GREENWOOD & COMPANY REAL ESTATE et al., Plaintiffs and Respondents, v. C–D INVESTMENT CO. et al., Defendants and Appellants.
Donald B. GREENWOOD et al., Plaintiffs and Appellants, v. Edwin T. McBIRNEY et al., Defendants and Appellants, Edward A. Peterson, Defendant and Respondent.
In this case, a real estate broker won summary judgment on a breach of contract action and a jury verdict in an action for conspiracy to interfere with prospective economic advantage, in this instance a contractual relationship. Both actions result from a single transaction in which appellants decided not to pay the broker a commission on a master lease for a major high-rise office building. The consolidated appeals raise a variety of issues. We affirm on some of these issues and reverse on others.
STATEMENT OF FACT AND PROCEEDINGS BELOW
This dispute arises out of what has been characterized as the largest single sale of commercial properties in Los Angeles history. A total of more than 20 buildings and lots changed hands. Yet this case involves only the denial of one real estate commission on one of those buildings. It is a testament to the size of the overall transaction and the bulk of the building whose long-term lease generated the commission that this fee is worth as much as $12 million and the lawsuit resulted in a judgment, including punitive damages, exceeding $40 million.
In summarizing the facts in this section, we adhere to the rule we construe the evidence, and the inferences therefrom, in favor of the judgment. However, in considering the issues raised in our review of the summary judgment we, of course, follow a different formula—strictly construing the evidence favoring that judgment, liberally construing the contrary evidence and resolving all disputed factual issues in favor of appellants. (Gray v. State of California (1989) 207 Cal.App.3d 151, 254 Cal.Rptr. 581; Bert G. Gianelli Distributing Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020, 219 Cal.Rptr. 203; Maxwell v. Colburn (1980) 105 Cal.App.3d 180, 163 Cal.Rptr. 912.1
The respondents are the broker whose commission was withheld, Greenwood and Company, and an employee of that firm, who along with Greenwood himself performed nearly all the services on which the commission claim is based. These respondents are referred to throughout this opinion collectively as (Greenwood).
At the time the events underlying this lawsuit began C–D Investment Co. (C–D) owned an almost new 29–story office building in downtown Los Angeles. It was called “Beaudry Center One.” (Beaudry One) C–D also owned many other office buildings, hotels, and other commercial properties throughout the southern California area. C–D, in turn, was owned 50–50 by Alexander Coler and Naftali Deutsch. Deutsch's share, however, was held in the name of Lazben–Pico Co., a limited partnership, with Deutsch as the general partner and Overland Plumbing, Inc. (another Deutsch-owned company) as the limited partner. All of these individuals and entities are defendants and appellants in this proceeding.
Meantime, back in Texas a large financial institution, Sun Belt Savings & Loan Association (Sun Belt), had begun scouting for investments in California. Edwin T. McBirney was chairman and majority stockholder of Sun Belt. The executive vice president was William Dobrowolski. When Sun Belt eventually decided to enter into negotiations with C–D, it formed another Texas corporation, Sun Cal, Inc. (Sun Cal) with McBirney as its majority stockholder and Stanley Castleton as president. All of these entities and individuals likewise are defendants and appellants. A Texas lawyer, Edward Peterson, Esq., served as counsel to both Sun Belt and Sun Cal. Since the trial court granted nonsuit in his favor, Peterson although a defendant at trial is a respondent in this appeal.
Although there is conflicting evidence about its dimension, as 1984 began C–D found itself with a cash flow problem. Some of the buildings in its billion-dollar portfolio were still under construction and thus costing money. Others were completed but only partially leased, including the largest, Beaudry One, and thus not earning the expected revenues. C–D needed a large infusion of cash so it could finish construction and it needed to lease the vacant space in its completed buildings.
C–D had tried to cure the problem of unleased space through the efforts of its own in-house leasing staff and listings with several major real estate agencies. When these efforts yielded skimpy returns, C–D was receptive to an overture from George Banks, a long-time friend of a Deutsch family member, and Donald Greenwood, who had a personal and business relationship with Deutsch. In early 1984, the Greenwood firm proposed it become the exclusive leasing agency for Beaudry One, and several other buildings in the C–D portfolio.
Deutsch eventually agreed and asked his partner, Coler, to negotiate the listing contract. Based on these negotiations, the C–D legal department prepared a draft written listing agreement. After review and some changes, the C–D legal department prepared a revised agreement which was signed by Greenwood and C–D on March 21, 1984. Under the terms of the final written contract, Greenwood's commission was set at 4 percent of the “aggregate basic rental” for the first five years of any lease and 2 percent of the rental thereafter, 50 percent of the commission payable upon execution of the lease and 50 percent when the tenant took possession.
Attached to the contract was a list of prospective tenants which C–D or its agents had contacted previously. Greenwood was not to receive credit or a commission if someone on this list signed a lease for one of C–D's properties. Notably, Security Pacific Bank was not on this list.
Meantime, while Greenwood was scouting around for tenants for C–D's unoccupied buildings, C–D also was moving on another front. To deal with its cash flow problem, C–D sought a major investor who could become a partner in their properties. In late April 1984, Deutsch was approached by Stanley Castleton, who at that time had his own firm specializing in commercial real estate acquisitions and had not yet formally affiliated with the Sun Belt group.
During this first meeting, Castleton not only learned the details of C–D's financial condition and its properties, he learned about Greenwood's exclusive listing agreement on Beaudry One and several other C–D buildings. After the meeting, Castleton developed the idea of a joint venture between his company and Sun Belt. The joint venture would supply the needed cash to C–D, then split the profits after the buildings were leased and sold.
Castleton took this idea to McBirney, Sun Belt's chairman. McBirney flew to Los Angeles and met with Deutsch. Negotiations continued throughout the month of May.
Critical to these negotiations, however, was a development on the other front. Greenwood had procured Security Pacific's interest in a long-term lease of the bulk of C–D's largest building, Beaudry One. Indeed Security Pacific's interest had matured to the point that on May 7 the bank submitted a formal offer to lease eight floors with an option on the remaining space in the building. While C–D did not accept this offer and submitted its own counter offer, negotiations continued, with Greenwood acting as C–D's chief negotiator.
So C–D was negotiating simultaneously with Security Pacific over a long-term lease of most of Beaudry One and with Sun Belt over a possible major infusion of cash under some sort of partnership arrangement. Sometime in late May or early June, Deutsch informed McBirney and his associates of Security Pacific's interest in leasing Beaudry One because he thought this would make the entire package more appealing to them. And Castleton actually attended a meeting on the potential lease which was held on June 1, 1984, between C–D and Security Pacific, with Greenwood negotiating for C–D. At that meeting the parties agreed to meet again on June 12 to discuss the lease terms. Castleton reported all these developments to McBirney.
In the interval between the June 1 and June 12 meetings on Security Pacific's lease of Beaudry One, McBirney's group and C–D had reached an agreement in principle. Sun Belt formed Sun Cal, a wholly-owned subsidiary, with Castleton as president, to carry out its side of the C–D transaction. The principals met in Dallas, Texas, and signed a June 8, 1984, “Master Agreement” and “Management and Leasing Agreement.” McBirney signed for Sun Cal and Coler and Deutsch for C–D. However, there were many conditions to be met and the final closing of the deal was not scheduled to occur until August 30, 1984.
The plan set forth in the June 8 “Master Agreement” called for Sun Cal and C–D to establish 15 Texas limited partnerships. These were to be called “Sun Cal Investments No. 1,” “Sun Cal Investments No. 2,” etc. Each of these limited partnerships would own one or more of C–D's properties. Sun Belt, through Sun Cal, would contribute cash to each of these partnerships. C–D, in turn, would contribute its ownership interest in the subject property. Sun Cal would own 50 percent and be general partner of each limited partnership and C–D would own 50 percent and be the limited partner of each. The plan called for each property to be sold after its mortgages and other financial obligations were current. The profits from these sales would first be used to repay Sun Cal for the funds it advanced to pay C–D's debts on these properties. The remaining profits would be split 50–50 between the two partners, C–D and Sun Cal.
A companion document, the “Management Agreement,” gave Sun Cal control—with certain limitations—over C–D's properties between June 8 and the contemplated closing date of August 30, 1984.
After these agreements were signed, McBirney dispatched William Dobrowolski, executive vice president of Sun Belt's real estate arm, and Edward Peterson, its chief attorney, to California for the purpose of bringing the entire transaction to a successful conclusion.
Only four days after the initial agreements were signed structuring the deal between C–D and Sun Cal, and giving Sun Cal management control over C–D's properties, the scheduled meeting on the Security Pacific proposal to lease Beaudry One went forward. Sixteen people attended, representing the various sides, and the meeting lasted two days. Included were Dobrowolski and Peterson, who had flown out from Texas for the express purpose of attending this meeting on the lease, and Castleton, who was already in California.
As the meeting started, Greenwood was negotiating on behalf of Beaudry One with Security Pacific as he had at past meetings. However, Dobrowolski soon advised Greenwood to stop talking. Nevertheless, both Greenwood and Banks remained through both days of the meeting. The meeting ended on June 13 with an oral agreement that Security Pacific would enter into a master lease for the entire building for a period of 21 years at a total rent of $520 million.
This Security Pacific lease was an important ingredient in the entire Sun Cal/C–D transaction. If it were consummated this lease could provide collateral for a substantial bank loan to help fund Sun Cal's participation and the buy down of CD's debt obligations. (Indeed after the lease was signed, the partners were able to obtain a $110 million loan on the basis of that lease, refinance the Citibank loan and sell Beaudry One only seven months later for a $100 million profit. That profit alone almost recouped Sun Cal's entire cash advance for the whole C–D portfolio.)
When the June 12 meeting broke, Peterson took Greenwood aside and asked for a copy of the listing agreement. Greenwood inquired whether he needed a new agreement now that he had learned of the proposed new partnership between C–D and Sun Cal. Peterson reassured him the existing agreement was sufficient. Upon returning to Texas, he followed up his oral request with a letter asking for the listing agreement, with copies of this request sent to Coler, Deutsch and McBirney.
Although there is a controversy over who made the decision, there is no dispute Dobrowolski told Castleton shortly after the June 12–13 meeting that a policy decision had been made not to pay Greenwood a commission for the Security Pacific lease. Castleton could not recall whether it was McBirney or Dobrowolski who was reported to have made the decision, but he does recall complaining to both. McBirney denied making the decision. So did Dobrolowski at his deposition. But by the time of trial he testified he indeed had made the decision based on legal advice from Alvin Kaufer (Sun Cal's local California counsel). (The jury, of course, was free to believe or disbelieve any of these disclaimers.)
In any event, Kaufer sent a letter to Greenwood on June 27, 1984, at the behest of Castleton and Peterson. This letter informed Greenwood his listing agreement was being cancelled and explained the legal theories supporting that action. Greenwood quickly responded that Kaufer's clients were strangers to the listing agreement and could not cancel it. At Sun Cal's behest Deutsch then sent a letter dated July 9, 1984, cancelling the listing agreement effective August 9, 1984. The two cancellation letters were followed by a further announcement at a major July 2, 1984, negotiating meeting between Security Pacific, Sun Cal, and C–D. Sun Cal informed the others it did not believe Greenwood was entitled to any commission.
By this time, the lease negotiations with Security Pacific and the closing of the partnership deal between C–D and Sun Cal were both nearing completion. Most of the 15 limited partnerships contemplated in the June 8 “Master Agreement” were not formed until August 30, the date the entire transaction closed. But there were exceptions. Sun Cal Investments Nos. 1–3 were formed in order to obtain liquor licenses for certain premises included in the overall deal. And the partners—C–D and Sun Cal—formed the limited partnership, Sun Cal 4 Partnership, to sign the lease with Security Pacific.
Sun Cal 4 was formed and the Security Pacific lease signed on the same day, August 14, 1984. Like the other limited partnerships to be created later, it was a 50–50 partnership between Sun Cal and C–D (with respect to the division of proceeds) with Sun Cal as the general partner. But unlike the others which came into existence on August 30, C–D had not yet transferred its property interest to the limited partnership and Sun Cal had not yet provided an infusion of cash. Thus, as of August 14 Sun Cal 4 had total capital of $100 and no interest in Beaudry One.
On August 14, Sun Cal, as the general partner of Sun Cal 4, and Security Pacific signed the master lease for Beaudry One. The term of the lease was 21 years and Security Pacific's total rental payments owed under the lease amounted to $520 million. At that time, C–D was still the record owner of this building and remained so until August 30 when the deal between C–D and Sun Cal closed on schedule. The August 30, 1984, closing documents include a provision in which Sun Cal indemnifies C–D for Greenwood's commission claim. Although he denies it, there is testimony McBirney personally decided to include this indemnity provision.
Six months later, the limited partnerships dissolved, and Sun Cal bought out Coler and Deutsch's interests in a property exchange. Nine months after that, Castleton and Dobrowolski formed a new company, May Cal, Inc., which acquired all of Sun Cal's stock and interests from Sun Belt. However, Castleton and Dobrowolski insisted Sun Belt indemnify May Cal for any losses occasioned by Greenwood's commission claim and included that provision in the sales documents.
On January 29, 1985, Greenwood filed a breach of contract action against C–D, Sun Cal and Sun Cal 4 to recover the commission plaintiffs were allegedly owed under the listing agreement. This suit alleged that commission was $12,058,164 and sought that amount in damages.
On August 13, 1985, Greenwood filed a separate tort action for intentional interference with prospective economic advantage against Sun Cal and Sun Cal 4 (but not C–D) as well as several other individuals and entities—McBirney, Castleton, Dobrowolski, Peterson, Coler, Deutsch, Lazben–Pico Co., and Overland Plumbing, Inc. In this suit, Greenwood also sought punitive damages.
The trial court heard cross-motions for summary adjudication. After extensive briefing and consideration of the issues, the court granted summary judgment in Greenwood's favor on the breach of contract action. It also found no triable issue as to the amount of damages on that cause of action and awarded Greenwood its full claim for $12,058,164.
At trial on the tort case, the jury returned a verdict in Greenwood's favor. This included a “back-up” damage award against all defendants (except Coler) for the amount of the commission (in the event the breach of contract award somehow evaporated). It also included $50,000 to each plaintiff for emotional distress. Most significantly, the jury awarded an aggregate of $22 million in punitive damages in individual awards against different defendants, including $5 million against Dobrowolski, $4 million against Castleton, $2 million against Sun Cal, and $2 million against Sun Cal 4 partnership.
Appellants filed timely appeals to the judgments in the two consolidated cases.
I. THE TRIAL COURT PROPERLY GRANTED SUMMARY JUDGMENT AS TO APPELLANTS' LIABILITY UNDER THE BREACH OF CONTRACT CAUSE OF ACTION.
This case presents the unusual situation where a summary judgment is appropriate despite the presence of a “triable issue.” This apparent anomaly arises because no matter how this particular triable issue is resolved the ultimate result is the same—appellants are liable to Greenwood for the real estate commission resulting from Security Pacific's lease of the Beaudry Building.
“The purpose of [the statute of frauds provision requiring listing agreements to be in writing and signed by the party to be charged] is to protect the owner of real property, not from every claim of a commission for selling the same, but from claims from persons never by him employed or authorized to act. It is equally the policy of the law to protect a broker who has been so employed or authorized, and who, in good faith, has acted.” (Moore v. Borgfeldt (1929) 96 Cal.App. 306, 313, 273 P. 1114.) (Italics added.)
In order to be entitled to recover a commission for a lease of real property, a broker must prove he was employed by or on behalf of the owner to lease the property, and that his authority, or some note or memorandum thereof, was in writing, subscribed by the party to be charged, or by his authorized agent. (Civ.Code, § 1624; McCarthy v. Loupe (1882) 62 Cal. 299.) And before a broker can be said to have earned his commission, it must also be shown that he produced a purchaser, who was ready and willing to make the purchase and that he was the procuring cause of the lease. (McGavock v. Woodlief (1857) 61 U.S. (20 How.) 221, 15 L.Ed. 884; Wylie v. Marine National Bank (1875) 61 N.Y. 415.)
There is no serious dispute about most of these prerequisites. There is a written memorandum, the listing agreement which provides C–D is employing Greenwood under an exclusive arrangement to lease all or part of Beaudry One (along with other designated buildings) in return to a specified commission percentage on the rentals to be earned from those leases. Moreover, the undisputed evidence reflects Greenwood found Security Pacific and was the “procuring cause” of the lease. The only real issue is whether the circumstances of this case satisfy the requirement the listing agreement has been signed by a party “to be charged” or its agent.
When Sun Cal signed the Security Pacific lease it was acting in one of two capacities, or both. Simultaneously, Sun Cal was the agent of the record title holder of Beaudry One, C–D Investments, and a partner—along with C–D Investments—in the soon-to-be owner of that building, Sun Cal 4 Partnership. In either event, Sun Cal's signature on the Security Pacific lease was the functional equivalent of C–D Investment's signature on that same lease for purposes of the listing agreement between Greenwood and C–D Investments. This follows because Sun Cal was either signing as C–D's agent or as C–D's partner. A party to a listing agreement cannot escape liability by having an agent sign in its stead on the lease or deed which results from the listing. Nor can that party escape liability by entering into a partnership and having the partner (who by operation of law is an agent for other partners) sign the lease or deed.
Sun Cal 4 Partnership was not just any successor to C–D Investments, the entity which signed the listing agreement with Greenwood. No, it was a very special type of entity. It was a partnership between a “stranger” to the listing agreement and C–D, the entity which had signed that agreement. Thus we need not consider whether a completely independent entity 2 which had purchased Beaudry One and signed a lease with Security Pacific would have been liable to Greenwood as “successor” under the listing agreement. Instead we rest our decision on a narrower ground. We hold a partnership which includes as a partner a party bound by a listing agreement is itself bound by that listing agreement if and when one of the members of that partnership knowingly signs a lease or deed for which that listing agreement requires payment of a commission to the real estate agent, knowing that commission has not been paid and that the partnership will acquire the benefits flowing from that lease or deed.
This holding finds support in prior decisions which have enforced listing agreements where the person or entity signing the agreement was affiliated with a second individual who signs a lease or deed with the prospect the real estate agent found (Wilson v. Sturgis (1886) 71 Cal. 226, 16 P. 772 [enforcing commission contract against seller who conveys property to father who in turn conveys to buyer originally located by broker] or where the same individual is part of the entity which signed the listing agreement and of the entity which signed the lease or deed; (Wilson v. Roppolo (1962) 207 Cal.App.2d 276, 24 Cal.Rptr. 437 [enforcing commission contract against seller who had sales agreement signed by corporation other than one which signed commission agreement].) This holding likewise comports with the principles and policies which find expression in the statute of frauds.
The statute of frauds has two functions, both aimed at minimizing fraud in selected transactions. The first is “evidentiary.” By requiring certain agreements to be written and signed by the parties, the Legislature ensures there will be written proof—rather than merely oral testimony—as to the fact and terms of the agreement. The second function is “cautionary.” By requiring the parties to prepare and sign a written document the Legislature reminds them they are taking on serious obligations. (Phillippe v. Shapell (1987) 43 Cal.3d 1247, 1257, 241 Cal.Rptr. 22, 743 P.2d 1279.)
These legitimate policies behind the statute of frauds were satisfied when the broker and property owner/lessor negotiated and executed a full-blown listing contract adequately defining the property, the broker's responsibilities, and the commission arrangements. This contract provided written evidence of what the broker was agreeing to do and what its compensation was to be for achieving that result. And, it cautioned the owner/lessor it was taking on an obligation to pay the broker that commission if the broker performed. So there was no risk here that the owner/lessor suddenly would be confronted with a bill from the broker based on the broker's recollection of a supposed oral agreement allegedly providing it with a commission at a certain percentage in return for certain alleged services in connection with the owner's property. This is the very risk the statute of frauds seeks to eliminate. Where, as here, the listing agreement has been reduced to writing and signed the policies behind the statute of frauds have been fulfilled. We can look at a written document and determine what the broker (Greenwood) must do with regard to which property (Beaudry One) in order to earn a commission and how much that commission is to be.
Since the purposes of the statute of frauds were satisfied the only issue is whether it is reasonable to enforce the provisions of this listing agreement against Sun Cal 4 Partnership. In this case, there is no dispute the partner who signed the lease (Sun Cal) was fully aware the other partner in the partnership (C–D) had signed a listing agreement promising a commission to the broker (Greenwood) who procured the very lessee (Security Pacific) that was signing this lease. That partner likewise was, along with the other partner, accepting the benefit (the half-billion dollars the lease provided over a 24–year period and the $110 million a bank was willing to give them immediately on the basis of that lease) which flowed from the lessee the broker had procured. Indeed that lessee and the lease it signed provided the primary and essential, if not the sole, benefit the Sun Cal 4 partnership ever acquired or was expected to acquire in its relatively short life. Sun Cal likewise was aware its partner C–D had not paid and was not paying the commission owed under the listing agreement with Greenwood and indeed ordered the commission not to be paid.3
In these circumstances, we have no difficulty whatsoever concluding Sun Cal's signature on behalf of the Sun Cal 4 partnership (which included C–D as the only other partner) was the functional equivalent of C–D's signature on the lease with Security Pacific. Thus, for purposes of the listing agreement, Sun Cal's execution of the Security Pacific lease on behalf of the Sun Cal 4 partnership satisfied the requirement in the agreement that C–D sign a lease before Greenwood was entitled to a commission. Likewise, the requirement in the statute of frauds that the listing agreement be signed by “the party to be charged” is likewise fulfilled. C–D signed the listing agreement and Sun Cal signed the lease on behalf of C–D as well as itself. Accordingly, the listing agreement was signed by “the party to be charged.”
