MGW INC v. FREDRICKS DEVELOPMENT CORPORATION

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Court of Appeal, Fourth District, Division 3, California.

MGW, INC., Plaintiff and Appellant, v. FREDRICKS DEVELOPMENT CORPORATION et al., Defendants and Appellants.

No. G006654.

Decided: April 30, 1990

Perez & McNabb and Richard L. Perez for plaintiff and appellant. Irell & Manella, Scott D. Baskin, Andra Barmash Greene, Gibson, Dunn & Crutcher, John J. Swenson, Robert F. Serio, Higgs, Fletcher & Mack, Woodrow D. Smith, John M. Morris, Melvin King, Drummy, Garrett, King & Harrison, Howard F. Harrison and Kathleen Carothers Paone for defendants and appellants.

OPINION

A jury awarded plaintiff real estate broker damages against defendant real estate developers for interference with prospective economic advantage and conspiracy after defendant developers refused to pay plaintiff a commission pursuant to an oral broker's agreement.   Defendant developers appeal from the judgment, and plaintiff broker appeals from orders of dismissal and nonsuit as to other defendants.   We reverse as to defendant Pacific Lighting, but affirm the judgment in all other respects.

FACTS

Plaintiff MGW is a commercial real estate brokerage and investment firm owned and operated by Malcolm Waitt, Jr., a licensed real estate broker.   Waitt is MGW's only employee.

Defendant Fredricks Development Corporation is a real estate developer involved in the construction of large-scale residential tracts.   Fredricks is a wholly-owned subsidiary of Pacific Lighting Corporation.

In 1982 Fredricks made known to Waitt and other local brokers that it was interested in acquiring a large residential project along the I-15 corridor in the southern Orange County or northern San Diego County area.   Waitt was told that if he brought in an opportunity Fredricks undertook and was not paid a broker's fee by the seller, Fredricks would see he was fairly compensated.   This was Fredricks' standard arrangement, and on at least one previous occasion Waitt was paid for his efforts under this arrangement.   Waitt had no written broker's contract with Fredricks.

On or about February 14, 1983, Waitt read a newspaper article which said that Home Capital, which was in the business of financing developments, had bought out its prior partner and was looking for an experienced developer and joint venturer to help build out a 1500-acre mixed residential/commercial project known as Rancho Carmel.1  The project was located along the I-15 corridor in northern San Diego County.   Waitt, believing this was just the opportunity Fredricks was looking for, called Home Capital and told them Fredricks might be interested in the project.   Home Capital told Waitt that if they struck a deal with Fredricks they would not pay a broker's fee and he would have to look to Fredricks for any commission.

Waitt showed the article to Fredricks.   They told him that neither they nor Pacific Lighting were aware of the Rancho Carmel opportunity, and on being advised Home Capital would not pay a broker's commission, Fredricks assured Waitt that if they went ahead with the deal he would be fairly compensated.

On March 21, 1983, Fredricks, Home Capital, and Dunn Properties Corporation, a wholly-owned subsidiary of Pacific Lighting which builds out commercial tracts, signed a letter of intent to enter into a joint venture to build the Rancho Carmel project.   The purpose of the letter was to tie up the property for a period of time in order to allow Fredricks and Dunn to determine the project's feasibility.   One of its provisions was that:  “[Dunn and Fredricks] and Home [Capital] each hereby represent to one another that no broker or finders fee will be payable as a result of D & F and Home entering into the proposed venture and each indemnifies the other against any such broker or finders fee.”   Dunn became involved because Fredricks could not handle the commercial end of the project.

Waitt frequently asked about the project and was led to believe the deal was progressing smoothly and that Fredricks intended to compensate him.   He was never told he would not be paid a commission.

