. (Dream Theater, Inc., supra, 124
Cal.App.4th at p. 555.)
              In Wilshire-Doheny Associates, Ltd. v. Shapiro (2000) 83 Cal.App.4th
1380, 1396 (Wilshire-Doheny ), two contractual indemnity provisions were at issue,
executed by a corporation on behalf of two employees, an attorney and a real estate
broker. The first provision applied to both employees, and stated the corporation
“‘agrees to indemnify and hold the Indemnitees and their assigns, successors, heirs, and
personal representatives harmless against any and all claims, suits, demand, actions,
causes of actions [sic], damages, set-offs, liens, attachments, debts, expenses, judgments,
or other liabilities of whatsoever kind or nature arising out of or related to the actions
taken by the Indemnitees on behalf of [the indemnitor] and its affiliates. . . . This
indemnification shall include reasonable attorneys fees and costs.’” (Id. at p. 1387.)
              The second provision was in a contract executed when the attorney later
became a corporate officer. (Wilshire-Doheny, supra, 83 Cal.App.4th at pp. 1387, 1394-
1395.) The language in that clause stated the corporation “‘hereby indemnifies and holds
[the attorney] harmless from any and all claims, actions and liabilities brought against
him with respect to his [corporate] capacity . . . or any actions he takes in good faith on

                                              16
behalf of the Corporation. This indemnity shall include the cost of reasonable attorneys
fees and related expenses.’” (Id. at p. 1395.)
               The two employees later became involved in litigation with the corporation
and won. (Wilshire-Doheny, supra, 83 Cal.App.4th at pp. 1385-1387.) Based in part on
the two indemnity clauses, they moved for attorney fees and costs. The trial court
concluded the clauses were not broad enough to cover attorney fees, but the appellate
court disagreed, stating: “[t]here is nothing in the language of any of the [two] indemnity
provisions specifically limiting their application to third party lawsuits. [The corporate
indemnitor] point[s] to no extrinsic evidence introduced to demonstrate that the parties
intended these provisions to apply to third party lawsuits only. [Citations.] Thus, it has
not been shown the indemnity provisions are inapplicable merely because appellants seek
indemnification for attorney’s fees and costs incurred in an action brought by the
indemnitor . . . .” (Id. at p. 1396.)
               The language of the provision itself at issue here is quite broad. It purports
to indemnify Hot Rods from “any claims, demands, penalties, fees, fines, liability,
damages, costs, losses, or other expenses including, without limitation, reasonable
environmental consulting fees and reasonable attorney fees.” (Italics added.) In section
1.13, “Claim” is defined4 as “any claim or demand by any Person for any alleged
liabilities, whether based in contract, tort, implied or express warranty, strict liability,
criminal or civil statute, Permit, ordinance, regulation, common law, equity or
otherwise.” Section 1.14 defines “Person” as “any person, employee, individual,
corporation, unincorporated association, partnership, trust, federal, state or local
governmental agency, authority or other private or public entity.” Thus, the parties
expressly adopted a broad definition of “claim” and “person” that encompasses “any
alleged liabilities,” and covers both first and third party claims.

4 While the word “claim” in section 16.2 is not capitalized, it is nonetheless a defined
term in the agreement and we interpret it accordingly.

                                               17
              Moreover, if the language was meant only to cover third party claims, there
seems little point in including the phrase “damages, costs, losses” when those would all
have been covered already. That language seems entirely duplicative of “any claims,
demands, penalties, fees, fines, liability,” if the provision is intended to apply only to
third party claims. As Northrup points out, we try to interpret contracts to avoid
surplusage. (Appalachian Ins. Co. v. McDonnell Douglas Corp. (1989) 214 Cal.App.3d
1, 12.) The extremely broad language here, such as “any claims, . . . damages, costs,
losses” does not suggest the parties intended to limit the provision to third party claims.
              The provision here also states it covers two categories of claims. The first
are “Environmental Action(s) and/or Remediation,” and the second are “any personal
injury (including wrongful death) or property damage (real or personal) arising out of
Hazardous Materials used” at the property either before or after the closing. Again, there
is no language expressly limiting either category to third party claims. (See Wilshire-
Doheny, supra, 83 Cal.App.4th at p. 1396.)
              When read with the rest of the contract, our conclusion that the indemnity
provision applies to both first and third party claims is strengthened. Section 16.4
required Hot Rods to promptly give Northrup notice of any “Environmental Action.”
Northrup also retained the right to contest or defend against any such action.
Interestingly, however, this did not extend to the second category of claims covered by
section 16.2, personal injury or property damage. If the indemnity provision applied only
to third party claims, as Northrup contends, one wonders why Northrup would not require
prompt notice of, say, a wrongful death lawsuit, and, more importantly, why Northrup
would not want to retain the right to settle or defend the claim. The reasonable inference
is that the second type of claim was not intended to be limited to third party claims, but
contemplated claims from Hot Rods as well.
              It is also clear from the entirety of the contract that the environmental
condition of the property was a primary concern of Hot Rods. The agreement itself