This court in Guthman v. Moss (1984) 150 Cal.App.3d 501, 510, 198 Cal.Rptr. 54 has observed the statute of frauds is intended to provide a shield not to supply a sword, a theme sounded in many other opinions. (Wilson v. Bailey (1937) 8 Cal.2d 416, 422, 65 P.2d 770; Moore v. Day (1954) 123 Cal.App.2d 134, 141, 266 P.2d 51; Schuster v. Bowen (1950) 97 Cal.App.2d 803, 807, 218 P.2d 839; LeBlond v. Wolfe (1948) 83 Cal.App.2d 282, 286, 188 P.2d 278; Van Fossen v. Yager (1944) 65 Cal.App.2d 591, 597, 151 P.2d 14; Colon v. Tosetti (1910) 14 Cal.App. 693, 695, 113 P. 365.) Here unlike nearly every case which has upheld a statute of frauds defense there actually was a complete, signed contract between the property owner/lessor (C–D) and the broker (Greenwood) providing the broker was entitled to a commission. After the broker had performed his responsibilities under this written contract by procuring a prospective tenant interested in leasing the property, the owner (and its new partner) sought to wield the statute of frauds as a sword and sever the broker's entitlement to a commission under the listing contract by having the new partner execute the lease rather than the partner who originally signed the listing contract.
For purposes of this holding, we deem it irrelevant how the partners structured the partnership and why they did so. The purposes of the statute of frauds are satisfied by the fact the party who signed the written listing agreement is a part of the partnership and will benefit in some substantial way by the real estate agent's performance under that listing agreement in procuring the tenants for the building. Thus, it is irrelevant whether the partner who signed the listing agreement is also the partner who signs the lease or whether another member of the partnership performs that act. It also is irrelevant whether the partner who signed the listing agreement is a general partner or a limited partner in the partnership which executes the lease. It also is irrelevant whether the partners chose a particular form of partnership in a deliberate attempt to avoid having the partner who signs the listing agreement also sign the lease, or whether they had completely different and innocent reasons for structuring the partnership this way.
To rule as appellants ask and the dissent argues would create a dangerous precedent. It would allow the statute of frauds to be perverted and used as a sword rather than a shield. Written real estate commission contracts could be avoided through the simple expedient of taking on new partners and creating new entities. What is to prevent any other sophisticated seller who has signed such a contract from creating a partnership with his son or brother or friend to take title to the property and having another member of that partnership sign the sales agreement with the buyer the real estate agent managed to find. That way, as in this case, the sales agreement would not be signed by the person who signed the commission agreement with the real estate agent and, according to appellants' rationale, the latter agreement would be unenforceable under the statute of frauds.
The courts wisely have seen through similar arrangements in the past. (Wilson v. Sturgis, supra, 71 Cal. 226, 16 P. 772; Wilson v. Roppolo, supra, 207 Cal.App.2d 276, 24 Cal.Rptr. 437.) The trial court saw through the tangled web of entities and transactions in the instant case. We do also. Merely because the three principal human beings involved in this case—Coler, Deutsch, and McBirney—were more sophisticated than most and had more layers of artificial entities to insulate them and teams of lawyers to advise them and multiple motives for most steps they took should not allow them to avoid the written listing agreement two of those three individuals signed and from which all three benefited immensely.4
Appellants claim a number of “triable issues” remain unresolved. Most of these issues indeed may be “triable.” However, they lie at the periphery and are irrelevant to the validity of the summary judgment on the issue of appellants' liability to Greenwood and Banks for the commission on the Security Pacific lease. For instance, appellants argue there is a triable issue as to whether Security Pacific would have signed the lease with C–D without the addition of Sun Cal because of alleged doubts about C–D's financial viability. But this “triable issue” is entirely irrelevant on the question whether C–D, or C–D's agent, or the partnership of which C–D is a member is obligated to pay Greenwood its commission for having located the eventual lessee, Security Pacific. Nothing in the commission contract suggested Greenwood's commission depended on finding prospective tenants who were agreeable to certain specified terms. If C–D found the tenant Greenwood submitted so appealing it was willing to sweeten the deal in some way including by the addition of a more prosperous partner, nothing in the listing agreement suggested this would somehow be sufficient reason for denying Greenwood its commission for having found such an outstanding prospect. So whether Security Pacific would have been willing to sign the lease without the participation of Sun Cal or the creation of Sun Cal 4 is simply a non-issue in this case.
Appellants and the dissent also claim there is a triable issue whether C–D and Sun Cal had actually completed a sale through this transaction prior to Sun Cal's signing the Security Pacific lease. This is based on evidence, albeit controverted, that this entire transaction with its array of limited partnerships, management agreement, etc. was intended to mask what was actually an outright sale in order to avoid heavy taxes on the transfer of ownership from C–D to Sun Cal. Accordingly, appellants argue, there is a triable issue Beaudry One already had been “sold” to Sun Cal when Sun Cal signed Security Pacific's lease. If this indeed were Sun Cal's status at that time, appellants argue it was a new and independent successor as opposed to an agent or partner of C–D's and, consequently, not a party nor a part of a partnership chargeable under the listing agreement.
There may be a triable issue whether the parties intended this transaction to mask a “sale” in order to avoid some taxes. But whether the transaction will be treated as a completed sale at a time when Sun Cal and C–D in actuality were partners in Sun Cal 4 (and Sun Cal was a managing agent for C–D's properties) is not a factual issue but a legal issue. It was a legal issue properly before the trial court on summary judgment and, moreover, decided correctly in this case.
Sun Cal is stuck with the legal consequences of the form in which it chose to cast the transaction it used to avoid taxes. It cannot put one face on the transaction for the tax authorities and another face for third parties affected by the form the transaction took. It cannot be a “non-sale” for the tax authorities and a “sale” for everyone else. The courts cannot permit the transaction to be treated as a “partnership” in order to allow appellant to avoid taxes and simultaneously treat it as a “completed sale” in order to allow appellants to avoid obligations owed Greenwood (and perhaps others who might lose legal rights if this transaction actually constituted a completed sale at the time the various limited partnerships still existed).
Irrespective of appellants' intent, it is a legal question not a factual issue whether this transaction is considered a completed sale or an ongoing partnership (or agency relationship). Since we conclude it is not properly considered a “completed sale” at the relevant time no triable issue remains on this question.
Appellants further claim a triable issue remains as to whether the listing agreement should have been reformed to comport with the “parties' true intent.” The evidence purportedly creating a triable issue consists of declarations from Coler and Deutsch to the effect they did not mean for the written listing contract to say what it says. They only meant Greenwood's commission to be calculated on the first 10 years of the lease and they did not mean it to cover a master lease for the entire building. Appellants make these claims despite the fact Coler personally negotiated the listing agreement and C–D's own legal department actually drafted this document and, furthermore, despite the fact the agreement contains an integration clause.
It is black letter law that “[i]f [a written contract] contains language that imports a complete legal obligation, it is conclusively presumed that it contains every material item and term, and other terms or conditions cannot be shown by parol.
In the process of interpreting or construing a contract it is not a court's province to alter the contract, rewrite its clear terms, or make a new contract for the parties.” (14 Cal.Jur.3d Contracts (1974) § 152.)
The terms of the listing agreement are unambiguous. What appellants seek, in essence, is to use oral evidence to substitute new words for the language actually contained in the written contract. The agreement provides Greenwood is the exclusive agent to lease “the whole, or any part” of Beaudry One. It would be disingenuous to interpret this term to exclude a “master lease” of the “whole” of the building. The agreement is equally specific in providing Greenwood's commission includes 2 percent of the rents for the full term of any lease after the first five years during which the commission is 4 percent.
Appellants' declarations concede those are the words of the agreement but state they did not intend for the written agreement to contain those words. They claim to have harbored an unwritten, uncommunicated intent the listing agreement their legal department drafted to have different words than those it actually had. These words would have placed a ten-year cap on the period during which Greenwood would receive a percentage commission on the rental income provided in any lease which was signed as a result of Greenwood's efforts.
The Coler and Deutsch declarations were inadmissible to vary the written terms of the listing agreement, which had an integration clause. (14 Cal.Jur.3d, supra, Contracts, § 152.) Furthermore, those declarations do not recite other facts which might support reformation in unusual circumstances, e.g., misrepresentation, scrivener's error, the document's inconsistency with the parties' actual agreement, etc. (Appalachian Ins. Co. v. McDonnell–Douglas Corp. (1989) 214 Cal.App.3d 1, 21–22, 262 Cal.Rptr. 716.) Accordingly, these declarations could not create a triable issue as to the proper interpretation of the listing agreement.
We already have mentioned there is a triable issue as to whether Sun Cal was an agent or a partner of the party who signed the real estate commission contract at the time it executed the master lease with Security Pacific. But in whichever of those capacities Sun Cal Investments signed the lease with Security Pacific, Greenwood was owed the commission provided in its contract with C–D Investments. Hence this is the unusual case of a triable issue that makes no difference.5
II. TRIABLE ISSUES EXIST AS TO THE PROPER AMOUNT OF DAMAGES UNDER THE CONTRACT CAUSE OF ACTION.
The trial court not only granted summary judgment as to appellants' liability on the contract cause of action but also as to the damages issue under that cause of action. This required the court to interpret the listing agreement and the Security Pacific lease.
The listing agreement provided Greenwood was entitled to a certain percentage of the “aggregate basic rental” provided in the Security Pacific lease (or any other lease Greenwood might have procured). The agreement defined “aggregate basic rental” as the total rent payable by the lessee after deducting seven items which might be part of a given lease. The trial court concluded none of the seven potential deductions applied to the Security Pacific lease and found as a matter of law the “aggregate basic rental” was the same as the total rental of $520 million provided in that lease. Accordingly, the court awarded Greenwood as damages for breach of the listing agreement 4 percent of the gross rental payments owed during the first 5 years and 2 percent of the gross rental payments owed for the remaining term of the lease. This totaled $12,058,164.
In its papers opposing Greenwood's summary judgment motion, appellants included a declaration from Douglas Duffy, Sun Cal's chief financial officer who was a certified public accountant. In this declaration Duffy claimed four of the deductions in fact applied to the Security Pacific lease. He also presented calculations of those deductions which had the effect of reducing the “aggregate basic rental” by over $200 million. In order to grant summary judgment on the contract damages issue, the trial court had to reject all four of these proposed deductions and indeed find there was not even a triable issue that one of them applied to the Security Pacific lease. Whether Duffy accurately calculated the value of these deductions is irrelevant. The issue on this appeal is whether there is a triable issue the deductions applied and had some value. If so, the contract damages issue should have been submitted to the jury.
The four deductions appellants claim are:
(1) “Parking revenues,” consisting of the portion of the total rent reasonably allocated as payment for 2,026 parking spaces Security Pacific is entitled to use “free” under the terms of the lease. This is calculated to amount to $74,861,839 over the term of the lease.
(2) “Reimbursable expenses,” consisting of $3.5 million a year which Sun Cal is obligated to pay toward taxes, maintenance and repairs, utilities and insurance, before the master tenant or other tenants can be charged with these operating expenses. This is calculated to amount to $73 million, 500 thousand over the term of the lease.
(3) “Credits” consisting of the rents paid by pre-existing tenants of Beaudry One which became sub-tenants of the master lessee, Security Pacific, under the terms of the new master lease. According to the lease, these payments which the existing tenants formerly paid to C–D Investments were to be paid to Security Pacific and were calculated to amount to $51,690,174.
(4) “Rental concession” consisting of the “return of rent” the master lease requires the Sun Cal 4 partnership to give Security Pacific if and when Beaudry One is sold or refinanced. Beaudry One, in fact, was sold within the year and the Sun Cal 4 partnership had to return rent to Security Pacific in the amount of $7,746,143.
We conclude the trial court erred in finding no triable issue exists as to the proper amount of contract damages. Three of the four items listed above qualify as potential “deductions” from total rent in determining “aggregate basic rent” as defined in the listing agreement.
First, there is a triable issue whether and how much of the total rent represents “parking revenues” within the meaning of the Security Pacific lease. The trial court agreed with Greenwood's position nothing in the Security Pacific lease specifically provided “parking revenues” to appellants and thus no adjustment need be made in total rents in order to calculate “aggregate basic rent.” However, this ignores the fact the master lease did specifically provide Security Pacific was furnished a pro rata share of Beaudry One's total parking spaces as part of the total rental payments it was making.
True, it is possible to interpret the “parking revenues” deduction as excluding the portion of total rent which represents compensation for parking spaces located within a structure. Conceivably, the term “parking revenues” was intended to be limited to short-term payments made by individuals for hourly or other short-term rentals of parking spaces within Beaudry One. However, that interpretation is not inevitable as a matter of law. It is also possible the term embraces any “revenue,” short term or long term, which is attributable to compensation appellants are to receive for building space the lessee uses for parking purposes. (There can be no dispute some proportion of the total rent in fact was attributable to the portion of Beaudry One which is devoted to automobile parking spaces.) At a minimum, the term is ambiguous and there is a triable issue about its meaning.
Appellants offered some evidence, not entirely conclusive, in the form of Duffy's affidavit as to the meaning of the term “parking revenues.” Greenwood offered no contrary evidence at the time of the summary judgment motion. It remains a triable issue to be resolved at a trial on the issue of damages.
Second, there is a triable issue whether the “credit” deduction applies to rental payments attributable to pre-existing tenants. That provision excludes from aggregate basic rent “any portion of the ․ premises ․ credited by Owner to tenant by reason of Owner's retaining as subtenant or otherwise any of the ․ premises.” (Italics added.) Greenwood does not dispute the essential facts there was a pre-existing lease with AT & T for five floors or that Security Pacific's master lease was subject to this AT & T lease. The master lease assigned the AT & T lease to Security Pacific and allowed it to collect the rent from AT & T.
According to appellants, the owner, the Sun Cal 4 partnership, “retained” that portion of Beaudry which AT & T leased not as a subtenant but “otherwise,” then assigned its right to receive rents on that portion of the building to Security Pacific. Consequently, a portion of the $520 million total rent to be received under the master lease actually represents payments owed the Sun Cal 4 partnership by the pre-existing tenant for space it retained and the Sun Cal 4 partnership then merely assigned to Security Pacific the right to collect whatever rent AT & T paid as rental for that space. This interpretation finds some support in subsequent events. AT & T surrendered one of its floors. Security Pacific did not absorb this reduction in its revenues. Instead the Sun Cal partnership paid the rent owed for that floor to Security Pacific as, in effect, a deduction in the rent Security Pacific owed under the master lease.
Once again there is a triable issue about ambiguous language in the listing agreement and the Security Pacific master lease. While it is conceivable to interpret the listing agreement to confer this extraordinary bonus on Greenwood—a commission on already leased space as well as newly leased space—that interpretation is not compelled by the language of the agreement and the master lease. To ascertain the proper construction of this clause of the agreement requires the consideration of extrinsic evidence about the parties' intentions.
Third, there is a triable issue whether the deduction for “rent concessions” embraces the “return of rent” to which the lessee, Security Pacific, became entitled if and when the Sun Cal 4 partnership sold Beaudry One. It is entirely conceivable the phrase “rent concessions” has a settled meaning within the real estate and development community which would exclude a rent reduction accompanying a sale of the leased premises. However, Greenwood introduced no evidence at the time of the summary judgment motion establishing such a customary definition—or indeed any other meaning for the term. Appellants, on the other hand, presented a declaration to the effect they understood the definition of this deduction to include any reduction in the total rent to be received under the lease no matter what may trigger that reduction.
It is not possible for this court to declare as a matter of law the term “rent concession” always excludes rent reductions conditioned on a sale of the leased property. Since no evidence was introduced at the time of the summary judgment motion suggesting the clause had this meaning in this particular lease a triable issue remains as to whether the “aggregate basic rent” should be reduced by the amount the Sun Cal 4 partnership was compelled to return to Security Pacific when it sold Beaudry One.
As to the fourth “deduction” from gross rent which appellants claim, it is less apparent a triable issue remains. On its face, the term “reimbursable expenditure” applies to reimbursements a landlord might receive from tenants for discrete expenditures the landlord makes on behalf of the building. The Security Pacific lease indeed provides for such reimbursements to the Sun Cal 4 partnership, but if and only when their payments for utilities and similar expenses exceed a certain amount, in this case $3.5 million a year. In the absence of clear evidence the terms of the listing agreement and Security Pacific lease were to be given an uncommon meaning, this language is unambiguous and clearly excludes from gross rental receipts only those payments over and above the rent provided in the lease which represent specific reimbursements for specific expenditures. In other words, if Security Pacific had to reimburse the Sun Cal 4 partnership because the latter expended more than the $3.5 million for utilities and like expenses in a given year, Greenwood would not be entitled to a commission on those reimbursement payments.
Appellants claim the $3.5 million should be excluded from gross rent in arriving at “aggregate basic rent.” However, it is apparent the $3.5 million does not fall within the definition of “reimbursable expenditures.” No reimbursement is involved. In a given year, the Sun Cal 4 partnership could spend far less than $3.5 million on utilities and the other listed categories of expenses. Is it still to be entitled to a $3.5 million reduction in the “aggregate basic rent” for that year? No, the $3.5 million is merely a measure—a threshold—beyond which the Sun Cal 4 partnership indeed is entitled to reimbursement from Security Pacific for its expenditures on these designated items. Greenwood did not claim nor did it receive as part of damages any percentage of any such “reimbursable expenditures” which Sun Cal # 4 may have received from Security Pacific during the course of the lease. Consequently, we find no triable issue as to this portion of the damages the trial court awarded in its summary judgment.
In summary, we conclude there are triable issues as to three of the four “deductions” appellants claim should have been allowed in arriving at the “aggregate basic rent” used to calculate the commission to which Greenwood was entitled under the listing agreement. Accordingly, we are compelled to remand the damages portion of that summary judgment for a possible trial of those issues.
III. THERE IS A VIABLE CAUSE OF ACTION AGAINST APPELLANTS FOR CONSPIRACY TO INTERFERE WITH CONTRACTUAL RELATIONS DESPITE THE FACT C–D INVESTMENTS AND SUN CAL ARE LIABLE UNDER THE BREACH OF CONTRACT CAUSE OF ACTION.
We now turn to the cause of action for conspiring to interfere with contractual relations (or prospective economic advantage). We are satisfied Greenwood's pleadings state a viable cause of action for conspiring to intentionally interfere with contractual relations (or prospective economic advantage). This cause of action was not decided by summary judgment but was submitted to a jury which returned a verdict in Greenwood's favor. We find ample evidence to sustain the jury verdict on that cause of action.
The issue appellants pose is fundamental. May McBirney and his entities be held liable under the contract action yet he, Coler and Deutsch and their entities also be held liable under the intentional interference claim as well? Or, if McBirney or one of his entities is connected enough to the real estate commission contract to be held liable under the contract claim are he and it—along with Coler and Deutsch and their entities—all “contracting parties” and immune from liability for tortious interference with that contract?
It is true some jurisdictions do not allow parties to a contract to be sued in tort for inducing breaches of that contract. But for nearly 30 years the California courts have recognized contracting parties indeed can be held liable in tort for conspiring with others to breach their contracts. (Wise v. Southern Pacific (1963) 223 Cal.App.2d 50, 35 Cal.Rptr. 652.) “To hold the contracting party along with his confederates liable in tort seems to us ․ to be ․ consonant with good morals. We perceive no fatal anomaly in the circumstance that the plaintiff may, as he does here, seek relief in an independent cause of action on the contract.” (Id. at p. 72, 35 Cal.Rptr. 652, see also Deeter v. Angus (1986) 179 Cal.App.3d 241, 224 Cal.Rptr. 801 [seller liable for conspiring with buyer to breach the seller's oral contract to pay commission to real estate agent who found buyer]; Shapoff v. Scull (1990) 222 Cal.App.3d 1457, 272 Cal.Rptr. 480; Owens v. Foundation for Ocean Research (1980) 107 Cal.App.3d 179, 165 Cal.Rptr. 571.)
There is ample evidence in the record for the jury to find McBirney, his agents, and entities conspired with Coler, Deutsch and their entities to breach the commission contract between the Coler and Deutsch entity, C–D Investments, and Greenwood. At the same time, it is undisputed McBirney and his entities were not parties to the commission contract at the time the conspiracy was formed and set in motion. Thus, this was not the case of a party to a contract conspiring with himself to breach the contract nor was it several parties to the same contract conspiring to breach that contract. Instead it was a conspiracy between a party to that contract and one or more non-parties (depending on whether you count McBirney and his various entities as one party or several). “ ‘It is unlawful for others, without lawful excuse, to induce the maker of a contract to break it, or to aid him in its breach; and for the maker and others to combine to break it is a conspiracy, which entitles the other party to the contract to his action against the conspirators for any damage which he may sustain.’ ” (Wise v. Southern Pacific Co., supra, 223 Cal.App.2d at p. 71, 35 Cal.Rptr. 652, quoting with approval from Luke v. Du Pree (1924) 158 Ga. 590, 124 S.E. 13, 16–17.) (Italics added.)