The joint venture interest was ultimately purchased on behalf of Fredricks and Dunn in the name of Pacific Real Estate Projects (PREP), another wholly-owned subsidiary of Pacific Lighting.   Fredricks, however, refused to pay Waitt a broker's commission, claiming the Pacific Lighting corporations knew of the opportunity before Waitt brought the newspaper clipping to them.   Waitt was told that in late 1982 there had been rumors the Rancho Carmel project might soon become available, that Dunn had inquired (through a different broker) whether Home Capital would sell off just the commercial use, that Home Capital said it was unwilling to discuss sale of the project until it bought out its joint venturer, and that Home Capital was unwilling to sell off just the commercial part of the project since it viewed the entire development as an integrated plan.   Dunn, however, did not pursue the commercial part of the project at any time after it became available and before Waitt brought Fredricks the article.

Waitt filed an action for breach of oral agreement, quantum meruit, tortious breach of the covenant of good faith and fair dealing, conspiracy and tortious interference with prospective economic advantage.   The complaint named Fredricks, Dunn, Pacific Lighting, PREP, Home Capital and Humboldt as defendants.

At trial the court dismissed all of MGW's contractual claims on the ground they were unenforceable under the statute of frauds.   A nonsuit was granted in favor of Home Capital and Humboldt, and a nonsuit was granted to PREP on the interference with prospective advantage claim.   The jury returned a verdict of $558,000 in damages against Fredricks, Pacific Lighting, Dunn and PREP, and $2 million in punitives against all defendants but PREP.   Pacific Lighting's motions for judgment notwithstanding the verdict and a new trial were granted.   Fredricks, Dunn and PREP appeal from the judgment.   MGW appeals from the orders of nonsuit, new trial, and judgment notwithstanding the verdict.

DISCUSSION

IFredricks and Dunn AppealA

Fredricks and Dunn argue that no cause of action can be stated for interference with prospective economic advantage when the underlying agreement violates public policy.   While recognizing that Buckaloo v. Johnson (1975) 14 Cal.3d 815 holds that a broker may state a cause of action for interference with prospective economic advantage even when the agreement violates the statute of frauds (id. at pp. 829-830), Fredricks and Dunn argue the Supreme Court has signalled a change in this rule in its recent opinion in Phillippe v. Shapell Industries (1987) 43 Cal.3d 1247.   We disagree.2

In Buckaloo the court held a purchaser may not, “with full knowledge of the economic relationship between broker and seller, intentionally induce[ ] the latter to violate the terms of the relationship and seek refuge in the unenforceability of the contract.”  (Buckaloo v. Johnson, supra, 14 Cal.3d at p. 827.)   The court explained:  “There is no public policy to be served by encouraging such devious dealings;  on the contrary, such an intrusion into a protected economic relationship is precisely the conduct condemned by the traditional tort of interference with contract.”  (Id. at p. 828.)   In Phillippe the court reemphasized its commitment to the principle that a contractual claim for a real estate commission is dependent on compliance with the statute of frauds (Phillippe v. Shapell Industries, supra, 43 Cal.3d at p. 1267), and held a broker may not avoid the statute of frauds by asserting that he reasonably relied on an oral agreement.  (Id. at p. 1270.)

Nothing in Phillippe suggests that Buckaloo has been overruled;  indeed, it cites Buckaloo approvingly.   If Fredricks and Dunn are correct and the Supreme Court wishes to repudiate Buckaloo, then that is a matter for its review.   Meanwhile, we are constrained to follow the law as it has been laid down by the Supreme Court.  (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.)

B

Next, Fredricks and Dunn argue the judgment must be reversed because Dunn as an agent and wholly-owned subsidiary of Pacific Lighting could not interfere with the relationship, there was no evidence Fredricks refused to pay the commission because of what Dunn told it, and there could be no conspiracy because there was no underlying tort.   We disagree.

Although the arguments appear to raise issues of law, on closer review it is clear they are based on the notion that there is no substantial evidence to support the jury's finding Dunn conspired or could conspire with Fredricks.   In reviewing a claim of insufficiency of the evidence we “ ‘must accept as true all evidence tending to establish the correctness of the finding as made, taking into account, as well, all inferences which might reasonably have been thought by the trial court to lead to the same conclusion.   Every substantial conflict in the testimony is ․ to be resolved in favor of the finding.’   [Citation.]”  (County of Mariposa v. Yosemite West Associates (1988) 202 Cal.App.3d 791, 807;  9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 282, p. 293.)