                                              18
incorporated by reference a long list of environmental due diligence materials and
representations from Northrup regarding environmental conditions on the property. Hot
Rods was given time under the agreement to perform an inspection or investigation of
environmental conditions. The reasonable inference was that Hot Rods wanted to make
certain that it would not be responsible for covering the costs of environmental problems
or cleanup, either directly or indirectly, and that Northrup was willing to so guarantee.
Thus, interpreting the indemnity clause to cover both first and third party claims is
consistent with the overall intent of the agreement.
              Accordingly, the declaratory judgment, which finds Northrop liable for first
and third party claims as contemplated by the agreement, is affirmed. We shall discuss
the monetary damage award below.


Damages for Loss of Use
              In the section of its closing brief, before the reference called “Damages,”
Hot Rods raised three arguments. First, it argued it had suffered “a diminution in value
arising from the indemnified events entitling Hot Rods to recovery” under the indemnity
clause in the agreement. This section of the brief extensively reviewed the testimony of
Hot Rods’ own expert, Stephen Roach, on the issue of whether environmental
contamination had caused a diminution in the property’s value. The brief also
endeavored to refute the testimony of Northrop’s expert, Steve Norris, on this topic. Hot
Rods argued a 25 percent diminution, amounting to $5.5 million, had resulted from
Northrop’s acts. In its second argument, Hot Rods indicated other expenses it believed
Northrop should pay, including $105,600 from lost rent from the church, the $10,000 air
study, and similar miscellaneous expenses. In its final argument, Hot Rods argued
Northrop should be entitled to consequential, out-of-pocket, and additional damages as a
result of Northrop’s fraudulent or negligent misrepresentations, requesting a minimum
award of approximately $1.9 million, plus punitive damages.

                                             19
              In the statement of decision, the referee stated: “In its Closing Brief Hot
Rods presents several claims for damages. First it seeks recovery for ‘diminution in
value [of the property] arising from the indemnified events. . . .’ Hot Rods contends the
intensive remediation activity on the property has depressed its value by 25% of its
current assumed value of $22,000,000 or $5,500,000. Northrop’s appraiser did not seem
to grasp the valuation issue and was substantially impeached on cross-examination.
Nevertheless Hot Rods’ evidence of value is subject to criticism. There is no doubt that
the intensive remediation activity diminished the value of the property, especially when
the . . . remediation systems were being installed. But the property continued to be used
and was not sold. Now in 2013 Hot Rods still owns the site and it seems likely that the
remediation will eventually be completed and the property restored to its full fair market
value.”
              The statement of decision continues: “In addition the property has been
improved by Hot Rods and, once remediation is completed, it will be better than it was at
the time of sale. Even if groundwater monitoring wells are required on the perimeter . . .
the diminished value will not be 25%. Hot Rods cannot be allowed to choose the period
of intensive remediation as a date of value and ignore that the property will soon be fully
remediated. The best approach is to assume that the remediation activities caused a
temporary damage similar to the damage to property subject to eminent domain when
there is a temporary construction easement. Hot Rods attempt to relate the value to the
price for the property in 1995 is rejected. It is too remote in time. [¶] . . . [¶] Obviously
the remediation activity has impaired the use of the property. The impairment is a long-
lasting but eventually ending inconvenience and, under Paragraph 16, Hot Rods is
entitled to damages for the period through the date of this award of $1 [million].”
              The statement of decision then goes on to award Hot Rods the $105,600 in
lost rent from the church, the $10,000 costs of the air study, and $1,450 for utilities used
by Northrop on the site. The damages section of the statement of decision makes no