It likewise is true the conspiracy resulted in a breach of the commission contract between C–D Investments and Greenwood. Neither C–D Investments nor Coler nor Deutsch nor any of the other conspirators paid Greenwood the commission that contract provided.
If there is a difference between this case and Wise and its progeny, it is that in appellants' attempt to accomplish what one of the conspirators called a “commissionectomy” on Greenwood's contract rights they inadvertently ended up as parties liable under that contract. That is, in the course of seeking to insulate the original party to the real estate commission contract—C–D Investments (the Coler/Deutsch entity)—from the ultimate master lease agreement with Security Pacific, the conspirators managed to entangle the substitute entities, Sun Cal (the McBirney entity) and the Sun Cal 4 partnership (the Coler/Deutsch and McBirney partnership) in the contractual obligation to Greenwood. At least that is what the trial court essentially held and what this court affirms with respect to the breach of contract cause of action.
It is clear appellants did not set out to be parties obligated under the commission contract. Indeed if the “commissionectomy” had succeeded the contractual obligation would have been avoided completely and no one—not Coler or Deutsch or McBirney or any of their entities—would have been parties liable to Greenwood under the listing agreement. The conspirators structured the lease agreement with Security Pacific to eliminate C–D Investment as a party to that lease—thus avoiding any obligation to Greenwood on that entity's part—and with an intent that Sun Cal Investment, Inc. would not assume any responsibility to C–D Investment's obligations to Greenwood. McBirney and the McBirney/Coler–Deutsch entity, the Sun Cal 4 partnership, only became liable under the commission contract, involuntarily and unexpectedly, by operation of law when the courts held the latter entity was either an agent of or a partnership which included the original signatory to the commission contract with Greenwood, that is, C–D Investments.
There appears to be no sound reason in logic or policy to immunize from tort liability a conspiracy between a party to a contract and a non-party to that contract which was designed to avoid responsibilities owed the other contracting party merely because in the process of seeking to accomplish that goal the non-party makes a mistake and involuntarily became liable under the contract by operation of law. “ ‘There are many refinements in the law, necessarily so, but courts should be as astute in applying well-known principles of justice to remedy wrongs as the wrongdoers are in devising schemes to perpetrate them.’ ” (Wise v. Southern Pacific Co., supra, 223 Cal.App.2d at p. 70, 35 Cal.Rptr. 652, quoting with approval from another conspiracy to breach a contract case, Motley, Green & Co. v. Detroit Steel & Spring Co. (1908) 161 F. 389, 397.) The fact the conspirators failed in the sense the original “non-party” was found liable in the contract action for the obligation the original “party” sought to avoid should not relieve the conspirators from responsibility in tort for their conspiratorial actions. Indeed in many “conspiracy to breach contract” cases the conspiracy has failed and the original “party” has been held liable for its breach in a suit on the contract. There is no reason to have a different rule merely because the failure of the conspiracy here resulted in the initial “non-party” being held for the breach.
We are compelled to reverse the verdict on the “conspiracy to interfere with contractual relations” count for reasons discussed later in this opinion. However, these reasons do not preclude retrial of this count. It was and remains a viable cause of action.6
IV. THE TRIAL COURT COMMITTED REVERSIBLE ERROR IN REFUSING TO INSTRUCT ON THE DEFENSE OF GOOD FAITH RELIANCE ON LEGAL ADVICE.
Appellants contend their conduct was not tortious because it was based entirely on the advice of their attorney, who advised them Greenwood had no legal right to a commission. Sun Cal requested an instruction good faith reliance on an attorney's advice constitutes a complete defense to a claim for tortious interference with prospective economic advantage.
The court gave two reasons for rejecting the requested instruction. First, it ruled that good faith reliance on an attorney's advice does not constitute a valid defense to a cause of action for intentional interference with prospective economic advantage; second, it ruled an instruction would not be appropriate in any event because the evidence conclusively established the appellants in fact did not rely on the advice of their attorney when they decided not to pay Greenwood.
A. In Appropriate Circumstances It Is Proper to Instruct That Good Faith Reliance on Legal Advice Provides Justification for Interfering with Contractual Relations.
Respondents argue it was not error to refuse an instruction about good faith reliance on legal advice because this defense has not been recognized as applying to the tort of conspiring to interfere with contractual relations. Furthermore, they argue, the instruction was superfluous since the trial court did instruct thoroughly and accurately on the defense of “justification.” Indeed, respondents point out, appellants presented evidence and argued vehemently their reliance on legal advice “justified” their conduct in failing to honor the listing agreement with Greenwood.
While there is no California authority squarely holding good faith reliance on legal advice constitutes a defense to a conspiracy to interfere (or intentional interference) with contractual relations, there is a negative pregnant suggesting a highly qualified defense of that nature in Richardson v. La Rancherita (1979) 98 Cal.App.3d 73, 159 Cal.Rptr. 285.
In Richardson, the stockholders in a corporation which owned a restaurant entered into a contract to sell all their stock in that corporation to another corporation. The lessor of the restaurant premises sought to invoke a lease clause prohibiting any subleasing without the lessor's permission and threatened to terminate the lease unless the new owner of the corporation agreed to a higher rent. The owner and the prospective purchaser of the corporation sued the lessor for intentional interference with the contract for sale of stock. The appellate court affirmed a partial summary judgment in favor of plaintiffs holding the lessor liable for the tort, but leaving the damages issue to the jury.
In the course of justifying its decision, the Richardson court had to deal with the lessor's argument it relied on its lawyer's opinion. The law firm had ventured an opinion to the effect an apparently controlling appellate opinion could be distinguished and thus the lessor was entitled to treat a transfer of stock ownership as if it were merely the substitution of a new lessee.7 Under the terms of the lease, the latter transaction would require the lessor's consent and thus allow the lessor to require a rent increase.
“The determinative question thus becomes whether [the lessor's] claim was asserted in good faith. Or, phrased differently in the context of this case, was there any reasonable basis, either factually or legally, for [its] counsel to believe their distinguishing of [the controlling appellate opinion] had merit․ [¶] Something other than sincerity and an honest conviction by a party in his position is required before justification for his conduct on the grounds of ‘good faith’ can be established. There must be an objective basis for the belief which requires more than reliance on counsel. It is the opinion of counsel that must be examined, recognizing that creative and conscientious lawyers should be given every opportunity to challenge outmoded precedent to permit constructive development of the law. [Citation omitted.] However, to merely equate reliance on an attorney's advice with ‘good faith’ is to shield those parties from liability who seek and obtain counsel. To create such a blanket rule of immunity is unwarranted.” (Richardson v. La Rancherita, supra, 98 Cal.App.3d at pp. 81, 82–83, 159 Cal.Rptr. 285, fn. omitted.)
Richardson was decided on summary judgment. Thus, the opinion does not expressly address the issue whether it would be appropriate or required to give a “reliance on legal advice” instruction in a jury trial under the circumstances of that case. It does imply, however, the advice of counsel is a relevant consideration on the issue of “good faith” justification for interfering with a contract. True, Richardson also insists the advice the lawyer gives—not just the client's reliance—be “reasonable” in light of the prevailing law. Nonetheless, assuming the advice is reasonable, and the other elements of the “reasonable reliance on legal advice” defense are met, Richardson appears to support the proposition the trier of fact should consider this defense in deciding whether there is “good faith” justification for an interference with contractual rights.
“Reasonable reliance on the advice of counsel” also requires proof of other elements before it can be used to justify a defendant's otherwise tortious conduct, including interference with a contractual relationship. In the context of a malicious prosecution action, the Supreme Court emphasized several of these elements. “[I]f the initiator acts in bad faith or withholds from counsel facts he knew or should have known ․ that [reliance on legal advice] defense fails. [Citations omitted.] Similarly counsel's advice must be sought in good faith [citation omitted] and ‘․ not as a mere cloak to protect one against a suit․” [Citation omitted.] ․
It also appears that defendants failed to establish that they informed counsel of specific relevant facts prior to the filing of the cross action․ “[Defendants must] meet the burden that counsel must be provided with specific facts and not merely unleashed on a hunting expedition.” (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 53–55, 118 Cal.Rptr. 184, 529 P.2d 608, italics added.)
We hold that, with the qualification Richardson highlights, “reasonable reliance on legal advice” is one of several factors which can bear on the “justification” defense in interference with contract (or prospective economic advantage) cases. Moreover, where sufficient evidence supports the several elements of “reasonable reliance on legal advice” the trial court must instruct the jury as to those elements and the consequence that if it finds these elements to exist this reliance may constitute “justification” for an interference with a contract (or prospective economic advantage).
There is some appeal to Greenwood's argument the legal advice defense is subsumed in the justification defense and thus an instruction on the latter renders an instruction on the former superfluous. Nonetheless, we conclude a separate instruction is warranted on this sub-specie of the justification defense, at least when the advice is reasonable and if honestly given and understood would lead the “conspirators” to believe no contractual obligation existed to be interfered with. The elements of a “good faith reliance on legal advice” defense are simply too numerous, too complex, and too subtle to expect the jury to determine without guidance from the court whether the advice given to appellants was enough, in context with other circumstances in the case, to constitute a defense of “justification.”
B. Though Far From Conclusive There Is Sufficient Evidence Supporting the Conclusion the Sun Cal Defendants Relied in Good Faith on Their Attorney's Reasonable Though Erroneous Advice to the Effect No Contractual Obligation Was Owed to Greenwood to Have Warranted a Jury Instruction Defining the Elements of This Form of Justification.
There is evidence in the record to support the following scenario. Shortly after Sunbelt decided to acquire C–D's properties, Edward Peterson, Sunbelt's corporate counsel, retained the Los Angeles law firm of Nossaman, Guthner, Elliott & Knox to ensure California law was correctly applied to the transaction. The Nossaman firm assigned ten attorneys and five paralegals to work on the transaction full time in July and August 1984, and utilized an additional 20 attorneys in the firm to work on the transaction part-time. The firm was responsible for implementing the entire sales transaction. They investigated the legal status of every C–D property, prepared the documents necessary to convey the properties, and negotiated with C–D's lenders.
In performing these tasks, the firm worked directly with Sun Cal's representatives, Castleton and Dobrowolski. Alvin Kaufer, the senior litigation partner at Nossaman and a specialist in real estate litigation, assumed responsibility for evaluating all legal claims against C–D's 21 properties which included mechanics' liens, laborers' claims, brokers' claims, and close to 100 lawsuits. Kaufer discussed each of these claims with Dobrowolski. Kaufer and Dobrowolski met at least weekly to discuss the claims between mid-June 1984 and the August 30 closing. Dobrowolski concluded that Kaufer was a very capable attorney who functioned quickly and accurately. Dobrowolski never questioned Kaufer's legal analysis or judgment.
On June 12, 1984, during Sun Cal's first meeting with Security Pacific, Peterson, Sun Belt's attorney, learned for the first time that C–D had given Greenwood a listing on Beaudry One. Peterson instructed Dobrowolski and Castleton to seek the Nossaman firm's advice concerning what rights, if any, Greenwood might have. Peterson sent Kaufer a copy of Greenwood's listing contract and asked his opinion.
Kaufer had extensive knowledge concerning the laws governing brokerage contracts. Moreover, he was familiar with the key provisions of the C–D/Sun Cal sales agreement and the lease Sun Cal was negotiating with Security Pacific. In particular, he knew C–D's property was being transferred to a series of limited partnerships comprised of Sun Cal and C–D. He knew that the Sun Cal 4 partnership would be signing the master lease with Security Pacific. He assumed that, because of tax considerations, C–D would contribute rather than sell its properties to the limited partnerships. Finally, he was familiar with Greenwood's listing contract and with the role Greenwood played in initially contacting Security Pacific for C–D. In addition, Kaufer had two or three associates in his firm review cases which might shed light on this issue, and he reviewed the results of their research.
By the end of June, Kaufer informed Castleton, Dobrowolski, and Peterson that, based on his research, if the Sun Cal 4 partnership executed a lease with Security Pacific, Greenwood would have no legal right to a commission either from Sun Cal, the Sun Cal 4 partnership, or C–D. Based solely on Kaufer's opinion, Dobrowolski concluded there was accordingly no reason for either Sun Cal or the Sun Cal 4 partnership to pay Greenwood a commission. He instructed Kaufer to inform Greenwood of this fact. By letter of June 27, 1984, Kaufer did so.
Kaufer had another opportunity to review the matter before the Sun Cal/C–D sales transaction was consummated on August 30, 1984. Kaufer and an attorney representing C–D prepared exhibits to explain how responsibility for every claim and potential claim against C–D and its properties would be divided between the parties. Based on Greenwood's response to Kaufer's June 27 letter, it was clear Greenwood intended to assert a claim for a commission once the master lease was signed. Greenwood sent a letter to Kaufer on July 12, 1984, which stated he did not agree with Kaufer's June 27 letter and that the June 27 letter “ ‘will be handled by counsel and given the attention it deserves.’ ”
Accordingly, new language was added to the sales contract specifically dealing with the Greenwood claims. The amended contract reiterated Kaufer's view that Greenwood had no legal right to a commission. At C–D's request, the contract was amended to provide that Sun Cal would indemnify C–D for any liability to Greenwood which might arise under the listing contract. Kaufer reviewed and approved of this language. Dobrowolski agreed the new language could be added to the sales contract only after receiving assurance from Kaufer that it was still his opinion Greenwood was not entitled to a commission. Significantly, at the time Kaufer gave Dobrowolski this assurance, he was fully aware that, due to pressure from Citibank, it had been necessary for the Sun Cal 4 partnership to sign the master lease before actually acquiring legal title to Beaudry One. This in no way altered Kaufer's conclusions about Greenwood's rights.
Although much of it is controverted, the foregoing evidence is sufficient to support a conclusion that, in deciding there was no contractual obligation to pay Greenwood a commission (1) the decision to seek and rely on Kaufer's advice was made in good faith; (2) the appellants indeed relied on Kaufer's advice in making their decision rather than deciding to pursue that course of action no matter what advice they received; (3) the appellants furnished Kaufer with specific facts; (4) these specific facts included all those relevant to rendering a valid legal opinion on the precise issues involved; (5) Kaufer's legal advice was reasonable given the relevant facts and the status of the law at the time the opinion was rendered; and (6) Kaufer's legal advice represented the lawyer's honest and good faith appraisal of the legal issues involved and not an opinion rendered solely in order to please or attempt to protect a client perceived to have committed itself to a pre-conceived course of action.
It is worthy of note our review of the record likewise supports a contrary construction of the evidence. That is, if a properly instructed jury had returned a verdict rejecting the “reasonable reliance on legal advice” good faith justification, that verdict would have survived judicial review. There is substantial evidence in the record to support a conclusion the appellants did not reasonably and in good faith rely on Kaufer's legal advice just as there is substantial evidence supporting the conclusion they did.
Justification, whether based on a defendant's reasonable reliance on legal advice or otherwise, is an affirmative defense. (Lowell v. Mother's Cake & Cookie Co. (1978) 79 Cal.App.3d 13, 18–19, 144 Cal.Rptr. 664.) Accordingly, the burden of proof is on the defendant. If the jury disbelieves a defendant's proof as to any element of this defense, the defense fails. A properly instructed jury could have disbelieved appellant's evidence and concluded one or more of the defendants decided to refuse to pay Greenwood's commission prior to and without consulting Kaufer or any lawyer. Or, a reasonable juror could have concluded appellants did not rely on Kaufer's advice but would have proceeded as they did no matter what he counseled. Similarly, a reasonable juror could have concluded Kaufer's advice did not represent his honest, reasonable, and good faith legal opinion but his attempt to furnish an opinion which would shield his clients from liability for what they were committed to do. Or, properly instructed jurors could have concluded appellants had failed to disclose to Kaufer all the specific, relevant facts required to render a proper opinion, especially since his letter to Greenwood announcing the commission would not be paid recited as a fact the title to Beaudry One would have passed to Sun Cal 4 Partnership prior to the execution of the master lease with Security Pacific.
Nonetheless, because there was sufficient although disputed evidence from which a reasonable juror could have found all elements of “reasonable reliance on legal advice” to exist, it follows that the trial court's refusal to submit the “reliance on counsel” issue to the jury was prejudicial error which requires retrial of the conspiracy to interfere with contractual relations (or prospective economic advantage) cause of action. (Williams v. Carl Karcher Enterprises, Inc. (1986) 182 Cal.App.3d 479, 490, 227 Cal.Rptr. 465 [“ ‘[I]t is inherently prejudicial error for a trial court to refuse to give instructions covering [a party's] theor[y] of the case which [is] supported by substantial evidence.’ ” (Italics added.) ].)
V. TO GUIDE ANY RETRIAL OF THE CONSPIRACY TO INTERFERE WITH CONTRACTUAL RELATIONS (OR PROSPECTIVE ECONOMIC ADVANTAGE) WE ADDRESS OTHER SELECTED ISSUES RAISED IN APPELLANTS' BRIEFS.
Since we reverse the tort cause of action for failure to instruct on “reasonable reliance on legal advice” we address only selected issues affecting that cause of action which may become relevant during a retrial of that claim.8
A. The Trial Court Should Instruct the Jury That Good Faith Reliance on Legal Advice Is a Defense to a Claim for Punitive Damages.
Appellants requested an instruction their reliance on Kaufer's advice was a defense to Greenwood's claim for punitive damages. The trial court rejected this proposed instruction as it did the request for such an instruction in relation to the underlying tort cause of action itself.
The reasons discussed above for requiring a “reasonable reliance on legal advice” instruction as to the conspiracy to interfere with contractual rights cause of action apply with greater force to the punitive damages claim. Greenwood's punitive damages claim is predicated on a contention that, in conspiring to deprive him of his contract rights, appellants were guilty of “malice.” Malice requires conduct which is either “intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” (Civ.Code, § 3294, subd. (c)(1).)
Since the misconduct must be intentional (or in willful and conscious disregard of the plaintiff's rights), the required state of mind is inconsistent with conduct pursued in good faith reliance on an attorney's reasonable advice the conduct is lawful. Consequently, punitive damages are not recoverable where the defendant acted in good faith reliance on an attorney's advice. (See Templeton Feed & Grain v. Ralston Purina Co. (1968) 69 Cal.2d 461, 472, fn. 7, 72 Cal.Rptr. 344, 446 P.2d 152 [“Advice of counsel may constitute a defense to the charge of malice if the defendant has fully disclosed the relevant facts to his attorney.”]; Fox v. Aced (1957) 49 Cal.2d 381, 385, 317 P.2d 608 [“Exemplary damages are not recoverable against a defendant who acts in good faith and under the advice of counsel.”].)
As discussed in the section above, the record reflected substantial, albeit controverted evidence appellants relied on advice from their attorney there was no contractual obligation to pay Greenwood a commission. This evidence, if accepted by the jury, necessarily negates the essential element of malice. Accordingly, unless the posture of the evidence in a retrial changes so markedly as to remove substantial evidentiary support for the conclusion appellants acted in “reasonable reliance on legal advice” the court should give a “good faith reliance on counsel” instruction.
B. Greenwood's Tort Action Is Not Barred by the Doctrine of Election of Remedies.
Deutsch and Overland appeal from the ruling of Judge Fields on July 31, 1989, denying their motion to dismiss the tort action, on grounds the Greenwood plaintiffs had elected contract remedies by obtaining writs of attachment and levying on three parcels of realty. We find no error in the ruling of the trial court dated July 31, 1989.
The election of remedies doctrine is designed to require an election when a plaintiff pursues inconsistent remedies as to the identical operative facts. The purpose is to avoid two litigations and double recovery for the same wrong. “Election of remedies does not preclude a plaintiff from pursuing two causes of action, as breach of contract and fraud, where each action arose out of different obligations and different operative facts.” (General Ins. Co. v. Mammoth Vista Owners' Assn. (1985) 174 Cal.App.3d 810, 828, 220 Cal.Rptr. 291.) (Italics in original.) Moreover, the mere fact plaintiffs obtain an attachment pursuant to their contract claim does not preclude them from pursuing a tort claim based on related but different or additional facts. (Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101, 136–137, 135 Cal.Rptr. 802; Symcox v. Zuk (1963) 221 Cal.App.2d 383, 391, 34 Cal.Rptr. 462; Baker v. Superior Court (1983) 150 Cal.App.3d 140, 145–147, 197 Cal.Rptr. 480.)
As pointed out by our California Supreme Court in Steiner v. Rowley (1950) 35 Cal.2d 713, 720, 221 P.2d 9, the doctrine of election of remedies is based upon “the principle of estoppel.” The court there found the plaintiff had gained an advantage over the defendant by obtaining a writ of attachment on the contract cause of action and should therefore be estopped on the second cause of action sounding in tort. (Ibid.) Our high court was careful to preserve the right to plead inconsistent remedies, but reversed the ruling of the trial court overruling the demurrer of defendants as to the fourth (tort) cause of action since the trial court had found no election of remedies by the plaintiff.