Fredricks and Dunn initially assert Dunn could not interfere with MGW's prospective economic relationship because it was not a malicious interloper or stranger to the disrupted relationship.   Relying on selected language in Buckaloo v. Johnson, supra, 14 Cal.3d at p. 827 and Zimmerman v. Bank of America (1961) 191 Cal.App.2d 55, 61, they contend Dunn, as a wholly-owned subsidiary in the Pacific Lighting family, could not interfere with a relationship to which it was a party.   The argument is subtly deceptive.   Although Fredricks and Dunn are subsidiaries of Pacific Lighting, that does not mean they are “the same party” and cannot interfere with the other's economic relationships.   Indeed, evidence adduced at trial was that the two subsidiaries worked independently in different parts of the development world:  Fredricks was involved in the residential arena while Dunn was involved in the commercial;  the two were competitors and had never, up until Rancho Carmel, worked on a project together;  and Pacific Lighting does not guarantee the obligations of its subsidiaries.   From this evidence the jury could reasonably conclude Fredricks and Dunn were independent entities.

In that same vein, Fredricks and Dunn contend Dunn could not interfere because it was Fredricks' agent.   While the complaint alleged the defendants were agents of each other, the evidence was to the contrary.   Moreover, MGW's motion to amend the complaint to conform to proof and delete the allegations of agency was properly granted.  (5 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 1137, pp. 551-552.)

Next, they argue MGW disproved causation because the evidence showed Fredricks decided not to pay the commission for reasons other than what Dunn said.   But the jury concluded that it was precisely because of what Dunn said that the commission was not paid.   There may be evidence which could be interpreted differently, but we must resolve all conflicts in the evidence in favor of the finding.

Finally, they argue that there could be no actionable conspiracy because there was no tort.  (Manor Investment Co. v. F.W. Woolworth Co. (1984) 159 Cal.App.3d 586, 595.)   Here, of course, there was an actionable wrong and thus there could be a conspiracy.

C

Finally, Fredricks and Dunn contend the trial court improperly instructed the jury.

They argue the court erred in failing to define who constituted an employee or agent of a party, and improperly used the term parties, rather than interloper, when describing the one who interferes.   This argument cannot be sustained as no request for a proper instruction was made below.  (Null v. City of Los Angeles (1988) 206 Cal.App.3d 1528, 1535.)

Next they argue the court improperly instructed the jury that, “a broker may have a reasonable expectation of compensation when he is the procuring cause of a buyer's purchase, even though the underlying oral agreement, if any, with the buyer is unenforceable.  [¶] Now, it is for you the jury to determine the circumstances and whether or not the plaintiff's expectation was reasonable in the light of those circumstances.”   Under Phillippe, it is clear a broker cannot have a reasonable expectation of payment when the agreement is oral.   (Phillippe v. Shapell Industries, supra, 43 Cal.3d at p. 1262.)   But an element of the tort is the probability of future economic benefit.   (Buckaloo v. Johnson, supra, 14 Cal.3d at p. 827.)   The instruction given here was the trial court's effort to incorporate that element in its instructions.   Perhaps the wording could have been better, but the instruction did not reduce plaintiff's burden nor unreasonably focus the jury's inquiry on the subjective intent of MGW.   The instruction was proper.

II

PREP Appeal

PREP was held liable on the theory it conspired to prevent MGW from receiving a broker's commission.   It asserts the judgment must be reversed because Pacific Lighting cannot conspire with its wholly-owned subsidiaries, the judgment is not supported by substantial evidence, and MGW “has disproved interference.”   We disagree.