                                              20
mention of the negligent misrepresentation cause of action, except to deny Hot Rods’
request for punitive damages.
              Northrop raises several arguments as to why the $1 million award for loss
of use was improper, but we focus our attention on one issue – even if we assume there
was sufficient evidence to support damages for loss of use, the amount of damages the
referee awarded was not reasonably related to the evidence.
              We review an award of damages in a breach of contact case for substantial
evidence. (SCI California Funeral Services, Inc. v. Five Bridges Foundation (2012) 203
Cal.App.4th 549, 563.) “‘Where the fact of damages is certain, the amount of damages
need not be calculated with absolute certainty. [Citations.] The law requires only that
some reasonable basis of computation of damages be used, and the damages may be
computed even if the result reached is an approximation. [Citation.]’” (Sargon
Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 774.) But
“the court use[d] some reasonable basis of computation.” (Scheenstra v. California
Dairies, Inc. (2013) 213 Cal.App.4th 370, 402.)
              There was a dearth of testimony in this case regarding damages for loss of
use, probably because Hot Rods had chosen to focus its case on diminution in value. Hot
Rods’ expert testified the property’s “income is the same in the affected condition as it
was in the baseline condition. . . . The operating expenses are the same, so the net
income is the same.” There was no testimony at all regarding an appropriate damage
award strictly for loss of use.
              Hot Rods argues “the $1 million damage award falls within the range of the
expert opinions given at trial.” (Italics omitted.) Indeed it does, but those experts were
testifying about something else. The testimony Hot Rods quotes refers specifically to
diminution in value. Hot Rods cannot simply pretend that diminution in value and loss of
use are the same thing. They are obviously not, and the referee went out of the way to



                                             21
distinguish them. Evidence introduced to prove the plaintiff lost an apple cannot be used
to justify an award of an orange.
              Thus, even if we make the rather great leap to find there is substantial
evidence to uphold any award for loss of use, there is no evidence to support the $1
million amount the referee chose. We cannot conclude a “reasonable basis of
computation” was used when Hot Rods cannot point to any evidence at all to support that
number. We cannot even say it is a fair approximation. It lacks the support of substantial
evidence, and accordingly, it must be reversed. The only monetary damages that survive
are $105,600 for loss of rental income, $10,000 for the air study, and $1,450 for utilities,
for a total award of $117,050.


Negligent Misrepresentation
              This cause of action is perplexing. There is some language in the statement
of decision indicating Northrop did not commit fraud, but negligently represented certain
facts. We are uncertain if the referee was reaching a conclusion as to the negligent
misrepresentation cause of action, as the statement of decision does not so specify, but we
assume for the sake of argument that was the referee’s intent. The statement of decision
does not state that any damages resulted or include any award of damages on this cause
of action, even nominal damages of $1.
              The elements of negligent misrepresentation are: (1) the defendant made a
false representation as to a past or present material fact; (2) the defendant made the
representation without reasonable ground for believing it to be true; (3) the defendant
intended to deceive the plaintiff by making the representation; “(4) the plaintiff justifiably
relied on the representation; and (5) the plaintiff suffered resulting damages.” (West v.
JPMorgan Chase Bank, NA (2013) 214 Cal.App.4th 780, 792.)




                                             22
              Accordingly, we must conclude that any finding of negligent
misrepresentation is erroneous and must be reversed, as the statement of decision does
not reflect that all of the elements of the tort, specifically, damages, are present.


Attorney Fees
              Because we are reversing the judgment in part, including the bulk of the
damage award, the attorney fees award must be reversed as well. We remand for
consideration anew of the prevailing party determination and the amount of any attorney
fee award. (Hsu v. Abbara (1995) 9 Cal.4th 863, 876; see also Deane Gardenhome Assn.
v. Denktas (1993) 13 Cal.App.4th 1394 [in some cases, a determination of no prevailing
party is appropriate].)
                                              III
                                       DISPOSITION
              The judgment is affirmed in part and reversed in part. The declaratory
relief judgment is affirmed. The damages award is reduced to $117,050.
              The case is remanded for further proceedings consistent with this opinion.
Each party shall bear its own costs on appeal.




                                                    MOORE, J.

WE CONCUR:



O’LEARY, P. J.



FYBEL, J.




                                              23
Filed 12/7/15              CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                              FOURTH APPELLATE DISTRICT

                                       DIVISION THREE


HOT RODS, LLC,

    Plaintiff and Respondent,                           G049953

        v.                                              (Super. Ct. No. 30-2009-00118853)

NORTHROP GRUMMAN SYSTEMS                                ORDER GRANTING REQUEST
CORPORATION,                                            FOR PUBLICATION; NO
                                                        CHANGE IN JUDGMENT
    Defendant and Appellant.


                  Berding & Weil LLP and Paul W. Windust have requested that our opinion,
filed on November 6, 2015, be certified for publication. It appears that our opinion meets
the standards set forth in California Rules of Court, rule 8.1105(c). The request is
GRANTED.
                  The opinion is ordered published in the Official Reports.


                                                    MOORE, J.

WE CONCUR:


O’LEARY, P. J.


FYBEL, J.