We distinguish Steiner from the case at hand. Steiner involved a suit to recover a real estate commission by a complaint stating four causes of action, i.e., three sounding in contract (breach of oral contract, money had and received, and breach of written escrow instructions) while the fourth cause of action sounded in tort (fraud). However, the opinion reveals the four causes of action arose out of the same general set of facts, i.e., a claimed right to the return of an improperly paid real estate commission. In this case, although the issue is a fairly close one, we hold the simple breach of contract involved in failing to pay the commission claimed by Greenwood and the subsequent tort action which includes additional defendants and a series of additional acts calculated to legitimize that breach do not arise out of the same general set of facts. The claimed right to a commission in the contract action is perceived by this court to be separate and apart from the tort remedies for interference with prospective business relations pled in the tort action against additional defendants. Consequently, we find Steiner to be distinguishable for the reasons stated.
Estrada v. Alvarez (1952) 38 Cal.2d 386, 240 P.2d 278 is likewise distinguishable. In Estrada, the plaintiffs pled in the alternative for return of monies based upon theories of “Rescission and Money Paid Under Void Contract” and for “fraud.” The action arose out of a conditional sales contract, and during the pursuit of this remedy, an attachment was obtained by plaintiffs. The high court again found an estoppel to pursue the tort remedy of damages for fraud, citing Steiner. (Id., 38 Cal.2d at p. 391, 240 P.2d 278.) But, as in Steiner, Estrada involved one general set of facts, i.e., the right to recover monies paid under a conditional sales contract. For reasons previously stated in our discussion of Steiner, and conceding that the issue is a close one, we perceive this case to involve a different set of facts as to the contract and tort actions, and we conclude that there was no error by the trial court in finding no estoppel by the plaintiffs having obtained a writ of attachment and having levied on three parcels of realty.
We further note the judgment specifically provides plaintiffs are not entitled to that element of the tort recovery which represents the lost commission unless they fail to receive their damages under the contract cause of action. Accordingly, there is no danger of “double recovery” under the judgment on appeal. Upon any retrial of the tort cause of action, the trial court should ensure a similar qualification is included in any judgment which might ensue.
C. The Trial Court Properly Denied the Motion for Directed Verdict on the Issue of the Right of Greenwood and Banks to Sue in Their Individual Capacities.
Based upon the principle that employees or shareholders of business entities cannot maintain an action for interference based merely on their status as a shareholder or as an employee, demurrers to the tort action of Greenwood were sustained without leave to amend as to Donald Greenwood and Banks, by Judge Robert H. O'Brien. In reversing this decision, Division Two of this court (No. B020789 [Superior Court No. 560824] filed April 9, 1987) wrote: “Policy considerations suggest that if, as the trial court determined, plaintiffs' interests were merely derivative of that of the corporate plaintiff, then those interests should be considered only indirect or incidental. It would be an unwarranted expansion of the tort to permit employees or shareholders of business entities individually to maintain actions for the loss by the business entity of expected benefits.” (Italics added.)
The appellate court continued:
“The individual plaintiffs here do not base their claim on their status as (1) a shareholder of a corporation who would indirectly benefit from any gain reaped by the corporation or (2) an employee who might indirectly benefit from such gain.
“Plaintiffs have pleaded, and for the purposes of the demurrer we must accept as true, that it was agreed and understood by them and C–D Investment that all efforts in obtaining tenants for the building and all services to be rendered under the listing agreement would be performed by them and them alone and that the entire commission would flow directly to them. In short, they were the sole possessors of any expectation of benefits to be realized from the listing agreement.” (Italics added.)
Thus, pursuant to this court's prior opinion and under the doctrine of law of the case Tally v. Ganahl (1907) 151 Cal. 418, 421, 90 P. 1049, the Greenwood individual plaintiffs must bring themselves within the parameters of Division Two's opinion in order to have standing to recover damages in tort. But we do not agree that in order for Donald Greenwood and Banks to prevail on their tort action they had to establish, among other things, that it was agreed and understood between Donald Greenwood, Banks and C–D: (1) that all services to be rendered under the listing agreement would be performed only by Donald Greenwood and Banks; and (2) that the entire commission would flow directly to Donald Greenwood and Banks. We do not interpret the opinion of Division Two so narrowly. To the contrary, we are of the opinion that Division Two's opinion meant to emphasize the second of the three paragraphs of the opinion quoted supra. A reasonable interpretation of the opinion is that Donald Greenwood and Banks could establish standing to sue individually if they could demonstrate that their claims were not incidental to being shareholders or incidental to being mere employees of the corporation, not that they must perform all services under the listing agreement and collect the entire commission. It is true that the Greenwood individual plaintiffs so pled, but such a condition precedent is not interpreted by us as mandatory under Division Two's opinion. There is a factual issue as to whether Donald Greenwood and Banks sought derivative and incidental relief or individual relief.
At the end of the trial, Coler moved for a directed verdict based upon, among other things, Greenwood and Banks' purported failure to satisfy Division Two's requirements for Donald Greenwood and Banks to maintain their individual actions. Deutsch and Overland joined in Coler's motion, which motion was denied by the court.
The trial court properly denied the motion for directed verdict. There was substantial evidence in the record supporting a conclusion Greenwood was the sole owner of Greenwood and Company, with the exception of a few shares held by a charity. As such he was entitled to substantially all of the net revenues of the concern. Similarly, substantial evidence established George Banks was a licensed real estate salesman functioning as an independent contractor with Greenwood and Company. Finally, substantial evidence establishes Greenwood and Banks performed substantially all the work on the Security Pacific lease and were entitled to all the benefits flowing from the commission on that lease. At a minimum, then, the record supports a conclusion Greenwood and Banks sought individual and not merely derivative or incidental relief.
Upon retrial, it is always possible the posture of the evidence will be different. But on the record before the trial court in the proceeding on review in this appeal there was substantial evidence supporting the trial court's rejection of the motion for directed verdict.
VI. THE NONSUIT AS TO RESPONDENT PETERSON WAS APPROPRIATE.
At the completion of plaintiffs' case defendant Edward A. Peterson moved for nonsuit. The trial court granted that motion and judgment was entered in his favor. Essentially, Greenwood appeals from the judgment of nonsuit on the basis plaintiffs introduced substantial evidence of Peterson's liability thus justifying a jury trial of the issue.
The standard of review on appeal of a nonsuit was well stated in Ulwelling v. Crown Coach Corp. (1962) 206 Cal.App.2d 96, 104–105, 23 Cal.Rptr. 631: “[B]efore a judgment of nonsuit can be disturbed, there must be some substance to plaintiff's evidence upon which reasonable minds could differ; proof that raises mere speculation, suspicion, surmise, guess or conjecture is not enough to sustain his burden.” (Accord Brimmer v. California Charter Medical, Inc. (1986) 180 Cal.App.3d 678, 684, 225 Cal.Rptr. 752.)
Our review of this record reveals no evidence of substance upon which reasonable minds could differ as to Peterson's liability for interference with Greenwood's contractual relations or prospective economic advantage. Disregarding conjecture and innuendo, the case against Peterson revealed only that he was a member of the Texas bar and was counsel to the Sunbelt, Inc. defendants but confined his activities to obtaining California counsel to advise the Sunbelt, Inc. defendants (including the subsequently established Sun Cal parties) on California law. Consequently, we find no error in the entry of judgment for Peterson pursuant to his motion of nonsuit and that judgment is affirmed.
The portion of the summary judgment in the breach of contract cause of action which finds certain appellants are liable for breach of contract is affirmed but the damages issue is reversed and remanded for further proceedings consistent with this opinion. The judgment in the tort cause of action is reversed and remanded for further proceedings consistent with this judgment. Each party is to assume its own costs on appeal.
INTRODUCTION TO SEPARATE CONCURRING AND DISSENTING OPINION
The litigation involves a complex real estate transaction. I find the majority opinion to be fact anemic and selective. This conclusion is compelled since we are initially asked to examine the propriety of a ruling on a motion for summary judgment on the pivotal issue in the case. The pivotal issue is the existence or nonexistence of the breach of an exclusive contract to lease the premises commonly referred to herein as Beaudry I. The trial judge instructed the jury at the beginning of trial that as a matter of law a breach of contract had occurred. Unlike the majority, I find triable issues of material fact with respect to whether a breach of contract occurred and would reverse the trial court for resolving this pivotal issue as a matter of law. It is simply inappropriate to construe facts to support the judgment in this case. Instead we must “glean” the record for triable issues of material facts. In this case I find the harvest plentiful as exemplified by appellants' statement of facts, supported by the record, which, as the majority points out I uncritically accept for purposes of measuring the propriety of the grant of summary judgment in this case.
Secondarily, we are asked to determine whether the tort of interference with contractual relations or interference with prospective business advantage occurred. Unlike the majority, I would find the existence of the tort to be precluded in light of the instructions given to the jury by the trial judge which declared that key tortfeasors were parties to the contract that was breached as a matter of law. I am of the opinion that if upon retrial the trier of fact should find that a breach of contract was committed and nonparties to the contract induced the breach, then and only then would instructions on the tort be applicable. In other respects I mostly agree with the majority except where noted in this separate opinion.
Before the pivotal issues in the case are discussed in this separate opinion I find it necessary to transfuse the factually anemic majority opinion with fact serum so that a proper diagnosis can be made of the existence or nonexistence of triable issues of material fact.
For the above reasons I deem it necessary to extensively elaborate on the facts, giving rise to numerous triable issues in my opinion, as I have perceived them from the record as set forth in paragraph III of this separate opinion.
Donald B. Greenwood is a real estate broker and the president and controlling major shareholder in plaintiff, Greenwood & Company Real Estate, a California corporation, hereafter jointly referred to as “Greenwood.” Plaintiff, George W. Banks, is a licensed real estate salesperson employed by “Greenwood.” Unless specifically noted otherwise in this separate opinion, for purposes of convenience, the name “Greenwood” will be inclusive of all plaintiffs including “Banks.”
Defendant, C–D Investment Co., “C–D,” was a real estate partnership which owned, among other things, a high rise building in downtown Los Angeles known as Beaudry I. C–D and Greenwood entered into a written listing contract which provided, among other things, that Greenwood would receive a commission from C–D if C–D signed a lease agreement for Beaudry I with any of Greenwood's prospective tenants, exclusive of certain named entities not here relevant. C–D never directly signed such a lease although contentions are made in these appeals that an agent for C–D did sign such a lease, and/or “successors and assigns” of C–D signed such a lease in such a manner as to entitle Greenwood to a commission. The majority opinion has succumbed to the contention that an “agent” of C–D signed a commission triggering lease, but I find a triable issue of material fact as to the existence of an “agency.” Where the majority treats as irrelevant the contention that a “successor or assign” of C–D executed a lease, I find the issue relevant, and would address the issue with the result that the statute of frauds acts as a bar to the enforcement of such a contract.
C–D was on the verge of bankruptcy, and Security Pacific National Bank, “Security Pacific,” a prospective tenant with whom Greenwood was discussing the possibility of leasing eight floors of Beaudry I, assertedly refused to enter into a lease with C–D because of C–D's extremely unstable financial condition. C–D owned other substantial properties and faced the prospect of losing all of them through foreclosure or bankruptcy. To salvage what it could, C–D entered into a complex sales agreement with defendant Sun Cal, Inc. (“Sun Cal”), a Texas corporation. The sales contract required that Sun Cal provide in excess of $100 million to salvage C–D's properties. In exchange, Sun Cal took title to the properties in the name of a series of limited partnerships, SCI Nos. 1 through 15. Sun Cal was the sole general partner in the limited partnerships and C–D the sole limited partner. C–D would receive cash for its properties only if and after Sun Cal recouped its entire $100 million investment with interest. SCI No. 4, the limited partnership which acquired Beaudry I, subsequently leased the entire building to Security Pacific.
Greenwood (exclusive of Banks) sued C–D, Sun Cal, and SCI No. 4 for breach of contract, claiming entitlement to a commission. (Los Angeles County Superior Court action No. C523923, hereafter “contract action.”) After Greenwoods's motions for summary judgment and for a writ of attachment were denied by the Honorable Robert H. O'Brien and by the Honorable Kent M. Bridwell, temporary judge, respectively, Greenwood (inclusive of Banks) filed a second action for tortious interference with prospective economic advantage (Los Angeles County Superior Court action No. C560824, hereafter “tort action.”) Defendants, whose decisions concerning Greenwood's entitlement to a commission had assertedly been made on the advice of counsel, contended Greenwood was not entitled to a commission because (1) C–D never leased Beaudry I to Security Pacific, (2) the listing contract made no provision for paying a commission to Greenwood in the event of a sale of the property, (3) the sale of Beaudry I by C–D to Sun Cal was a bona fide sales transaction necessitated by C–D's unstable and weakening financial condition, and (4) Greenwood had no listing agreement with Sun Cal. Defendants further claimed that, even under Greenwood's theory of the case, the maximum commission to which Greenwood was entitled was approximately one-half of the $12 million he sought.
The trial judge, the Honorable Jerome K. Fields, ruled on summary judgment that C–D, Sun Cal, and SCI No. 4 were all liable for breaching Greenwood's listing agreement with C–D and that Greenwood was entitled to damages of $12,058,164 plus $4,527,922.70 in prejudgment interest plus $1,321,313.50 for attorneys' fees and costs. Judge Fields then committed Greenwood's tort action to a jury for resolution after instructing that a breach of contract had occurred. The jury found in favor of Greenwood and returned verdicts for punitive damages totalling $22 million, including $5 million against defendant William R. Dobrowolski, executive vice president of Sunbelt Services Corporation, a Texas corporation, “Sunbelt,” $4 million against defendant, Stanley H. Castleton, representative of Sunbelt, $2 million against Sun Cal, and $2 million against SCI No. 4. A judgment was entered accordingly on March 5, 1990, which was corrected and entered on March 15, 1990. On February 8, 1990, a judgment of dismissal was entered in favor of defendant Edward Peterson (member of the Texas bar) following the granting of his motion for nonsuit at the completion of plaintiffs' case-in-chief. Timely notices of appeal were then filed by various and sundry parties.
SUMMARY OF ISSUES RAISED BY APPELLANTS
The Sun Cal defendants (Sun Cal, SCI No. 4 and Castleton) generally maintain that, except for the “interference” by the Sun Cal defendants, there never would have been any transaction with Security Pacific. Without the injection of more than $100 million by Sun Cal to salvage C–D's collapsing real estate empire and the intensive efforts of the Sun Cal defendants to reach an accommodation with Security Pacific and C–D's many creditors, Security Pacific would not have leased any portion of Beaudry I. The Sun Cal defendants contend they made the Security Pacific lease possible. For their good efforts, they opine that they now find themselves saddled with judgments exceeding $30 million.
Specifically, the Sun Cal defendants contend that the judgment in the present case is wrong and must be reversed for the following reasons:
A. The contract action
The trial court resolved all of the contract issues as a matter of law by summary judgment. In doing so the court ignored and ruled contrary to some of the most basic rules governing real estate transactions. Specifically, the court erred in the following particulars:
1. A broker is entitled to a commission only if the conditions in the listing contract have been satisfied. Greenwood's contract provided he was entitled to a commission only if C–D signed a lease agreement with Security Pacific and that never happened.
2. The trial court ruled that, while the lease with Security Pacific described SCI No. 4 as the lessor, C–D was the actual lessor because it still owned Beaudry I on the date the lease was signed and did not transfer title to SCI No. 4 until two weeks later. In so ruling, the court ignored an unbroken line of cases holding that a prospective property owner like SCI No. 4 may enter into a binding lease agreement before acquiring legal title to the property, which was what occurred in this case.
3. The trial court ruled Sun Cal automatically inherited C–D's contractual obligations to Greenwood by virtue of a “successors and assigns” clause in the listing contract, which ruling is unprecedented and is contrary to an unbroken line of cases holding that a purchaser of property does not assume the obligations of the seller.
4. The court further ruled that Sun Cal was obligated to pay Greenwood's commission by virtue of Civil Code section 1589, which provides that voluntary acceptance of the benefits of a transaction is equivalent to acceptance of its burdens. Section 1589 has no relevance to contracts governed by the statute of frauds (Civ.Code, § 1624, subd. (d)), and its application to listing contracts has specifically been rejected for that reason. (Boyd v. Big Three Ranch Co. (1913) 22 Cal.App. 108, 133 P. 623.)
5. The trial court ignored evidence which gave rise to a triable issue of fact concerning the correct amount of Greenwood's commission.
B. The tort action
The trial court committed reversible error during trial of Greenwood's tort claim in the following respects:
1. The trial court erroneously instructed the jury that undisputed evidence established Greenwood's contract had been breached.
2. A defendant's good faith reliance on an attorney's advice constitutes a complete defense to an action for intentional interference with prospective economic advantage. It was undisputed that Sun Cal and its officers relied entirely on the advice of a highly respected real estate attorney in refusing to pay Greenwood's commission. The trial court therefore erred by denying Sun Cal's motions for both directed verdict and nonsuit, and it erred again when it refused to instruct the jury on the reliance on the advice of counsel defense.
3. Neither a party to a contract nor the agent of a party to a contract can be liable for tortious interference unless (1) the party or his agent enters into a conspiracy with a non-contracting third party, or (2) the contracting party's agent disrupts the contract for the agent's own economic gain. The trial court held that Sun Cal was the agent of C–D as well as its successor. If so, no third parties were involved. Neither was there evidence of personal economic gain by any agent of Sun Cal. Accordingly, as a matter of law, neither Sun Cal nor its agents could be liable for conspiracy.
4. Greenwood had the burden of proving that, absent the defendants' alleged interference, Security Pacific would have entered into a lease with C–D and Greenwood would therefore have earned a commission. However, uncontroverted evidence proves conclusively Security Pacific would not have done so. Even before Sun Cal entered the picture, Security Pacific had concluded it would not lease even eight floors of Beaudry I from C–D, much less the entire building, because C–D was on the verge of bankruptcy. If Sun Cal had not “interfered” and purchased C–D's properties and invested more than $100 million to satisfy the demands of C–D's creditors, including Security Pacific, there would have been no lease at all.
5. The punitive damage awards should be reversed for at least two reasons. First, the court erroneously refused to instruct the jury that good faith reliance on an attorney's advice constitutes a complete defense to a punitive damages claim. Second, the punitive awards against Castleton and Dobrowolski—which represent 1,437 and 866 percent of their respective net worths—are grossly excessive.
STATEMENT OF FACTSA. C–D's troubled financial condition.
C–D Investment Co. was a general partnership established to develop and invest in real estate.1 By 1984, C–D owned 21 commercial properties with an aggregate value of at least $850 million, including a 29–story office building in downtown Los Angeles known as Beaudry I.
C–D was experiencing enormous economic hardship and faced the prospect of imminent bankruptcy. Its properties were encumbered with debt totalling more than $1,451,305,000. By the spring of 1984, C–D could no longer service this debt. C–D defaulted on loans exceeding $450 million made by numerous financial institutions. Citibank, which had liens on Beaudry I and an adjacent but not yet completed parking structure known as Beaudry II, was withholding the funds needed to complete Beaudry II and threatening to initiate foreclosure proceedings on Beaudry I.
C–D could no longer even pay its current operating expenses. Accounts payable of between $25 million and $35 million were in arrears. At Beaudry I alone, $185,662 in operating expenses were unpaid. It became clear that, without immediate and significant outside financial assistance, the company would no longer be able to operate its business. In the spring of 1984, C–D instructed its attorneys to prepare to file for bankruptcy under Chapter 11.
B. Greenwood obtains a listing contract on Beaudry I.
In late February or early March 1984, real estate broker Donald B. Greenwood approached defendant, Naftali Deutsch about obtaining an exclusive listing on Beaudry I and other C–D properties. Deutsch explained to Greenwood that, because of C–D's serious financial problems, C–D might be forced to sell a number of its properties (including Beaudry I), file for bankruptcy protection, or be taken over by another entity and that Greenwood ran the risk of losing any commission should such an event occur. Greenwood said he was willing to accept that risk.
On March 21, 1984, Greenwood's real estate company and C–D entered into a listing contract which made Greenwood the exclusive listing agent for Beaudry I. The listing contract was for a one-year period, but either party could terminate on 30 days written notice. If Greenwood provided C–D with a list of prospective tenants within 30 days after the listing contract was terminated, he would be entitled to his full commission if C–D executed a lease with any such tenants during the next nine-month period. The contract stated it was binding on the parties' “successors and assigns.”
C. Greenwood's efforts to procure Security Pacific as a tenant.
In early 1984, Security Pacific was looking for roughly 300,000 square feet of office space in downtown Los Angeles. Security Pacific decided to move its back office staff from its headquarters office to a location with below market rent rates and sublease the vacated space at higher rates to law firms and other companies.
Security Pacific was informed by several sources that Beaudry I was available. On January 13, 1984, two months before Greenwood and C–D entered into their listing contract, the Irving Bonios real estate firm advised Security Pacific that space was available in Beaudry I. On February 27, Coldwell Banker provided Security Pacific with a detailed report comparing the fair market value of Beaudry I with other downtown locations. On March 19, 1984, Irving Bonios informed Security Pacific that C–D was prepared to lease the remaining available space in Beaudry I at well below market rates. However, Bonios cautioned that Security Pacific should “be very careful of the financial posture of the owners.” Security Pacific was already aware of C–D's precarious financial position. The bank was C–D's largest creditor (C–D owed it $350 million), and held liens on all of C–D's property including Beaudry I.