In support of its argument that a parent corporation cannot conspire with its wholly-owned subsidiaries, PREP relies on Copperweld Corp. v. Independence Tube Corp. (1984) 467 U.S. 752.   In that case, the issue was whether the coordinated acts of a parent corporation and a wholly-owned subsidiary could constitute a “combination or conspiracy” under section 1 of the Sherman Antitrust Act.  (Id. at p. 759.)   In holding it could not, the United States Supreme Court noted that “The officers of a single firm are not separate economic actors pursuing separate economic interests, so agreements among them do not suddenly bring together economic power that was previously pursuing divergent goals․  For these reasons, officers or employees of the same firm do not provide the plurality of actors imperative for a § 1 conspiracy.”   (Id. at p. 769;  see also Klein v. Oakland Raiders, Ltd. (1989) 211 Cal.App.3d 67, 76.)

Copperweld 's analysis, which is well suited to the antitrust field, is ill suited to the civil conspiracy arena where the focus is not on whether there is a “combination” of economic power, but on whether an individual has joined with another to perpetrate a civil wrong.   No California case has applied Copperweld or its reasoning in this context (MacManus v. A.E. Realty Partners (1987) 195 Cal.App.3d 1106, 1110;  see also Pinhas v. Summit Health, Ltd. (9th Cir.1989) 894 F.2d 1024, 1033), and we are unwilling to do so when the evidence showed PREP was a separate entity wholly responsible for its own obligations.   It purchased the project in its own name and assumed a large debt without a guarantee by its parent corporation.   It participated, through its officers, in the decision not to pay MGW a commission.   Under the facts adduced at trial, there is substantial evidence to support the judgment and to prove PREP interfered with MGW's economic relationship with Fredricks.

III

MGW AppealA

MGW asserts the trial court erred in granting Pacific Lighting's motion for judgment notwithstanding the verdict.   We agree.

“ ‘A motion for judgment notwithstanding the verdict of a jury may properly be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence to support the verdict.   If there is any substantial evidence, or reasonable inferences to be drawn therefrom, in support of the verdict, the motion should be denied.’  [Citation.]”  (Hauter v. Zogarts (1975) 14 Cal.3d 104, 110.)

The issue, then, is whether there is any substantial evidence which supports the jury's conclusion Pacific Lighting interfered, or conspired to interfere with, MGW's prospective economic advantage.   Jim Hunter testified he was an employee of Pacific Lighting and was responsible for supervising its real estate subsidiaries, including Fredricks and Dunn.   He was chairman of the board of the subsidiaries and was responsible for overseeing their real estate activities and sales.   Hunter was involved in the decision as to whether MGW should be paid and he counseled against paying a commission on the ground the Rancho Carmel project was previously known to the Pacific Lighting group.   From this testimony, the jury could reasonably conclude that Pacific Lighting participated in the decision to refuse to pay the real estate commission, and thus the motion for judgment notwithstanding the verdict should have been denied.

MGW also contends the trial court improperly granted Pacific Lighting's motion for new trial.   Under Code of Civil Procedure section 657, an order granting a new trial “shall be affirmed if it should have been granted upon any ground stated in the motion, whether or not specified in the order․”  Although Pacific Lighting offers several reasons why the motion was properly granted, none have merit.