In late March 1984, Greenwood approached Security Pacific about leasing space in Beaudry I. He explained to George Moody, Security Pacific's Chairman, that the bank could save millions of dollars by moving its clerical staff into Beaudry I and subleasing the vacated space at higher rates. James Rupp of Security Pacific's real estate department met with Greenwood and subsequently decided Beaudry I might be suitable to the bank's needs.
However, Security Pacific was hesitant about leasing Beaudry I from C–D. Rupp was aware that C–D was near bankruptcy and that Security Pacific was a substantial creditor. He was informed by counsel that bankruptcy could seriously and adversely affect any lease agreement Security Pacific might make with C–D. Rupp concluded it was unlikely Security Pacific would lease Beaudry I unless C–D's financial situation was stabilized and the risk of bankruptcy eliminated.
Security Pacific was aware that outside parties were interested in acquiring C–D's properties. One reason it was interested in negotiating with C–D was that it hoped to secure rental space in Beaudry I when a financially secure owner took control.
Despite its concerns, Security Pacific decided to initiate negotiations with C–D. On May 7, 1984, Security Pacific (through Pacific Southwest Realty Company, a subsidiary of Security Pacific) submitted a letter to C–D outlining a proposal for leasing eight floors of Beaudry I.2 The proposed agreement contained several provisions adverse to C–D's interests which would have been difficult if not impossible for C–D to fulfill. For example, section 4.1 required that C–D advance a substantial sum of money to Security Pacific to pay for tenant improvements. The May 7 letter required that upon execution of a lease C–D pay Security Pacific a cash improvement allowance of $25 per square foot of usable space. Since the bank was proposing to lease approximately 330,000 square feet of usable space, the May 7 proposal in effect required that C–D advance Security Pacific approximately $8.25 million. Even more unfeasible was the requirement that within 11 days C–D submit plans demonstrating it had the wherewithal to complete the adjacent Beaudry II building and a pedestrian bridge linking the two buildings by January 1, 1985. C–D had defaulted on its loan obligations to Citibank, and Citibank would not release the funds C–D needed to complete Beaudry II, which was still at a preliminary stage of construction. Since C–D did not even have the funds to pay for janitorial services at Beaudry I, it could not have satisfied the requirements imposed by Security Pacific's May 7 proposal. The normal practice would have been for the tenant to initially bear such costs. Security Pacific anticipated its May 7 proposal would be rejected, and it was.
The parties met on June 1, 1984, to discuss their differences but found themselves no closer to agreement. Security Pacific concluded that, until C–D's financial problems were resolved, there was no possibility Security Pacific would lease space in Beaudry I.
The unsuccessful June 1 meeting effectively ended Greenwood's efforts to obtain a tenant for Beaudry I. However, the meeting was significant to C–D for a different reason. In conjunction with its efforts to resolve its overall financial problems, C–D invited Stanley Castleton to attend the June 1 meeting. Castleton was the designated representative of Sunbelt Service Corporation, a wealthy Texas company which had been involved in confidential discussions with C–D for more than a month about purchasing all 21 of C–D's cash-strapped properties.
D. Sunbelt Service Corporation agrees to “purchase” C–D's real estate holdings and takes steps to stabilize C–D's business.
Castleton became acquainted with C–D in October 1983 when he and several others in the real estate business unsuccessfully attempted to purchase Beaudry I. In April 1984, within weeks of signing the listing contract with Greenwood, Deutsch told Castleton that C–D was in grave financial trouble. Deutsch told Castleton all about C–D's listing agreements and that C–D did not have sufficient cash to operate its business or pay current debts unless C–D received immediate and significant outside financial assistance. Castleton learned after October of 1983 that all of C–D's properties might be for sale. Castleton immediately approached Sunbelt Service Corporation about acquiring C–D's property. In late April or early May 1984, while Greenwood was engaged in negotiations with Security Pacific, Edwin McBirney, the chief executive officer of Sunbelt, and Edward Peterson, Sunbelt's outside counsel, traveled to Los Angeles and began negotiations with C–D which ultimately culminated in the acquisition of C–D's entire real estate portfolio.
C–D and Sunbelt agreed from the outset that Sunbelt would not pay C–D any “upfront” cash for its troubled assets. Because of C–D's economic problems, they instead envisioned a sales transaction along the following lines: C–D would transfer title to its 21 properties to Sun Cal, Inc., a wholly owned subsidiary of Sunbelt, which would be established for the purpose of acquiring the properties. Sun Cal would undertake to restructure and repay C–D's debts and provide funds necessary to operate the properties. If and when Sun Cal was able to generate a profit by selling the properties, C–D would share 50 percent of such profits, but only after Sun Cal was reimbursed for all of the funds it invested in all 21 of the properties, plus interest on advances.
As soon as C–D and Sun Cal agreed to these terms, but before they signed the agreement, Sun Cal began to implement the proposal and to shore up C–D's shakey business. On May 24, 1984, Sun Cal loaned C–D $4 million to help finance day-to-day operations. Sun Cal also initiated discussions with Security Pacific, C–D's largest creditor, to restructure Security Pacific's $350 million loan. At Security Pacific's insistence, Sun Cal paid a $2 million nonrefundable deposit as a condition to initiating these discussions.
Sun Cal concluded a restructured loan agreement with Security Pacific before the C–D/Sun Cal sales contract was finalized. The new loan agreement required that Sun Cal pay Security Pacific $30 million and post several letters of credit to further secure the loan on the date C–D's property was transferred to Sun Cal. The restructured loan agreement provided that the letters of credit must total more than $30 million.
Sun Cal also negotiated restructured loan agreements with three of C–D's other major creditors. An agreement with Bank of America required Sun Cal to post a $3.5 million letter of credit. An agreement with Southern California Savings, which had already initiated foreclosure proceedings on three loans totalling approximately $10 million, required payment of a $115,000 “commitment” fee by May 23, 1984, and, as a condition to deferring foreclosure proceedings, required that Sun Cal provide $11 million to C–D to pay the overdue loans by June 13, 1984. In addition, Southern California Savings required that one loan totalling $3,174,957.30 be fully repaid in one year. (The agreement with Southern California Savings had been negotiated by C–D and was assumed by Sun Cal.) An agreement with Massachusetts Mutual Life Insurance Company required payment of a non-refundable $100,000 deposit in consideration for an extension on pending foreclosure proceedings, and an option for several months to purchase the mortgages which the insurance company held on certain C–D property for between $25.8 million and $26.4 million.
E. C–D and Sun Cal finalize a master “sales” contract on June 8, 1984.
On June 8, 1984, C–D and Sun Cal signed a master sales contract which called for the simultaneous transfer of C–D's 21 properties at the end of a 60–to–90–day escrow period. The contract provided that completion of the sale was subject to two principal conditions: (1) C–D's lenders must consent to the transaction; and (2) Sun Cal must verify that all of C–D's representations about the properties were accurate. As previously agreed, the contract provided that Sun Cal would undertake to restructure and repay C–D's debts, provide funds to operate the 21 properties, and, once it recouped its investment, pay C–D 50 percent of the net profits it thereafter earned by selling the properties. Pursuant to the contract, Sun Cal's total investment in the 21 properties, including sums which it paid to C–D's lenders, exceeded $100 million.
The sales contract required that Sun Cal make $30 million available to the new partnerships for repayment to Security Pacific and fund letters of credit totalling in excess of $30 million to satisfy the requirements of Security Pacific and Bank of America. In addition, Sun Cal was required to contribute $35.8 million to the new partnerships to pay other outstanding debts, contribute $19.7 million to compensate for the negative cash flow on C–D's loans, establish a cash reserve large enough to service such loans for a three-year period, lend C–D and its general partners $16,551,693.72 prior to the date of closing (in addition to the $4 million which Sun Cal had previously loaned C–D on May 14, 1984), all of which loans would be forgiven on the date the property changed hands; pay four of C–D's creditors an additional $7.72 million prior to the closing, and pay commitment fees to refinance C–D's obligations, utility deposits, leasing commissions incurred by C–D prior to the closing, construction costs, tenant improvements, and all general and administrative expenses of the new partnerships.
The parties decided that some method must be devised to protect C–D'S interests during the potentially lengthy time period which might elapse before Sun Cal recouped its $100 million investment. To that end, they decided that title to the properties should be transferred to a series of limited partnerships in which Sun Cal would be the general partner and C–D would be the limited partner.3 This vehicle for transferring title was selected, rather than an outright sale, so that a fiduciary relationship would be established between Sun Cal and C–D during the time in which Sun Cal alone would be in charge of the operation of the properties.
The transaction nonetheless resembled a true sale of the properties from C–D to Sun Cal. Sun Cal alone had the right to manage the properties and decide when and under what circumstances they should be sold to third parties. C–D had no control over the management or operation of the properties. To insure C–D would have no residual management powers, the parties created the limited partnerships under Texas law, where limited partners have fewer rights than in California. Finally, the contract stated Sun Cal was “acquiring” C–D's properties “and is not the successor of CD.” Except for legal obligations expressly assumed, the contract stated Sun Cal had no responsibility for any of C–D's obligations, contractual or otherwise.
F. The parties revise the June 8 master “sales” agreement to address C–D's tax problems.
C–D was informed by its attorneys and accountants that the sale to Sun Cal would create an enormous and immediate tax liability. They explained that C–D could legitimately defer its tax obligation if C–D contributed, rather than sold the properties, to the new partnerships. In all other respects the transaction would be the same as a sale. In either case, C–D would not receive cash until after Sun Cal stabilized debt payments and operating expenses and recouped its $100 million investment, with interest. To accommodate C–D, the sales contract was accordingly revised to eliminate the description of the transaction as a “sale,” and to provide that C–D “contributed” its 21 properties to the new limited partnerships.
G. Sun Cal manages C–D's property pending completion of the “sale.”
Sun Cal and C–D entered into a separate management contract which gave Sun Cal the right to manage, lease, rent, and operate C–D's property, as well as control the money derived therefrom, during the 60–to–90 day period before the property legally changed hands. Sun Cal insisted on having this power so it could verify C–D's representations about the properties, familiarize itself with the properties, learn what problems they were having, and put into place Sun Cal's own management structure. To protect C–D if the June 8 sales contract fell through, the management agreement provided Sun Cal could not enter into contracts in excess of $50,000 and that it could not negotiate leases for C–D in excess of 5,000 square feet without C–D's approval.
H. Sun Cal negotiates a long-term master lease with Security Pacific.
As soon as the June 8 contract was signed, Sun Cal initiated discussions with C–D's lenders to obtain their approval for the sale, and it began an exhaustive legal and economic analysis of the properties it was acquiring. Among other things, Sun Cal had to review title reports and surveys, leases, all contracts and licenses affecting the properties, restrictive covenants, the availability of utilities, and other matters affecting the properties. Sun Cal also commenced negotiations with Security Pacific, C–D's largest creditor, to determine if the bank was interested in either purchasing Beaudry I or leasing a significant portion of the building. Sun Cal knew Security Pacific had been negotiating with C–D to lease eight floors of Beaudry I and that these negotiations had reached an impasse. However, Sun Cal had reasons for wanting to renew negotiations with the bank. First, Sun Cal was interested in obtaining a favorable lease with any prospective tenant. Second, Citibank had a lien on Beaudry I securing a $95 million loan which was in default, and Citibank was threatening to initiate foreclosure proceedings. A favorable lease would assist Sun Cal to refinance the Citibank loan. Finally, Security Pacific was a logical tenant for Beaudry I because it was about to become Sun Cal's largest creditor.
Security Pacific was also interested. The bank had previously balked because of CD's precarious financial condition. When it learned Sun Cal was acquiring the property and making a financial commitment to restructure C–D's debts, the bank's interest in Beaudry I was revived.
Sun Cal and Security Pacific first met regarding Beaudry I on June 12, 1984. The meeting with Security Pacific was originally planned by C–D before the June 8 sales contract was signed. Representatives from all three parties were therefore in attendance: Stanley Castleton, Edward Peterson, and William Dobrowolski, the executive vice-president of Sunbelt Service Corporation, on behalf of Sun Cal; Howard Hoffman, James Rupp and Robert Russell on behalf of Security Pacific; Deutsch and Greenwood on behalf of C–D.
Dobrowolski had not previously met Greenwood. When Greenwood began making representations about Sun Cal, whom he characterized as the new owners of the property, Dobrowolski quickly interrupted him and stated he did not know on whose behalf Greenwood was speaking but Greenwood had no authority to speak for Sun Cal. From that point on, Castleton and Dobrowolski took charge of the negotiations with the bank. Neither C–D nor Greenwood had any further involvement in the ensuing negotiations with Security Pacific.
Castleton proposed that Security Pacific purchase Beaudry I. Security Pacific responded that it preferred a long term lease with several options to renew. Because of the financial strength Sun Cal brought to the property, Security Pacific for the first time expressed an interest in a long-term master lease on the entire building, not just eight floors.
The next day, Security Pacific and Sun Cal reached general agreement on two points: first, they agreed to a 20–25 year master lease; second, they agreed rent would be paid on a step-up schedule increasing at two, three, and then five year intervals. The concept of a step-up rent schedule was proposed by Castleton and Dobrowolski on June 13. However, they could not agree on any other provisions of the lease, including several “deal” points which were critical to a final agreement. The “deal” points included disagreements about the parking facilities Sun Cal would make available for the bank's employees and disagreements about a proposal Castleton and Dobrowolski made which allowed the bank to participate with Sun Cal in the profits generated by refinancing the Citibank loan or selling Beaudry I to a third party, in effect giving the bank an equity interest in the building. In the following weeks, these “deal” points were the subject of intense and almost daily negotiations between Sun Cal and Security Pacific in which neither C–D nor Greenwood played any role The parties did not resolve these differences until August.
The terms the parties ultimately agreed upon required an enormous financial commitment by Sun Cal. Among other things, Sun Cal was responsible for $3.5 million in annual operating costs; discharging tax, laborers,' mechanics,' and materialmen's liens totaling $6,447,619; providing several million dollars to complete construction of Beaudry II and a pedestrian bridge linking Beaudry I and Beaudry II; and providing funds for maintenance, repair, and taxes.
I. Sun Cal renegotiates the Citibank loan.
Citibank had extended a $95 million loan to C–D secured by a first trust deed on Beaudry I and Beaudry II. On June 14, 1984, when unpaid interest payments exceeded $4 million, Citibank filed a notice of default and threatened to initiate foreclosure proceedings on Beaudry I. The largest hurdle Sun Cal had to overcome before the C–D sale could be concluded and before Beaudry I could be leased was to renegotiate this $95 million loan.
Citibank initially was reluctant to even discuss restructuring its loan. However, after protracted negotiations which began in July and ended in late August, Citibank agreed to halt foreclosure proceedings (which were then pending) and defer C–D's obligation to pay past-due interest and fees if Sun Cal satisfied the following conditions prior to August 30, 1984: (i) post a $6 million letter of credit; (ii) pay $2,477,277 as a partial pay-down of past interest and a reserve against future interest; (iii) pay $6,447,719 to clear tax assessments and liens; (iv) pay an outstanding judgment against C–D of $5,165,770; (v) commit over $5 million to complete construction; (vi) bring unpaid monthly operating expenses on Beaudry I current; and (vii) sign a binding master lease with Security Pacific.
Thus, Citibank required that Sun Cal make an enormous financial commitment, exceeding $25 million, to C–D's failing real estate empire. Had Sun Cal not done so, C–D would have lost Beaudry I and with it the opportunity to obtain Security Pacific as a tenant.
J. Sun Cal enters into a master lease with Security Pacific on August 14, 1984.
To satisfy Citibank's requirements and Sun Cal's own need to complete as many pieces of the transaction as it could before the August 30 closing date,4 Sun Cal and Security Pacific finalized their lease agreement on August 14, 1984, two weeks before legal title formally vested in Sun Cal. The lease was signed by Sun Cal in its capacity as general partner of SCI No. 4, the limited partnership acquiring title to Beaudry I. Security Pacific was adamant about not leasing the property from C–D. Therefore, the validity of the lease was expressly conditioned on SCI No. 4 acquiring legal title to Beaudry I prior to the August 30, 1984, closing date.
K. Sun Cal obtains legal advice about Greenwood's listing contract and claim to a commission.
Greenwood played no role in the negotiations which led up to the sale of Beaudry I to Sun Cal or the negotiations which resulted in a master lease agreement between SCI No. 4 and Security Pacific. Sun Cal nonetheless wanted to determine the legal effect of Greenwood's listing contract with C–D. Sun Cal was particularly interested in knowing whether the right to a commission might have been triggered by C–D's decision to withdraw Beaudry I from the leasing market or by C–D's decision to sell the property to Sun Cal.
Sun Cal referred these questions to Nossaman, Guthner, Knox & Elliott, the law firm Sun Cal had retained to advise it on California law. Alvin Kaufer, senior litigation partner at the Nossaman firm and a specialist in real estate law, assumed responsibility for analyzing Greenwood's rights under the listing contract. After reviewing Greenwood's listing contract, Kaufer informed Castleton and Dobrowolski that it was his opinion Greenwood was not entitled to a commission under the listing contract. Kaufer's opinion was based on three considerations.
First, the listing contract did not contain the normal “ ‘withdrawal from lease’ ” clause which ordinarily provides for a specified payment to the broker in lieu of a commission if the owner decides to withdraw the property from the lease market.
Second, the listing contract did not apply to a sale of Beaudry I by C–D, but only a situation where C–D leased space in the building to a tenant.
Third, because Sun Cal itself did not have a contractual relationship with Greenwood, and because Greenwood played no role in the negotiations which led to the master lease agreement between Sun Cal and Security Pacific, Sun Cal could not be liable for a commission to Greenwood.
Kaufer informed Greenwood by letter dated June 27, 1984 that, in Sun Cal's opinion, Greenwood's listing contract would have no binding effect once C–D sold the property to a third party (i.e., the limited partnership). In addition, Kaufer informed Greenwood that Sun Cal, in its role as manager of C–D's property, was exercising C–D's right to terminate the listing contract pursuant to the 30–day notice provision in paragraph 9 of the agreement. Section 7.01(b) of the management contract gave Sun Cal control over all listing agreements with brokers working on C–D's properties, which would include the right to terminate such contracts. In addition to informing Greenwood that his agreement was being terminated, Kaufer's June 27 letter expressed the opinion that the listing contract did not comply with California law and, in any event, would not have applied to a master lease. In a subsequent letter to Greenwood dated July 9, 1984, Deutsch reiterated that the listing contract was being terminated. On July 31, 1984, Greenwood mailed C–D a list of 80 businesses to whom he claimed to have made offers on the Beaudry I and Beaudry II properties. The first business listed was Security Pacific.
L. The limited partnerships are dissolved and Sun Cal becomes sole owner of C–D's properties.
On March 27, 1985, seven months after C–D transferred all 21 of its properties into 15 limited partnerships, C–D withdrew from the partnerships and quitclaimed its interest in the partnerships to Sun Cal. In consideration, C–D received title to two buildings known as Wilshire Estina and Pico. Since March 27, except for the Wilshire Estina and Pico properties, C–D has had no legal or equitable title to any of its former properties, including Beaudry I.
PROCEDURAL HISTORYA. The breach of contract action.
Greenwood filed a breach of contract action on November 26, 1984. On January 29, 1985, Greenwood filed a first amended complaint against C–D, Sun Cal, SCI No. 4, Coler, Deutsch, and legal entities related to Coler and Deutsch.
Greenwood moved for summary judgment. He asserted that C–D was liable for breach of contract because it was the true lessor of Beaudry I and that Sun Cal and SCI No. 4 were liable for breach of contract because (i) they were C–D's “successors,” and (ii) they benefitted from Greenwood's work. Defendants contested each of Greenwood's claims. The trial court, the Honorable Robert H. O'Brien presiding, ruled triable issues were raised on all points and denied Greenwood's motion.
The court denied Greenwood's subsequent request for a writ of attachment, holding that Greenwood's evidence in support of the summary judgment motion was inadequate to establish a likelihood of success on the breach of contract claim. In denying the writ of attachment, the trial court, the Honorable Kent M. Bridwell, temporary judge presiding, noted that the evidence established that C–D transferred Beaudry I to Sun Cal as part of a bona fide sales transaction, that the defendants were not engaging in a sham transaction merely to exploit Greenwood's efforts, that Security Pacific would not have been willing to enter into a master lease with C–D, and that Sun Cal signed the lease on its own behalf, not on behalf of C–D.
Three years later, Greenwood renewed the motion for summary judgment. Once again, Greenwood asserted C–D was liable because it was the true lessor and Sun Cal and SCI No. 4 were liable because they were C–D's “successors” and benefitted from Greenwood's work. Although Greenwood's motion was based on precisely the same disputed facts, the same legal theories, and virtually the same evidence which the trial court three years earlier had found insufficient to support Greenwood's first summary judgment motion and his application for a writ of attachment, the trial court, the Honorable Jerry K. Fields presiding, now concluded that such evidence demonstrated Greenwood was entitled to judgment against C–D, Sun Cal, and the other defendants as a matter of law.
The court also rejected defendants' contention that a factual dispute existed concerning the amount of Greenwood's commission and ruled the evidence demonstrated without controversy that Greenwood was entitled to the full commission he sought, $12,058,164. In addition, the court awarded $4,527,922.70 in prejudgment interest.
B. The tort action.
Greenwood filed a separate action for tortious interference with contract on August 13, 1985, against the same defendants named in his contract action as well as against Castleton, Dobrowolski, McBirney, Peterson, Sunbelt, and corporations related to Sunbelt. In addition to the allegations in the earlier complaint, Greenwood asserted that the Sun Cal defendants had induced C–D to refuse to pay Greenwood's commission by promising to indemnify C–D against any claims Greenwood might make.5 Damages were sought which included the value of his contract ($12,058,164), emotional distress, and punitive damages. The tort and contract actions were consolidated.
Greenwood's tort claim was submitted to the jury for decision after a 10–week trial. The jury was instructed the court had already held that Sun Cal, SCI No. 4, C–D, Coler, and Deutsch had breached the listing contract by refusing to pay Greenwood's commission and owed Greenwood approximately $16 million. The court refused to instruct the jury that reliance on advice of counsel was a defense to either Greenwood's substantive tort claim or his claim for punitive damages.
The jury found all defendants (except Coler) guilty of conspiring to interfere with Greenwood's prospective business advantage and all (except Coler) liable for punitive damages. The court granted Peterson's motion for nonsuit. Greenwood and his salesman Banks were each awarded $50,000 for emotional distress. After a bifurcated trial, punitive damages totaling $22 million were awarded against the defendants, assessed as follows: Dobrowolski, $5 million; Castleton, $4 million; Sun Cal, Inc., $2 million; SCI No. 4, $2 million; Deutsch, $7 million; legal entities related to Deutsch, $1 million; McBirney, $1 million. Finally, pursuant to an attorneys' fees provision in the listing contract, the court awarded Greenwood attorneys' fees totaling $1,315,470. The actual judgment, which does not distinguish between attorneys' fees and other costs, was for $1,321,313.50. These fees were assessed against the defendants in the contract action.
Motions for new trial and judgment notwithstanding the verdict were denied and these timely appeals followed.
DISCUSSIONA. THE TRIAL COURT ERRONEOUSLY GRANTED GREENWOOD'S MOTION FOR SUMMARY JUDGMENT ON HIS CONTRACT CAUSE OF ACTION. THIS ERROR DIRECTLY AFFECTED THE OUTCOME OF THE TORT SUIT. THEREFORE, BOTH THE CONTRACT AND THE TORT JUDGMENTS MUST BE REVERSED.1. Summary Judgment Should Be Granted Only Where There Are No Triable Issues Of Fact And The Moving Party Is Entitled To Judgment As A Matter of Law.
The standards for reviewing an order granting summary judgment are well established. “The summary judgment procedure, inasmuch as it denies the right of the adverse party to a trial, is drastic and should be used with caution. [Citation.] Summary judgment is properly granted only when the evidence in support of the moving party establishes that there is no issue of fact to be tried.” (Gomez v. Ticor (1983) 145 Cal.App.3d 622, 626–627, 193 Cal.Rptr. 600.)
It is the moving party's burden to establish that the claims of its adversary are entirely without merit. “When the moving party is the plaintiff, the burden is to prove every element necessary to establish its right to the relief it seeks and to disprove every affirmative defense asserted against it.” (United Community Church v. Garcin (1991) 231 Cal.App.3d 327, 338, 282 Cal.Rptr. 368.) The moving party's affidavits are strictly construed and those of his opponent are liberally construed, and doubts as to the propriety of summary judgment should be resolved against the moving party. (Gomez v. Ticor, supra, 145 Cal.App.3d at p. 627, 193 Cal.Rptr. 600.)
2. Evidence Submitted By Defendants Is Suggestive That The Conditions Precedent To Greenwood Earning A Commission Had Not Been Satisfied.
a. Under Greenwood's listing contract, his right to a commission was conditioned on C–D leasing Beaudry I. The condition was never directly satisfied, and a triable issue exists as to whether the condition was indirectly satisfied through the law of agency.
A real estate broker's right to a commission must be found within the four corners of the broker's employment contract. (Blank v. Borden (1974) 11 Cal.3d 963, 969, 115 Cal.Rptr. 31, 524 P.2d 127.) “[I]t is the contract which governs the agent's compensation, and that contract is strictly enforced according to its lawful terms.” (Original emphasis.) (Ibid.)
Greenwood's listing contract provided he was granted the right to lease and would receive a commission if Greenwood leased the whole or any part of the premises, subject to stated exceptions not here relevant. No such lease was ever signed. Instead, to avoid bankruptcy, it terminated its leasing efforts entirely and sold Beaudry I to SCI No. 4. There is no evidence Greenwood requested that the listing contract provide for payment to him in lieu of a commission if C–D withdrew Beaudry I from the leasing market, as C–D warned Greenwood it might do, or that C–D would have consented to such a request. Since the critical event (a lease signed by C–D) which the parties' agreed would trigger Greenwood's right to a commission never directly occurred, the trial court erred when it found C–D and Sun Cal liable for breach of contract as a matter of law.
To avoid the bar to his breach of contract claim, Greenwood proposed and the trial court accepted three alternative theories. First, Greenwood claimed SCI No. 4 signed the lease not on its own behalf but as C–D's agent, and that C–D, as the principal in the transaction, was the true lessor. Second, Greenwood acknowledged SCI No. 4 was the lessor but claimed it was nonetheless liable for his commission because it had purchased C–D's property and was therefore C–D's “successor.” Third, Greenwood asserted that even if SCI No. 4 was not C–D's “successor,” it nonetheless benefitted from Greenwood's work and was therefore liable for his commission under Civil Code section 1589. 6
As now demonstrated, triable issues of fact exist with respect to each of these theories.
b. Triable issues of fact exist with respect to whether Sun Cal signed the Security Pacific lease on its own behalf, as Sun Cal claimed, or as C–D's agent, as Greenwood claimed.
The Sun Cal defendants submitted evidence which was sufficient to permit a jury to conclude that Sun Cal signed the master lease on its own behalf and not as C–D's agent. This evidence included the following:
1. The master lease expressly states it is “by and between Sun Cal Investments, No. 4 ․ (‘Landlord’), and Security Pacific National Bank ․ (‘Tenant’).” Where the language of a contract is clear and explicit, it controls and must be given effect. (Cochran v. Union Lumber Co. (1972) 26 Cal.App.3d 423, 426, 102 Cal.Rptr. 632; § 1638.)
2. The circumstances under which a contract is made, including the situation of the parties, are additional factors which may be taken into account in interpreting a contract. (1 Witkin, Summary of Cal.Law (9th ed. 1987) Contracts, § 688, p. 621.) In the present case, SCI No. 4, the limited partnership Sun Cal formed, was the equitable owner of Beaudry I when the master lease was signed. Sun Cal, through SCI No. 4, therefore had compelling reasons to enter into the lease on its own behalf. Moreover, Sun Cal and SCI No. 4 had total control of the property and the right to fully recoup more than $100 million before C–D could expect to see a single penny. Finally, the master lease imposed financial demands on the lessor which C–D was incapable of meeting; by contrast, SCI No. 4 had access to vast economic resources. These facts constitute additional evidence supporting the conclusion that Sun Cal negotiated and signed the lease on its own behalf, not as C–D's agent.
3. A prospective owner can legally convey title in real property to a third party by a contract which takes effect immediately even though the prospective owner does not yet own the property. (See § 1106.) The same rule applies to the prospective conveyance of any other interest in real estate, including leases. (See Noronha v. Stewart (1988) 199 Cal.App.3d 485, 489–490, 245 Cal.Rptr. 94; Maxwell v. Carlon (1939) 30 Cal.App.2d 356, 361, 86 P.2d 666.) The “after-acquired title” doctrine is applicable even where the buyer takes physical possession of the property before the seller acquires title. (See Noronha v. Stewart, supra, 199 Cal.App.3d 485, 489–490, 245 Cal.Rptr. 94; Clark v. Baker (1860) 14 Cal. 612, 630.)
The validity and enforceability of the Security Pacific lease, which the parties signed on August 14, 1984, was expressly conditioned on SCI No. 4 acquiring title to the property by the August 30, 1984, closing date. Citibank's restructured loan was also conditioned on SCI No. 4 acquiring title by August 30, 1984. These provisions are evidence of the fact Sun Cal signed the master lease on its own behalf as the new owner of Beaudry I. There is little, if any, evidence in this record demonstrating even a reasonable possibility that the lease would revert to C–D. It is apparent that Security Pacific would not have allowed such an eventuality.
4. Finally, a contract must be construed to give effect to the mutual intention of the parties where that intent is ascertainable and lawful. (§ 1636.) The evidence was uncontroverted that Security Pacific was not willing to enter into a master lease with C–D and that every signatory to the lease understood and agreed that Sun Cal was signing the lease on its own behalf, not as C–D's agent.
The record is replete with evidence that Sun Cal signed the lease on its own behalf. The trial court erred when it ruled as a matter of law that C–D, not Sun Cal, was the lessor.
The trial court's erroneous conclusion that, as a matter of law, Sun Cal signed the master lease as C–D's agent was premised on two factors: first, disregarding compelling contrary evidence, the court reasoned that since Sun Cal had the authority to act as C–D's agent between June 8, 1984, and the August 30 closing date, it necessarily must have been acting as C–D's agent when it signed the Security Pacific lease. Second, the court reasoned SCI No. 4 could not have entered into the lease on its own behalf because it had no ownership interest in Beaudry I on August 14, 1984, when the lease was signed. The court's analysis and conclusion on both points is incorrect.
Nothing in the June 8, 1984, management contract prohibited Sun Cal as prospective owner of the property from negotiating long-term leases on its own behalf, leases which would not bind C–D but would take effect only when and if Sun Cal acquired ownership of C–D's property. Where a party is authorized to act as an agent but enters into a contract on its own behalf rather than on behalf of its principal, the courts treat the agent, not the principal, as the party subject to the contract. (See, e.g., Potts v. First City Bank (1970) 7 Cal.App.3d 341, 345, 86 Cal.Rptr. 552 [Although Mr. and Mrs. Flint were agents of the plaintiff corporation, “the [defendant] bank and the Flints had agreed that the Flints, and not the corporation, should be the parties to the loan. The bank was fully aware of all of the affairs of the [corporation] and of its delicate financial status; ․ We can find in these facts only a definite intention by the bank not to treat the corporation as being, in any way, a party to the loan. It looked only to the Flints and to their personal credit; it cannot now look further.” (Original emphasis.).]; Associated Creditors' Agency v. Davis (1975) 13 Cal.3d 374, 118 Cal.Rptr. 772, 530 P.2d 1084; Geary St. etc. R.R. Co. v. Rolph (1922) 189 Cal. 59, 65–68, 207 P. 539; Rest.2d Agency, § 144, com. (f), p. 359.)
Thus, whether Sun Cal had authority under the management contract to act as CD's agent is not determinative. The central question is whether the parties who signed the lease intended that Sun Cal be the lessor or that C–D be the lessor. The lease and the surrounding circumstances yield pertinent evidence on this question. The lease states it is an agreement “by and between Sun Cal Investments, No. 4 ․ (‘Landlord’), and Security Pacific National Bank ․ (‘Tenant’),” and will only take effect if Sun Cal acquires title to Beaudry I by August 30, 1984. Moreover, every party who signed the lease believed Sun Cal, not C–D, was the lessor. Finally, the evidence is uncontroverted that Security Pacific would deal only with Sun Cal, not with C–D.
The trial court's reliance on the fact the lease was signed before SCI No. 4 acquired legal title to Beaudry I is equally misplaced. As demonstrated above, a prospective property owner has the right to enter into a binding lease agreement before acquiring legal title to the leased property.
c. Sun Cal did not automatically “inherit” C–D's contractual obligations to Greenwood when it purchased C–D's property and such a result would be violative of the statute of frauds.
(1) Before Sun Cal can be liable for Greenwood's commission a direct contractual relationship between Sun Cal and Greenwood is required unless Greenwood can avoid the bar of the statute of frauds. No contractual relationship is apparent from this record and Greenwood has failed to avoid the bar of the statute of frauds.
I find it convenient at this juncture in this separate opinion to comment on the statute of frauds on the assumption that Greenwood, based on the record in this case, seriously contends that Sun Cal is estopped to rely on the statute of frauds. The statute of frauds provides that a listing contract with a broker is not enforceable unless it is set forth in writing “and subscribed by the party to be charged or by the party's agent.” (§ 1624, subd. (d).)
The requirement that the contract be subscribed “by the party to be charged” is strictly enforced. For example, when more than one person owns property and the broker's contract is signed by only one of the owners, the broker may recover his commission from the owner who signed the agreement but not from the owner who did not sign the agreement. (1 Miller & Starr (2d ed. 1989) Cal.Real Estate, § 1:77, at p. 227, and cases there cited.) Similarly, if a listing contract gives the broker an exclusive right to sell property for a specific period of time and the owner dies before a sale is consummated, the listing contract is not enforceable against the owner's estate even though the estate thereafter sells the property to a buyer procured by the broker during the term of the listing contract. (Id., at § 2:28, p. 607; Charles B. Webster Real Estate v. Rickard (1971) 21 Cal.App.3d 612, 617–620, 98 Cal.Rptr. 559.)
Indeed, absent a written contract between the broker and the principal, a broker may not invoke the estoppel doctrine or the quantum meruit doctrine as grounds for claiming a commission. “The courts have been uniform in not permitting the doctrine of estoppel to allow a broker to recover compensation upon an oral agreement between the principal and the broker even though the broker performed valuable services by procuring a buyer and the principal received the benefits of the broker's efforts by selling the property to the buyer procured by the broker.” (1 Miller & Starr, supra, Cal.Real Estate 2nd, § 1:66, at p. 183, and cases there cited; Phillippe v. Shapell Industries (1987) 43 Cal.3d 1247, 1260, 241 Cal.Rptr. 22, 743 P.2d 1279 [“The Courts of Appeal have consistently held, with two narrow exceptions not present here nor in Greenwood's case as pled and presented], that a licensed broker may not assert estoppel against a statute of frauds defense in an action to recover a commission under an oral employment agreement.”]; Rader Co. v. Stone (1986) 178 Cal.App.3d 10, 27, 223 Cal.Rptr. 806 [“[A] broker cannot recover for the reasonable value of services rendered on a theory of quantum meruit where an agreement to pay a broker's commission is unenforceable for want of a writing.”].)
Applying the foregoing principles here, Greenwood has no legal right to recover a commission from Sun Cal because Sun Cal neither signed Greenwood's listing contract nor retained Greenwood to perform any services on its behalf. In essence, the statute of frauds is a complete bar to Greenwood's claim against Sun Cal on Greenwood's theory that Sun Cal inherited C–D's liability to Greenwood under the “successor and assigns” clause of the March 21, 1984, contract and requires dismissal of the breach of contract claims, unless Greenwood is able to plead and prove “actual fraud,” within the meaning of Phillippe v. Shapell Industries, supra. I note that Greenwood's pleadings are devoid of any allegations of “actual fraud” thus eliminating any triable issue of material fact pertaining to “actual fraud” unless leave is granted to Greenwood by the trial court to allege “actual fraud” upon a proper evidentiary showing by Greenwood, not presently demonstrated in this record.
(2) Sun Cal did not assume C–D's contractual obligation to Greenwood simply by purchasing C–D's property.
Without addressing the statute of frauds issue, the trial court ruled Sun Cal and SCI No. 4 were responsible for paying Greenwood's commission simply by virtue of having purchased C–D's interest in Beaudry I. As the new owners of Beaudry I, the court reasoned Sun Cal and SCI No. 4 were C–D's “successors” and therefore liable to Greenwood under the “successors and assigns” clause of Greenwood's listing contract. As previously discussed, the court's reasoning was erroneous. The trial court's analysis and ruling conflict with the statute of frauds and basic rules which govern real estate transactions.
(a) The conveyance of property by deed does not result in a transfer of the seller's contract obligations.
Deeds have the effect of conveying an owner's land, everything affixed to the land, everything appurtenant to the land, and those things treated as immovable as a matter of law. (§§ 658–660, 801, 829.)
However, with the exception of covenants which “run with the land” (broker listing contracts do not), a new owner is not liable for the original owner's contractual obligations. Covenants running with the land include covenants relating to the use, repair, maintenance, or improvement of land, or the payment of taxes and assessments on land. (§ 1468, subd. (c).) If those covenants are recorded, they automatically bind or benefit successive owners. (7 Miller & Starr, Cal.Real Estate (2d ed. 1990) § 22:3, at p. 537.)
In McColgan v. Bank of California Assn. (1929) 208 Cal. 329, 281 P. 381, for example, the Supreme Court ruled that a new owner was not bound by the original owner's contract with an agent merely because he purchased the original owner's land. The original owner in McColgan entered into a contract which authorized the defendant-agent to develop and sell lots in a subdivision. (Id., at p. 332, 281 P. 381.) The trial court, as here, characterized a subsequent owner of the property as the original owner's “successor in interest” and ruled the agent could enforce the agreement against the new owner. (Ibid.) The Supreme Court reversed. The court ruled that sale of the subject matter of the agency (i.e., the original owner's land) automatically terminated the agent's contract. (Id., at pp. 334–335, 281 P. 381.) In addition, applying well-settled principles of real estate law, the court ruled an agent's right to compensation does “not attach to the lands.” (Id., at pp. 335–336, 281 P. 381.)
To the same effect, see Wilson's Heating & Air Conditioning v. Wells Fargo Bank (1988) 202 Cal.App.3d 1326, 1334, 249 Cal.Rptr. 553 [The defendant bank, which acquired ownership of the subject property through foreclosure proceedings, did not “ ‘step into the shoes' of [the original owner] for the purposes of [the original owner's] contracts.” (original emphasis.).]; Schwartz v. McGraw–Edison Co. (1971) 14 Cal.App.3d 767, 780–781, 92 Cal.Rptr. 776 disapproved on another point in Ray v. Alad Corp. (1977) 19 Cal.3d 22, 34, 136 Cal.Rptr. 574, 560 P.2d 3 [“ ‘[I]f one corporation purchases the assets of another and pays a fair consideration therefor, no liability for the debts of the selling corporation exists in the absence of fraud or agreement to assume the debts.’ ”]; Pringle v. Hunsicker (1957) 154 Cal.App.2d 789, 316 P.2d 742 [Absent an express assumption of liability, the defendant corporation which purchased assets of a company was not liable for the seller's debts, including a claim by a disgruntled employee for unpaid wages.]; Cal.Real Property Sales Transactions (CEB 1981) § 3.168, p. 301 [“[T]he buyer does not become the seller's ‘successor or assigns' merely by buying the property.”].
The decision in Symon v. J. Rolfe Davis, Inc. (Fla.App.1971) 245 So.2d 278 is also instructive. In Symon, the plaintiff broker had an agreement to secure tenants for a proposed shopping center. Although plaintiff secured a proposed lease from one prospective tenant, the shopping center was sold to the defendants before the lease was consummated. The new owner secured leases from both of the prospective tenants on “substantially the same terms as those negotiated” by plaintiff. (Id., at p. 279.) The court concluded no commissions were owed by the purchaser even though the purchaser “anticipated the procurement of the leases” and “in fact conditioned the purchase of the property on obtaining the leases.” (Id., at p. 280.)
The basis for the court's decision was as follows: “Although defendants may have had knowledge of plaintiff's services ․ prior to the purchase of the shopping center property, we can find no quasi-contractual duty on the part of defendants to compensate plaintiff for its services.” (Ibid.)
The foregoing authorities clearly confirm that Sun Cal did not incur a contractual obligation to Greenwood merely by purchasing C–D's property.
(b) Citizens Suburban Co. does not support a contrary result.
In ruling that Sun Cal was C–D's “successor” and therefore liable for Greenwood's commission, the trial court apparently relied heavily and perhaps exclusively on Citizens Suburban Co. v. Rosemont Dev. Co. (1966) 244 Cal.App.2d 666, 53 Cal.Rptr. 551. Citizens Suburban is both factually and legally distinguishable from the present case. Moreover, as discussed below, Citizens Suburban at best raises factual issues about Sun Cal's status as a “successor” which should not have been resolved by summary judgment.
The plaintiff in Citizens Suburban was a water company which sought specific performance of an agreement to provide water to a large land development called the Rosemont subdivision. The plaintiff originally negotiated the water service agreement with Richard Price, a general partner of Rosemont Development Company. Price failed to disclose the partnership was selling its assets to a new partnership, which Price also controlled. For three years, Price continued to do business with plaintiff. During this time, he deliberately deceived plaintiff into believing his new company was merely a continuation of his original company and that it was bound by the water service contract. When Price subsequently reneged on the contract, plaintiff filed suit against Price's new company to enforce the agreement.
The trial court ruled, and the Court of Appeal agreed, that Price and his new company were estopped to deny they were parties to plaintiff's contract. In addition, the court ruled that, because Price and his new company “voluntarily accepted the benefits of the water service agreement” for three years, the new company should be treated as a “successor” of the original contracting party and liable to plaintiff under the “successors and assigns” clause of the contract. (Id., at pp. 676–677, 53 Cal.Rptr. 551.)