Pacific Lighting argues the court failed to properly instruct the jury as to the prerequisites for awarding punitive damages.   But Pacific Lighting never asked for such instruction and thus any error on this point was waived.   (Null v. City of Los Angeles, supra, 206 Cal.App.3d at p. 1535.)   It then argues that, as a matter of law, a parent corporation cannot conspire with its wholly-owned subsidiaries.   We rejected that argument above, however, when we affirmed the judgment against PREP for conspiracy to interfere.  (MacManus v. A.E. Realty Partners, supra, 195 Cal.App.3d at p. 1110.)   Next, Pacific Lighting argues the judgment was not supported by the evidence.   That argument is meritless because Hunter's testimony established that Pacific Lighting participated in the decision to not pay MGW its commission.  (See Hauter v. Zogarts, supra, 14 Cal.3d at p. 110.)   Pacific Lighting contends the jury failed to reach a consensus on the issue of damages in violation of the “nine-juror rule,” but it fails to demonstrate that less than nine jurors made the required finding here.  (Juarez v. Superior Court (1982) 31 Cal.3d 759, 766;  Earl v. Times-Mirror Co. (1921) 185 Cal. 165, 182-186.)   Finally, it argues the award of punitive damages is supported by insufficient evidence, and punitive damages are unconstitutional.   However, there is sufficient evidence in the record to support the award, and punitive damages are constitutional under the Eighth Amendment (Browning-Ferris v. Kelco Disposal (1989) 109 S.Ct. 2909, 2912), and the due process provisions of the Fourteenth Amendment (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 66, fn. 13, Zhadan v. Downtown L.A. Motors (1976) 66 Cal.App.3d 481, 501-502;  but see Pacific Mut. Life Ins. Co. v. Haslip (Ala.1989) 553 So.2d 537, 543, cert. granted April 2, 1990, 1990 U.S.L.W. 15078, No. 89-1279).

B

Home Capital and Humboldt, sellers of the property, escaped liability when the trial court granted their motion for nonsuit.   MGW argues the motion should not have been granted because the evidence demonstrated the sellers participated in the conspiracy to interfere with payment of the commission.   We disagree.

“A motion for nonsuit is tantamount to a demurrer to the evidence and presents a question of law:  whether the evidence offered in support of the plaintiffs' case could justify a judgment in the plaintiffs' favor.  [Citation.]  In reviewing the propriety of the trial court's order granting the ․ motion ․, we must accept plaintiffs' evidence as true ․ and resolve all conflicts and reasonable inferences in their favor.  [Citations.]”  (Lussier v. San Lorenzo Valley Water Dist. (1988) 206 Cal.App.3d 92, 98.)

Waitt was told at the outset that Home Capital would not pay him a broker's fee on sale of the project and that he would have to look to the buyer for any commission.   While Home Capital entered into a letter of intent with Fredricks which provided it would not pay any broker's commission, that was but a restatement of its consistent position that the buyer would be responsible for any commission.   There was no evidence Home Capital signed the letter of intent to help Fredricks avoid paying a commission.   Indeed, there was testimony Home Capital did not know Fredricks would refuse to pay a commission for locating the project.   Since there was no evidence Home Capital and Humboldt conspired to interfere with MGW's prospective economic advantage, the motion was correctly granted.

C

The trial court granted judgment on the pleadings on the contract causes of action finding they were barred by the statute of frauds.  (Civ.Code, § 1624.)   MGW contends the statute of frauds does not apply because it was asked to locate a “business opportunity” and not real property.   The contention is without merit.

A business opportunity is “the sale or lease of the business and goodwill of an existing business enterprise or opportunity.”  (Bus. & Prof.Code, § 10030.)   However one may try to portray the “project” Fredricks was seeking when it told Waitt and other local brokers it was interested in acquiring a large residential project, Fredricks was not seeking a “business opportunity” as that term is defined in the Business and Professions Code.   Waitt was asked to locate real property on which Fredricks could build homes.   Since the basic purpose of the agreement was to locate real estate, the statute of frauds was applicable and required the broker's agreement to be in writing.  (See Phillippe v. Shapell Industries, supra, 43 Cal.3d at p. 1255;  Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 25-27.)   Thus, the trial court properly granted the motion for judgment on the pleadings as to the contract causes of action.  (See Beck v. American Health Group Internat., Inc. (1989) 211 Cal.App.3d 1555, 1565.)

DISPOSITION

The judgment is reversed as to Pacific Lighting, and is affirmed in all other respects.   MGW to recover costs from Fredricks, Dunn, PREP and Pacific Lighting;  Home and Humboldt to recover costs from MGW.

SCOVILLE,* Justice.

SONENSHINE, Acting P.J., and WALLIN, J., concur.