Citizens Suburban has no bearing on the instant case for several reasons. First, Citizens Suburban is premised on the view that if a party accepts benefits under a contract, that constitutes sufficient grounds for holding the party liable. But Citizens Suburban is not a broker's commission case governed by the statute of frauds. As explained above, absent a written memorandum “subscribed by the party to be charged,” a party is not obligated to pay a broker merely because it is alleged the party accepted the benefit of a broker's work. Nothing in Citizens Suburban alters this rule. Imposing liability on the buyer would alter the basic rules which govern real estate transactions in a way Citizens Suburban itself did not anticipate or intend. For example, anyone who buys a home benefits from the work performed by the seller's broker. That fact, however, has never been held sufficient to make the new homeowner liable to the broker if the seller defaults on his contractual obligation to the broker. Because Sun Cal was not a party to Greenwood's listing contract, it cannot be required to pay Greenwood a commission unless one of the narrow exceptions previously discussed comes into play and none of those exceptions are apparent on this record.
Second, the business entities which were deemed “successors” in Citizens Suburban were all controlled by the same individual, Richard Price, and were merely continuations of Price's original partnership in different forms. Price encouraged Citizens Suburban to believe the new businesses were successors of his original partnership and that they would honor the terms of the water service agreement.
Those factors are not present here. Sun Cal and SCI No. 4 were not continuations of C–D in a different guise. They were new and different entities with entirely different management. Once title was transferred to SCI No. 4, C–D ceased to have any ownership interest in Beaudry I and ceased to exercise any control over its operation. (See Evans v. Galardi (1976) 16 Cal.3d 300, 306–307, 128 Cal.Rptr. 25, 546 P.2d 313.)
On one occasion, the trial court, the Honorable Kent M. Bridwell, temporary judge presiding, concluded there was a true sale of Beaudry I between independent parties when it considered and denied Greenwood's application for an attachment order. In denying Greenwood's application for a writ of attachment, the court concluded “that the transactions in question do represent a bona fide sale․ [T]hat SCI No. 4 was created to achieve tax savings appears both plausible and genuine. Although C–D was to have participated in ‘profits' generated by the limited partnership, at least on paper, in reality it would merely be receiving consideration for its conveyance of Beaudry Center I.” 7
Moreover, unlike Citizens Suburban, Sun Cal did not mislead Greenwood by requesting that he continue performing work for Sun Cal. To the contrary, within days of contracting to purchase Beaudry I, Sun Cal informed Greenwood that he had no authority to act as Sun Cal's agent. The Security Pacific lease was the result of two months of intensive negotiations Sun Cal conducted itself in which Greenwood played no part. Since Sun Cal did not engage in any deceptive conduct after acquiring Beaudry I, took complete control of the property from C–D, and did not utilize Greenwood's services, the trial court's reliance on Citizens Suburban is misplaced.
Finally, the trial court's conclusion that Citizens Suburban supports summary judgment is in error for still another reason. Under Citizens Suburban, a new owner can be held liable for his predecessor's contract obligations only where the new owner derives concrete benefits from the previous owner's contracts. (Citizens Suburban Co. v. Rosemont Dev. Co., supra, 244 Cal.App.2d at pp. 676–677, 53 Cal.Rptr. 551.) In the present case, there is compelling evidence that Sun Cal and SCI No. 4 received nothing of benefit from Greenwood. Sun Cal was already in contact with Security Pacific, which was C–D's largest creditor. Moreover, when Sun Cal approached Security Pacific about leasing space in Beaudry I, Greenwood's negotiations with the bank had reached an impasse. Security Pacific was unwilling to lease even eight floors while C–D owned Beaudry I. Security Pacific simply was not ready and willing to lease any part of the premises from C–D. It is a quantum leap in logic to conclude, as does the majority, that Greenwood, as a matter of law, was the procuring cause of the lease between SCI No. 4 and Security Pacific. Even the majority is forced to concede the legal point by citing McGavock v. Woodlief (1857) 61 U.S.(20 How.) 221, 15 L.Ed. 884 and Wylie v. Marine National Bank (1875) 61 N.Y. 415 that “․ before a broker can be said to have earned his commission it must also be shown that he produced a purchaser who was ready and willing to make the purchase and that he was the procuring cause of the lease.” (Emphasis added.) Sun Cal was a new party, one with whom Security Pacific was happy to do business. With no assistance from Greenwood, Sun Cal spent two months working out a complex master lease agreement which in all important respects was a new and different lease agreement from the one Greenwood originally tried and failed to obtain.
Moreover, there is abundant evidence in the record indicating that what made the master lease between Security Pacific and Sun Cal possible was not Greenwood but the tremendous cash contribution ($37 million) Sun Cal infused into the transaction, both to satisfy Security Pacific's demands as a lessee, and to convince Citibank to terminate the foreclosure proceedings it had initiated on Beaudry I.
In light of this evidence, a jury could readily have concluded that Sun Cal and SCI No. 4 received nothing of benefit from Greenwood's earlier work and, accordingly, even under the rule announced in Citizens Suburban, should not be treated as “successors” and obligated to pay Greenwood's commission. The trial court erred by taking this factual issue from the jury.
d. The trial court's reliance on section 1589 is misplaced.
Section 1589 provides: “A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting.”
The trial court ruled Sun Cal and SCI No. 4 voluntarily accepted the benefits of Greenwood's work and, under section 1589, were therefore liable for paying his commission.
The trial court's ruling is in error for two reasons. First, as explained above, a long line of cases establishes that in the absence of a contract “subscribed by the party to be charged,” voluntarily accepting the benefits of a broker's work is not a basis for requiring a party to pay a broker's commission. Applying this rule, the Court of Appeal in Boyd v. Big Three Ranch Co., supra, 22 Cal.App. 108, 133 P. 623 expressly ruled that section 1589 has no relevance in cases which involve real estate broker contracts, explaining: “It is true as a general proposition that the acceptance of the benefits of a transaction is equivalent to a consent to all of the obligations arising from it (Civ.Code, sec. 1589); but this rule has application only where the statute does not specify the character of the contract requisite to liability, and [section 1589] ․ evidently refers to contracts not required by the statute to be in writing.” (Id., at p. 110, 133 P. 623.)
The trial court refused to follow Boyd because the broker inBoyd had no written agreement, whereas Greenwood had a written agreement with C–D. The distinction drawn by the trial court is misplaced. In essence,Boyd holds that where a statute specifies the conditions precedent to enforcing a contract and those conditions have not occurred, a party cannot circumvent the statute by relying on section 1589.
In the case of a broker's listing contract, the statute of frauds provides the contract is not enforceable unless it is subscribed by the party the broker seeks to hold liable. The fact that someone else signed the contract has little, if any, relevance in applying the statute of frauds to real estate brokers' contracts. Since Sun Cal did not sign or otherwise assume responsibility for Greenwood's contract, it cannot be charged with liability for Greenwood's commission. As indicated previously, this record contains no indication that “actual fraud” is involved in this case.
The trial court's conclusion that section 1589 supports summary judgment is in error for a second reason. Section 1589 is only applicable where there is a voluntary acceptance of contract benefits by the defendant. Here, there is evidence that Sun Cal derived nothing of benefit from Greenwood and did not utilize his services. In light of this evidence, the trial court erred by resolving any issues presented by section 1589 on summary judgment.
e. Triable issues of fact exist with respect to the amount of Greenwood's commission.
I agree with the majority that triable issues of fact were raised concerning the proper measure of Greenwood's damages. Greenwood's listing contract provided he was entitled to a commission of four percent of the “aggregate basic rental” for the first five years of any lease C–D signed, and two percent of the “aggregate basic rental” for the remainder of the lease. “Aggregate basic rental” was defined in paragraph 5 of the listing contract as the total rent paid by the lessee exclusive of a number of listed deductions.
Greenwood claimed the “aggregate basic rental” of the Security Pacific lease was $520 million, a figure arrived at by simply adding Security Pacific's total rent for each year of the 21–year lease. Greenwood did not reduce this figure to account for any of the deductions contained in paragraph 5 of the listing contract. Based on a $520 million figure, Greenwood asserted he was entitled to a commission of $12,058,164, and the trial court so found.
In its opposition papers, Sun Cal submitted the declaration of Douglas Duffy, Sun Cal's chief financial officer and a certified public accountant. Duffy declared that in calculating “aggregate basic rent,” the following exclusions should have been subtracted from the $520 million rent figure before Greenwood's commission was calculated:
1. Parking expenses: Security Pacific's lease included 2,026 parking spaces. Duffy calculated that over the lifetime of the lease, $74,861,839 of the total rent payment would be for parking and this represented “parking revenue” within the meaning of paragraph 5(ii) of the listing contract and should be excluded from the “aggregate basic rental.”
2. Operating costs: Paragraph 3.1.2 of the master lease required that each year Sun Cal pay $3.5 million for “operating costs,” including taxes, maintenance and repairs, utilities, and insurance. Over the lifetime of the lease, these expenses would have totalled $73,500,000. Since Sun Cal paid for these costs out of rent received from Security Pacific, Duffy concluded the $73,500,000 constituted reimbursable expenses within the meaning of paragraphs 5(iv) and 5(v) of the listing contract, and therefore should be excluded from the “aggregate basic rental.”
3. Pre-existing leases: A number of leases already existed in Beaudry I when the master lease was executed. The master lease provided Security Pacific would henceforth be entitled to collect rent from such tenants. The total revenue generated by such leases during the lifetime of Security Pacific's lease would have been $51,690,174. Duffy concluded these sub-lease payments were credits within the meaning of paragraph 5(vii) of Greenwood's listing contract, and therefore should have been excluded from “aggregate basic rental.”
4. Rent concession: When Beaudry I was sold, Sun Cal paid Security Pacific $7,746,143 as a “return of rent” pursuant to paragraph 16 and exhibit H of the master lease. Duffy concluded this payment was a “rental concession” within the meaning of paragraph 5(i) of the listing contract and therefore should have been excluded from the “aggregate basic rental.”
Duffy's declaration contains evidence that these exclusions should be deducted from the gross rent of $520 million and that if Greenwood was entitled to a commission, the amount should have been $6,861,091, not $12,058,164. Duffy's declaration thus raises triable issues of material fact pertaining to the amount of Greenwood's commission which should not have been resolved by the trial court as a matter of law. Where the majority, however, finds no triable issue of material fact created by the Duffy declaration on the issue of exclusion of what I refer to as “operating costs” and the majority refers to as “reimburseable expenditures” from gross income in arriving at “aggregate basic rental,” I would find to the contrary and would remand for resolution by trial all four categories of exclusions contained in the Duffy declaration. By involving itself in a quagmire of explanations about the “unambiguous” meaning of the lease pertaining to this particular exclusion, the majority has only succeeded in uncovering triable issues of material fact, which likewise require resolution by a trier of fact.
A further contention raised by Sun Cal as to the amount of Greenwood's commission goes unaddressed by the majority. Sun Cal contends that an additional triable issue of material fact exists concerning the size of any commission. Sun Cal contends that if Greenwood is entitled to be paid because he supposedly conferred a benefit on Sun Cal, his payment should be limited to the value of that benefit. The value of Greenwood's work, so contends Sun Cal, is substantially less than $12 million. According to Castleton, whose background was in real estate, if Beaudry I had been sold outright with the Security Pacific lease in place, the standard broker's commission on the sale would have been under $2 million. The “value” conferred by Greenwood, Sun Cal contends, is therefore substantially less than $12 million.
I find this contention to be an interesting one, but contra to existing law recently confirmed by our Supreme Court in Phillippe v. Shapell, Industries, supra, 43 Cal.3d 1247, 1255–1256, 241 Cal.Rptr. 22, 743 P.2d 1279, in which the Supreme Court rejected the argument that a buyer of real property, not a party to the listing contract between a broker and the seller, could be held liable to the broker for the reasonable value of services rendered (quantum meruit). Under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937, I would be compelled to reject Sun Cal's contention and find no triable issue of material fact on the proffered quantum meruit issue.
f. No triable issue of fact exists with respect to whether the listing agreement should have been reformed to reflect the parties' true intent.
I concur in the results reached by the majority pertaining to Sun Cal's contention that the listing contract should be reformed. Like the majority, I would find no error in the trial court's denial of Sun Cal's request to reform the listing contract. As an affirmative defense to Greenwood's breach of contract action, the Sun Cal defendants alleged that the listing contract should be reformed to reflect the actual intention of Coler and Deutsch, namely, that the payment formula in the listing contract was not intended to cover a master lease, and that no commission would be paid beyond the first ten years of any lease. Evidence was submitted in an attempt to support this defense. Summary judgment on the question of reformation was nevertheless proper as a matter of law. The evidence submitted in support of the “affirmative defense” of reformation is nothing more than a thinly veiled attempt to persuade the court to rewrite the listing contract for the parties. This a court cannot do. The evidence in this record is merely suggestive of a unilateral mistake on the part of the Sun Cal defendants which will not support a claim for reformation. (Bailard v. Marden (1951) 36 Cal.2d 703, 227 P.2d 10.)
I dissent, however, from the following portion of the majority holding on the issue:
“But in whichever of those capacities Sun Cal Investments signed the lease with Security Pacific, Greenwood was owed the commission provided in its contract with C–D Investments. Hence this is the unusual case of a triable issue that makes no difference.5”
“5 It is irrelevant for a further reason. In their contract, Sun Cal has agreed to indemnify C–D for any liability it incurs to pay a commission to Greenwood under the listing agreement. Consequently, whether merely an agent or the general partner of C–D, Sun Cal in all probability will bear ultimate responsibility for Greenwood's commission.”
For reasons previously expressed in this separate opinion I dissent to that portion of the majority opinion above quoted.
3. As A Matter Of Law, Reversal Of The Judgment In The Contract Action Requires Reversal Of The Judgment In The Tort Suit.
To prevail on his cause of action for tortious interference with prospective economic advantage, Greenwood was required to prove, among other things, that he had successfully performed all of the conditions in his listing contract with C–D and was therefore legally entitled to a commission. The trial court decided this issue in Greenwood's favor by summary judgment. Thereafter, the court instructed the jury it should assume Greenwood successfully earned the right to a commission and focus its attention on whether Greenwood's inability to collect his commission was the result of any intentional actions by the defendants.
As previously discussed, I am of the view that it was error to summarily adjudicate the contract cause of action in favor of Greenwood and therefore error to instruct the jury during the “tort” phase of the trial that it should assume Greenwood successfully earned the right to a commission.
B. UPON RETRIAL, SHOULD THE TRIER OF FACT CONCLUDE THAT SUN CAL AND SCI NO. 4 WERE PARTIES TO GREENWOOD'S LISTING CONTRACT OR AGENTS OF PARTIES TO THE CONTRACT THEN GREENWOOD'S TORT ACTIONS AGAINST THE SUN CAL DEFENDANTS WOULD BE PRECLUDED SINCE A PARTY OR AN AGENT OF A PARTY CANNOT BE LIABLE FOR TORTIOUSLY INTERFERING WITH ITS OWN CONTRACT.
1. Neither A Party To A Contract Nor The Agent Of A Party Can Be Guilty of Tortious Interference Unless (1) The Party Or His Agent Enters Into A Conspiracy With A Non–Contracting Third Party, Or (2) The Agent Disrupts The Principal's Contract For The Agent's Own Economic Gain.
I disagree with the majority that a viable cause of action exists for conspiracy to interfere with contractual relations as the case was postured in the trial court. A party cannot be guilty of tortiously interfering with his own contractual relationships. (Manor Investment Co. v. F.W. Woolworth Co. (1984) 159 Cal.App.3d 586, 594, 206 Cal.Rptr. 37; Dryden v. Tri–Valley Growers (1977) 65 Cal.App.3d 990, 999, 135 Cal.Rptr. 720.) Similarly, an agent or employee of a contracting party with no personal stake in the transaction cannot be subjected to liability for interference with his employer's contracts. (Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 72–73, 35 Cal.Rptr. 652 [“Ordinarily corporate agents and employees acting for and on behalf of the corporation cannot be held liable for inducing a breach of the corporation's contract.”]; Marin v. Jacuzzi (1964) 224 Cal.App.2d 549, 554, 36 Cal.Rptr. 880.)
There are two exceptions to this rule, neither applicable on the record presented by this case. The first exception is that a contracting party and his agent and a third party can be liable for conspiring to interfere with the principal's contract. (Shapoff v. Scull (1990) 222 Cal.App.3d 1457, 1465, 272 Cal.Rptr. 480; Manor Investment Co. v. F.W. Woolworth Co., supra, 159 Cal.App.3d at p. 594, 206 Cal.Rptr. 37; Wise v. Southern Pacific Co., supra, 223 Cal.App.2d at pp. 71–72, 35 Cal.Rptr. 652.) However, the conspiracy must include a non-contracting third party; an agent and his principal alone cannot be liable for conspiring to interfere with the principal's contract. (Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 45, 260 Cal.Rptr. 183, 775 P.2d 508 [“ ‘Agents and employees of a corporation cannot conspire with their corporate principal or employer where they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage.’ ”]; Shapoff v. Scull, supra, 222 Cal.App.3d at p. 1465, 272 Cal.Rptr. 480.) Furthermore, the noncontracting party must have actively engaged in the alleged misconduct. (Rosenfeld, Meyer & Susman v. Cohen (1983) 146 Cal.App.3d 200, 226, 194 Cal.Rptr. 180; Manor Investment Co. v. F.W. Woolworth Co., supra, 159 Cal.App.3d at pp. 595–596, 206 Cal.Rptr. 37.)
A second exception to the immunity of an agent arises if the agent has a personal financial motive which led him to interfere with his employer's contract. (Doctors' Co. v. Superior Court, supra, 49 Cal.3d at p. 47, 260 Cal.Rptr. 183, 775 P.2d 508; Wise v. Southern Pacific Co., supra, 223 Cal.App.2d at p. 72, 35 Cal.Rptr. 652.)
The trial court ruled as a matter of law that each of the defendants who allegedly took part in the conspiracy was either a party to Greenwood's listing contract (Sun Cal, SCI No. 4, in their status as C–D's “successors”) or was acting as an agent for a contracting party. Castleton was president of Sun Cal, Dobrowolski was executive vice president of Sun Cal, McBirney was chairman of the board of Sun Cal and chairman of the board of Sunbelt, which owned all of Sun Cal's stock, Peterson was Sun Cal's attorney, and prior to August 30, 1984, Sun Cal was C–D's agent. The remaining defendants were the general partners of C–D, which was also a party to the listing contract. Greenwood did not claim anyone else participated in the decision not to pay his claimed commission. The decision not to pay Greenwood was made by Dobrowolski alone and was based on Kaufer's opinion that Greenwood was not legally entitled to a commission. McBirney testified he was never consulted about whether Greenwood should be paid and was not even aware Greenwood was claiming the right to a commission until Greenwood filed suit. Deutsch, one of the owners of C–D, testified that since Sun Cal was signing the lease, he believed it was Sun Cal's decision whether Greenwood should be paid and believed he personally had no control over the decision. The trial court observed that “Deutsch and Coler played sort of a passive role; Coler more passive.” Peterson and Coler were fully exonerated for any participation in the alleged conspiracy. Absent some personal financial motive, none of the foregoing individuals can be liable for tortiously interfering with Greenwood's contract as the record in this case now stands.
The majority maintains, as an apparent make weight, that “․ it is undisputed McBirney and his entities were not parties to the commission contract at the time the conspiracy was formed and set in motion.” (Maj. opn., ante, at p. 161.) If undisputed, then as previously discussed it was error for the trial court to instruct the jury that these key tortfeasors were parties to the contract “as a matter of law.”
As for Castleton and Dobrowolski, the record is supportive of a conclusion that they did not have any personal financial stake in whether or not Greenwood received a commission. They would have received the same compensation whether or not Greenwood received a commission.
The contracts of Castleton and Dobrowolski with Sun Cal provided that, in addition to a monthly salary, each would be entitled to a commission of 5 percent of the net profit Sun Cal earned by selling the properties it acquired from C–D. On most of the properties, the 5 percent commission was calculated by deducting the cost basis for each property (i.e., what Sun Cal paid C–D to acquire the property plus whatever additional money Sun Cal invested in the property) from the net price Sun Cal obtained on sale.
This formula was not utilized for Beaudry I. The actual cost basis of Beaudry I ($60 million) was very low in comparison to the value of the property and therefore would have resulted in an excessively high commission for Castleton and Dobrowolski. For this reason, a significantly higher cost basis ($110 million) was arbitrarily chosen to calculate their commissions. As a result, the profit base which was used to calculate commissions for Castleton and Dobrowolski was substantially reduced and they therefore received significantly smaller commissions than they would have received even if Greenwood's commission had been paid. More importantly, using a fixed cost basis meant that whether or not Sun Cal paid Greenwood a commission was irrelevant in calculating the commissions of Castleton and Dobrowolski.
In sum, this record lacks substantial evidence to support a finding that Castleton and Dobrowolski derived economic benefit from the decision not to pay Greenwood a commission. On such a record, they cannot be liable for tortious interference with Greenwood's contract rights.
2. In View Of The Trial Court's Own Rulings, Reliance On Doctors' Co. To Support Its Ruling That Castleton And Dobrowolski Could Be Liable For Tortious Interference Was Misplaced.
In Doctors' Co. v. Superior Court, supra, 49 Cal.3d at p. 48, 260 Cal.Rptr. 183, 775 P.2d 508, the Supreme Court ruled that an agent who authorized his principal to engage in tortious conduct could be held personally liable for the resulting harm. Citing this rule, the trial court concluded that, since Castleton and Dobrowolski were the principal decision makers at Sun Cal, they bore personal responsibility for the decision not to pay Greenwood's commission and therefore could be held personally liable for Greenwood's damages. The trial court's reliance on Doctors' Co. under the circumstances is misplaced.
Doctors' Co. and prior cases hold that personal liability will arise only in cases where the conduct the agent authorized was tortious. (See Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 785, 157 Cal.Rptr. 392, 598 P.2d 45; Golden v. Anderson (1967) 256 Cal.App.2d 714, 719–720, 64 Cal.Rptr. 404.) But, as demonstrated above, it is not tortious for a party to breach its own contract, and an agent who authorizes the breach accordingly bears no personal responsibility for the resulting consequences. In Golden v. Anderson, supra, 256 Cal.App.2d 714, 64 Cal.Rptr. 404, cited with approval in Wyatt v. Union Mortgage Co., supra, 24 Cal.3d 773, 785, 157 Cal.Rptr. 392, 598 P.2d 45, the court expressly ruled that, while an agent could be held personally liable for authorizing his employer to engage in tortious conduct, the agent could not be held liable merely for encouraging his employer to breach a contract.
Upon the record presented in this case and in view of the court's own rulings, it is undisputed that Castleton and Dobrowolski did not enter into a conspiracy with any noncontracting third parties, did not personally profit from the decision not to pay Greenwood a commission, and did not authorize Sun Cal or SCI No. 4 to engage in any tortious conduct. Consequently they incur no liability upon such a showing.
C. THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY REFUSING TO INSTRUCT THE JURY THAT THE SUN CAL DEFENDANTS' GOOD FAITH RELIANCE ON THEIR ATTORNEY'S ADVICE CONSTITUTED A DEFENSE TO GREENWOOD'S CLAIM FOR INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE.
The majority holds and I concur that it was error for the trial judge to fail to instruct the jury on the defense of reliance on advice of counsel. However, to the extent that the majority either directly or impliedly holds that the advice given by counsel was in fact erroneous by advising that “no contractual obligation was owed to Greenwood,” I dissent to that extent. For reasons previously expressed I am of the opinion that triable issues of material fact exist on this issue and must be resolved by the trier of fact.
D. THE TRIAL COURT COMMITTED REVERSIBLE ERROR WHEN IT REFUSED TO INSTRUCT THE JURY THAT GOOD FAITH RELIANCE ON THE ADVICE OF COUNSEL IS A DEFENSE TO A CLAIM FOR PUNITIVE DAMAGES.
I concur and side with the majority in its holding that the trial court committed error in failing to instruct that reliance on advice of counsel is a defense to a claim for punitive damages.
Although encouraged by the Sun Cal defendants to assess whether the punitive damage awards in this case were excessive as a matter of law, I would decline to do so in view of the fact that the trial judge committed reversible error in keeping the defense of “reasonable” reliance on advice of counsel from the jury by failing to give the requested instruction. On retrial, should the jury find an absence of reasonable reliance on counsel, then the issue of the appropriate amount of punitive damages to be awarded by the trier of fact will become relevant. I find no necessity to decide that issue on this appeal.
E. THE TRIAL COURT IMPROPERLY REFUSED TO INSTRUCT ON THE “OWNER'S AND MANAGER'S” PRIVILEGE AND THE “ECONOMIC” PRIVILEGE.8
The majority has elected not to address the issues presented by these two claimed privileges. However, in the instant case Deutsch and Overland requested that the court instruct the jury with respect to two privileges which are commonly referred to as the owner's or manager's privilege and the economic privilege.9 The court's refusal to give either instruction constituted reversible error.
1. The court was required to instruct the jury with respect to the owner's or manager's privilege.
There is no separate tort of civil conspiracy. Rather the conspirators must agree to do some act which is classified as a civil wrong. (Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 631, 102 Cal.Rptr. 815, 498 P.2d 1063; Thompson v. California Fair Plan Assn. (1990) 221 Cal.App.3d 760, 767, 270 Cal.Rptr. 590.) Here, the underlying civil wrong for which Greenwood was seeking damages was intentional interference with the prospective economic advantage that the Greenwood plaintiffs claimed they had with respect to receiving a commission from C–D.
With respect to actions for interference with prospective economic advantage the law recognizes certain privileges that are a complete defense to tort liability, (C.f. Aalgaard v. Merchants Nat. Bank, Inc. (1990) 224 Cal.App.3d 674, 683, 274 Cal.Rptr. 81.) Moreover, if a privilege applies, allegations of civil conspiracy add nothing and cannot eliminate the privilege. (Thompson v. California Fair Plan Assn., supra, 221 Cal.App.3d at p. 767, 270 Cal.Rptr. 590; Steiner v. Eikerling (1986) 181 Cal.App.3d 639, 643, 226 Cal.Rptr. 694; Pettitt v. Levy (1972) 28 Cal.App.3d 484, 491, 104 Cal.Rptr. 650.)
While ownership or control of an entity does not automatically protect the owner from tort liability for interfering with the entity's contract, the owner's actions are privileged if he was acting to protect the interests of the entity. (Collins v. Vickter Manor, Inc. (1957) 47 Cal.2d 875, 883, 306 P.2d 783; Aalgaard v. Merchants Nat. Bank, Inc., supra, 224 Cal.App.3d 674, 684–686, 274 Cal.Rptr. 81; Shapoff v. Scull (1990) 222 Cal.App.3d 1457, 1466, 272 Cal.Rptr. 480.)
In addition to the privilege of owners, California law also recognizes a privilege for one who manages the affairs of another or advises another with respect to the performance of contracts. This manager's privilege, like the owner's privilege, requires a defendant to demonstrate that he was acting on behalf of the contracting party. (Shapoff v. Scull, supra, 222 Cal.App.3d at p. 1469, 272 Cal.Rptr. 480.)
In order to claim the privilege a manager or an owner need not be acting solely on behalf of the entity. For example, in Shapoff the court stated: “To claim the privilege, a manager or advisor need not be acting solely on behalf of his employer or client; rather, he is entitled to the protection of the privilege so long as he can establish his employer's or client's interest was one of the factors motivating his conduct or advice.” (Emphasis added.) (Id., at p. 1469, 272 Cal.Rptr. 480; accord McCabe v. General Foods Corp. (9th Cir.1987) 811 F.2d 1336, 1339.)
In the instant case, C–D was a general partnership consisting of Coler and Lazben. Deutsch and Overland were the general partners of Lazben and, therefore, in substance, owners and managers of C–D. Consequently, if there was evidence that one of the factors motivating Deutsch and Overland's conduct or advice was the interests of C–D, then their conduct was privileged. Here, there is ample evidence in the record that the conduct of Overland and Deutsch was motivated by what was best for C–D.
Deutsch testified that with respect to whether to pay Greenwood its commission, C–D did not have the money to pay Greenwood the commission that it claimed; C–D needed the transaction with Sun Cal to go forward, or C–D stood to lose the equity in its properties through foreclosures; and Sun Cal decided that no commission would be paid to Greenwood. Therefore, faced with the option of not going forward with the Sun Cal transaction and thereby having C–D commit economic suicide or possibly breaching its contract with Greenwood, Overland and Deutsch took the course of conduct that was best for C–D, to go through with the C–D/Sun Cal transaction.
Consequently, given the state of the record, the court should have instructed the jury as to the owner's and manager's privilege. This is especially true since the existence of a privilege is primarily a question of fact that should be left to the jury. (See Rosenfeld, Meyer & Susman v. Cohen (1983) 146 Cal.App.3d 200, 230, 194 Cal.Rptr. 180.)
2. The court was required to instruct the jury with respect to the economic privilege set forth in Restatement section 769.
All of the defendants requested that the court instruct the jury with respect to the economic privilege set forth in section 769 of the Restatement of Torts Second. The court determined that only Sun Cal had the requisite financial interest that was essential for the existence of the privilege.
However, Comment (a) to Restatement of Torts section 769, which was quoted with approval in Culcal Stylco, Inc. v. Vornado, Inc. (1972) 26 Cal.App.3d 879, 882, 103 Cal.Rptr. 419, states: “ ‘The financial interest in another's business requisite for the privilege stated in this Section is an interest in the nature of an investment. A part owner of the business, as for an example, a partner or stockholder, has at least such an interest.’ ” (Emphasis added.)
Here, Deutsch and Overland were the general partners in Lazben, which was a partner in C–D. Consequently, since Deutsch and Overland's interest in C–D was in the nature of an investment, the Court should have given the same instruction on economic privilege as to Deutsch and Overland that was given on behalf of Sun Cal. The court's failure to instruct the jury with respect to the privileges applicable to Deutsch and Overland was reversible error.
3. The court's refusal to give the requested instructions with respect to privilege constitutes reversible error.
I cannot say that the court's error in not giving “privilege” instructions with respect to Deutsch and Overland was harmless error even in face of the fact that Sun Cal's actions were not found to be privileged by the jury.
First, the respective positions of Sun Cal and Deutsch and Overland were not identical. Under Greenwood's theory of the case, Deutsch and Overland were the passive defendants, i.e. the wrongful conspiracy was purportedly planned and executed by Sun Cal and Deutsch and Overland were guilty because they purportedly went along with Sun Cal. Thus, had the jury been properly instructed it could have found that in acting on behalf of C–D, Overland and Deutsch did not employ improper means and were acting to protect their interest in C–D.
Second, when a jury has not been properly instructed, the reviewing court should not speculate as to what the jury might have done. Rather, the reviewing court is required to assume that the jury might have believed the evidence upon which the instruction favorable to the losing party was predicated and that if the correct instruction had been given, the jury might have rendered a verdict in favor of the losing party. Consequently, the fact that the court did not permit this issue to go to the jury requires that the judgement against Deutsch and Overland be reversed. (Henderson v. Harnischfeger Corp. (1974) 12 Cal.3d 663, 670, 117 Cal.Rptr. 1, 527 P.2d 353; Williams v. Carl Karcher Enterprises, Inc. (1986) 182 Cal.App.3d 479, 489, 227 Cal.Rptr. 465; Lunghi v. Clark Equipment Co. (1984) 153 Cal.App.3d 485, 491, 200 Cal.Rptr. 387 [“The Supreme Court has ‘consistently observed that a litigant is entitled to instructions on every theory advanced by him which finds support in the evidence.’ ” (Original emphasis.).].)
F. THE COURT IMPROPERLY EXCLUDED EVIDENCE BEARING ON THE QUESTION OF INTENT TO COMMIT THE UNDERLYING TORT.
The majority fails to address this contention. But, during trial, Deutsch testified that even though he did not believe that there was a contractual obligation to pay Greenwood the $12,000,000 commission claimed by Greenwood, Deutsch thought that Greenwood should be paid something. Accordingly, the jury could have concluded that if Deutsch believed that there should be a settlement with Greenwood, but no effort was made to settle the case, that this was evidence that Deutsch was acting in bad faith and maliciously.
In order to counter such evidence, Deutsch sought to introduce testimony that a settlement meeting took place, but the parties were unable to settle the matter. Even though such evidence was not offered to prove liability, the court excluded such evidence pursuant to Evidence Code section 1152.
Subsequently, Sun Cal made a motion to introduce evidence that a settlement proposal of $500,000 was made to Banks and was laughed at by Banks. The motion, which was joined in by Deutsch and Overland, was denied by the court.
If the proffered evidence relates to a material issue such as intent or malice, exclusion of such evidence is reversible error if it is reasonably probable that a result more favorable to the appealing party would have been reached in the absence of such error. (Clifton v. Ulis (1976) 17 Cal.3d 99, 105–106, 130 Cal.Rptr. 155, 549 P.2d 1251; Schubkegel v. Gordino (1943) 56 Cal.App.2d 667, 673–676, 133 P.2d 475.)
Here, it is reasonably probable that had the jury been informed that Deutsch made an effort to settle the case and his efforts were laughed at by Banks and presumably Greenwood, the jury would have concluded that Deutsch was not acting in bad faith or maliciously. On the other hand, given the evidence in the record that Deutsch believed that some money should be paid to Greenwood, the jury could have concluded that if Deutsch believed that there should be a settlement, but made no effort to settle the case, that this failure was evidence that Deutsch was acting in bad faith and maliciously. Thus, exclusion of the proffered evidence was reversible error. I carefully note that admission of the evidence should be accompanied by an admonition that the evidence is to be received solely on the issue of intent and not for purposes of admitted liability.
G. IMPROPER ATTEMPTS BY PLAINTIFFS' COUNSEL TO PREJUDICE THE JURY.
The majority has failed to address this contention. However, Deutsch and Overland state in their opening brief: “Because of space limitations in this brief it is impossible to discuss each instance of misconduct by Respondents' counsel. Therefore, in order to understand the pervasive nature of such misconduct, the Court is respectfully requested to review both the Motion for Mistrial filed by Deutsch and Overland as well as pages 39–43 of McBirney's Opening Brief which also detail the repeated instance of Respondents' counsel's misconduct.”
Deutsch and Overland then limit their appeal to but two cited examples of misconduct.
I would decline counsels' invitation for this court to independently embark upon a search of the record for instances of misconduct and to weigh those instances with the two examples cited by counsel. Instead we remind counsel of the obligation to comply with California Rules of Court, rule 15(a), which requires counsel to furnish specific cites to the record in support of arguments on appeal. I would decline to consider this contention.
H. ABUSE OF DISCRETION BY THE TRIAL COURT IN AWARDING $1,315,470 AS ATTORNEYS FEES IN THE CONTRACT ACTION.
By reason of my separate opinion which would reverse the trial court for ruling as a matter of law that a breach of contract transpired, I would deem it unnecessary to reach this issue.
I. THE VERDICT IS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE.
Likewise, by reason of my opinion which would reverse the trial court, I would deem it unnecessary to address this issue.
OTHER ISSUES RAISED BUT NOT ADDRESSED
In accordance with my separate opinion herein resulting in reversals I would find it unnecessary to address the following issues since by implication they would be moot:
1. The appeal of Sun Cal, Inc., Sun Cal Investments No. 4, Ltd., and Stanley R. Castleton from the order of April 19, 1990, for attorneys' fees and the May 8, 1990, order denying tax of costs and award of costs.
2. The appeal of Overland Plumbing, Naftali Deutsch, Lazben–Pico Co., Inc., and C–D Investment Co. from the order granting plaintiffs' motion for summary adjudication of plaintiffs' claim for damages for breach of commission contract and from the April 19, 1990, order awarding attorneys' fees.
3. The appeal of Alexander Coler from part of the judgment dated March 5, 1990, (except paragraph 10 which is in favor of Coler on the tort claim) and the April 16, 1990, attorneys' fees order.
1. The dissent, in contrast, would substitute the statement of facts incorporated in that opinion which, we note, uncritically accepts the version set forth in appellant Sun Cal's brief. This version, in turn, expressly construes the facts against rather than in favor of the judgment. As might be expected, many of the “facts” and inferences therefrom contained in appellants' brief are contradicted by other evidence in the record. Accordingly, we regard any factual summary based on that version as inappropriate for use in this majority opinion except, as observed earlier, when we reach the issue of the validity of the summary judgment.
2. Since we conclude Sun Cal signed the Security Pacific lease either as an agent or partner of C–D, we find it unnecessary to rule whether summary judgment can be sustained on grounds Sun Cal 4 (thus its owners) also is liable as a “successor” to C–D on the listing agreement. Under this rationale, which the trial court adopted, if Sun Cal's signature on the lease was not the equivalent of C–D's signature on that document for purposes of the listing agreement, then at a minimum Sun Cal 4 was a “successor” of C–D on the listing agreement at the time its managing partner signed the lease. And, as such, it was liable under the “successors and assigns” clause of the listing agreement.The trial court found Sun Cal (and, therefore, Sun Cal 4 Partnership) was aware of the existence of the listing agreement as well as C–D's obligation and the “successors and assigns” clause contained in that agreement. Sun Cal also was fully aware Greenwood was responsible for initially securing Security Pacific as a prospective tenant for the building in which it was acquiring an interest. Furthermore, Sun Cal 4 Partnership (and therefore Sun Cal and C–D) accepted the benefits of Greenwood's efforts under that listing contract by signing and profiting from the Security Pacific lease. The Sun Cal 4 partners knew Greenwood had not been paid its commission—and would not be paid in the future. Consequently, Sun Cal 4 Partnership (therefore its owners) was liable under the listing agreement for the commission Greenwood earned by its efforts in procuring the Security Pacific lease. (Citizens Suburban Co. v. Rosemont Dev. Co. (1966) 244 Cal.App.2d 666, 53 Cal.Rptr. 551, Civ.Code, § 1589.)While we find considerable merit in this alternative rationale, we need not and do not consider whether it would support summary judgment in this case or instead raises triable issues which would require resolution by the trier of fact.
3. This case is readily distinguished from cases like Symon v. J. Rolfe Davis (Fla.App.1971) 245 So.2d 278, the most analogous situation cited in the dissenting opinion. (Dis. opn. at p. 53.) First, of course, the successor in the instant case is a partnership between the original owner and its new partner and for all the reasons discussed in this opinion is in a different category. Second, the purchaser in Symon and like cases had every reason to expect the seller to have paid the commission the seller owed the broker for obtaining the leases from which the purchaser stood to benefit after the sale. Indeed as the Symon court noted, those commissions probably were reflected in the sale price. (245 So.2d at p. 280.) Here the successor partnership was well aware the commission had not and would not be paid and indeed both partners stood to gain from that failure.
4. Some indication of the extent of that benefit is suggested by the fact the Sun Cal 4 partnership sold Beaudry One only eight months after its acquisition of this property at a profit of $100 million.
5. It is irrelevant for a further reason. In their contract, Sun Cal has agreed to indemnify C–D for any liability it incurs to pay a commission to Greenwood under the listing agreement. Consequently, whether merely an agent or the general partner of C–D, Sun Cal in all probability will bear ultimate responsibility for Greenwood's commission.
6. It should be noted there is another side to the position taken in the dissenting opinion. If the trial court erred in granting summary judgment against Sun–Cal and the Sun–Cal 4 partnership on the breach of contract action, then this objection to the tort action evaporates. In that instance they would not in any sense be “parties” to the listing contract and clearly could be sued along with the contracting party, C–D, for conspiring to interfere with contractual relations (or to deny Greenwood a prospective economic advantage). It would not even be a close case under basic principles of tort law.
7. The Richardson court pointed out the law firm's legal opinion was far from firm on this issue and warned a lawsuit could go either way. (Richardson v. La Rancherita, supra, 98 Cal.App.3d at p. 82, fn. 1, 159 Cal.Rptr. 285.)
8. Because they either depend on an underlying legal principle we reject (see Part III ante ) or raise evidentiary issues which are not critical, especially given our disposition of this appeal, we deem it unnecessary to address several other issues: (1) the failure to instruct on the “owner's and manager's” privilege; (2) the failure to instruct on the “economic” privilege; and (3) the exclusion of evidence about settlement negotiations between the parties.
1. The C–D partnership was composed of two general partners, Alexander Coler and Lazben–Pico. Lazben–Pico is a limited partnership composed of Naftali Deutsch and Overland Plumbing. Naftali Deutsch is the president of Overland Plumbing. The C–D partnership is now dissolved. The aforementioned general and limited partners are individually named defendants in plaintiffs' action.
2. Referred to in the record but not specifically made a part of the record on appeal. The letter was submitted to this court following oral argument at the request of the court.
3. The C–D Group, a legal entity formed by C–D, was the limited partner in the partnerships C–D and Sun Cal formed. For ease of reference, the C–D Group is referred to as C–D.
4. Prior to August 30, 1984, Sun Cal had to complete its negotiations with C–D's lenders, most of whom were still arguing with Sun Cal about provisions of their loans. In light of these problems and the inherent complexities associated with the simultaneous transfer of 21 pieces of property, Sun Cal believed it was important to complete as many pieces of the transaction as it could before the August 30 closing date.
5. To promote this tort theory, Greenwood's counsel continuously referred to the transaction as a “commissionectomy,” a word used by Castleton in an off-hand manner to describe the nonpayment of the commission, and used that term with major emphasis in the lawsuit.
6. All statutory references are to the Civil Code unless otherwise noted.
7. I meticulously avoid any implication that Judge Fields was bound by any ruling previously made by Judge O'Brien or Temporary Judge Bridwell. Comments and rulings by the aforementioned bench officers are referred to in this separate opinion for the sole purpose of providing insight on the inescapable conclusion of the existence of triable issues of material fact in this case.
8. The privileges appear to be mere extensions of the doctrine that a party to a contract may elect to breach the contract and pay the requisite damages as opposed to contractually performing.
9. The parties stipulated that all defendants joined in the jury instructions of the others and objected to all of plaintiffs' instructions. In addition, the defendants agreed to try and use McBirney's instructions in what amounted to a master set of instructions.
JOHNSON, Associate Justice.
LILLIE, P.J., concurs.